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Feb 22, 2019

FX | Currencies Report on Feb. 22, 2019: Dollar slips as safe-haven allure eases on US-China trade comments

Saheli Roy Choudhury




Reusable dollar pound bills
Matt Cardy | Getty Images
The dollar fell on Friday as investors took on riskier assets after top U.S. and Chinese leaders said a trade deal between their countries was likely.
Just over a week remains before higher tariffs can be triggered by the expiration of a U.S.-imposed deadline for an agreement. But on Friday, U.S. President Donald Trump and Chinese President Xi Jinping both said significant progress had been made in the trade talks and that a deal was possible in the near future. Xi’s message was delivered in a letter to Trump.
Trump also said on Friday that if he saw progress in trade talks with China, he might be inclined to extend negotiations beyond a March 1 deadline, and suggested it was likely the globe’s two largest economies would be able to make a deal.
“The market has moved back to a risk on-mode putting downward pressure on the dollar,” said Alfonso Esparza, senior market analyst at OANDA in Toronto. “Stocks and commodities have moved up on dollar softness and the optimism that even if the March 1 deadline approaches it will not immediately trigger new tariffs,” he added.
In afternoon trading, the dollar index was down 0.06 percent at 96.54. The greenback this week has fallen 0.5 percent, after gaining more than 1 percent the previous week, in an uneven performance following mixed U.S. economic data.
The euro was flat against the dollar on Friday. Weak data since January has undermined support for the single currency, which last traded at $1.1334. It hit a two-week high on Wednesday, helped by hopes for an easing of the U.S.-China trade conflict.
Analysts assessing the euro’s prospects are focused on whether a slowdown in European growth is likely to be protracted. A survey on Friday showed business morale fell in February for a sixth straight month in Germany, the mainspring of the European economy.
The Australian dollar, however, rebounded after China denied it had banned imports of the country’s coal. Reuters reported on Thursday that the Chinese port of Dalian had barred imports of Australian coal indefinitely, pushing the Aussie dollar down 1 percent. China said on Friday, however, that imports would continue, but customs has stepped up checks on foreign cargoes.
The Aussie dollar was last up 0.6 percent at US$0.7134

Source: CNBC

Bond Yields Report on February 22, 2019 | Treasury yields fall amid US-China trade talks

Thomas Franck




U.S. Markets Overview: Treasurys chart


TICKERCOMPANYYIELDCHANGE%CHANGE
US 3-MOU.S. 3 Month Treasury2.450.0020.00
US 1-YRU.S. 1 Year Treasury2.544-0.0050.00
US 2-YRU.S. 2 Year Treasury2.495-0.0340.00
US 5-YRU.S. 5 Year Treasury2.471-0.0370.00
US 10-YRU.S. 10 Year Treasury2.654-0.0340.00
US 30-YRU.S. 30 Year Treasury3.014-0.0310.00
Market players continue to monitor the latest round of negotiations between Washington and Beijing. Optimism has risen over the chances of both countries securing a deal to end their protracted trade war, but some experts say the most difficult part is yet to come as high level talks continue into Friday.
“There’s obviously an incentive for both sides to reach a deal,” James Athey, senior investment manager at Aberdeen Standard Investments, told CNBC’s “Squawk Box Europe ” on Friday.
“The problem is that you’re now getting to the more difficult part of the negotiation, which is things like the IP (intellectual property) problem.”
One of President Donald Trump’s biggest contentions with Beijing is the claim that the country has stolen intellectual property and trade secrets from American companies. Both nations are a week away from an early March deadline to secure a trade deal, however speculation has risen there may be an extension to that target.
The Federal Reserve, starting on Monday, will hold a series of “Fed Listens” events aimed at getting input from business leaders, community development pros and academics. The central banks hopes to gather advice in a report to be presented in the first half of 2020.
“The economy is constantly evolving, bringing with it new policy challenges. So it makes sense for us to remain open minded as we assess current practices and consider ideas that could potentially enhance our ability to deliver on the goals the Congress has assigned us,” Fed Vice Chairman Richard Clarida said during a speech Friday in New York.
— CNBC’s Jeff Cox, Ryan Browne and Spriha Srivastava contributed reporting.

Source: CNBC

Wall Street Market Closing Report | Dow rises more than 150 points to retake 26,000, notches 9-week winning streak

Fred Imbert, Ryan Browne





Stocks rose on Friday as another round of trade talks between the U.S. and China wrapped up with investors increasingly more hopeful a deal will be struck.
The Dow Jones Industrial Average gained 180 points as Intel outperformed. The 30-stock index also broke above 26,000 for the first time since early November and posted its ninth consecutive weekly gain, its longest streak since May 1995. The Nasdaq Composite advanced 0.9 percent as shares of Facebook, Amazon, Netflix and Alphabet all closed higher. The tech-heavy Nasdaq also notched its ninth straight weekly gain, its longest streak since May 2009.
The small-caps Russell 2000 gained 0.9 percent and recorded its longest weekly winning streak since 1996.The S&P 500 climbed 0.6 percent, led by gains in the tech sector.

