Tag: news

Via Variant Perception blog,

Over the past few weeks we have expressed scepticism on the Trump reflation trade and we have argued that bank stocks should underperform.

We have shown previously that when you look at the 3 and 6 month change in Commercial & Industrial lending as well as the change in bank assets, these have ground to a standstill.

Normally such declines have corresponded with recessions. (We’re not calling for a recession and rely on our models.) Worryingly, we are also seeing real M1 growth slow, and the 6 month change has now turned slightly negative. The six month change in real M2 is now the lowest since 2011.

The poorer liquidity backdrop for broad and narrow money will represent a headwind to economic growth, risk assets and specifically bank stocks, which we recommend as shorts…

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The US Air Force deployed an RQ-4 Global Hawk high-altitude surveillance drone at Yokota Air Base on Monday night, starting a five-month operation in Tokyo, Japan Times reports. The drone, the first of five to arrive in Japan, is tasked to survey ballistic missiles and nuclear facilities in North Korea, and is part of the 69th Reconnaissance Group Detachment 1. Global Hawks do not have offensive capabilities. 

Its mission is to provide near real-time aerial imagery reconnaissance support to U.S. and partner nations, according to the base’s website. Four more Global Hawks are slated to be deployed to the base, and a total of 110 staff members, including mechanics, are set to be stationed there in a related move.

According to Japan’s Defense Ministry, the drone is capable of capturing aerial images and electronic data from an altitude of around 50,000 feet (15,240 meters) or more, higher than the altitude at which commercial aircraft typically fly. The drone will be controlled by remote from Yokota during takeoff and landing, and then from the U.S. mainland once it reaches a sufficient altitude.

In the past, Global Hawks have been deployed at the US Misawa Air Base in the northern prefecture of Aomori. But work to revamp the runway at Misawa led to the switch to Yokota, where the Command of US Forces in Japan is located. To boost its own defense capabilities, Japan’s Defense Ministry decided to introduce three of them for the Self-Defense Forces, and will start deploying one at Misawa at the end of fiscal 2019.

“This rotational deployment of the Global Hawk is temporary but necessary to provide a base from which the platform can be reliably operated during the summer,” the US Pacific Command announced last month, adding that the US “continues to deploy its most advanced capabilities to Japan, including the Global Hawk, in keeping with our commitment to further contribute to the security of Japan and to the stability of the region.”

Elsewhere, the Maritime Self-Defense Force helicopter carrier Izumo joined a U.S. Navy vessel at sea on Monday in the first protection mission enabled by security legislation that took effect last year and has expanded the role of the Self-Defense Forces, Japan Times reported. The Japan-U.S. cooperation comes amid rising tensions over North Korea, which continues to develop nuclear weapons and ballistic missile technology in defiance of U.N. Security Council resolutions. .

The cooperation between the two militaries comes days after Japanese fighter jets joined American aircraft for joint drills in waters off Okinawa, amid heightened tensions with North Korea.

On Monday night, President Trump and Japanese Prime Minister Shinzo Abe also held an informal telephone call on Monday. The conversation was held on Monday morning Japan time and lasted about 30 minutes, according to the sources. No announcement of the talks was made by the Japanese government, a rarity for such events. The call followed three formal telephone meetings last month, all of which focused on the increasing threat posed by North Korea.

Japan’s Foreign Ministry reiterated caution to journalists, urging them to refrain from visiting North Korea, as part of Tokyo’s unilateral sanctions against Pyongyang that have been in place since February 2016. Amid rising tensions, many reporters traveled to the reclusive state to cover a military parade on April 15.

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AAPL has dominated price action in The Dow in 2017 (accounting for almost 20% of the index's 1100 point move) as the tech behemoth has powered ahead almost 30% this year (all while 2017 earnings expectations have limped lower). So while expectations are for low iPhone sales (pent up iPhone 8 demand) and lower-than-average reaction priced into options, the question is – just how low is the bar for AAPL to get a pass here?

