Quote of The Week "If you can see your destination, you're not looking far enough ahead."
-- The Trader
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| | | Traders:
After last week's wild and woolly ride, what will next week bring? Whatever it is, we'll be ready.
Below you'll find a recap and some thoughts about next week. |
| Last Week In Sum Did you hold on for dear life last week? Hopefully you were all able to to stay calm during the intense volatility. The markets posted their third straight weekly losses…
Dow -1.5% S&P -1.0% Nasdaq -0.8%
Warning signs everywhere seem to be pointing to a deepening economic slowdown and the rising risk of recession (if we’re not already in one). The inversion of the U.S. yield curve attracted all the headlines, driving the three major U.S. indexes down about 3% on Wednesday and the 30-year Treasury into uncharted territory, below 2%.
Overseas Trouble…
Hong Kong’s economy shrunk by 0.4% in Q2 and protests continued to rock the city leading to the closure of the Hong Kong International Airport on Monday and Tuesday; Germany’s economy contracted by 0.1% in Q2, thanks to lower exports. Also its ZEW economic sentiment indicator fell to -44.1, it’s lowest level since December 2011 and 10 year German bund fell to negative 0.617%; and China’s factory output numbers came in lower than expected.
The only real positive news came from the U.S. where retail sales rose a seasonally adjusted 0.7% from June - mind you this number can be volatile and subject to many revisions, but seems to be a small glimmer of hope nonetheless.
The Federal Reserve will be in the spotlight next week with the FOMC minutes due out on Wednesday 21 August and the Jackson Hole Economic Policy Symposium [the fanciness from the subject line] kicking off on August 22. Fed Chairman Jerome Powell will make a speech at the event which has the theme "Challenges for Monetary Policy.”
The wild swings in the bond market now have traders pricing in a 69% probability of a 25 basis point cut at the September meeting and a 31% probability for a 50-basis point cut.
Unicorns Aplenty
On the venture front, Pitchbook released its annual unicorn report - highlighting what a historic year it’s been for unicorns. In 2019 so far, we’ve seen a record for unicorn exits in value with $157.2B realized across only 14 acquisitions or IPOs (albeit skewed by Uber and Lyft). Other notable insights included: at mid-year, there were 187 active unicorns in the U.S. - with an aggregate private valuation of just over $600B; the sums raised by companies before becoming a unicorn are approaching all-time highs with the median raised - prior to becoming a unicorn - averaging $261.1M in 2019; and historically due to their size, most unicorns have not been M&A targets, but with all the cash sitting in the coffers of the large tech companies, it’s not unreasonable to anticipate an uptick in unicorn M&A this year.
SPY |
| | Macro News: - Japan has again surpassed China as America's largest overseas creditor, a record it last held in 2016. After adding about $21B since May, Tokyo now holds $1.12T of Treasurys vs. Beijing's $1.11T. That’s a distinction without a difference with the US fighting a trade war with China.
- South Korea has moved to downgrade Japan from its list of most trusted trading partners while also seeking talks to end a months-long spat that has hurt economic ties between the two countries. It plans to split its fast-track category into two and initially put Japan as the only country in the second one, a move that comes less than two weeks after Tokyo removed South Korea from its list of "white nations" considered safe enough to export strategic materials.
- The Trump administration delayed new tariffs on some goods from China, citing the impact on businesses and consumers ahead of the holiday shopping season. The 10% tariff on a list of products including smartphones, laptops, toys and videogames—whose imports totaled about $156 billion last year—is now set to take effect Dec. 15 instead of Sept. 1. The original date still applies for other items, including tools, apparel and some footwear, totaling about $107 billion last year. But Bibles and shipping containers are being removed from the tariff lists entirely.
- A seasonal slowdown and trade tensions saw China post its weakest industrial output growth since 2002, which rose 4.8% in July from a year earlier, adding to the case to roll out more stimulus. Retail sales also slumped, while fixed-asset investment slowed further.
- China appeared to reject overtures from Trump for a “personal meeting” with Xi Jinping, after the U.S. President made the mistake of linking the protests in Hong Kong to the ongoing trade war. A statement from the Ministry of Finance said that China had no choice but to consider retaliatory measures for Trump’s – now postponed – implementation of 10% tariffs on the remaining $300 billion basket of Chinese imports.
- It was a rough week in Hong Kong, where the economy contracted more than originally estimated in Q2 as GDP shrunk by 0.4%. Protests have rocked the city and even led to the closure of the Hong Kong International Airport on Monday and Tuesday before riot police regained control.
- U.S. shoppers gave the economy a boost in July. Retail sales were up a seasonally adjusted 0.7% from June—the strongest reading since March and a positive signal for the U.S. economy amid warning signs of a global slowdown.
- Mortgage balances ended the second quarter at $9.406 trillion, surpassing the $9.294 trillion hit in the third quarter of 2008, without adjusting for inflation. A steep drop in the 30-year mortgage rate boosted the incentive for borrowers to take out a mortgage or refinance.
