Will History Repeat Itself? – 08/21/2014

Will History Repeat Itself?

The S&P is less than five points away from the all-time high of 1991. Unfortunately right after we reached that summit last time, stocks started to sell off. Within just a couple weeks stocks fell to as low as 1905. And rolling back to many of the previous times a new record was made was not so glorious in the days following.

Reity, what will happen this time around?

Obviously the exact chain of events is unknown and unknowable. So here is my best guestimate.

•  Stocks have no problem taking out the previous high of 1991.

•  Then keep running to hit 2000 and even just a shade above.

•  And just when almost everyone gets sucked into thinking that a breakout above 2000 is taking place is exactly when the Market Gods pull the rug out. Meaning a pullback commences and then we consolidate under 2000 for a while.

This view explains why I am starting to pocket some trading profits on the move up to 2000. I will reallocate that cash into my favorite stocks after a pullback because the long term bull market is still in full effect until there are greater fundamental reasons to turn bearish.

PBoC likely to go for two interest rate cuts in H2 2014

Quotes from Barclays Capital:

-We maintain our forecast of two interest rate cuts in H2 to help to ease debt burdens, support demand and mitigate financial risks.  We continue to believe that the government faces a trade-off between ‘tolerating lower growth’ and ‘rolling out more stimulus’ amid a property market correction and uncertain external demand.

-We believe the government also remains keen to achieve the c7.5% growth target, hence, we maintain our view that “more policy easing is unavoidable and lowering medium-term interests rates/ financing costs in the economy is a top priority for the PBoC”.

-To reflect this view, we maintain our forecast of two cuts in benchmark lending rates in H2. While resisting broad-based easing, the PBoC implemented a number of targeted interest rate cuts in July, through rediscounts, relending and PSL, and guided banks to lower mortgage rates. We expect continued easing through PSL and look for a rebound in new loans in August from the depressed level seen in July.

Source: FxWire Pro

Daily outlook for global fixed income markets 21/08/2014

Quotes from Danske Bank:

-The minutes from the 29-30 June FOMC meeting were slightly hawkish. The US swap curve saw a bearish flattening with the 5Y segment selling off the most. We see room for higher US rates across the curve, as there is room for pricing in a faster rate hiking cycle.

-Other than the risk of higher US rates, we see few drivers for higher EUR rates. In fact, rates should continue to grind lower as there is room for even lower money market fixings in the coming months. We expect the USD-EUR spread widening to continue for the remainder of the year. There are no scheduled bond auctions today.

-Norway releases GDP today and we expect 0.8% q/q against consensus view of 0.6% on the back of solid private consumption and export growth (excl. oil). If our view is correct, Norges Bank might alter the monetary policy path slightly. Consequently, if long-end NOK rates underperform EU peers, use this as a buying opportunity. There is strong demand for NGBs as we saw at the 10Y auction on Tuesday.

Source: FxWire Pro

Fed Upgrades Forecast on Labor, Inflation Improvements; Stocks Rally

Early this morning it was revealed that the first developed-market central bank had its members dissent about keeping rates close to zero. The minutes of the Bank of England’s meeting from two weeks ago showed two members of its Monetary Policy Committee – Weale and McCafferty – dissented in favor of a 25bps rate hike. UK Gilts and the sterling reacted accordingly, the former selling off with a bias towards shorter durations, and the latter strengthening versus the major G-10 currencies. It was interesting to note, however, after the release of the minutes, that the sterling was actually weaker versus the dollar.

US stocks traded listlessly for most of the day in anticipation of the afternoon release of the minutes from the latest FOMC meeting. The S&P 500 (SPX) briefly made a new all-time high during the session, but ended up finishing about a point below the recent all-time closing high of 1987.98. All 10 of its sectors finished positive with industrials leading for a second straight day. High yield bonds continued to perform very strongly, giving equities another tailwind.

The minutes of the FOMC meeting from three weeks ago revealed an increasing bias towards removing policy accommodation at a faster rate due to increased improvement in the labor market and inflation moving up towards the Fed’s 2% goal. This had caused the Fed to upgrade its assessment on inflation. Although many participants viewed the recent labor market gains as a reason to begin hiking rates at an earlier date, several still saw inflation moving back only slowly towards it goals. Presumably the “several” is the dovish, voting members of the committee, who have been in relative control of policy in recent years.