Apple is scheduled to report earnings after the bell on Tuesday with expectations for earnings of USD 2.02 per share on revenue of approximately USD 53bn. It would appear that the bar for 2017, 2018, and even 2019 earnings expectations are pretty low…

A lot of focus will also be on Apple's cash pile which is now almost USD 250bn. It is expected that they will conduct another share buyback and increase their dividends. A week ago, US President Trump announced his tax plans, which included a "one­time tax on trillions of dollars held overseas". This repatriation tax may make it easier for Apple to move cash held overseas back to the US and so they might hint at plans for the cash if the tax plans come to fruition.

ESTIMATES & FORECASTS:

• 2Q EPS est. $2.02 (range $1.91 to $2.14)
• 2Q rev. est. $53.1b (range $51.7b to $54.7b);  forecast on Jan. 31 of $51.5b-$53.5b
• 2Q gross margin est. 38.7%; forecast 38%-39%
• 3Q rev. est. $45.7b
• 3Q gross margin est. 38.3%

IPHONE:

As has become customary, investors will be focused on iPhone sales. Analysts project 52 million units were sold in the quarter, a marked drop from the record 78.3 million in the Christmas quarter, which is when sales of the smartphone usually peak.

The decline would slightly exceed the trends of recent years, which indicates growing expectations for the latest release of the company’s flagship product this year, marking the 10th anniversary of the iPhone’s launch.

Markets will be looking for comments on Apple's guidance with next quarter sales expected to slow in anticipation of the iPhone 8, which is scheduled to be released in Autumn 2017.

• 2Q unit est. 51.4m (5 estimates compiled by Bloomberg News)
• 2Q ASP est. $666 (5 estimates)
• 3Q unit est. 42.0m (3 estimates)
• 3Q ASP est. $629 (3 estimates)

ANALYSTS:

Mizuho (buy): 3Q forecast may be “modestly below” consensus given potential for a pause in iPhone demand before a late-year product launch

 

UBS (buy): A survey from 451 Research in March of more than 4,000 North American consumers finds near-term iPhone demand soft and raises a “cautionary flag,” UBS analyst Steven Milunovich writes in note – Shows smartphone buying intent for the next 90 days fell to a nine-year low, as did Apple’s share of these planned buyers

 

Piper Jaffray (overweight): 2Q results and 3Q forecast expected to be relatively in-line with estimates – Any unexpected “hiccups” in results will probably be overlooked as investors focus on next generation iPhone and strong trajectory for services revenue

Apple ATM Weekly 148 straddle trades for USD 5.30, implying a lower-than-avearge 3.6% move in the common vs a historical mean of 4.8% ahead of 2Q earnings scheduled for today, after the market close.. Apple calls were the most traded among U.S. single-stock options before the company reports earnings after Tonight’s market close.

Of course, AAPL can always rely on one buyer (aside from its own repurchase program)…

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Authored by Tsvetana Paraskova via OilPrice.com,

Since the start of OPEC’s production cuts, oil market analysts and experts have been focusing on how U.S. shale would respond to the relatively higher and stable oil prices, possibly eating up some of the cartel’s global market share while the cuts last.

The market share war is also going on a micro level within OPEC itself – a diverse group of producers, with each pushing and pursuing their own agenda in every meeting and collective decision. This time around it is no different.

Saudi Arabia, OPEC’s biggest producer and de facto leader, is losing market share, while Iran and Iraq have so far emerged as winners of the cuts with in the cartel in a battle for market share, according to Christof Ruehl, former chief economist at BP who is currently Global Head of Research at the Abu Dhabi Investment Authority (ADIA).

“If you’re talking about winners, you can count Iran and Iraq,” Ruehl said at a Dubai conference last week, as quoted by Bloomberg.

The Saudis were aware that they would be ceding some market share with the OPEC deal, but opted for higher and more stable oil prices by signing up to a deal that allowed Iran to slightly lift its output, while others— especially Riyadh—would have to cut.

