Brexit flag combo

MT Newswires Exclusive: Orderly Brexit Would Support US Monetary Policy Decisions, Economic Growth – Stifel

6:28 AM, Jan 19, 2017 — An orderly exit of Britain from the European Union’s single market could have a supportive effect on US monetary policy decisions and economic growth going forwards, brokerage firm Stifel Nicolaus & Co has predicted.

In an exclusive telephone interview held on Wednesday, Lindsey Piegza, chief economist at Stifel Nicolaus & Co, told MT Newswires that the trickle-back effect of a smooth withdrawal of Britain from the world’s largest trading bloc could be beneficial to the US.

“Should the Brexit be smooth and systematic and the UK economy begin to gain momentum, it’s very likely that the Bank of England would eventually join ranks with the Fed toward a further removal of accommodation which in turn would make it easier for the Fed to also engage in a higher interest rate policy if there are other central banks around the world that are also engaging in that type of activity,” Piegza said. “It would help [to] perpetuate a more positive, more normal monetary policy environment if we did see a steady Brexit lead to a pick-up in UK economic activity.”

Acknowledging that the US currency’s relative strength against the euro has been a competitive disadvantage to the US’ exporting sector of late, Piegza said that a further weakening of the euro could yet occur in the event that financial woes among other EU member states were to escalate.

“The biggest reaction that we’re expecting to see from the euro over the near term even as these [Brexit] negotiations are going on, is [to] any indications or further clarity regarding the underlying health of member countries that potentially could be next in line for an exit strategy; so what’s happening with Greece, what’s happening with Italy, Spain,” she said.

“Regardless of the reason, any further currency weakening, be that of the pound or the euro, certainly will serve to only exacerbate the fact that we cannot compete on a global stage from an export standpoint. And weak exports, [a] strong dollar, [and a] hard-hit manufacturing sector – these are three points that very clearly kept the Fed, or at least helped to keep the Fed, on the sidelines through 2016.”

Greece was rescued from the brink bankruptcy in 2015 with a third bailout, worth approximately 85 billion euros ($90.66 billion at current currency rates) from the International Monetary Fund, European Central Bank and European Commission. Since then, the Greek government has faced the challenging task of implementing a series of harsh austerity measures and economic reforms which were required in return for the three-year loan.

Spain, currently in the midst of an economic recovery and continuously grappling with secessionist movements in regions such as the Basque country and Catalonia, endured almost a year without a proper government following two inconclusive elections in December 2015. Political deadlock was only broken last October with Prime Minister Mariano Rajoy being elected for a second-term. Italy’s banking sector is in a vulnerable state and the nation also faces the prospect of an early election. Paolo Gentiloni was appointed as Italy’s new prime minister by Italian President Sergio Mattarella last December following former premier Matteo Renzi’s resignation after Italians voted against constitutional reform in a nationwide referendum the same month.

In the long-term though, Piegza projected that the euro could rally even following changes to the composition of the EU: “It’s a very real scenario that some of these countries [in the EU] facing extreme fiscal difficulties will have to resort to going back to their own domestic currencies in order to inflate the debt away,” she said.

“Near-term, you could see continued weakening of the euro, but I think longer term, if we did see some of these weaker links actually exit and drop out of the euro area, and we see the stronger economies banding together like France, Germany, the Benelux countries, I think ultimately that would be a net benefit for Europe. And once we see a more stable composition, I think the euro would rally through that longer term.”

On Tuesday, British Prime Minister Theresa May confirmed plans for Britain to leave the single market and pursue a new free trade agreement. In a speech delivered before diplomats more than six months after Britons voted to leave the shared currency union in a nationwide referendum, May outlined objectives for what she described as a “phased approach, delivering a smooth and orderly Brexit”.

“I want to be clear. What I am proposing cannot mean membership of the Single Market,” May said. “We seek a new and equal partnership – between an independent, self-governing, Global Britain and our friends and allies in the EU. Not partial membership of the European Union, associate membership of the European Union, or anything that leaves us half-in, half-out.”

May’s comments triggered a rally in the value of the pound although the nation’s key benchmark index, the FTSE 100 finished the day lower.

stock data

European Equities Mixed as Oil Prices Edge Lower, Pharma Stocks Advance

5:22 AM, Jan 18, 2017 — European equities were mixed on Wednesday morning after British Prime Minister Theresa May confirmed on Tuesday that the UK will leave the European Union’s single market, oil prices crept lower and pharmaceutical companies advanced.