Short-term and intermediate Treasuries sold off following the release of the minutes and the USD rallied substantially. The 5-year Treasury yield was six basis points higher to 1.63% and the USD gained 0.45%. US stock indices were generally stronger. The focus for the market now turns to speeches from Janet Yellen, Mario Draghi, and Ben Broadbent on Friday at the Jackson Hole Fed symposium.

Tomorrow morning two economic reports are scheduled in the US: weekly jobless claims and existing home sales from July. Related housing data reported earlier this week was very strong and its expected to be at roughly the same pace in existing home contracts. The four-week average of jobless claims fell to the lowest level of 2006 in the week prior, and its expected to remain near that level this week.

Overnight a big piece of data is due out, the preliminary August reading of China’s manufacturing PMI. The index has risen for the six consecutive months and in order to keep up the torrid pace of equity gains, it will need to continue to increase. Of worry is the substantial drop in credit activity in July, which will likely cause raw materials-related contracts to be reduced. The index is expected to decline to 51.5 from 51.7 in July. Similar reports are due out from Europe in addition to UK retail sales.

Only four companies are scheduled to report earnings tomorrow and they are retailers. These are from Gap (GPS), Ross Stores (ROST), Dollar Tree (DLTR), and Aeropostale (ARO).

Market movers today 21/08/2014

Quotes from Danske Bank:

-Today’s Flash PMIs in Germany, France and the euro area will give more clues about the slowdown in the euro area. For the euro area we look for a slight rise in manufacturing PMI driven by Germany, as the pick-up in US and Chinese growth in Q2 should start to feed through to exports. For service PMI we expect a slight decline.

-In the US Markit PMI is expected to stay flat at a robust level, although there is slight downside risk as retail sales have slowed a bit recently. The US also releases existing home sales where a moderate increase is expected, as the NAHB housing survey points to higher sales activity. US initial jobless claims are also due today.

-In the UK retail sales are expected to rise 0.4%, continuing a decent development in consumer spending. In Norway we expect solid GDP growth in Q2 and this could force Norges Bank to raise its interest rate projection in its next monetary policy report.

Source: FxWire Pro

Quartz Daily Brief—BofA’s settlement, Foley ransom, McDonald’s Russia shutdown, beet lipstick

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Good morning, Quartz readers!

What to watch for today

The Gaza war rages on. Since the collapse of talks on Tuesday, Israel has launched some 100 air strikes against Gaza, killing at least 22 Palestinians, including the wife and son of Hamas’s military leader. Hamas has launched more than 140 rockets at Israel; no casualties have been reported on the Israeli side.

Bank of America may announce a record settlement. The bank could agree as soon as today to pay more than $16.5 billion in fines and compensation to settle investigations into fraudulent mortgage securities. The deal would be larger than the $13 billion JP Morgan paid last year.

Ukrainian forces try to regain Donetsk. Clashes between government troops and pro-Russian separatists around the rebel-held city have killed 34 residents and injured 29 in the past day or so, the Ukrainian authorities say.

America’s top central bankers and economists will meet. Federal Reserve officials’ annual economic and monetary policy symposium in Jackson Hole, Wyoming, starts today. The viability of the central bank’s stimulus campaign to help unemployment is likely to dominate this year’s conference.

Indonesia’s court weighs in on the election. The country’s constitutional court decides whether to overturn the July election results that gave Jakarta governor Joko Widodo a 6% lead over Prabowo Subianto. Prabowo brought the legal challenge alleging election fraud. Nine judges will make the decision at 2pm local time.

Ferguson focuses on investigations. US attorney-general Eric Holder has arrived in Ferguson, Missouri, and promised a quick investigation into the shooting of Michael Brown on Aug. 9.  A Missouri grand jury has begun to hear evidence and the earliest that it could present charges is October. After days of protests, the streets have been relatively calm (paywall).

