Weekly Market Update: Political Turmoil Hits FX; Big Tech Sells Off on Friday
US stock markets digested a host of headline risk late in the week, with the Dow remaining at lofty levels while the Nasdaq sold off into Friday afternoon. Geopolitics largely ruled the roost, with terrorist attacks in London and Tehran, a Saudi rift with Qatar, former FBI Director Comey's testimony, and a surprise result in the UK election all registering on traders' radar screens. The ECB boosted its economic growth outlook for the Eurozone midweek, but kept interest rates on hold, though Mario Draghi said the ECB would continue its bond-buying program and will remain in the market for 'a long time.' The EUR/USD fell below 1.1200 on Thursday to hit its lowest point in June, and later that evening the pound weakened sharply when it became clear the UK election would result in a hung parliament. Crude was down ~3% on the week, hurt by US inventory builds, despite diplomatic turmoil between the Gulf states. Treasury yields lifted marginally and gold pared back its recent gains as safe haven assets came under pressure.Stocks were mostly higher, but large cap tech sold off on heavy volume on Friday, with profit-taking apparently triggered by a short seller note on Nvidia. The late drop in stocks lifted the VIX volatility index off of a two-decade low.For the week, the DJIA gained 0.3%, while the S&P slipped 0.3% and the Nasdaq lost 1.6%.
On the political front, Mexico came to agreement with the US government to cut its exports of refined sugar, a deal that bodes well for upcoming NAFTA renegotiation talks later in the summer. The House of Representatives passed a repeal of Dodd-Frank financial regulation on a party-line vote, though the replacement bill will likely have trouble in its current form in the Senate as it would be subject to filibuster rules. There was also some chatter this week that a GOP Obamacare replacement health care bill was making progress behind the scenes in the Senate, but no timeline was announced.
In corporate news, Macy's shares dipped on Tuesday along with other department store retailers after its CFO talked down margins at its analyst day. Nordstrom popped higher Thursday on word the Nordstrom family is considering taking the retailer private. Airlines climbed on continued softness in oil and Delta comments that it's on track to expand margins over the balance of the year. And NVIDIA led the Nasdaq lower on Friday after Citron's Andrew Left reiterated his cautious comments and said over-optimism has led people to discount the tech manufacturer's competition.
SUNDAY JUNE 4
World Bank maintains both 2017 and 2018 global GDP growth forecast; Warns on emerging market growth
*(HK) HONG KONG MAY COMPOSITE PMI: 50.5 V 51.1 PRIOR (2nd straight expansion)
(CN) CHINA MAY CAIXIN PMI SERVICES: 52.8 V 51.5 PRIOR (4 month high)
MONDAY JUNE 5
(FR) FRANCE MAY FINAL SERVICES PMI: 57.2 V 58.0E (confirms 11th month of expansion)
Evergrande reports May contracted sales CNY38.2B v CNY21.7B y/y
(US) Q1 FINAL NONFARM PRODUCTIVITY: 0.0% V -0.2%E; LABOR COST: 2.2% V 2.4%E
(US) MAY FINAL MARKIT SERVICES PMI: 53.6 V 54.0 PRELIM
(US) APR FINAL DURABLE GOODS ORDERS: -0.8% V -0.5%E; DURABLES EX TRANSPORTATION: -0.5% V -0.4% PRELIM
TUESDAY JUNE 6
(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET UNCHANGED AT 1.50% (AS EXPECTED)
*(EU) EURO ZONE JUN SENTIX INVESTOR CONFIDENCE: 28.4 V 27.4E (highest reading since July 2007)
FAST Reports May Net Sales $383.5M, +14.9% y/y
August gold future approachs April high of $1300
(US) APR JOLTS JOB OPENINGS: 6.044M V 5.75ME (record high, first time above 6M)
*(US) S&P AFFIRMS UNITED STATES OF AMERICA SOVEREIGN RATING AT AA+; OUTLOOK STABLE
(AU) AUSTRALIA Q1 GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.7% V 1.6%E (ties longest expansion on record but at slowest annual pace since 2009)
WEDNESDAY JUNE 7
(IR) Shooting reported inside Iran Parliament and reports of hostages taken - Twitter sources
(UK) MAY HALIFAX HOUSE PRICE M/M: +0.4% V -0.2%E; 3M/Y: 3.3% V 3.0%E