In economic news, Germany’s inflation rate posted its highest level of the year in December. The consumer price index rose by 1.7% in the final month of 2016, according to fresh data published by the nation’s statistics office Destatis. The last time that a higher level of annual inflation was recorded in Germany was in July 2013, when the index advanced by 1.9%. On an annual average in 2016, the consumer prices in Germany rose 0.5% on 2015. The year-on-year rate of price increase, thus, was slightly above previous year’s level of 0.3%.

Across the Eurozone, annual inflation was 1.1% in December, according to data published by Eurostat, the statistical office of the European Union. This was up from 0.6% in November and well above the level registered in December 2015 of 0.2%.

And, oil prices were lower, with West Texas Intermediate crude oil, the main US oil benchmark, down by 1.5% at $51.69 per barrel and Brent crude, the international oil gauge, down by the same amount at $54.64 per barrel at the time of writing.

In equities, British American Tobacco led the gainers on London’s FTSE 100 Index, up by 2.3% the morning after it publicly disclosed that it had agreed to acquire US rival Reynolds American for $49.4 billion. Hikma Pharmaceuticals, 1.9% higher and Compass Group, a provider of food and support services, was up by 1.6%. High street bank HSBC was 1.3% higher and beverages maker Diageo was up by 1.2%.

On Frankfurt’s DAX, Merck, a company engaged in the pharmaceutical industry, was 0.8% higher, followed by athletic apparel retailer adidas, up by 1.7% and Commerzbank, 0.5% higher. Infineon Technologies, a semiconductor company, and Bayer, a pharmaceutical and chemical company, were also both up by 0.5%. And, on Paris’ CAC-40, CapGemini, a provider of consulting, technology and outsourcing services, was down by 1.9%, Bouygues, a telecommunication, media and construction conglomerate, was 1.0% lower and aircraft manufacturer Airbus was down by 1.4%.

The pan-European Stoxx 600 Index was 0.11% lower, London’s FTSE 100 Index was up by 0.10%, Frankfurt’s DAX was 0.13% higher and Paris’ CAC-40 was 0.35% lower at the time of writing.


Heard on Bloomberg Chat: Netflix Has Room to Grow Internationally Even Without Asian Gains

11:37 AM, Jan 17, 2017 — Netflix (NFLX) has room to grow its international subscriber base and profitability even without material gains in Asian markets, Mizuho said in a note to clients.

The company also will likely be a beneficiary of cord-cutting — the move to get away from cable — by consumers, said analysts at the bank, which upgraded Netflix stock to a buy rating. Mizuho said it now expects net-subscriber additions from 3.5 million to 4.6 million as subscriber growth improves. On-demand streaming services such as Sling TV and DirecTV could benefit the company as those who decide to cut the corn turn to Netflix.

“Finally, Comcast (CMCSA), Charter (CHTR) and TiVo deals should drive more sub growth,” Mizuho said. “In our revised international subscriber analysis, we believe that Netflix can continue to gain share in key European and LatAm markets. Also, if Netflix can show share gains in key Asian markets like Japan, South
Korea, and India, that could provide material upside.”

Companies: Netflix, Inc.
Price: 133.25 Price Change: -0.46 Percent Change: -0.34

*Street Color news alerts are derived from real time conversations with market professionals via the Ask Alyce – Chat Intel service on Bloomberg & Symphony. Join the chat >>

Oil pump, industrial equipment

Heard on Bloomberg Chat: Oil Production In Asia To Drop Sharply

4:34 AM, Jan 17, 2017 — Falling oil production in Asia could lop off a million barrels per day (bpd) by 2020 from about 7.5 million bpd in 2016 with demand expected to rise steadily led by China at the same time boosting imports into the region, a Wood Mackenzie report this week said.

“We estimate 2016 production of 7.5 million barrels per day will fall by over a million barrels per day by 2020,” said Angus Rodger, the energy consultancy’s Asia-Pacific upstream research director.

China, Indonesia, Malaysia and Thailand are among the biggest producers, but output has waned on a drop in spending to maintain existing fields, or find new ones, Rodger said.

“Lower oil prices and the severe cuts to upstream capex (capital expenditure) to mature assets has increased decline rates,” he explained in a new video published on Wood Mackenzie’s site.

Recently, global prices have staged a rebound as the Organization of the Petroleum Exporting Countries (OPEC) and other producers move to implement a supply cut of nearly 1.8 million bpd for the first half of 2017.

