Weekly Market Update: Markets Remain Positive on Solid
Investors had an overwhelming amount of information to digest this week, with much of it again emanating out of Washington DC. The week began with news that President Trump’s former campaign chairman, Paul Manafort, would be indicted with others as part of special counsel Mueller’s Russia probe. By Wednesday, House Republicans released the long awaited details of their tax reform proposal after a 24 hour delay, and the following day the President confirmed Jerome Powell was his choice for the next FOMC Chairman. The three DC headlines sandwiched three key central bank meetings. The US Fed and BOJ, as expected, each left rates unchanged and made minimal revisions to their policy statements. That left the Fed squarely on track for a December rate hike. The Bank of England, in a somewhat controversial yet expected decision, raised rates for the first time in a decade taking back last summer’s post-Brexit referendum cut. Nevertheless, the statement was viewed in a somewhat dovish light because it removed previous language that interest rates may need to rise more than markets expected. By Friday, all eyes were on the October jobs report that served up some surprises, but overall along with a 12-year high in the ISM services reading reinforced the notion that the US economy, helped by growth globally, may be gaining traction at higher gear than has been seen over the last decade.
Treasury prices rose, putting modest downward pressure on yields. The long end saw better buying resulting in curve flattening after the Treasury secretary indicated there was little interest in issuing ultra-long bonds at this time, and the size of the quarterly refunding issuance remained unchanged. The Dollar Index pushed back towards the recent 5-month highs helped by the robust US data and hopes for fiscal stimulus. WTI crude futures finished the week at the best levels since this spring as consensus grows that OPEC and its partners will extend their production cuts by 9-months through the end of 2018. The VIX volatility index finished the week not far from the October lows while stocks ended on a high note. For the week, the DJIA gained 0.4%, the S&P500 added 0.3%, and the Nasdaq rose 0.9%.
Earnings season pushed onward with another third of S&P500 names reporting. Once again, many highlights came from the tech space led by Apple on Thursday. Rising material costs and disruptions from the hurricanes wreaked havoc on margins and outlooks for some sectors. Management missteps continued to get punished mercilessly, particularly in retail.
In corporate news this week, Apple recorded another blowout quarter, pointing to strong iPhone 8 and iPhone X orders, as the tech giant’s market cap stretched to $900B. Facebook posted big beats on its top and bottom line, but shares fell when it forecast expenses growing 45-60% next year. Worse than expected same-store sales and a cut to long-term outlook from Starbucks sent its stock tumbling after hours Thursday, but the coffee chain rebounded on Friday as buyers queued up. Tesla was weaker on a wider-than-anticipated loss for the quarter and after the House tax plan put the federal electric vehicle tax credit on the scrap heap. In M&A news, Lennar agreed to acquire CalAtlantic Group for $51.34/share in a $9.3B transaction to create the largest homebuilder in the United States. Power producer Dynegy agreed to a $20B all-stock merger with Vistra Energy in order to address shrinking profit margins in the industry. Rockwell Automation rejected an unsolicited $215/shr bid from Emerson Electric on grounds the offer was not in shareholders’ interests. And on Friday, reports emerged that Broadcom was making a play for chip maker Qualcomm, putting QCOM’s bid for NXP Semiconductor in jeopardy.
MONDAY 10/30
7974.JP Reports H1 Net profit ¥51.5B v ¥38.3B y/y, Op profit ¥40.0B v loss ¥5.95B y/y, Rev ¥374B v ¥137B y/y; Raises FY18 outlook
386.HK Reports Q3 (CNY) Net 11.3B v 9.9B y/y, Op 20.3B v 16.9B y/y, Rev 579.1B v 484.7B y/y
(EU) EURO ZONE OCT BUSINESS CLIMATE INDICATOR: 1.44 V 1.40E ; CONSUMER CONFIDENCE (FINAL): -1.0% V -1.0E
CAA To be acquired for ~$51.34/shr by Lennar in all stock transaction valued at $9.3B inc debt; Creating largest US homebuilder
AMZN Reportedly has slashed seller fees to try to improve its grocery selection online - RECODE
(US) SEPT PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.3% V 1.3%E