Stocks have been off to a roaring start to the year. The major indexes are all up at least 11 percent in 2019 as the Federal Reserve indicates it will be patient in raising rates. Hopes the U.S. and China end their trade skirmish has also boosted equities. The gains also follow a massive drop in equities to end 2018.
“It’s pretty extraordinary the amount of gain that we’ve had,” said Thomas Thornton, founder and president of Hedge Fund Telemetry. But “many of my indicators are showing very overbought conditions now with more and more upside exhaustion signals.”
“I really wish I could pick a sector that had defensive qualities right now, but everything has gone up so dramatically that when the pullback comes, it will probably be widespread,” Thornton said. 
Traders and financial professionals work ahead of the opening bell on the floor of the New York Stock Exchange (NYSE), January 14, 2019 in New York City.
Drew Angerer | Getty Images
President Donald Trump met with Chinese Vice Premier Liu He on Friday. Liu delivered a letter to Trump saying Chinese President Xi Jinping hopes the two countries can redouble efforts to strike a trade deal. The major indexes fell from their session highs on those comments.
Trump’s meeting with Liu on Friday comes after a U.S. delegation met with Xi last week. Sources told CNBC that Trump and Xi are also discussing a summit at Mar-a-Lago late in March.
“This is constructive not just for the market but also for the global economy,” said Quincy Krosby, chief market strategist at Prudential Financial. A deal “would help the Chinese economy stabilize. That obviously helps the global economy.”
“It has a broader impact than the bilateral U.S.-China relations,” Krosby said.
Optimism has risen over the chances of both countries securing a deal to end their protracted trade war, but some experts say the most difficult part is yet to come.
“There’s obviously an incentive for both sides to reach a deal,” James Athey, senior investment manager at Aberdeen Standard Investments, told CNBC “Squawk Box Europe ” on Friday. “The problem is that you’re now getting to the more difficult part of the negotiation, which is things like the IP (intellectual property) problem.”
Trade tensions between the U.S. and Europe are also increasing. The European Union is preparing to target heavy machines made by U.S. companies like Caterpillar if the U.S. slaps tariffs on cars made in the EU, according to a Bloomberg News report. Shares of Caterpillar dipped before the bell on the report, but traded slightly higher after the open.
The Trump administration is threatening to slap tariffs of up to 25 percent on European autos and auto parts.
“The markets may find that, as soon as they get out of the frying pan with respect to China, they may find themselves back in the fire with respect to Europe,” said Bruce McCain, chief investment strategist at Key Private Bank. “For that reason, this market that has risen very sharply and very quickly in a world that has not resolved all of its problems, could lead to some disappointment.”
“It’s not like we need to be discouraged and raise tons of cash, but I think that the optimism in the market is probably overdone at this point,” McCain said.
Intel shares rose more than 2 percent on Friday after Morgan Stanley upgraded the stock to overweight from equal weight, noting Intel could get a boost now that Bob Swan is the full-time CEO.
Shares of Kraft Heinz plummeted 27.46 percent after the consumer products company disclosed an SEC subpoena from an investigation into its accounting practices. The company also disclosed a $15.4 billion write down.

Source: CNBC

Crude Oil Price Closing Report | Oil slips 20 cents, settling at $56.96, as US crude stockpiles, output and exports rise

Tom DiChristopher




Reusable: Texas oil production fracking worker cleans off truck 150204
A truck used to carry sand for fracking is washed in a truck stop in Odessa, Texas.
Getty Images
Oil prices slipped from 2019 highs on Thursday, as U.S. government data showed a fifth weekly build in crude inventories and record production, while concerns about slowing global economic growth weighed.
Losses were capped by OPEC-led supply cuts and U.S. sanctions on Venezuela and Iran. Advancements in Washington-Beijing trade deal discussions also supported prices.
U.S. West Texas Intermediate crude oil futures ended Thursday’s session 20 cents lower at $56.96 a barrel. WTI hit a fresh three-month high of $57.61 earlier in the day.
Brent crude futures fell by 13 cents to $66.95 around 2:25 p.m. ET, after touching a 2019 peak on Wednesday at $67.38.
U.S. crude oil stockpiles rose to the highest in more than a year, as production hit a record high and seasonal maintenance kept refining rates low last week, the Energy Information Administration said.
U.S. crude stocks rose 3.7 million barrels in the week to Feb. 15, to 454.5 million barrels, the highest since October 2017, even as crude exports surged 1.2 million barrels per day to a record 3.6 million bpd.
“All in all the report is bearish, in particular the strong increases in crude oil stocks,” said Cartsen Fritsch, analyst at Commerzbank in Frankfurt.
Production in the United States, which last year became the world’s top crude producer, rose to record high at 12 million bpd, which could also dampen sentiment, Fritsch said.
Still, tightening supply globally helped keep losses at bay.
Oil prices have been driven up this year after the Organization of the Petroleum Exporting Countries and producer allies such as Russia, known as OPEC+, agreed to cut output by 1.2 million barrels per day (bpd) to prevent a supply overhang from growing.
OPEC member Nigeria signalled on Wednesday that it would limit output after its production climbed in January.
“Willingness of the OPEC+ group to adhere with the output cut agreement will remain supportive of oil prices in the run-up to their scheduled April meeting,” said Abhishek Kumar, senior energy analyst at Interfax Energy in London.
“Sharply declining oil output from Iran and Venezuela will further prompt bullish sentiment in the market.”
U.S. sanctions have hit Iranian and Venezuelan crude exports while unrest has curbed Libyan output.
Talks between the United States and China to resolve a trade dispute which has dented global growth may be progressing, helping to lift crude prices.
The two sides have started to outline commitments in principle on key points of contention, sources familiar with the negotiations told Reuters.
However, analysts said that a global economic slowdown — signs of which emerged late last year — was preventing prices from surging beyond highs reached this week.
— CNBC’s Tom DiChristopher contributed to this report.