*Street Color news alerts are derived from real time conversations with market professionals via the Ask Alyce – Chat Intel service on Bloomberg & Symphony. Join the chat >>

Oil Pipelines

Concerns Grow Of Venezuela Financial, Crude Output Collapse

4:05 AM, Jan 13, 2017 — Analysts are increasingly concerned by rumored slumps in crude production by Venezuela’s state-owned energy company PDVSA with unconfirmed reports suggesting that 2017 will see production at nearly quarter-century lows.

For the past year food shortages linked to a sharp drop in the bolivar currency have led to looting and nearly daily protests against a socialist government that has resisted calls for economic reforms as oil revenues, the mainstay of the economy, continue to fall. Economists estimate the gross domestic product shrunk at least 10% in 2016, though official figures on the economy or oil production have not been released in more than a year.

Internally, PDVSA has forecast production at 2.501 million barrels per day (bpd) in 2017 and has said it will abide by an output cut with other OPEC members that aims to trim 1.2 million bpd from global markets led by Saudi Arabia.

However, the country is a net importer of refined products and has substantial commitments to China to ship crude in payment of loans and other aid such as medicines and food. China has lent Venezuela more than $50 billion through a decade-long oil-for-loans program, according to reports, with shipments to the country to reach 550,000 bpd in 2017 as part of payment terms.

Oil shipments to Indian firms that pay cash at the same time are expected to fall 15.5% to 360,000 bpd, likely making the cash crunch severe and preventing badly needed maintenance and expansion work on oil fields, analysts said.

Oil storage

MT Newswires Exclusive: JP Morgan’s ‘A Year of Two Halves’ in Oil

9:14 AM, Jan 9, 2017 — From J.P. Morgan: “today it’s a year of two halves.”

OPEC volatility and shale growth have undermined energy’s ability to outperform for a second consecutive year. Last year, JP Morgan made a fairly controversial prediction that energy would outperform the market for the first time in five years. While the firm remains fairly constructive across the energy landscape in the first-half of 2017, as data points, management commentary and OPEC compliance will likely conspire to draw additional fund flows into the energy sector, the realization that oil prices are capped around $60 per barrel will make it difficult for energy to continue its strong post-OPEC run (+13% XLE vs. 5% S&P since Sept. 27).

Admittedly, the transition from possibility to reality in U.S. politics could lead to a similar trajectory for the market, but as energy stocks move higher, so do the risks, says JP Morgan.

Positioning: “Sell in May and go away”.

*Street Color news alerts are derived from real time conversations with market professionals via the Ask Alyce – Chat Intel service on Bloomberg & Symphony.

Housing Market Updates

MT Newswires Exclusive: Millenials, Black Americans Being Left Out of Housing Boom as Home Prices Soar, Zillow Says

9:32 AM, Jan 5, 2017 — Millennials and African American buyers are being left out of the housing boom as home-cost increases outpace income gains, real estate website Zillow (Z) said in a report ahead of a conference next week.

About 14.5% of older millennials ages 26 to 34 now live at home, up from 12.9% in 2012 due to being “scarred” by the economic downturn and rising home prices, even as the number of younger millennials living with their parents decrease slightly, Zillow said in the report this week.

“Millennials want to own homes and have views about homeownership that are as conservative as their grandparents, but the share of millennials 18-34 living at home with their parents has increased sharply over the past decade,” Zillow said.

The report also showed a wide disparity between black and white home ownership. Blacks are denied loans at more than twice the rate as their white counterparts, and only 41% of African Americans are homeowners versus 72% of whites, the company said in the report. In the third quarter of 2016, full-time workers who were black earned about 23% less than those who were white, according to the Department of Labor.

Home values have soared in the past 20 years in areas with the “most social mobility,” making it difficult for people with low incomes to afford to purchase real estate, Zillow said. The bottom third of income earners spend twice as much of their income on mortgage payments than those in the top third.

Existing home sales in November rose to an annual rate of 5.61 million, the highest level since February 2007, according to the National Association of Realtors. The pace is up 15% year-over-year, the association said. The median existing-home price was $234,900, up 6.8% from the same month a year earlier, the 57th consecutive month of year-over-year gains, the NAR said. The biggest sufferers of rising housing prices: low-income earners, the report said.