- A Federal Housing Finance Agency plan unveiled Tuesday could increase the number of Americans who qualify for loans backed by Fannie Mae and Freddie Mac, Andrew Ackerman reports. The plan will force the mortgage giants to consider alternatives to FICO scores to determine borrowers’ creditworthiness.
- Goldman Sachs no longer believes there will be a U.S.-China trade deal before the 2020 presidential election, and expects tariffs targeting the remainder of Chinese exports to the U.S. to go into effect. The bank said recession risks are increasing as a result.
- The U.S. budget gap widened further in July as federal spending outpaced revenue collection, bringing the deficit to $867B in the first ten months of the fiscal year, a 27% increase from the same period a year earlier. For the month, the biggest expenditure - Social Security - was $88B followed by Medicare and National Defense, each at $56B. Customs duties, which include tariffs from imports, jumped by 75% to $56.9B YTD from $32.5B a year earlier.
- More negative economic stories are being reported across the globe as Germany's outlook worsened for a fourth month after a string of disappointing figures raised recession risks. The latest... ZEW said its monthly survey showed economic sentiment among investors fell to -44.1 from -24.5 in July, its lowest level since December 2011. The yield on the German 10-year bund fell to minus 0.617%, a record intraday low, after a key survey showed a sharp drop in sentiment.
- The German economy shrank last quarter by 0.1%, thanks to slower exports. Analysts say Brexit, the U.S.-China trade war, and the possibility of fresh U.S. tariffs on European car exports are all factors.
- The People's Bank of China says it will soon release its own cryptocurrency, designed to replace cash in circulation rather than generate credit. The move comes amid pressure from outside players such as Facebook with its central-bank-bothering Libra cryptocurrency.
- The Trump administration issued a rule that could disqualify legal immigrants from permanent residency if they use certain public-assistance programs and block entry by people deemed likely to need them.
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| Micro News:
- Bytedance launched a search engine this week that sits within its signature news aggregating service, Toutiao. The search engine, Toutiao Search, skims content from Bytedance’s suite of apps – which includes short video app, TikTok – as well as the broader worldwide web.
- Wall Street analysts have slashed their third-quarter profit estimates in recent weeks, painting a dark picture for investors already grappling with a simmering trade war, pockets of economic weakness and ominous signs from the bond market. At best, earnings across the companies in the S&P 500 will grow 1.5% this year, FactSet projects, far short of estimates for 6%-plus growth that analysts initially forecast back in January. Worse, a few analysts predict earnings could end up contracting for 2019 as a whole.
- Harry Markopolos, the financial examiner who once raised concerns over fraudster Bernie Madoff, has now claimed that GE has been engaging in "accounting fraud" by hiding losses.
- Walmart posted higher second-quarter sales and raised its profit outlook. Its shares rose more than 6%, lifting their 2019 gain to about 21%, slightly outpacing Amazon’s.
- As car makers pivot from the old gas-powered model, strategies are diverging. Saying they see no future for hybrids in their U.S. lineups, GM and VW are shifting most future investment to fully electric cars.
- Aaron Rasmussen, the co-founder of MasterClass, has formed a new company called Outlier.org. Outlier will create online classes, available for $400 each. Students will earn transferable U.S. college credit by taking these courses. The idea is that U.S. students can take the first two years of college for a fraction of what it costs today.
- At least 2,500 truck drivers have lost their jobs in 2019 in what Business Insider calls a transportation "bloodbath." "Rates in the spot market, in which retailers and manufacturers buy trucking capacity as they need it rather than through a contract, sank by about 18% year-over-year in June.
- At Spaceport America, Virgin Galactic's "Gateway to Space" building is now functionally operational, ready to host remaining test flights before welcoming its very first future astronauts. In addition, VMS Eve - the carrier mothership and launch platform for Virgin SpaceShips - arrived at the facility this week, bringing the company closer to starting commercial service.
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| | | | | | Select Earnings Announcements 8/19 - 8/23 |
| Monday 19 August
Estee Lauder [EL]
Baidu [BIDU]
Tuesday 20 August
Samsung Electronics [SSNLF]
Home Depot [HD]
Medtronic [MDT]
Kohl’s Corp [KSS]
Madison Square Garden [MSG]
Cree Inc. [CREE]
Toll Brothers [TOL]
Urban Outfitter [URBN]
Wednesday 21 August
Novo Nordisk [NVO]
Royal Bank of Canada [RY]
Lowe’s Companies [LOW]
Target Corp [TGT]
Synopsys [SNPS]
Infineon Technologies [IFNNY]
Nordstrom [JWN]
Thursday 22 August
Salesforce.com [CRM]
Intuit [INTU]
Vmware [VMW]
Ross Stores [ROSS]
Hp Inc [HPQ]
BJ’s Wholesale [BJ]
Dick’s Sporting Goods [DKS]
Friday 23 August
Foot Locker [FL]
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| | | | As always, make up your own mind and, more important, minimize your risk no matter what you do.
KIS,
The Trader
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