(CH) CHINA MAY FOREIGN RESERVES: $3.054T V $3.046TE (4th straight increase and longest streak since Jun 2014)
(EU) OECD Economic Outlook; Raises 2017 Global GDP forecasts from 3.3% to 3.5% (highest since 2011)
(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.25%; AS EXPECTED
(IR) Iran Revolutionary Guards spokesperson: Saudi Arabia was behind terrorist attacks in Tehran today - press
(US) Association of American Railroads weekly rail traffic report for week ending June 3rd: 500.2K carloads and intermodal units, +9.8% y/y (21st straight week of gains)
(QA) Pres Trump reportedly told Qatari leaders in a phone call that he is ready to find a solution to Gulf crisis - Qatar press
(US) Senate Intel Committee posts former FBI Dir Comey's opening statement for tomorrow's Senate testimony
(US) Freedom Caucus' Meadows (R-NC): if Dems to vote for clean debt limit, let's vote now
(JP) JAPAN Q1 FINAL GDP Q/Q: 0.3% V 0.6%E; ANNUALIZED GDP: 1.0% (3-quarter low) V 2.4%E
(AU) AUSTRALIA APR TRADE BALANCE (A$): +0.56B V +2.00BE (6th consecutive surplus, smallest surplus in 6 months)
(CN) CHINA MAY TRADE BALANCE (CNY): 281.6B V 324.1BE
(CN) China Passenger Car Association (PCA): May vehicle sales 1.78M units, +1.2% y/y; YTD sales 9.05M units, -0.9% y/y
(CN) CHINA MAY TRADE BALANCE: $40.8B V $47.8BE
THURSDAY JUNE 8
(EU) EURO ZONE Q1 FINAL GDP Q/Q: 0.6% V 0.5%E; Y/Y: 1.9% V 1.7%E (highest annual pace since 2015)
(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE UNCHANGED AT 0.00%; AS EXPECTED
(EU) ECB STATEMENT AMENDS ITS FORWARD GUIDANCE: Removes "lower" on interest rate outlook
(EU) ECB's Draghi: Sees interest rates at present level well past end of QE; to preserve favorable conditions needed
UBI.IT Priced €400M rights offering share offering at 26% discount
(EU) ECB's Draghi: Council did not vote on language change; did not hear any dissent - Q&A
(EU) ECB's Draghi: Could still cut interest rates if necessary should the situation worsen - ECB press conf Q&A
(MX) MEXICO MAY CPI M/M: -0.1% V -0.1%E; Y/Y: 6.2% V 6.2%E; CORE CPI M/M: 0.3% V 0.3%E
(US) Former FBI Dir Comey: the shifting explanations of firing confused and concerned him; Trump had repeatedly said he was doing a good job - testimony to Congress
(US) Fed reports Q1 Financial Accounts: Household Change in Net Worth: $2.347T v $2.043T prior
(JP) BOJ's Kuroda: Japan is no longer experiencing deflation; long way to go until Japan price stability target is achieved - comments in UK
(US) Pres Trump's attorney: Comey hearing established that Trump was not being investigated for colluding or attempting to obstruct FBI investigation
(US) House passes Dodd-Frank financial law replacement bill - press
(UK) UK exit poll shows Prime Min May's Conservative Party set to win 314 seats; may fall short of majority and could be a hung parliament - NOP/Ipsos MORI poll
(PE) PERU CENTRAL BANK (BRCP) LEAVES REFERENCE RATE UNCHANGED AT 4.00%
(CN) CHINA MAY CPI M/M: -0.1% V 0.1% PRIOR; Y/Y: 1.5% (4-month high) V 1.5%E
(CN) CHINA MAY PPI Y/Y: 5.5% V 5.6%E; 5-month low
FRIDAY 6/9
(FR) FRANCE APR INDUSTRIAL PRODUCTION M/M: -0.5% V +0.2%E; Y/Y: 0.6% V 1.2%E
(UK) APR INDUSTRIAL PRODUCTION M/M: 0.2% V 0.7%E; Y/Y: -0.8% V -0.3%E
(UK) PM May: I will now form a government; Brexit talks to start in 10 days as expected
(CA) CANADA MAY NET CHANGE IN EMPLOYMENT: +54.5K V +15.0KE; UNEMPLOYMENT RATE: 6.6% V 6.6%E
(US) New York Fed Nowcast: raises Q2 GDP forecast to 2.3% from 2.2% on 6/2; maintains Q3 GDP forecast at 1.8%, unchanged from 6/2
NVDA Citron makes cautious comments again; sets $130 price target
Closing Market Summary: Rotation Trade Leaves Averages Mixed
The major U.S. indices closed the week on a mixed note as a sector rotation trade pitted the top-weighted technology sector (-2.7%) against the financials (+1.9%) and energy (+2.5%) groups. The tech-heavy Nasdaq (-1.8%) finished solidly lower while the S&P 500 (-0.1%) settled just a tick below its unchanged mark. Meanwhile, the Dow and the Russell 2000 outperformed, adding 0.4% apiece. For the week, the S&P 500 declined 0.3%.