“Housing affordability is worst for those making a low income, even if they are living in the cheapest homes available,” Zillow said. “In some expensive markets, those making incomes in the bottom third would have to spend more than half of that income to afford the monthly payment on the cheapest homes on the market. The cheapest homes were most likely to face foreclosure during the housing crisis, forcing those families to rent while their finances were recovering during a decade of the highest rent appreciation in history.”

Tesla Motors

Tesla Motors Starts Mass Production of Battery Cells at Gigafactory After 2016 Deliveries Miss

1:35 PM, Jan 4, 2017 — Tesla Motors (TSLA) has started mass production of lithium-ion battery cells at its Gigafactory, kicking off output of the key component for its Model 3 electric car after the company said a day earlier its 2016 deliveries were shy of estimates.

The Elon Musk-helmed firm said the batteries will also be used in its energy storage devices, according to a statement on Wednesday. The cells were designed along with Panasonic “to offer the best performance at the lowest production cost in an optimal form factor for both electric vehicles and energy products.”

Tesla has been moving ahead with its plans to lower the cost of batteries for its Model 3, a version of its electric car that was announced last year and touted as a more affordable option than its other versions. The cells produced from Wednesday will be used in Tesla’s Powerwall 2 and Powerpack 2 energy products, while output for Model 3 cells will follow in the second quarter.

“Our cost of battery cells will significantly decline,” Tesla said. “By bringing down the cost of batteries, we can make our products available to more and more people, allowing us to make the biggest possible impact on transitioning the world to sustainable energy.”

The factory in Nevada is being built in phases so that manufacturing can begin in the parts of the building that are ready while expansion continues elsewhere, Tesla said. The building is less than 30% done and once its complete Tesla said it believes it will be the biggest building in the world.

The Gigafactory news comes after the carmaker said late on Tuesday its 2016 deliveries were 76,230, below its goal of 80,000.

Short-term production challenges from the end of October through early December from the transition to new Autopilot hardware meant that fourth-quarter vehicle production was weighted more heavily towards the end of the quarter than it had originally planned, the company said.

Companies: Tesla Motors, Inc.
Price: 226.14 Price Change: +9.15 Percent Change: +4.22

Wall Street Street Sign

MT Newswires Exclusive: Stocks to Continue Run in 2017 Amid Increased Government Spending, Deregulation, Schwab Says

8:30 AM, Dec 29, 2016 — Expectations for increased government spending, deregulation in some industries and accelerated fiscal stimulus may boost stock prices to new highs in 2017, according to analysts at Charles Schwab (SCHW).

President-elect Donald Trump has said he plans to increase government spending by spending $1 trillion on infrastructure in the next decade. He also has said he will decrease regulations on businesses and has nominated several pro-business candidates to his cabinet including ExxonMobil (XOM) Chief Executive Rex Tillerson and Oklahoma Attorney General Scott Pruitt.

The Trump administration will inherit a strong economy and stable labor market with positive inflation trends that will support several rate hikes next year. The Federal Reserve, headed by Chair Janet Yellen, earlier in December raised its base interest rate by 25 basis points to a target range of 0.5% to 0.75%, and indicated it would raise rates three times next year. Several analysts and economists forecast two rate increases in 2017.

Regardless of how many times rates are raised, the increases could add momentum to the move to stocks from bonds, said Omar Aguilar, Schwab’s chief investment officer for equities and multi-asset strategies.

“US stocks could reach new highs in 2017 amid expectations that Trump’s platform will make additional tax reductions and increased corporate spending possible, potentially leading to stronger corporate earnings growth,” Aguilar said in a note to clients. “This combination may outweigh concerns about political uncertainty and Trump’s protectionist stance.”

If global bond yields continue to improve, investors likely will move from utilties and consumer staples stocks with “overinflated” valuation into cyclical sectors as they’ve been doing recently, he said. The biggest beneficiaries of Trump’s election will be small-cap stocks, financials and industrials, Aguilar said.

Stock indexes that were reading record highs before the Nov. 8 election have continued to push higher with the Nasdaq reaching new peaks this week and the Dow Jones Industrial Average just shy of the 20,000 mark. Investors have said they believe deregulation and an improved business tax climate will boost profits.

Banking shares have benefited from Trump’s ascendence to the Oval Office. Bank of America (BAC) is up almost 30%, Wells Fargo (WFC) shares are up 22% and JPMorgan Chase (JPM) is up 24% since the election.

Globally, developed markets may outperform underdeveloped regions, Aguilar said. Currency volatility likely will continue as inflation expectations and political uncertainty increase amid diverging central bank policies, Aguilar said.