Source: CNBC

Metals Price Closing Report | Gold heads for second weekly gain on growth concerns

Tom DiChristopher




Reusable Gold bullion american eagle
Gold will continue to shine amid a weak dollar, says author and gold pro Jim Rickards.
Simon Dawson | Bloomberg | Getty Images
Gold was steady on Friday but still on track for a second weekly gain as sluggish U.S. economic data stoked worries about a global slowdown and investors awaited signals on U.S.-China trade talks.
Spot gold was up 0.53 percent at $1,330.38 per ounce by  1:57 p.m. ET.
U.S. gold futures were settled $5 higher at $1,332.80 per ounce.
“The market is expecting the dollar to weaken. We expect growth in the U.S. to slow,” said Natixis analyst Bernard Dahdah.
The dollar index fell 0.16 percent versus six major currencies on Friday and set for its biggest weekly fall in a month. The U.S. currency, which has been a refuge for investors during the U.S.-China trade spat, has come under pressure on signs of a breakthrough in talks.
Minutes of the U.S. Federal Reserve’s last meeting painted a less dovish picture than expected on future interest rates hikes, weighing on gold in the last two sessions. Higher rates reduce investor interest in non-yielding bullion.
But data showing new orders for key U.S.-made capital goods unexpectedly fell in December, revived some market expectations that the central bank would halt the 2019 rate hike cycle.
It added to jitters about a slowdown in Europe and China, which analysts said bolstered the appeal of gold, considered a safe haven in times of uncertainty.
“The main target (for gold) is still the technically important area between $1,350 and $1,360 above which would be a one-year high,” said Ronan Manly, a precious metals analyst at BullionStar Singapore.
Investor attention has turned to U.S. and Chinese trade talks, which have shown some positive signs.
But holdings of SPDR Gold Trust, the world’s largest gold-backed exchange-traded fund, dropped 0.6 percent to 789.51 tonnes on Thursday.
Dahdah at Natixis said the slight pullback did not signal a shift by gold investors since the levels were still close to highs recorded at the start of 2019.
Elsewhere, palladium gained 1.74 percent to $1,494 per ounce, having topped the psychologically significant $1,500 level for the first time on Feb. 20.
The autocatalyst metal was on track for a third straight week of gains, up about 3.4 percent.
Platinum rose 2.44 percent to $839, and was set for its best week since early January. Silver was up 0.79 percent to $15.94, poised to snap two weekly losses.

Source: CNBC

Europe Markets Closing Report: European markets close higher as US-China trade talks wrap up; Elekta shares dive 13%

Sam Meredith



European stocks closed slightly higher Friday afternoon, as market participants monitored trade talks between the world’s two largest economies.

European Markets: FTSE, GDAXI, FCHI, IBEX

TICKERCOMPANYNAMEPRICECHANGE%CHANGEVOLUME
FTSEFTSE 100FTSE7184.3516.960.24429670723
DAXDAXDAX11461.3538.070.3346914308
CACCACCAC5216.8220.710.4053037352
The pan-European Stoxx 600 closed up around 0.2 percent provisionally, with most sectors and major bourses ending in positive territory. On the week, the benchmark was up by around 0.6 percent.
Europe’s basic resources stocks — with their heavy exposure to China — led the gains during afternoon trade, closing up by around 2 percent. It comes as market focus is largely attuned to global trade negotiations, with little more than a week left before a U.S-imposed deadline for an agreement with China expires.
Chinese Vice Premier Liu He is scheduled to meet with President Donald Trump at the White House on Friday. The meeting follows reports that both sides have started to outline commitments in principle on the stickiest issues in their protracted dispute.
Looking at individual stocks, France’s Sopra Steria Group surged to the top of the European benchmark. The consultancy group reported full-year revenue jumped almost 7 percent in 2018 and forecast a slight improvement in operating margin on business activity. Shares of the Paris-listed stock rose more than 17 percent on the news.
Meanwhile, Swedish radiation therapy equipment maker Elekta tumbled to the bottom of the index. The company posted weaker-than-expected third-quarter core profit on Friday, prompting shares to tank over 13 percent.
Economic data
On the data front, business morale in the euro zone’s largest economy fell for the sixth time in succession in February, official data showed on Friday. The Munich-based Ifo economic institute said its business climate index for Germany slipped to 98.5 this month, its lowest level since December 2014.
On Wall Street, stocks rose with hopes building over the U.S.-China trade talks. Intel shares rose more than 2.5 percent in early deals after Morgan Stanley upgraded the stock to overweight from equal weight.

Source: CNBC

Business News | A Fed pivot, born of volatility, missteps, and new economic reality