While you were sleeping

Russia went bananas over burgers. The country’s main consumer watchdog ordered four McDonald’s outlets in Moscow to suspend operations, claiming “numerous” breaches of sanitary standards. In July the watchdog filed a lawsuit against McDonald’s, citing various violations.

Continued Iraq airstrikes and a failed rescue mission. The US announced more military strikes against ISIL, and officials revealed a failed, secret mission to save Foley and others held captive in Syria this summer. Before Foley’s death, ISIL asked for a “multi-million dollar” (paywall) ransom for his release, which the US refused to pay.

Liberians protested quarantine. Violence erupted in West Point (paywall), a slum in the Liberian capital, Monrovia, after it was put under quarantine and curfew in an effort to contain Ebola. Soldiers clashed with thousands of young men trying to storm the neighborhood’s barricades.

A call for sanctions against Argentina. Holders of defaulted Argentine bonds asked a US judge to consider “contempt” sanctions, following Argentina’s proposal to pay its foreign debt locally, rather than to a US bank. For the proposal to go ahead, its existing creditors would have to accept a debt swap. Markets were also not impressed by the plan.

Hewlett-Packard had good news. The computer giant reported a slight, surprise increase in its quarterly revenue at $27.6 billion, despite the ongoing company restructuring. Sales from its PCs went up by 12%, although the other divisions stayed unchanged or decreased.

Thai got a prime minister. Three months after leading a coup, General Prayuth Chan-ocha, was voted in as prime minister by a legislature installed by his own military. The move will only tighten the junta’s current grip on power in the country.

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Quartz obsession interlude

John McDuling revisits Hollywood’s golden years, after the industry’s worst summer. “Many consider 1939 to be Hollywood’s ‘golden year’—the year of Gone With the WindThe Wizard of Oz, and Stagecoach. But in financial terms, 2002 is the record year for gross ticket sales at the US box office (based on BoxOffice Mojo data, which goes back to 1982, and converted to inflation-adjusted dollars using the BLS inflation calculator). In nominal terms, 2013 was a record year at the US box office.” Read more here. 

Matters of debate

Kurdish fighters aren’t terrorists. The Kurdistan Workers Party is on the US terrorist blacklist, but it can play a constructive role in Iraq.

Private investment alone won’t help Africa. The recent US-Africa Summit promised a flood of new cash, but the public sector needs financing too.

The crisis of America is the crisis of the black male. The country may have a black president, but it still has to address its black underclass.

Twitter is just like TV. The continuous, unstoppable stream of content is what makes it maddening, but also gripping.

Ivy League students struggle with “grandiosity and depression.” These privileged kids “have no ability to measure their own worth in any realistic way,” a former professor from Yale writes.

Surprising discoveries

A Chinese beer maker put Viagra in his drinks. He marketed his beer as “healthy,” but was recently arrested.

A bathroom of Belgian chocolate will cost you $133,000. The full set is made up of an estimated 12 years worth of calories.

A Brazilian parliamentary candidate is campaigning as “Barack Obama.” His real name is Claudio Henrique.

Big weddings mean happier marriages. Couples with 150 or more guests at their wedding are more likely to describe their marriage several years later as a happy one.

Future livestock may have bug-based diets. With a projected global population of 9 billion by 2050, livestock feeding trials are testing cheaper feed options like fly larvae.

The woman who could be Brazil’s next leader has a clever beauty trick. She uses shaved beetroot and olive oil as lipstick.

Our best wishes for a productive day. Please send any news, comments, beet lipstick, and chocolate to hi@qz.com. You can follow us on Twitter here for updates throughout the day.

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Websim Focus sui Mercati Finanziari 21/08/2014 – WS

Wall Street ha chiuso incerta ieri sera: Dow Jones +0,35%, S&P500 +0,25%, NASDAQ -0,02%.

Secondo quanto è emerso dalle minute della riunione della Fed del 29-30 luglio, la banca centrale Usa potrebbe anticipare l’uscita dalle misure di stimolo.

Il primo impatto è stato sul dollaro che si è ulteriormente rafforzato su attese di un rialzo dei tassi Usa. Il cambio euro/dollaro apre la giornata a 1,3246, nuovo minimo dal settembre 2013.

