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Daily from Wall Street, Feb 16

 

  • Futures, European Shares Stumble
  • World stocks Overbought,hit record High

 

S&P futures dropped 0.2% in early Thursday trading as risk appetite fizzled and European shares dropped on concern the longest rally since July 2015 went too far, while the yen, bonds and gold advanced as the dollar fell.

Europe’s Stoxx 600 declined, snapping a seven-day rally with Nestle SA dropping by the most this year after saying it will target lower growth.

And the  US futures, world stocks hit an all time high on Thursday on renewed growth expectations and hopes that major economies like the United States will soon be serving up large helpings of fiscal stimulus. That´s the narrative as investors are hoping hard that fiscal stimulus announced by the Trump admin. will materialize and propel US assets and then the rest.
As summarized by Goldman Sachs’ equity strategist David Kostin, they want tax cuts and reform, deregulation and infrastructure spending, while most of them are scared about the possibility of a trade war.

The latest catalysts for the “reflation trade”, the earnings season  has passed with no mayor hitch. As the biggest sectors in all world indices are financials and techs – buoyed by strong results- latest rally is explained.  Banks’ profits benefit directly from higher rates; but rates are still too low to threaten serious damage to other companies’ profits.

The growth of the overall indices conceals huge variations between sectors and countries. The world as a whole may be at a new record, but the world outside the US, according to the FTSE indices, is still 24.6 per cent below its high from 2007 and 10.8 per cent below its most recent peak in 2015.

The US looks expensive and the rest of the world -much of it- looks cheap. Those who want to join investors that bet on the reflation and who lack the confidence on the Trump administration to deliver and realize its announced economic agenda – fiscal stimulus, tax cuts, deregulation and infrastructure investment to boost economic growth- should look elsewhere the US.

Today’s Markets

In Asia, Japan -0.5%. Hong Kong +0.5%. China +0.5%. India +0.5%.
In Europe, at midday, London -0.5%. Paris -0.5%. Frankfurt -0.4%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.1%. Crude +0.5% to $53.86. Gold +0.5% to $1238.80.
Ten-year Treasury Yield -3 bps to 2.47%

Wednesday’s Key Earnings

Applied Materials (NASDAQ:AMAT) +1.1% AH topping estimates.
Barrick Gold (NYSE:ABX) +1.8% AH hiking its dividend.
CBS Corp. (NYSE:CBS) -0.9% on declining revenues.
Cisco (NASDAQ:CSCO) -1.2% AH hit by a weak networking market.
Kraft Heinz (NASDAQ:KHC) -2.4% AH expecting more cost-cuts.
Groupon (NASDAQ:GRPN) +23.3% with a good deal on LivingSocial.
Marriott (NYSE:MAR) inched up AH boosted by Starwood.
PepsiCo (NYSE:PEP) -0.2% after guidance fell short.
SodaStream (NASDAQ:SODA) +4.6% accelerating sales.

Economy

Two days of testimony from a more hawkish Janet Yellen has cemented the idea that the U.S. central bank will raise interest rates by midyear if not sooner. Yellen also said she opposes an intrusion on the Fed’s independence after House Financial Services Committee Chairman Jeb Hensarling announced a plan to include congressional audits of interest rate policy. “It would result in poor economic performance,” she said during the hearing.

The team around Donald Trump in Washington is starting to look like a bunch of amateurs. First, his national security advisor Michael Flynn is forced out after four weeks on the job. Now, his pick for Secretary of Labor, Andrew Puzder, has beat a hasty retreat. Among a swirl of complaints and potential conflicts, Puzder admitted to employing an undocumented worker for years as a housekeeper. That was too much even for law-and-order Republican senators, who hit the ejection button. The commander in chief must be wondering: Who’s next?

Despite Mr. Trump’s White House wobbles, the U.S. stock market is booming. The reason: Wall Street is betting on banks, which are gaining on expectation of a Trump regulatory about-face. Leading the pack is Goldman Sachs, supplier of six bankers to the Trump team, whose share price is up 37 percent. Bucking the trend is George Soros. He just shorted $1 billion in U.S. shares, especially those of oil companies. As late Hungarian investor André Kostolany said: “Stock market profits are pain money. First comes the pain, then the money.”

A three-week-old scandal may have cost conservative Francois Fillon his status as favorite to win the French presidency. The country’s financial prosecutor announced today that a case involving €830K in taxpayers’ money – brought against his wife for a “fake job” as her husband’s parliamentary assistant – will remain open. The first round of the election is less than 10 weeks away.