Howard Schneider



WASHINGTON (Reuters) - The Federal Reserve’s promise in January to be “patient” about further interest rate hikes, putting a three-year-old process of policy tightening on hold, calmed markets after weeks of turmoil that wiped out trillions of dollars of household wealth.
FILE PHOTO: A screen displays the headlines that the U.S. Federal Reserve raised interest rates as a trader works at a post on the floor of the New York Stock Exchange (NYSE) in New York, U.S., December 19, 2018. REUTERS/Brendan McDermid/File Photo
But interviews with more than half a dozen policymakers and others close to the process suggest it also marked a more fundamental shift that could define Chairman Jerome Powell’s tenure as the point where the Fed first fully embraced a world of stubbornly weak inflation, perennially slower growth and permanently lower interest rates.
Along with Powell’s public comments, Fed minutes, and other documents, the picture emerges of a central bank edging towards a period of potentially difficult change as it reviews how to do business in light of that new reality. One question, for example, is whether to make crisis-fighting policies a part of the routine toolkit. Another is whether to try to prepare the public to accept higher inflation from time to time.
Policymakers have debated for years how well traditional central banking fits a world transformed by the global financial crisis a decade ago. But it was a brief Oct. 3 remark by Powell that set off the chain of events which helped settle the matter.
“We’re a long way from neutral now, probably,” Powell said at a Washington think-tank event, referring to a level of interest rates that neither cool or boost the economy.
Though Powell was effectively summarizing what the Fed had just concluded at its Sept. 25-26 policy meeting, when it raised rates amid stronger than expected U.S. growth, his characterization touched a nerve.
Investors dumped stocks and bonds, fearing the Fed aimed to drive rates higher than they felt the economy could withstand.
It was the beginning of weeks of volatility that led the Fed to recalibrate its message, with more than one misstep along the way.
In doing so, the central bank went beyond fine-tuning its language or adjusting to changing conditions. Interviews with officials as well as analysis of Fed minutes and policymakers’ public statements suggest the emergence of a long-elusive consensus that interest rates would likely never return to pre-crisis levels, and that once established relationships, such as inflation rising when unemployment fell, no longer worked.
Concern that years of solid economic growth and falling unemployment would inevitably rekindle inflation or threaten financial stability have been a staple of Fed debates, but had largely disappeared by the Fed’s Dec. 18-19 meeting, according to a review of Fed meeting minutes and officials’ public statements.
GRAPHIC - How the Fed's meeting minutes reflected changing views on interest rates: tmsnrt.rs/2TX9fC0
It was a conclusion hiding in plain sight. After a year when the Trump administration pumped around $1.5 trillion of tax cuts and public spending into a full employment economy, the Fed in 2018 would miss its 2 percent inflation target yet again.
“I hate to say we were right,” Dallas Federal Reserve president Robert Kaplan told reporters on Jan. 15 in Dallas. “But we have been warning for quite some time that...the structure of the economy has changed dramatically.”
Technological innovation, globalization, and the Fed’s commitment to its inflation target all held down prices, and “those forces are powerful and they are accelerating,” he said.
His arguments echoed those made by St. Louis Fed president James Bullard and Minneapolis Fed president Neel Kashkari. New Fed vice chairman Richard Clarida and Governor Lael Brainard have flagged similar issues.
Later in January, the Fed’s policy meeting jettisoned mention of any further rate increases and cited “muted inflation” among the reasons, largely aligning the Fed with the prevailing sentiment among investors who saw conditions weakening.
At first, it was investors who appeared to have overreacted to Powell’s “long way from neutral” remark in early October.
Global markets had absorbed nearly two years of quarterly Fed rate increases in stride, but yields on U.S. 10 year Treasury bonds spiked a tenth of a percentage point that day and stocks started a slide that wiped out 10 percent of the S&P 500’s value by late November.
If sustained, It was the type of environment, with asset values falling and borrowing conditions tightening, that could hurt the Main Street economy and not just the investor class.
The initial response from Powell and others at the Fed was that the U.S. economy remained strong, and that it was not the central bank’s job to coddle Wall Street.
“We watch markets very carefully,” Powell said at a mid-November event in Dallas. “But it is one of many, many factors that go into a very large economy.”
But investors were not just reacting to the Fed and the prospect of higher rates. Weakening business and consumer confidence, slowing global growth, and potential disruptions from President Donald Trump’s trade war with China also factored in.
FILE PHOTO: Federal Reserve Chairman Jerome Powell holds a press conference following a two day Federal Open Market Committee policy meeting in Washington, U.S., January 30, 2019. REUTERS/Leah Millis -/File Photo
Over the next few weeks the Fed tried to build those concerns into its policy stance, but it became clear the situation was more fragile than they had divined.
In early December a portion of the bond yield curve “inverted,” with short term rates rising above long term ones in what can be seen as a loss of faith in economic growth.
For months, Fed officials had debated whether to discount such developments as the clash and clang of daily trading or to treat them as a significant warning. Some, including Bullard, warned against ignoring what markets seemed to be saying, and both he and Kashkari said the Fed should stop raising rates or risk trouble.
When the Fed met in December, policymakers thought they could square the circle.
Officials proceeded with another quarter-point rate increase, as expected at the time, and released updated projections showing two more rate hikes for 2019 - one less than in September, but still heading higher.

LOST NUANCE

The Fed hoped, though, that between a small change in its policy statement and Powell’s follow-up news conference, things would stay calm, a strategy Fed officials spelled out after the fact in interviews and in minutes of the December meeting.
By replacing the phrase that the Fed “expected” further rate hikes with one saying it “judged” them likely, the central bank tried to show it was now less committed to tighter policy.
Slowdown worries prompted pause -Fed minutes
But that nuance was lost on markets, and Powell’s assurance at the news conference of a newly “patient” Fed got lost as well when he described the Fed’s monthly rundown of as much as $50 billion in assets as on “automatic pilot.”
To investors, that undermined the intended message, since the regular decline in the Fed’s asset holdings effectively worked to tighten financial conditions.
The S&P 500 fell another 7.5 percent in the days that followed.
Investors felt the Fed was “not fully appreciating” how market turbulence and “softening global data” put the U.S. itself at risk, the Fed’s January minutes concluded in reviewing how the December statement was perceived.
“It was a delicate time,” New York Fed President John Williams told Reuters on Tuesday. The tweak in the December statement “was a pretty subtle message. That’s one of the challenges of trying to communicate a very complicated and complex situation in just one page.”
Over the next few weeks, the Fed eschewed subtlety for a more public acknowledgement that its view of economic reality had changed.
For a Jan. 4 question-and-answer session at the American Economic Association Powell came armed with written notes and a core message that the Fed was “always prepared to shift the stance of policy and to shift it significantly” if conditions weakened.
After the January meeting that message became official. References to the new “patient” approach and “muted inflation,” words cited in minutes of the December meeting, became part of the Fed’s policy statement. A longstanding mention of the need for higher rates was deleted.
The changes drew no dissent, with even those who have worried most about inflation and financial risk falling silent.
It was a significant moment of unanimity at a central bank that has spent the last decade wondering when, rather than whether, inflation or financial risks would re-emerge. Throughout that era some group of officials - including Powell early in his central banking career - has consistently warned that the combination of falling unemployment, cheap money, and trillions of dollars injected by the Fed’s crisis era policies would inevitably cause problems.
As the Fed’s January meeting minutes showed, not all officials have sworn off further rate increases and some noted that a possible turn for the better - a resolution of trade tensions for example - could lead them to raise rates again.
But to veteran Fed watchers, the bar is now higher. The January statement, JP Morgan analyst Michael Feroli wrote recently, showed the Fed “subtly but profoundly evolving” to a new view of the world where a variety of forces have changed the way inflation and interest rates work, and have now changed how the central bank responds.
GRAPHIC - The Fed's new normal: tmsnrt.rs/2VccqWm
Reporting by Howard Schneider; Additional reporting by Ann Saphir and Jason Lange; Editing by Dan Burns and Tomasz Janowski