Anche il Dollar Index (contro un paniere di sei valute principali) si porta sugli stessi livelli record a 82,3.

Asia. La giornata entrante si apre con la correzione pronunciata delle Borse cinesi: Hong Kong perde lo 0,9% e Shanghai l’1,2%.

Il dato preliminare di agosto sul Purchasing Managers’ Index elaborato da HSBC e Markit Economics è stato pari a 50,3, peggio delle attese degli economisti che proiettavano 51,5 punti. Il dato è in calo rispetto a luglio (51,7) e, se confermato in fase definitiva, sarà il più basso degli ultimi tre mesi. Sotto quota 50 indica recessione.

In controtrend Tokio +0,8%. Seul -1,6%. L’indice Sensex di Mumbay (+0,5%) si riavvicina invece ai recenti massimi storici.

I future sulle borse europee segnalano un avvio in rialzo dello 0,3%.
La palla passa ora alla Bce, che potrebbe mettere in campo misure analoghe a quelle adottate dalla Fed a suo tempo per risvegliare dal torpore l’economia della zona euro.
NB. Si consideri che la svalutazione dell’euro è prospetticamente una notizia positiva per il nostro export.

Analisi tecnica borse. Le piazze europee continuano a patire un clima di incertezza legato alla scarsa crescita e alle tensioni in Ucraina. La liquidità va dunque da qualche settimana a premiare altre aree: Wall Street e Tokio, ma soprattutto i mercati emergenti più vivaci come India (+30%) e Brasile (+23%). Nel complesso il quadro di fondo rimane solido e ben impostato.

S&P500 (1.986, +0,25%). Si porta di nuovo a un passo dal record storico a 1.991 punti del 24 luglio. Prevediamo nuovi ingressi sulla forza solo su pieno sfondamento di area 2mila, confermato in chiusura di seduta.
Brasile (Bovespa 58.878, +0,73%). Quinto rialzo consecutivo e nuovi top da marzo 2013. Superato lo scoglio di area 58mila, l’indice ha fornito ulteriori segnali di forza che consentono di rientrare in tendenza. Per i dettagli della strategia operativa si rinvia al Focus pubblicato ieri.

L’FtseMib (19.644 +0,02%) si conferma fragile nel breve non riuscendo ad allungare oltre 19.900/20mila, evento che farebbe rientrare l’allerta. Per ora regge l’importante supporto di medio periodo a 19mila il cui cedimento potrebbe provocare pericolosi avvitamenti.

Variabili macro.

Petrolio. Continuano le vendite spiegate oggi dal dato cinese ma anche dalla forza del dollaro. Il Brent è scambiato a 101,9 dollari al barile, sui minimi dal giugno 2013, il Wti americano mette a segno il quarto calo consecutivo e torna sui livelli di gennaio a 93,1 dollari. Non vediamo occasioni di acquisto soprattutto di medio periodo.

Oro. Apre a 1.285 dollari l’oncia la quinta seduta negativa. Non vediamo ancora occasioni di acquisto.

Forex. Sfondato l’importante supporto a quota 1,33, il cambio euro/dollaro (1,3246) si proietta come previsto verso il successivo obiettivo tra 1,30/1,27. Confermiamo il suggerimento di acquistare dollari in ottica di diversificazione, possibilmente sfruttando i rari rimbalzi.

Bond. Se le borse della zona euro soffrono così non è per i bond core/periferici. Il rendimento del bund decennale tedesco è ormai sotto l’1%, mentre gli spread tengono il passo seppure con qualche fatica. Ieri il rendimento del Btp a 10 anni è sceso al 2,57%, nuovo minimo storico. Lo spread invece è restato intorno ai 160 punti base e paga le incertezze ancora presenti sul futuro dei conti pubblici italiani. C’è da dire che la Bce fa buona guardia e pensiamo che nessuno si sognerà di mettere in atto “assalti speculativi” stile 2011/2012. Ci potrà essere qualche assestamento che andrà sfruttato come occasione di acquisto.