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Markets Update, 17 May

 

 

 

  • Oil Keeps Climbing
  • Asia Stocks Drift
  • US 10y Yield 3.1% Widest against Bund since 1989
  • Sterling Volatility on Conflicting Custom Union reports.

 

Ten-year U.S. Treasury yields hit 3.1 percent on Thursday as global markets continued to adjust to an upbeat outlook for the world’s largest economy.

Transatlantic Gap:

The 10y Treasury-Bund yield differential widened again to 249bp, the widest US yield advantage since March 1989. The 303bp differential between the 10 Treasury and JGB yields is widest only since Sep2007. (via Amherst Pierpont)

Stock futures drop as Cisco disappoints; trade talks eyed.
U.S. stock futures dipped on Thursday after Cisco’s disappointing forecast, while investors fretted about rising U.S. Treasury yields and looming trade talks between the United States and China.

The Stoxx Europe 600 Index drifted higher, while U.S. stock futures slipped. Earlier in Asia equities rose in Japan and fell in Australia and Korea. West Texas oil climbed above $72 a barrel. The dollar was steady.

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Global Oil Supply to tighten:

Given its strong rally over the last year, analysts are wondering how much higher oil could go.

Morgan Stanley have predicted that Brent will trade at $90 per barrel in 2020, thanks to increased demand for diesel (due to new anti-pollution rules on shipping) and jet fuel.

Bank of America Merrill Lynch is even more bullish. It estimates that oil could hit $100 per barrel next year, due to supply constrains from Iran (due to sanctions) and Venezuela (where political instability could hit supplies).

Oil’s push to a new three and a half-year high threatens to keep inflation up, hitting households and eroding real wages

 

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Brent crude is now trading at over $80 per barrel for the first time in four years, after the US broke the nuclear deal and Total said it would likely withdraw from its South Pars commitments due to US sanctions

 

In Europe, shares rise as Italian stocks recover:

The pan-European STOXX 600 was up 0.1 percent by 0724 GMT, holding at 3-1/2 month highs as shares in energy stocks and miners rose, while Italy’s benchmark climbed more than 1 percent as markets awaited the result of talks between two anti-system parties to form a coalition government.

 

Britain’s FTSE 100 also pushed higher, shrugging off a rise in sterling following a report late on Wednesday that Britain will tell Brussels it is prepared to stay in the European Union’s customs union beyond 2021. A source at Prime Minister May’s office dismissed the report on Thursday.

Main moves in markets from BBG:

Stocks

  • The Stoxx Europe 600 Index gained 0.2 percent as of 11:24 a.m. London time, the highest in 15 weeks.
  • Futures on the S&P 500 Index fell 0.2 percent.
  • The U.K.’s FTSE 100 Index increased 0.1 percent to the highest in four months.
  • Germany’s DAX Index rose 0.3 percent to the highest in 15 weeks on the biggest advance in a week.
  • The MSCI Emerging Market Index sank 0.5 percent to the lowest in more than a week.
  • The MSCI Asia Pacific Index decreased 0.2 percent to the lowest in a week.

Currencies

  • The Bloomberg Dollar Spot Index gained 0.1 percent to the highest in 20 weeks.
  • The euro fell 0.2 percent to $1.1786, the weakest in five months.
  • The British pound dipped 0.1 percent to $1.3478, the weakest in 20 weeks.
  • The Japanese yen decreased 0.2 percent to 110.64 per dollar, the weakest in more than 16 weeks.
  • The Turkish lira sank 0.7 percent to 4.4457 per dollar.

Bonds

  • The yield on 10-year Treasuries dipped less than one basis point to 3.09 percent, the first retreat in a week.
  • Germany’s 10-year yield declined less than one basis point to 0.60 percent.
  • Britain’s 10-year yield rose two basis points to 1.503 percent, the highest in more than three weeks.
  • Italy’s 10-year yield climbed seven basis points to 2.183 percent, the highest in more than seven months.

Commodities

  • West Texas Intermediate crude increased 0.8 percent to $72.06 a barrel, the highest in more than three years on the biggest climb in more than a week.
  • Gold dipped 0.3 percent to $1,287.41 an ounce, the weakest in 20 weeks.
  • Brent crude gained 0.6 percent to $79.77 a barrel, the highest in more than three years.

 

Pills for thought:

New satellite data on freshwater reserves from Nasa have revealed that dozens of regions across the globe are in danger of becoming the next Cape Town.

New data shows that dozens of regions across the globe are in danger of running out of water

 

 

US: The last time there were fewer Americans claiming ongoing jobless benefits was 1973… 45 years ago! 

 

…and  the average time between the maximum low in unemployment and the next declaration of recession is 3.8 months, the maximum is 10 months, less than year. Three times since 1950 (’57, ’73, ’90) a low in unemployment has been followed by recession and an explosion in unemployment in less than one month. Another way to state this is: “The best harbinger of a coming recession is when the BLS starts publishing numbers that suggest that the nation is approaching full employment (low unemployment).”

 

Economy News

The European Union must protect EU companies doing business with Iran, French President Emmanuel Macron declared, as firms begin to pull out of the country. Total (NYSE:TOT) has halted work on an Iranian natural-gas project and warned it may have to abandon its plan to invest $1B in the field. Maersk Tankers (OTCPK:AMKAF), Torm (OTC:TRMSF) and Wintershall have also stopped their dealings with the Islamic Republic.