Some of 2017's top-performers thus far, including Apple (AAPL 148.98, -6.01), Microsoft (MSFT 70.32, -1.63), Amazon (AMZN 978.31, -31.96), Alphabet (GOOGL 970.12, -34.16), and Facebook (FB 149.63, -5.08), fell to heavy selling pressure on Friday, posting losses between 2.3% and 3.9%. Chipmakers made matters even worse, evidenced by the 4.3% decline in the PHLX Semiconductor Index, with NVIDIA (NVDA 149.60, -10.34) showing relative weakness (-6.5%). Needless to say, the top-weighted technology group (-2.7%), which houses five of the six aforementioned companies, also settled solidly lower.
Typically, the stock market wouldn't have had a chance to overcome a 2.7% decline in the technology sector. However, the financials and energy groups, which have lagged thus far in 2017, kept losses in check with big gains of 1.9% and 2.5%, respectively. Their outperformance, when pitted against the stark underperformance of the information technology sector, makes it pretty evident that a sector rotation trade was in play.
The health care sector also put together a solid showing, adding 0.6%, with pharmaceutical names like Pfizer (PFE 32.77, +1.02) and Merck (MRK 64.39, +1.19) leading the advance; the two companies added 3.2% and 1.9%, respectively. Likewise, the lightly-weighted materials (+1.3%) and telecom services (+0.9%) groups outperformed while the remaining advancers--industrials and real estate--finished with gains of 0.4% apiece.
On the flip side, the consumer discretionary sector (-0.4%) underperformed as Amazon's tumble easily outweighed a positive performance from retailers. Like the energy and financial sectors, the SPDR S&P Retail ETF (XRT 41.04, +0.58) moved higher today, adding 1.4%, despite having struggling throughout the year. The consumer staples (-0.1%) and utilities (unch) spaces also finished in the red, but settled roughly in line with the broader market.
In Europe, UK Prime Minister Theresa May's Conservative Party unexpectedly lost its parliamentary majority in yesterday's snap election, reducing its seats to 318 from 331. The British pound (1.2735) dropped noticeably following the results, retreating 1.7% against the U.S. dollar, but European indices took the news in stride; the UK's FTSE jumped 1.0% while Germany's DAX and France's CAC added 0.8% and 0.7%, respectively.
Despite today's slip on Wall Street, safe-have assets experienced modest selling pressure. Gold dropped 0.6% to $1,272.50/ozt and U.S. Treasuries finished lower across the yield curve with the benchmark 10-yr yield climbing two basis points to 2.21%.
On the data front, investors received only one economic report--April Wholesale Inventories--on Friday:
- April Wholesale Inventories decreased 0.5% (consensus -0.1%). The prior month's reading was revised to 0.1% from 0.2%.
- The market doesn't typically pay much attention to this release since the full business inventories report is usually released a short time later.
Investors will not receive any economic data on Monday.
