This Week In Markets: 2016

Friday, July 15, 2016

July 11-15: Banks Surprise and Stocks Soar

DJIA 18506 // S&P 2161 // NASDAQ 5028 // 10-YR TRE 1.589% //

EURO 1.107 // OIL 45.58 // GOLD 1328 // BIT 664

"Prior to the financial crisis, all but 2% of the people in the Western world end up better off than people like them 10 years ago. But the world changes when you get a cohort of people that are no longer advancing." -Richard Dobbs, McKinsey

-0.1%

Effect of Brexit on US GDP, according to economists polled by the Wall Street Journal. US GDP is expected to clock in at 2.2% this year, versus 2.3% pre-Brexit. A big factor: over 40% of revenues from S&P 500 companies is made internationally, with a big chunk of overseas revenue coming from Europe.

NOTE: If article is paywalled, use Google to search for title or try accessing via mobile

EARNINGS:

A Boomlet in Lending Boosts JP Morgan, WSJ

JP Morgan led off 2Q bank earnings with a surprise. Its loan book across everything from commercial real estate to consumer lending rose 10% from a year earlier. Fixed income trading also saw a pop, perhaps because of good positioning for Brexit volatility.

M&A:
Bright Lights Focusing on AMC's Purchase of Odeon and UCI Cinemas, Dealbook

US-based AMC announced purchase of UK-based Odeon for 921 million pounds ($1.2 billion). AMC used Brexit as an opportunity to coerce private equity firm Terra Firma into a deal to sell. Odeon has been privately owned by Terra Firma since 2004.

MACRO:
In Advanced Economies, Two-Thirds of Population Have Seen Income Stagnate, WSJ
Across advanced economies, about two-thirds of the population (or more than a half billion people) earn the same as or less than their peers did a decade ago, according to McKinsey. This is a break from the post-WWII trend whereby most families improve on standard of living versus predecessors.

STOCK MARKET RALLY:
Buybacks Pump Up Stock Rally, WSJ
The Dow Jones average has notched four records in four days this week. There are concerns that results are based less on earnings and more on central bank policy and buybacks. Shares outstanding in the S&P 500 have fallen overall this year for the first time since 2011.

COMMODITIES:
IEA Sees Record Middle East Oil Supply as US Output Slumps, Bloomberg
Success seems to be nearing for OPEC's painful strategy of the last year, as they maintain high output and low prices to drive US producers out of the market. Oil prices have recovered more than 70% against a 12 year low set this January.

Vocabulary:

Calendar, July 18-22:

Monday: Housing Market Index, Treasury International Capital
Tuesday: Housing Starts
Wednesday: MBA Mortgage Applications, EIA Petroleum Status Report
Thursday: Jobless Claims, Philadelphia Fed Survey
Friday: Baker Hughes Rig Count, PMI Manufacturing Index Flash

Last Week's Predictions: 1/3 All-Time: 27/54

CPI up: WRONG
Alcoa beats: RIGHT
Big financial M&A: WRONG

Weekly Predictions:

Dalian Wanda's bid for 49% of Paramount Pictures gets rejected by Viacom's board
Continued strong earnings from at least 2 more banks
Housing starts positive surprise

Friday, July 8, 2016

July 4-8: Post-Brexit Rush to Safe Assets Force Yields Down

DJIA 18067 // S&P 2120 // NASDAQ 4928 // 10-YR TRE 1.403% //

EURO 1.105 // OIL 45.57 // GOLD 1355 // BIT 653

The current election cycle has been marked by mass protests, rallies, and deepening party lines. Regardless of who Americans are voting for, seven in ten say they feel the country is on the wrong track, according to the WSJ. Promises of wholesale economic growth from previous decades have widened gaps between rich and poor and left structural employment problems, leaving many Americans feeling left behind.

1.36%

The US 10-year government bond's lowest yield ever, hit earlier this week. In a global context, this yield is actually quite robust: according to Citi, around one third ($7 trillion) of all developed country sovereign debt now has negative rates, effectively charging lenders for borrowed money and paying borrowers for taking on risk.

NOTE: If article is paywalled, use Google to search for title or try accessing via mobile

CREDIT:

10-year Treasury Yields Hit Record Low, USA Today

The yield on the benchmark US Treasury bond hit an all-time low this past Tuesday, as investors fled post-Brexit to the lowest risk assets they could find, pushing up Treasury prices. Bond yields fall as prices rise.

M&A:
Dare to Dream: The Bank Mergers That Could Help Fix the Industry, Bloomberg

Stagnant growth and lower valuations would push most other industries into an M&A glut, but regulatory concerns about too-big-to-fail banks are pushing financials to stay smaller. But some particularly hard-hit banks are better situated than others to gain from merger activity.

DEMOGRAPHICS:
Election 2016 is Propelled by American Economy's Failed Promises, WSJ (paywalled)
The Wall Street Journal begins a multipart series examining why promises made in 2000 about how technology, trade, and competent central banking could maintain an indefinite period of US economic growth are now seen as oversimplified and incorrect, leading to extreme reactions among voters.

CHINA:
Brexit is Helping China Push Down the Yuan, WSJ (paywalled)
As China shifts to slower growth associated with a cleaner, services-led economic model and domestic consumption, weakening the yuan as a strategic move to keep exports competitive. But a weaker currency also means capital flight--over $550 billion of outflows are anticipated this year.

Vocabulary:

Calendar, July 11-15:

Monday: Q2 Earnings Season begins, Labor Market Conditions index
Tuesday: Job Opening and Labor Turnover Survey (JOLTS)
Wednesday: Import/Export Prices, Beige Book, EIA Petroleum Status
Thursday: Jobless claims, PPI
Friday: CPI, Retail sales, Industrial production

Weekly Predictions:

CPI up as sustained oil prices ~$50 trickle down to consumers
Alcoa (AA) beats earnings for third straight quarter because of ongoing demand in US autos
One big M&A deal in financials is announced