German Chancellor Angela Merkel has signaled that the EU is willing to discuss reducing trade tariffs with the U.S. as she arrived at a summit of bloc leaders in Sofia, Bulgaria. “We have a common position. We want a permanent exemption and then we are ready to talk how we can reciprocally reduce the barriers to trade.” The U.S. tariffs are set to go into effect on June 1.

Japan – the only major U.S. ally that did not receive exemptions from President Trump’s steel and aluminum tariff decision – is meanwhile considering slapping retaliatory tariffs on U.S. exports worth $409M. According to public broadcaster NHK, the government is preparing to notify the World Trade Organization of the plan, a necessary procedure under global trade rules.

 

US  Stocks Wednesday’s Key Earnings

Cisco (NASDAQ:CSCO-3.6% AH amid worries over its transition.
Macy’s (NYSE:M+10.8% lifting profit guidance.

Stocks News

Chinese regulatory authorities have approved the $18B sale of Toshiba’s (OTCPK:TOSYY) chip unit to a consortium led by U.S. private equity firm Bain Capital, Japanese public broadcaster NHK reports. The antitrust review had been the biggest and last hurdle to the sale of the prized asset, fueling speculation that Toshiba might abandon the deal or pursue alternative plans such an IPO.

Following several months of delays, YouTube Music (GOOG, GOOGL) will relaunch its subscription service on May 22, which will be available as an ad-supported model, as well as an ad-free model for $9.99 per month. While YouTube Music will eventually replace Google Play Music and the music component of YouTube Red, the latter paid service will continue as YouTube Premium, for $12 per month.

VP of Alexa Jim Freeman is the latest to depart from Amazon (NASDAQ:AMZN), adding to the the string of a dozen executives and senior managers that have left the company over the past 10 months. While higher-ups had asked him to stay, he was finally poached by German e-commerce company Zalando (OTCPK:ZLNDY). Freeman had a lot of support internally, having previously run Prime Video and Amazon Studios.

Powerful earnings from Tencent sent its market value surging by as much as $34B overnight, with shares up 7.1% in Hong Kong, helping the Chinese tech giant briefly reclaim the crown of Asia’s most valuable listed company. The results were driven by the strong performance in Tencent’s (OTCPK:TCEHY) mobile gaming business, as well as gains from its sprawling investment operations.

News on HQ2… Amazon (AMZN) has visited all 20 finalists for its new headquarters, according to NBC News, but the report didn’t say if the retail giant created a shortlist. The areas include: Atlanta, Austin, Boston, Chicago, Columbus, Dallas, Denver, Indianapolis, Los Angeles, Miami, Montgomery County (Maryland), Nashville, Newark, New York City, Northern Virginia, Philadelphia, Pittsburgh, Raleigh, Toronto, and Washington D.C.

A Delaware judge has punted a decision to this morning in the escalating feud between the board of CBS and its controlling shareholder National Amusements, owned by the Redstone family, which wants to merge it with Viacom (NYSE:VIA). The decision will come as the CBS board meets today to weigh a dilutive move that would reduce the voting power of National Amusements.

Twenty-First Century Fox has set its leadership for “New Fox” – the company that will remain if and when Disney (NYSE:DIS) completes its deal to acquire the company’s media assets. Current Executive Chairman Lachlan Murdoch will be Chairman and CEO at New Fox, and Rupert Murdoch will serve as co-chairman, while Fox (NASDAQ:FOXA) CFO John Nallen will take a broader role as chief operating officer.

The Democratic Republic of Congo’s new Ebola outbreak has entered a “new phase,” according to the country’s health minister, as the virus was detected in Mbandaka, a city with a population of about 1M people. It comes as the first batch of 4,000 experimental Ebola vaccines – developed by Merck (NYSE:MRK) and sent from Europe by the World Health Organization – arrived in Congo’s capital Kinshasa.

The Williams twins… While it already owns about 74% of the company, pipeline operator Williams (NYSE:WMB) is buying all the outstanding shares of its master limited partnership William Partners (NYSE:WPZ) for $10.5B. The offer represents a premium of 6.4% based on Wednesday’s closing price, and will simplify the corporate structure of the gas pipeline and infrastructure group. WMB +3% premarket.

Intel’s $15.3B deal for Mobileye is bearing big fruit. The company has signed a contract to supply 8M cars at a European automaker with its advanced self-driving systems. The deal will begin in 2021, when Intel’s (NASDAQ:INTC) EyeQ5 chip, which is designed for fully autonomous driving, is launched as an upgrade to the EyeQ4 that will be rolled out in the coming weeks.

Volkswagen’s core car brand will skip the Paris Motor Show this year, becoming the latest and most prominent automaker to ditch the biennial industry gathering. Since Dieselgate erupted in 2015, VW (OTCPK:VLKAY) has pulled back from traditional car shows, including Detroit and Frankfurt, partly as a cost-cutting measure but also mirroring a sector trend toward presenting auto tech at CES and the Mobile World Congress.

The Marine Corps has taken delivery of its first CH-53K King Stallion, the most powerful helicopter ever fielded by the U.S. In development since 2006, the aircraft will replace the nearly 40-year-old CH-53E Super Stallion fleet, carrying triple the weight of its predecessor at a colossal 27,000 pounds. It’s the first delivery of an expected 200 helicopters from Sikorsky, a unit of Lockheed Martin (NYSE:LMT).

The SEC is getting creative with its crypto crackdown approach. Warning investors about the dangers of initial coin offerings for some time now, the agency has created a website, HoweyCoins.com, that mimics a bogus ICO as a way to alert potential investors on the signs of fraud. It’s complete with a fake eight-page whitepaper, false celebrity endorsements and a bogus team working on the ICO.

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