Source: Reuters

Market Insider | Stocks making the biggest moves premarket: AutoNation, Wayfair, Citigroup, Ford & more

Peter Schacknow



Check out the companies making headlines before the bell:

AutoNation – The car retailer reported adjusted quarterly profit of $1.10 per share, 4 cents a share shy of estimates. Revenue also came in below analysts’ forecasts. Separately, the company announced that CEO Mike Jackson will step down March 11 and become executive chairman. He’ll be succeeded as CEO by Carl Liebert, the chief operating officer of financial services company USAA.
Wayfair – The online furniture retailer reported an adjusted quarterly loss of $1.12 per share, smaller than the loss of $1.28 per share that analysts were expecting. Revenue also topped Wall Street forecasts, as the company’s active customer count jumped 15.2 percent from a year earlier to 15.2 million.
Kraft Heinz – Kraft Heinz reported adjusted quarterly profit of 84 cents per share, 10 cents a share below estimates. The food company’s revenue also missed Wall Street forecasts. Additionally, Kraft said it had received a Securities and Exchange Commission subpoena regarding its accounting policies and procedures.
Citigroup – Jefferies upgraded the bank’s stock to “buy” from “hold,” pointing to an attractive valuation and a view that Citi will beat the Street’s consensus earnings estimates.
Hewlett Packard Enterprise — HPE beat estimates by 7 cents a share, with adjusted quarterly profit of 42 cents per share. The enterprise computing company fell very slightly short of Street revenue forecasts, and HPE raised its full-year outlook.
Zillow Group – Zillow CEO and co-founder Spencer Rascoff has stepped down from that position, effective immediately. Another Zillow co-founder, Rich Barton, will take over as CEO, a job he had held from 2005 to 2010. The real estate website operator also reported adjusted quarterly profit of a penny a share, matching forecasts, while fourth-quarter revenue and current-quarter revenue guidance were both above analysts’ forecasts.
Ford Motor – Ford said it had hired outside investigators to look into its fuel economy and testing procedures after workers raised concerns about those processes. The automaker said the probe does not involve the use of so-called “defeat” devices, which have been used to deceive government emissions tests.
Dropbox – Dropbox beat estimates by 2 cents a share, with adjusted quarterly profit of 10 cents per share. The file sharing and storage company also saw revenue beat expectations. The company also forecast a drop in operating margins, putting pressure on the stock. Bank of America/Merrill Lynch subsequently upgraded the stock to “buy” from “neutral,” saying any sell-off would represent a buying opportunity.
Intuit – Intuit earned an adjusted $1 per share for its fiscal second quarter, while the maker of TurboTax also reported better-than-expected revenue.
The Trade Desk – The programmatic advertising technology company reported adjusted quarterly profit of $1.09 per share, 30 cents a share better than analysts had predicted. Revenue also beat estimates.
First Solar – First Solar reported quarterly earnings of 49 cents per share, missing the consensus estimate of 64 cents a share. The solar equipment company saw revenue fall below Wall Street forecasts, and First Solar cut its 2019 gross margin forecast.
Roku – Roku came in 2 cents a share ahead of estimates, with quarterly profit of 5 cents per share. Revenue was also above forecasts and the maker of video streaming devices issued an upbeat 2019 outlook.
Stamps.com – Stamps.com gave a much weaker-than-expected forecast for 2019 after announcing that it had ended its exclusive partnership with the U.S. Postal Service.
Apple – Apple is teaming up with China’s Ant Financial and several local banks to offer interest-free financing on purchase of its iPhones.
Newmont Mining — Barrick Gold is considering a hostile bid for rival mining company Newmont, according to a report in Canada’s Globe and Mail newspaper. The bid under consideration is said to be for $19 billion in stock.
Tesla – Tesla began deliveries of its Model 3 automobile in China slightly ahead of schedule.
Baidu – Baidu reported better-than-expected sales and profit for its fourth quarter, with strength in its online marketing business as well as its streaming service iQiyi. Baidu said that it spent heavily on content and promotion for the iQiyi service, however.
Newell Brands – Newell CEO Michael Polk is under pressure from the consumer products company’s board of directors to prove his turnaround plan is working, according to The Wall Street Journal.

Source: CNBC

Company News | Why Morgan Stanley Loves Defensive Stocks As Market Rallies

By Mark Kolakowski Updated Feb 22, 2019



The U.S. stock market has rebounded smartly from its Dec. 2018 low and the bulls anticipate continued gains, but Morgan Stanley is skeptical. "We have been vocal around the idea that we are in a bear market, an environment where defensives typically outperform," as their U.S. Equity Strategy team led by Michael Wilson writes in their most recent Weekly Warm Up report.
"With the US equity market so overbought, fully valued and the beta trade somewhat overplayed at this point, we think it makes sense to keep our overweights on Utilities and [Consumer] Staples," the report adds. In fact, these two sectors are among those that have beaten their expected returns by the widest margins since Sept. 20, 2018, the date of the all-time record high close for the S&P 500.
Morgan Stanley on the Defensive: Favorite Sectors
(Outperformance vs. Expected Returns, 9/20/18 to 2/15/19)
  • Consumer Staples: +2.46%
  • Utilities: +6.48%
Source: Morgan Stanley