The lower-for-longer oil prices have led to a considerable deficit in Saudi Arabia’s budget, and the Kingdom had to draw from reserves and increase the issue of debt to finance the gaps in its oil-dependent government revenues.

The Saudis now need higher oil prices if they want their oil giant Aramco to be valued in next year’s IPO anywhere in the vicinity of US$1 trillion, let alone the US$2-trillion valuation that Deputy Crown Prince Mohammed bin Salman has mentioned.

The Saudi 2017 budget sees higher oil prices this year lifting oil revenues by 46 percent compared to the 2016 estimates.

So, the Saudis entered the OPEC production cut deal knowing that Iran might use the leeway it was given to slightly raise its production, and Iraq might not fully comply with the cuts.

As per OPEC’s agreement, Saudi Arabia had to cut output by 486,000 bpd to a ceiling of 10.058 million bpd. OPEC’s no.2 producer, Iraq, promised to cut 210,000 bpd to a level of 4.351 million bpd, while Iran — the cartel’s no.3 and bitter regional rival of Saudi Arabia — was allowed to raise its output to 3.797 million bpd.

While the Saudis have overcomplied with the cuts and kept output below 10 million bpd since January, as per OPEC’s secondary sources, Iran has been pumping as much as it was allowed, and exceeded its quota in February. Iraq, for its part, has failed to comply with the cuts in each of the months through March for which data are available.

Iran and Iraq are looking beyond the cuts and taking steps to raise their output, taking advantage of Saudi Arabia’s current play of overcomplying with cuts and compensating for rogue members.

“The Saudis are losing out because other countries are able to squeeze out more production,” Edward Bell, commodities analyst at Dubai-based lender Emirates NBD PJSC, told Bloomberg.

Saudi Arabia is trying to preserve its market share amid the cuts and has been lowering the official selling price for Arab Light and Arab Extra Light varieties for Asia for two months now. The Saudis are expected to slash Arab Light prices to Asia for June to the lowest pricing in nine months, as the Middle East benchmark Dubai crude is falling due to oversupply, according to a Reuters survey of five Asian refiners.

Saudi Arabia is also said to be trying to lure buyers from European markets by changing the way it prices its oil in order to make it easier for hedging.

In a sign that the higher oil prices are helping Saudi budget revenues, reports suggested last week that Saudi Arabia had reinstated perks for civil servants, after revenues for the first quarter turned out higher than expected.

Now the oil market and analysts are waiting to see whether OPEC will decide to roll over the production cuts until the end of the year. The current Saudi rhetoric to the market is that there seems to be a consensus over extending the cuts beyond June, but further discussions need to be held, including with non-OPEC Russia.

The Saudis may demand that Iran also cuts output and insist that non-complying members (such as Iraq) finally get in line as a condition to roll over the cuts, S&P Global Platts reported in March, citing people familiar with the Saudi thinking. With Iran unlikely to concede to any cuts now that it has regained the market share it had lost to the Western sanctions, the Saudis may find it difficult to impose such a deal. But with the possibility that oil prices may fall below US$40 if the deal is not extended, in the end Saudi Arabia may once again choose higher oil prices over market share.

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With stock market volatility slumping to decade lows – despite more uncertainty than ever about the future – traders are increasingly using options on VIX.

In fact, as Bloomberg notes, trading of VIX contracts reached its second-highest level ever in April, with calls betting on a rebound in the gauge changing hands almost three times more than puts.

When VIX options volume hit a record in August 2015, VIX doubled on concern over the repercussions of a Chinese economic slowdown.

And perhaps more interestingly, SKEW (the price of tail risk protection) has plunged to its lowest in 2017 this week (suggesting that – for once – investors are under-hedged for any extreme event)…

The quiestion is – with VIX so low – have traders rotated even deeper into derivative wag-the-dog land by levering up with VIX options to bet on this "easy" market? And if so, does that compound the potential for 1987 waterfalls if (when) something breaks?