(US) SEPT PCE DEFLATOR M/M: 0.4% V 0.4%E; Y/Y: 1.6% V 1.6%
(US) SEPT PERSONAL INCOME: 0.4% V 0.4%E; PERSONAL SPENDING: 1.0% V 0.9%E
TATA.IN Reports Q2 (INR) Net 9.76B v 16.6Be, Rev 325B v 323Be
(DE) GERMANY OCT PRELIMINARY CPI M/M: 0.0% V 0.1%E; Y/Y: 1.6% V 1.7%E
(US) Atlanta Fed forecasts initial Q4 GDP at 2.9%
MDLZ Reports Q3 $0.57 v $0.54e, Rev $6.52B v $6.46Be
TUESDAY 10/31
AIR.FR Reports Q3 Net €348M v €50M y/y; Adj EBIT €697M v €632Me, Rev €14.2B v €14.0Be
(FR) FRANCE Q3 ADVANCE GDP Q/Q: 0.5% V 0.5%E; Y/Y: 2.2% V 2.1%E
BP.UK Reports Q3 Net $1.87B v $1.58Be, Underlying replacement cost profit $1.87B v $933M y/y, Total Rev $60B v $48B y/y; to commence share buyback in Q4
(FR) FRANCE OCT PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 1.1% V 1.0%E
(FR) FRANCE CONSUMER SPENDING M/M: 0.9% V 0.6%E; Y/Y: 2.8% V 1.9%E
WCG Reports Q3 $4.08 v $1.63 y/y, Rev $4.40B v $4.40Be
(EU) EURO ZONE OCT ADVANCE CPI ESTIMATE Y/Y: 1.4% V 1.5%E; CPI CORE Y/Y: 0.9% V 1.1%E
(US) Nevada reports Sept casino gaming Rev $979.9M, +3.3% y/y; Las Vegas strip rev $567.9M, +4.7% y/y
(US) OCT CONSUMER CONFIDENCE: 125.9 V 121.5E (highest since Dec 2000)
X Reports Q3 $0.92 v $0.67e, Rev $3.25B v $3.04Be
WEDNESDAY 11/1
(HK) Macau Oct Gaming Rev MOP22.6B, +22.1% y/y v 14.5%e
STAN.UK Reports Q3 adj pretax $814M v $861Me, op income $3.59B v $3.64Be
(US) OCT ADP EMPLOYMENT CHANGE: +235K V +200KE
NYT Reports Q3 $0.13 v $0.09e, Rev $385.6M v $388Me (2 est)
(US) OCT FINAL MARKIT MANUFACTURING PMI: 54.6 V 54.5E
(US) OCT ISM MANUFACTURING: 58.7 V 59.5E; PRICES PAID: 68.5 V 67.8E
(US) Atlanta Fed raises Q4 GDP to 4.5% from 2.9% on 10/30
(US) Association of American Railroads weekly rail traffic report for week ending Oct 28th: 546.6K carloads and intermodal units, +0.2% y/y (Strongest month for intermodel in history)
FB Reports Q3 $1.59 v $1.29e, Rev $10.3B v $9.88Be
TSLA Reports Q3 -$2.92 v -$2.45e, Rev $2.98B v $2.92Be
FB CFO: See FY18 total GAAP expenses +45-60%; continue to see decelerated ad revenue growth for the foreseeable future - earnings call comments
COST Reports Oct Total SSS (ex-gas) 5.6%; US SSS (ex-gas) 5.9% v 4.9%e
THURSDAY 11/2
992.HK Reports Q2 Net $139M v $157M y/y, Rev $11.76B v $11.2B y/y
CARLB.DK Reports Q3 (DKK) Rev 16.7B v 17.1Be
CSGN.CH Reports Q3 (CHF) Net 244M v 201Me, adj Pretax 620M v 237M y/y, Rev 4.97B v 4.97Be
RDSA.NL Reports Q3 adj Profit $4.09B v $3.6Be, basic CCS EPS $0.50 v $0.44e, Rev $75.8B v $61.9B y/y
(DE) GERMANY OCT UNEMPLOYMENT CHANGE: -11K V -10KE; UNEMPLOYMENT RATE: 5.6% V 5.6%E
DWDP Reports Q3 $0.55 v $0.45e, Rev $18.3B v $17.5Be; to cut workforce
(CZ) CZECH CENTRAL BANK (CNB) RAISES REPURCHASE RATE BY 25BPS TO 0.50%; AS EXPECTED
(UK) BANK OF ENGLAND (BOE) RAISES INTEREST RATES BY 25BPS TO 0.50%; AS EXPECTED
(UK) BOE NOV MINUTES: VOTED 7-2 TO RAISE INTEREST RATES BY 25BPS TO 0.50% (Ramsen and Cunliffe dissented to keep policy steady)
(US) Q3 PRELIMINARY NONFARM PRODUCTIVITY: 3.0% V 2.6%E; UNIT LABOR COSTS: 0.5% V 0.4%E
DAL Reports Oct Load factor 86.0%, +0.9ppt y/y
SYT Obtains non-exclusive IP license from Broad Institute for CRISPR-Cas9 genome-editing technology for agriculture applications
(US) PRESIDENT TRUMP NOMINATES JEROME POWELL TO FED CHAIR POSITION (AS EXPECTED)
(US) Fed Chair-designate Powell: committed to dual mandate of maximum employment and stable prices - comments in Rose Garden
SBUX Reports Q4 $0.55 v $0.55e, Rev $5.70B v $5.73Be; Raises dividend 20%; Estab $15B 3-yr buyback plan (~19% market cap)
AAPL Reports Q4 $2.07 v $1.87e, Rev $52.6B v $51.2Be
(AU) Australia Sept Retail Sales M/M: 0.0% v 0.4%e; Q3 Ex Inflation Q/Q: 0.1% v 0.0%e
(CN) PBOC CONFIRMS CNY404B MEDIUM-TERM LENDING FACILITY (MLF) OPERATION; Offers 1-year loans at 3.20% v 3.20% prior
FRIDAY 11/3
GLE.FR Reports Q3 adj Net €1.08B v €1.0Be, Gross Op €1.96B v €1.99B y/y, Adj Rev €5.96B v €6.04Be
(UK) OCT SERVICES PMI: 55.6 V 53.3E (15th month of expansion)
(US) OCT UNEMPLOYMENT RATE: 4.1% V 4.2%E (lowest level since Dec 2000)
(US) OCT AVERAGE HOURLY EARNINGS M/M: 0.0% V 0.2%E; Y/Y: 2.4% V 2.7%E; AVERAGE WEEKLY HOURS: 34.4 V 34.4E
(US) SEPT TRADE BALANCE: -$43.5B V -$43.3BE
(US) OCT CHANGE IN NONFARM PAYROLLS: +261K V +313KE
MTB Continues to expect FY17 low-single digit overall loan growth - Investor presentation
(US) OCT ISM NON-MANUFACTURING COMPOSITE: 60.1 V 58.5E (highest since Aug 2005)
QCOM Broadcom reportedly considering bid to acquire Qualcomm - press