- Nasdaq Composite +15.3% YTD
- S&P 500 +8.6% YTD
- Dow Jones Industrial Average +7.6% YTD
- Russell 2000 +4.8% YTD
US tech shares headed for biggest drop in almost a year
An abrupt sell-off in technology stocks that started around midday In New York trading dragged the S&P 500 technology sector down as much as 4.2 per cent on Friday in its biggest fall since the day following last June’s Brexit vote.
An hour before the close of trading, Apple was down 4.4 per cent, Microsoft lost almost 4 per cent, Facebook was down about 4 per cent, Alphabet was down down 3.7 per cent, and Netflix was sitting 5.4 per cent lower. Nvidia — which saw a 7 per cent rise a day earlier — was off 8 per cent.
The Nasdaq 100 index was down about 2 per cent on the day, having recovered slightly after being down almost 3 per cent.
The price of palladium, a precious metal used to control harmful vehicle emissions, jumped on Friday, is on course to close at a three year high on Friday as investors piled in.
The precious metal rose by as much as 7 per cent to $917.40 an ounce, extending gains since the start of the year to 30 per cent, making it one of the best-performing commodities.
Analysts pinned the latest gains on a combination of factors: strong demand, rising investor interest and constrained supplies.
“Perhaps there isn’t one big explanation or a specific catalyst that has led to the recent market moves, but rather confluence of factors that have actually been brewing (and market participants) have been discussing for a while,” said Joni Teves, analysts at UBS.
Investors are warming to platinum because of shifts in the car market. Gasoline and hybrid vehicles, fitted with palladium-rich catalytic convertors, are becoming increasingly more popular with consumers.
At the same time, buyers are turning their backs on diesel-powered vehicles, which used platinum-rich autocatalysts. This is because they are worried about possible legislation changes in the wake of the Volkswagen emissions scandal.
That in turn has weighed on platinum, which has gained just 4 per cent since the start of the year and is currently at $940 an ounce. The last time the two metals traded at parity was in 2001.
We conclude that:
a.
To the extent that we have ruled that the European Union's claims under Articles 3.1(a),
3.1(b) and Article 3.2 of the SCM Agreement
are within the scope of this proceeding,
these claims are unfounded because: (i) certain measures challenged by the
European Union are not subsidies provided to
Boeing after the end of the implementation
period; and (ii) where we find that the measures at issue are subsidies provided to
Boeing after the end of the implementation
period, the European Union has failed to
establish that any of these subsidies is contingent in fact upon export performance or
upon the use of domestic over imported goods.
b.
To the extent that we have ruled that the European Union's claims under Article III:4 of
the GATT 1994 are within the scope of this proceeding, the European Union has failed to
establish that any of the measures at issue is inconsistent with Article III:4 of the
GATT 1994.
Goldman Sees MiFID Equities Headwinds, Some Offsets: Nomura
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Key focus in equities business during Nomura Instinet meeting with Goldman CFO Marty Chavez earlier this week was on potential impact from new European trading rules called MiFID II (Markets in Financial Instruments Directive), analyst Steven Chubak writes in note recapping meeting.
- Chavez noted expectations for severe downward rev. pressure with any regulatory/market structure change over the years (like Regulation NMS, decimalization); said MiFID II is no different
- At the same time, rev. headwinds have generally been at least partly offset by opportunities; for example, shift from active to passive hurt equity commissions but also prompted new products
- Chavez said GS scale, differentiated content position firm well
- Messaging at meeting suggests GS is starting to focus on growth after prioritizing control levers (capital, expense mgmt), which may have dragged on rev./pricing; progress may be obscured by challenging 2Q; GS acknowledged recent FICC weakness raises questions about appropriate balance between control and growth
- Chavez highlighted growth prospects in number of areas, including Marcus (room for further loan growth), consumer adjacencies, other tech-focused opportunities, like providing data analytics to clients, recent investment in quant fund offerings
- GS up as much as 2.1% to highest intraday since May 26 while S&P 500 financials (S5FINL) gains as much as 1.5% to highest since March 21, KBW banks index (BKX) rises 2% to highest since May 9