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First, it was Bank of America with 4 reasons why the rally in stocks is ending, then earlier today, JPMorgan presented 6 “red flags” why investors should quietly start offloading risk exposure.

Now it’s Goldman’s turn to warn that “bad news is no longer good news” and that “from here we forecast muted returns for equity and think it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time.”

What concerns Goldman, is what JPM also highlighted as its top risk: the sudden collapse in the Citi Economic Surprise Index, which in recent weeks has plunged from nearly all time highs to negative, and warned that stocks could see as much as 10% downside absent a sharp reversal in the CESI.

“The Citigroup Economic Surprise Index rolled over sharply recently and is now in negative territory. We note that the weakness was partly due to the CPI miss last month, which could be a one-off, but most recently the US manufacturing datapoints have weakened, as well. If the strong correlation between S&P500 and CESI holds, stocks could see almost 10%+ downside.”

JPM also flagged that “equites typically perform strongly after ISM moves above 56 – this has played out to script, and ISM has now rolled over.”

There were various other considerations listed by JPM, which readers can find in our earlier post, however the jist is clear: investors are once again not reacting to negative news or deteriorating macro data.

Which brings us to Goldman’s Ian Wright, who late this morning issued a note that was a virtual carbon copy of JPM’s concern titled “This week’s focus: ISM manufacturing down, S&P 500 up” in which he argues that after weeks of ignoring negative data, it is now time to pay the piper, based on the abovementioned two premises – rolling over macro data, and a pullback in the ISM.

His full thoughts:

The ISM, Q1 GDP and core PCE in the US recently came in below consensus and GS expectations, and the China PMI disappointed as well. Although the ISM remains above 50, it fell for the second straight month, by 2.4 points to 54.8, with the new orders component falling significantly. However, the S&P 500 was actually up 17 bps on the day the ISM fell, leading to the question of whether investors should trust the positive market performance or the negative macro surprise as an indicator of where the market may go from here.

 

From here we forecast muted returns for equity and think it will be difficult for the market to decouple meaningfully from the macro data for an extended period of time. In March the US market actually faded somewhat as policy optimism did as well, even though macro surprises were generally positive during that period. But now macro surprises have closed the gap (Exhibit 1). We think further positive macro surprises will likely be needed if the market is to perform well going forward.

 

We have written previously that as the ISM slows down returns are usually lower – but not necessarily negative – and volatility usually picks up eventually as concerns about growth materialise, but that this will likely take time.

And after concluding that “equities have digested worse macro data very well after lagging better data in March”, Wright asks whether “bad news is good news?

For the Goldman strategist, as for JPM, the answer is “not any longer.”

What about Dennis Gartman? This is what he said in his morning note discussing the recent move in the Dow:

THE DOW: This is NOT the Action of a Top! Tops are made in violence, not in tepid, modest price ranges such as the ranges of the past five or so trading sessions. This is instead the action of a consolidation and so higher prices are still the most likely path of the least resistance.

 

… we remain bullish of stock prices generally and continue to recommend owning stocks rather than being neutral or short of them. One needn’t be wild-eyed bullish for that might prove ill-advised given that our favorite indicator of the market’s collective psychological foundation… the CNN Fear & Greed Index… has gone from having been quite dramatically over-sold several weeks ago to utter neutrality presently given that the Index has closed for the past several days at near perfect “neutrality.” However, if the past is prologue to the future, this index will eventually make its way toward excessive optimism where the public has thrown caution to the proverbial investment winds and at that point we’ll hopefully have enough investment “savvy” to move to the sidelines. Time only shall tell.

So Goldman bearish and Gartman bullish. We look forward to the tiebreaker.

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Via The Daily Bell

If you stay inside the United States you will remain free, safe, and prosperous. If you even so much as step foot outside of the United States, you will probably be murdered, if not taken. At least that is what the State Department would have you believe.