Significance for Investors

Morgan Stanley computed expected returns, or projected performance, for all 11 sectors in the S&P 500, plus several industry groups within those sectors, based on their betas, or long-term correlations with the entire S&P 500. From the close on Sept. 20, 2018 to the close on Feb. 15, 2019, the S&P 500 fell by 5.29%.
Utilities should have dropped by 1.44% (implied beta of 0.27), but they rose by 5.04%, representing outperformance of 6.48%. For consumer staples, the expected return was a decline of 3.71% (implied beta of 0.70), but they fell by only 1.25%, for outperformance of 2.46%. Within consumer staples, household and personal products were the standout, with 12.18% outperformance.
"Looking at industry group price reactions vs EPS revisions, we find that several defensively oriented groups (Household and Personal Products, Real Estate and Utilities) appear to be positive outliers on price vs revisions while negative price moves in Retailing and Tech Hardware appear to be overstating the severity of the downward revisions," Morgan Stanley says. These relatively subdued reactions of investors to recent earnings disappointments are part of the report's case for defensives going forward.
"We think idiosyncratic factors and a generally defensive tilt to the market help explain these relationships," the report adds. Real estate beat expected returns by 8.19% in the period from Sept. 20 to Feb. 15.
Among the leading Wall Street firms, for several months Morgan Stanley been the most bearish regarding S&P 500 earnings, and their latest base case forecast calls for profit growth at a mere 1% in 2019. *Our call for a Rolling Bottom is playing out. From the lows in December, the market has rewarded beta almost indiscriminately--the greater the beta, the greater the performance," they say. They project that the global economy will hit its own bottom in the first half of 2019.

Looking Ahead

Morgan Stanley has been leading the Wall Street pack in revising earnings estimates downward in recent months. If their bearish outlook is correct, a tilt towards defensives is a logical response. On the other hand, if the more optimistic forecasts of their rivals pan out, investors may miss significant upside. Further complicating the picture, research by JPMorgan finds recent historical precedents for stock market rallies in the face of plummeting earnings forecasts.

Source: Investopedia

Markets | History Shows Stock Rally Could Continue.

The Wall Street Journal.
Markets Bull logo.
Markets
Happy Friday. I'm Jessica Menton, getting you caught up on markets as the week winds down. 
  • Winning streaks for the Dow and Nasdaq are in jeopardy. Yesterday's losses threaten to snap eight straight weeks of gains for both indexes, with each down slightly for the week entering into today's session. Ahead of the bell, stock futures are rising.
     
  • Shares of Kraft Heinz tumbled more than 20% premarket. The packaged-food giant disclosed that securities regulators are investigating the company over its procurement policies, as it reported a loss in the latest quarter late Thursday. Meanwhile, the earnings calendar is thin, with Cinemark and Wayfair on tap this morning.
     
  • A batch of central-bank speakers are on the docket. Investors are looking for more insight on officials' timetable for ending the central bank's balance-sheet runoff ahead of Fed chief Jerome Powell's testimony on Capitol Hill next week.
     
  • Also, history bodes well for stocks the remainder of the year. Below, I dig into what's helped propel the S&P 500 following the fourth quarter’s brutal selloff.
 

Markets in a Minute

Markets Data
 

Overnight Developments

  • Global stocks inched up on Friday, with most major benchmarks on course to close out the week higher amid continuing hopes for a trade deal between the U.S. and China.
  • Read our full market wrap here
 

This Year's Stock Rally Has the Benefit of Breadth

The S&P 500’s industrial, energy and tech groups have led the way in 2019.
U.S. stocks are sitting pretty, if history is any guide.
The S&P 500, which has surged 11% to start 2019, is on pace for its biggest early-year advance in nearly three decades and is sitting 5.3% below September’s all-time high. That potentially bodes well for the rest of the year: The index moves in the same direction in the first two months and the remainder of the year 64% of the time, according to Dow Jones Market Data.
A more flexible approach to monetary policy from the Federal Reserve, easing U.S.-China trade tensions and a better-than-feared corporate earnings season are among the factors driving this year’s rally, following the fourth quarter’s bruising selloff.
In 1991, the last time the S&P 500 climbed more than 10% in January and February, it rose an additional 14% over the following 10 months, according to DJMD. And in the other five years when the index added at least 10% to start the year, it rose at least 6% from March through December three times. The two cautionary tales: 1931, in the midst of the Great Depression, and 1987, best known for Black Monday. In both cases, the S&P 500 rallied sharply at the beginning of the year before suffering a major crash.
Among the risks that have given some investors pause this year are a projected slump in corporate earnings, slowing economic activity in China and Europe and the looming March 1 deadline for a trade agreement between Washington and Beijing.
Other investors, though, point to signs of breadth in the recent rally as an encouraging sign. The S&P 500’s industrials sector has led the way in 2019 with a 17% gain, followed by the energy and technology groups, which have risen 14% and 12%, respectively.
Another bullish sign for stocks: the NYSE advance-decline line, a popular indicator of market breadth that tracks the number of stocks rising minus the number falling each day, has hit new highs. Meanwhile, 90% of S&P 500 stocks on Thursday were trading above their 50-day moving average.
The popular FAANG stocks—Facebook, Amazon.com, Apple, Netflix and Google parent Alphabet—are rising again after last year’s tumble, but only two, Netflix and Facebook, are outperforming the S&P 500. That may not be a bad thing: Some analysts are encouraged to see broader participation in the market rebound across other sectors.

Market Facts

  • The Russell 2000 is on pace to tally gains for the ninth consectutive week. The small-cap index has climbed 22% in that span, its best such percentage gain since September 2009.
     
  • Shares of Nike dipped 1% Thursday, their largest percentage loss since Jan. 3, after Zion Williamson, a Duke University college basketball player, injured himself as his Nike sneakers broke during a game against the University of North Carolina.
     
  • On this day in 1980, the consumer-price index rose 1.4% in January alone, the Labor Department said, equating to an annualized inflation rate of 18%—the highest rise in prices since the 1973 oil crisis.