Free trade deal resurrection? The European Parliament has approved a landmark global trade pact with Canada, backing the Comprehensive Economic and Trade Agreement by a vote of 408-254. Parts of the deal, such as tariff reduction, will come into force immediately, while more controversial aspects, such as the investor court system, will require ratification by EU member states.

West Germany’s former capital Bonn is rolling out the red carpet to welcome G20 foreign ministers meeting today for two days of talks. Newly appointed Foreign Minister Sigmar Gabriel hopes to garner support for multilateralism at a time of rising protectionism and saber rattling. U.S Secretary of State Rex Tillerson is expected to exchange a few clear words on both topics with his Russian colleague, Sergey Lavrov. To quote the Russian novelist Fyodor Dostoyevsky: “Life is paradise to which we’ve lost the keys.”

Stocks

A South Korean judge questioned Samsung Group (OTC:SSNLF) leader Jay Y. Lee and another executive behind closed doors today to decide whether they should be arrested over their roles in a corruption scandal that has engulfed President Park Geun-hye. The same Seoul court rejected a request for a warrant in January, but a spokesman said it had since expanded the charges to include hiding the proceeds of a criminal act.

According to CNBC, Toshiba (OTCPK:TOSYY) may delay the sale of its prized flash-memory chip unit after the conglomerate said it would consider selling most, even all, of the marquee business. Loosening the deadline would ease concerns about trying to hurry any antitrust reviews, increasing the number of potential buyers and improved offers. Among the possible bidders: MU, WDC, OTC:FXCOF, OTC:HXSCF and Bain Capital.

Production workers at Boeing’s South Carolina plant have overwhelmingly voted not to join the Machinists, maintaining southern reluctance toward unionization. It was a high-profile test for organized labor in the nation’s most anti-union state. The plant will get additional attention this week as President Trump visits the facility on Friday to mark the completion of the first 787-10, Boeing’s (NYSE:BA) newest version of the Dreamliner.

“In most states and cities, there are no rules about driverless cars,” said UBER‘s Emil Michael, explaining why the company doesn’t always know who’s going to be welcoming until after it puts test vehicles on the road. “Relationships are hard sometimes, so you have to invest in a lot of them,” he added, citing the need to find more “friendly cities” and get more “real road miles to make the thing work.”

Organic growth of 3.2% for 2016 was at the high end of the industry, but “there is no beating around the bush – it came in lower than we expected,” said Nestle’s (OTCPK:NSRGY) new CEO Ulf Mark Schneider. It was the fourth straight year Nestle had missed its 5-6% growth objective, known as the “Nestle Model.” As a result, the company is stepping up “restructuring” and cutting its sales growth target to 2-4% for 2017.

Kombucha drinkers (or brewers) rejoice! Colorado lawmakers have introduced the KOMBUCHA Act in Congress, which would increase the tax limit on drinks from 0.5% ABV to 1.25%, making it exempt from federal alcohol tax and regulation. The trendy fermented tea is a growing industry, with an economic impact of $600M expected to be worth $1.8B by 2020. Related tickers: PEP, HAIN, SBUX, WFM, OTC:PUSH

Twitter’s jump into live events has largely been about sports, but Sunday night’s Grammy Awards attracted more viewers than any NFL game. Some 5.1M people tuned into the event, a number topped only by the presidential election and Donald Trump’s inauguration. Twitter (NYSE:TWTR) plans to double the amount of live programming it shows in 2017, as it attempts to boost engagement in a highly competitive online media world.

Shareholders of Time Warner have approved the company’s $86B takeover by AT&T (NYSE:T). The OK came with 78% of outstanding shares in favor, and 99% of shares voted, but tough regulatory aprovals are seen ahead. The mega-merger would pair entertainment creators such as HBO, CNN and Warner Bros. (NYSE:TWX) with AT&T’s wired and wireless networks and DirecTV.

Verizon’s discount on its $4.8B deal to acquire Yahoo (NASDAQ:YHOO) may amount to as much as $300M, WSJ reports. It follows weeks of tense talks after a pair of massive data breaches were revealed by Yahoo, affecting 500M and 1B users respectively. If the revision is quickly agreed to, Verizon’s (NYSE:VZ) deal could close in April – though an SEC probe into the breaches could still slow that timeline.

Spotify is moving its U.S. headquarters to 4 World Trade Center in Manhattan, and adding more than 1,000 new jobs in New York, Governor Andrew Cuomo announced in a press release. Empire State Development will give Spotify (Private:MUSIC) up to $11M in rent credits as an incentive. It has also offered similar credits to other tech companies, including Snapchat (Pending:SNAP) and ETSY, to retain talent and expand across New York.

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