Extremists are on the loose in Europe, where they have demonstrated their ability to carry out various attacks using firearms, explosives, vehicles, and blades. Because of this, the United States has issued a travel alert for Europe.

Be afraid. If you are in a tourist location, with a crowd, or on public transport in Europe, you should probably assume everyone is a terrorist. It could happen at any time! Better to be safe and keep your clubbing to Florida.

But don’t worry, here are some steps you can take. Follow our orders, and the government and media will keep you safe.

Review security information from local officials, who are responsible for the safety and security of all visitors to their host country.  U.S. citizens should also:

• Follow the instructions of local authorities.  Monitor media and local information sources and factor updated information into personal travel plans and activities.
• Be prepared for additional security screening and unexpected disruptions.
• Stay in touch with your family members and ensure they know how to reach you in the event of an emergency.
• Have an emergency plan of action ready.
• Register in our Smart Traveler Enrollment Program (STEP).

Always trust in the local government. Always stay tethered to media–it could save your life! Be prepared to have your rights violated in the name of security.

And finally, you can even enroll yourself to make sure the U.S. authorities know your travel plans.

Oh, and by the way, there is no government warning against visiting Chicago, which had 762 total murders in 2016. That’s about 200 more murders than England and Wales have had in any given year since 2011. Chicago is home to fewer than 3 million people, while the combined population of England and Wales is 56 million.

It’s Scary Out There!

Okay, yes, there are real threats out there. And yes, you should do proper research before visiting places. Awareness of your surrounding is always a good idea, as is avoiding certain places altogether.

But this alert is for all of Europe. Really? All of Europe is dangerous enough to elicit a warning from the State Department?

But no warnings against visiting places inside the U.S. like Chicago.

TripAdvisor probably has more useful and specific information on the risks of traveling to various locations.

For a long time, this attitude that America is basically safe to travel through, and outside of America is severely lacking in rule of law, cleanliness, and general safety was ingrained in me. And to be sure you can find places outside of the U.S. that are very dangerous and not worth the trip. And you can find many places inside the U.S. that rival the foreign war zones.

But since I have started traveling abroad I have been to cities that feel much safer than the typical U.S. city.

What that travel warning really reminds me of is how the government portrays the world outside of the United States in my novella Flight Grounded.

From a review:

As I read this book, I couldn’t help but try to pinpoint its genre by comparing it with other works. It had that “dystopian short story” feel to it like Vonnegut’s Harrison Bergeron or 2BR02B, it had the constant action of any crime thriller, it had the “trapped” feeling from every non-fiction I’ve read on North Korea, and it had that “can this actually be the truth” feel from any good conspiracy theory. What I liked most about this book is how, given an open mind, the conspiracies presented in this book could actually be real and no one would be the wiser!

Basically, the “reality” presented by the U.S. government and their media affiliates is not an accurate depiction of the outside world. On the very surface, the government just seems paranoid. But the more information that they control that we rely on to form our worldview, the more they could be manipulating the perception about what actually goes on inside, and outside the United States.

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Driven by both a technical level break and comments from Saudi crown prince bin Salman, WTI Crude just tumbled to below $47.50 – its lowest since early November…

Breaking below last week' slows, testing stops below early March's lows…

WTI broke down to pre-OPEC deal levels…

After Saudi Crown Prince Mohammed bin Salman commented… saying OPEC and Non-OPEC deal was unprecedented, and that the optimistic scenario for oil prices if $55, and $45 is lowest.

• *SAUDI PRINCE: SAUDI BUDGET DEFICIT NARROWED MORE THAN EXPECTED
• *SAUDI PRINCE: SAUDI ECONOMY AVOIDED RECESSION
• *SAUDI PRINCE: NON-OIL REVENUE IN 1Q EXCEEDED EXPECTATIONS
• *SAUDI PRINCE: OPEC, NON-OPEC DEAL WAS UNPRECEDENTED

And we also note that RBOB (Gasoline) prices have tumbled to 8-month lows…

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