Key Events

It's a big day for Federal Reserve speakers: Atlanta's Raphael Bostic speaks in New York at 8:15 a.m. ET; Chicago Booth's Monetary Policy Forum features New York’s John Williams and San Francisco’s Mary Daly at 10:15 a.m., Vice Chairman Richard Clarida at 12 p.m., Vice Chairman Randal Quarles, Philadelphia’s Patrick Harker and St. Louis’s James Bullard at 1:30 p.m.; and Mr. Williams speaks at his bank at 5:30 p.m.
European Central Bank President Mario Draghi speaks in Bologna, Italy, at 10:30 a.m. 
The Baker-Hughes rig count will be out at 1 p.m.
President Trump meets with Chinese Vice Premier Liu He in the Oval Office at 2:30 p.m.
 

Must Reads

Warren Buffett’s Berkshire Hathaway had $103.6 billion in cash as of Sept. 30, the fifth straight quarter those holdings exceeded $100 billion. PHOTO: UNCREDITED
Warren Buffett can’t find anything big to buy. The billionaire is always on the hunt for “elephants,” as he calls large acquisitions. But three years have passed since he bagged a new one. Investors are hoping for hints on Berkshire's plans to spend its cash in Mr. Buffett’s annual letter to shareholders Saturday. Berkshire is also expected to release its annual results.
The tax law helped boost 2018 bank profits to record levels. The new tax law drove double-digit profit growth at U.S. banks last year, a federal regulator said Thursday, boosting the industry’s profits, which would have hit a record even without the tax changes.
Fidelity is thriving despite the selloff. Fidelity Investments posted record operating profits and revenue for a third-straight year even as a stock-market selloff late last year shrunk the value of the assets it manages for clients.
The Treasury’s inflation bond auction saw strong demand. The Treasury’s auction of $8 billion in 30-year inflation-protected bonds Thursday met with strong demand, a sign that some investors see potential for consumer prices to rise.
The SEC joined the list of authorities probing money laundering at Danske Bank. The Securities and Exchange Commission joined a long list of authorities investigating Danske Bank over its massive money-laundering scandal.
Venezuelan oil supplies hit a five-year high as buyers have become elusive. The jump in inventory is a sign that U.S. sanctions are stifling sales and could continue to drive up global prices.
 

What We've Heard on the Street

“Just like a teapot that never whistles while you are looking at it, perhaps the most maligned bit of the corporate bond market isn’t where investors will get burned.”
—Heard on the Street columnist Jon Sindreu
 

Stocks to Watch

Zillow GroupThe real-estate listings company is bringing back former chief executive Rich Barton to lead the company again. Mr. Barton replaces Spencer Rascoff, who took over the job in 2010 from Mr. Barton. The management change is immediate.
Hewlett Packard Enterprise: The company's earnings in the latest quarter topped Wall Street estimates and it raised its annual profit outlook. 
Career Education: Shares of the company surged 17% Thursday, their best percentage gain since November 2016, after topping analysts' fourth-quarter revenue estimates.

World Politics | Renewed US sanctions on Iran revive fortunes of an Indian bank

3-4 minutes



by Pradipta Mukherjee
Renewed U.S. sanctions on Iran’s oil exports are giving a boost to the profits of one of India’s smaller state-owned banks, which has been struggling under the weight of a mountain of bad loans.
Kolkata-based Uco BankNSE 1.62 % expects its privileged status processing refiners’ payments for Iranian oil shipments to add more than Rs 800 crore ($110 million) to annual earnings, according to Chief Executive Officer Atul Kumar Goel. Indian refiners are required to deposit any money destined for Iran without interest with Uco Bank during periods when U.S. sanctions are in force.
“Being involved in the country’s oil imports from Iran gives us access to zero-interest funds, which refiners place with us,” Goel said in a recent interview at his Kolkata office. “It will improve our net interest income as well as operating profit.”
Uco Bank was first designated by India’s government as the payment bank for Iranian oil in 2012, as the U.S. tightened an earlier round of sanctions in an effort to get Iran to accept controls on its nuclear program. The bank was chosen because of its limited international presence, which made it less vulnerable to any repercussions from its involvement in the oil trade, processed in euros and rupees to avoid exposure to the U.S. banking system.
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Those sanctions were lifted in 2015, leading to a drop in Uco Bank’s profits as other Indian banks entered the business. But the lender has resumed its former privileged role as U.S. President Donald Trump pulled out of the 2015 nuclear deal last year and started reimposing penalties.
India was one of eight countries benefiting from a U.S. waiver, allowing it to import 9 million barrels of Iranian oil a month until April. Uco Bank, which was chosen by the government to pay for the imports during the waiver, said it started receiving the funds to pay for these shipments earlier this year and now has a steady float of more than 100 billion rupees.
“Money from refiners has started coming in from January and we are making payments on a daily basis to exporters,” Goel said. The bank is paying out more than one billion rupees a day for the oil, he added.
The boost to earnings from the interest-free float may bolster the bank’s efforts to come out of a so-called Prompt Corrective Action plan -- under which lenders are restricted from making loans while they mend balance sheets -- which was imposed by the Reserve Bank of India. Uco Bank will also get an injection of about 33 billion rupees by March 31 to strengthen its risk buffers, as part of the government’s capital infusion plan announced on Wednesday.
As much as a quarter of Uco Bank’s loan book had soured as of Dec. 31, though Goel said he doesn’t expect that to increase in coming quarters.

Source: Economic Times - India Times

Real Time Economics | Why Aren’t Companies Investing More?

The Wall Street Journal.
Percentage logo.
Real Time Economics
Chinese President Xi's special envoy is in Washington for trade talks. Can he deliver the kind of structural reform the U.S. is demanding? Good morning. Jeff Sparshott here to take you through key developments in the global economy, including the paradox of strong hiring and weak investment, sagging home sales, more warnings signs from Europe and Asia, and physical exertion on the job. Send us your questions, comments or suggestions by replying to this email.
 

Can He Deliver?