“Developed markets could outperform emerging markets if Europe and Japan continue to recover, while volatility among emerging markets seems likely to continue,” he said.

The fixed-income landscape has changed little in the past year — the Fed hiked rates in December 2015 and again this month. And as with last year, the Federal Open Market Committee predicted several rate hikes in the next 12 months anticipating a faster pace of inflation. Until it arrives, however, the Fed isn’t likely to increase rates rapidly, said Brett Wander, chief investment officer for fixed income at Schwab.

“As we approach the New Year, it may seem like we’re entering a whole new world, but we’re really not,” he said in the note. “Yellen has been dovish for years and we don’t see that changing in 2017, even if Trump doesn’t like it.”

Ten-year treasury yields that ranged from 1.5% to 2% in 2016 likely will rise to 2% to 3% next year, Wander said. US bonds will remain more attractive than those offered by Europe and Japan as long as inflation remains in check, and despite what Yellen and Trump have said recently, there’s been little uptick in inflation, Wander said.

“Be wary of yield temptations and credit risk,” he said. “Next year could prompt investors to reach for higher yields. High-yield and emerging-market bonds may seem tempting, but the risk-reward tradeoff is currently skewed. Many factors could harm these securities in 2017, so we suggest a wary approach to higher yields and a focus on the long-term, instead.”

Oil workers

MT Newswires Exclusive: Rebounding US Oil Output in 2017 Will Begin to Weigh on Prices After First Quarter

8:17 AM, Dec 22, 2016 — US oil production that plunged in 2016 will rebound next year if oil producers continue to bring mothballed rigs back online, Goldman Sachs said this week, which may cause prices to taper off after the first quarter.

Crude output is expected to have declined by 620,000 barrels a day this year even after production companies reopened dozens of rigs as prices climbed since reaching the lowest in almost a decade in February, according to estimates published by investment bank Goldman Sachs. Production is projected by the bank to climb by 120,000 barrels a day in 2017 if the drillers continue to bring rigs back online.

“The backlog of drilled but uncompleted wells remains elevated, and would result in significant upside potential for US production,” Goldman analysts led by Damien Courvalin said in a report this week.

The number of oil rigs operating in the US rose by a dozen to 510 last week, the seventh straight increase and the highest since January, oilfield services firm Baker Hughes said in a report. The rig count figure reached a record 1,609 in October 2014 then fell to a six-year low of 316 in May 2016 as prices plunged, according to Baker Hughes.

Several hundred more rigs remain offline, but putting them back into production may mean subdued prices later in the year, BMO Capital Markets said in a report this week.

Global overproduction in the latter half of 2014, throughout 2015 and for much of 2016 resulted in the price of oil falling to about $26 a barrel in February with devastating consequences for nations whose economic growth relied on crude revenue. The price of West Texas Intermediate crude oil, the main US oil benchmark, fell from a peak of more than $100 a barrel in 2014.

Venezuela, where oil accounts for 96% of exports, slid into a recession in 2014 amid falling oil prices and inadequate macro and microeconomic policies. Gross domestic product in the country contracted by 3.9% in 2014, 5.7% in 2015 and is estimated to have fallen by more than 10% in 2016, according to the World Bank. The country experienced 121% inflation in 2015.

Oil producers, to combat the price declines, took hundreds of rigs offline. Their plan worked as prices have nearly doubled since February.

In November, the Organization of the Petroleum Exporting Countries, whose members collectively generate more than one third of the world’s oil supplies, pledged to collectively lower output by 1.2 million barrels per day starting on Jan. 1, marking the first agreement of its kind in almost a decade. Within a week, major oil-producing nations which were not members of OPEC had committed to lower production by an additional 558,000 barrels per day.

Oil companies benefited from the price increase throughout the year as Chevron (CVX) shares have gained more than 30% in the past 12 months, ExxonMobil stock is up 16% and Schlumberger Limited (SLB) shares have risen 24%.

Companies that produce crude likely will “perform well early in 2017, riding a wave of enthusiasm created by OPEC’s production cut and falling global crude oil inventories” before prices taper off after the first quarter, BMO Capital Markets said in a report this week.

“We expect the wave to dissipate over the course of the year as US producers put more rigs to work,” the analysts said. “We believe that oil prices will generally trade in a $40- to $60-a-barrel range in 2017 with the floor established by OPEC’s shift in strategy and the ceiling by the ability of U.S. producers to add more rigs.”