President Trump is set to meet with Chinese Vice Premier Liu He on Friday. The White House is counting on the special envoy to get Beijing to accept tough new trade strictures. Both sides are focused on reaching a deal before a March 1 deadline that could see tariffs on $200 billion in Chinese imports rise to 25% from 10%.
But deep gaps remain between U.S. and Chinese negotiators over some fundamental issues, Lingling Wei and Bob Davis report. And there are questions on whether Mr. Liu can deliver on structural change. The pledges he has made to his counterparts, for example, haven’t been matched by changes in the written text being negotiated between the two sides. This has prompted U.S. negotiators to debate whether Mr. Liu is trying to lull them as a tactic, or can’t get the Chinese bureaucracy to agree to necessary changes. 

What to Watch Today

It's a big day for Federal Reserve chatter: Atlanta's Raphael Bostic delivers opening remarks at a conference on economic and financial conditions at 8:15 a.m. ET; Chicago Booth's Monetary Policy Forum features New York’s John Williams and San Francisco’s Mary Daly at 10:15 a.m. ET, Vice Chairman Richard Clarida at 12 p.m. ET, Vice Chairman Randal Quarles, Philadelphia’s Patrick Harker and St. Louis’s James Bullard at 1:30 p.m. ET; and Mr. Williams delivers closing remarks at a conference on economic and financial conditions at 5:30 p.m. ET.
European Central Bank President Mario Draghi speaks in Bologna, Italy, at 10:30 a.m. ET.
President Trump meets with Chinese Vice Premier Liu He in the Oval Office at 2:30 p.m. ET.

Top Stories

Measure of Confidence

Businesses would rather hire workers than spend on new equipment. A widely-watched measure of how much businesses are investing fell for the fourth time in five months at the end of 2018. It still hasn't returned to its postrecession peak.

Job growth, meanwhile, has been torrid. The economy is adding jobs at the best clip since 2016.

What gives? Possibly strong demand alongside weaker confidence. Small-business optimism, for example, is down for five straight months and hit a more-than-two-year low in January amid uncertainty about domestic politics and global growth.
"Adding to payrolls is more defensible than enacting a costly capex project when future economic conditions are so opaque. Those hired can be kept on payroll, or if necessary re-assigned elsewhere or ultimately laid off in the event of a recession," says the Economic Outlook Group's Bernard Baumohl.

Spring Thaw?

Sales of previously owned homes fell in January for the third consecutive month, hitting the lowest level since November 2015, Harriet Torry reports. But weaker home-price gains and falling mortgage rates could bode well for a pickup this spring. Last month's national median sale price for a previously owned home posted its slowest year-over-year increase since February 2012. And mortgage rates this week fell to the lowest level in more than a year.  

Down In the Dumps

German business sentiment hit a four-year low in February, a sign that the economic troubles which started in the second half of 2018 are continuing into 2019. The country escaped sliding into recession by the skin of its teeth in the final quarter of last year. Germany’s gross domestic product expanded at an annualized rate of 0.1% in the fourth quarter. In the three months through September, the economy contracted by 0.8%, Nina Adam reports.

Corporate Caution, Part 1

Trade tensions, slower economic growth and Brexit are denting the outlook for companies in Europe. Among the 195 firms listed in the Stoxx Europe 600 index that reported fourth-quarter earnings through Feb. 14, earnings per share fell 0.7%, compared with a 16% rise in the fourth quarter of 2017. Revenue growth slowed for the first time since 2015, Nina Trentmann reports.

Corporate Caution, Part 2

China’s search-engine giant Baidu Inc. expects to post its slowest revenue growth in nearly two years in the current quarter, with advertising pinched by tighter government regulation and the downturn in the Chinese economy. Baidu’s business, which relies on ads from Chinese medical, retail and other companies, is a barometer for the health of China’s private sector, Yoko Kubota and Maria Armental report.

Do You Even Lift Bro?

The majority of U.S. workers need to flex their muscles, at least a little, on the job. Only 26.6% of workers are employed in sedentary jobs, meaning they never need to lift more than 10 pounds at work. Newly released Labor Department data showed 35.5% of workers require a medium level of strength on the job, meaning they frequently lift between 11 and 25 pounds and occasionally need to lift a much as 50. Less than 2% were required to do "very heavy work," meaning they frequently lifted more than 50 pounds, and sometimes more than 100 pounds. However, some occupations are quite sedentary. For example, 84.2% of telemarketers are not required to lift objects on the job. —Eric Morath

Trade Talks: What They're Saying

We expect China and the U.S. to reach a trade deal, which, at the very least, would include a plan to zero out within a couple of years China’s merchandise trade surplus with the U.S. —Barclays
As we grind towards a potential settlement, I think it increasingly likely that transactions, rather than principles and ideology will shape the deal. —Suttle Economics
We believe the China–U.S. trade talks, covering nine areas, are indeed likely to make progress, convincing Trump it is worth extending the tariff truce if necessary. —BNP Paribas
Negotiators are making progress sketching out the specifics of a U.S.-China trade deal, which suggests that Trump is likely to postpone the tariff hikes scheduled for next week. —Capital Economics

 

What Else We're Reading

The number of people crossing into the United States illegally is nearing the lowest level in decades. "For the White House, that might be a triumph. But for the agriculture industry, the impact is acute. Each year, its labor force dwindles. To fill those positions, employers have turned to temporary visa programs that recruit workers in Mexico and Central America. Since 2016, the number of U.S. agricultural visas has grown from 165,000 to 242,000, a record high," Kevin Sieff and Annie Gowen report in the Washington Post.
Are immigrants more creative than native-born Americans? "We find uniformly higher rates of innovation in immigrant-owned firms for 15 of 16 different innovation measures; the only exception is for copyright/trademark. The immigrant advantage holds for older firms as well as for recent start-ups and for every level of the entrepreneur’s education," J. David Brown, John Earle, Mee Jung Kim and Kyung Min Lee write in a National Bureau of Economic Research working paper.