Stocks continued to be choppy this week but there were signs of a potential bottom as the week ended slightly higher for most U.S. stock indices (more in the Chart Time! section). There are grumblings of another try at healthcare legislation next week but we will have to contend with the budget and a potential government shutdown on Friday before a vote on any new legislation. Stay tuned.
Tomorrow, we will have to contend with the results from the French election and how they will affect the financial markets. There are concerns over a French exit from the Euro but its more likely the French people have immigration policy in mind when they cast their votes today. Only one candidate (Marie Le Pen) has called for a referendum like we saw last year in Great Britain and polls show that 60% of the French citizens would rather stay in the Euro zone, anyway. The terrorist acts that took place in France this week are more likely to make today’s vote a referendum over immigration polices. I don’t have a good read on all the candidates but the wave of populism across the globe is hard to ignore.
If we make a bottom in stocks this week without creating much damage, we should rally higher into the summer months. Earnings are still in focus and the two weakest sectors, energy (oil) and retail are the only areas where there is likely to be bad news. Otherwise, look for a near-term bottom in the U.S. stock markets.
Economic & Central Banking Snippets
- China’s gross domestic product grew at an annual rate of 6.9% in Q1 as there was a surge in industrial activity, property investment and credit growth. The strength of China’s industrial sector was augmented by growth in Chinese credit — including shadow lending outside the formal banking sector — and a bullish turn in commodities that began last year. “This level of growth cannot be sustained. The first quarter’s results were boosted by bank lending, and a peak in starts of long-term construction projects. After this, the indicators will start to weaken,” said Wang Xinling, lead analyst at China Policy, a think-tank. (FT)
- Central banks are still active with their balance sheets. The chart on this page shows central banks around the world continue to buy bonds as a form of stimulus. Will this end in tears some day? (SNB = Switzerland; BOE = U.K.; BoJ = Japan; PBOC = China; ECB = Europe; Fed = U.S.A.)
- US industrial production — a measure of everything made by factories, mines and utilities — rose in March to 0.5% according to data from the Federal Reserve. An unusually cold March provided an unexpected boost to demand forhome and office heating. Utilities production rallied 8.6% during the period, breaking two months of declines. Consumer goods output also rose for the first time in two months, climbing 1.2%. (FT)
- Housing starts fell by a steeper than expected 6.8% in March to an annual pace of 1.21million units. Single-family homebuilding fell 35% in the Midwest and 5.5% in the West. The measure was flat in the Northeast and rose 3.2% in the South. Construction was boosted in February by unseasonably warm weather and the drop could reflect some giveback.
Politics! Politics! Politics!
- Support is emerging for a watered-down version of Glass-Steagall legislation as Gary Cohn — the former Goldman Sachs president who is now a top adviser to President Donald Trump — signaled the White House was open to a “21st century” version of the Glass-Steagall law that once split commercial from investment banking.
- Turkish President Erdogan narrowly won a crucial referendum that will greatly expand the powers of his office and cement his hold on power. The beginning of a dictatorship? Turkish voters approved a set of constitutional amendments that give Erdogan greater sway over policy, including the authority to appoint ministers and top judges at his discretion. The Turkish lira is up by 2%, as traders see the vote removing a major source of uncertainty following last summer’s failed coup attempt, credit rating downgrades and the slumping lira.
- Donald Trump’s effort to force the federal government to “Buy American” will be a challenge as foreign-owned companies already hauled in more money from federal contracts in the past three months than in any corresponding period in a decade.
- President Trump on Thursday launched a trade probe against China and other exporters of cheap steel into the U.S. market, raising the possibility of new tariffs and sending shares of some U.S. steel makers up over 8%.
- U.S. officials are reviewing Venezuela’s seizure of General Motors’ assets in the country after its plant was appropriated in the industrial hub of Valencia. “We are reviewing the details of the case,” State Department spokesman Mark Toner announced, stating the U.S. hoped to resolve the case “rapidly and transparently.”
- British Prime Minister Theresa May said she would call an early general election on June 8 in a move that if she wins could give her more leeway in coming negotiations with the European Union.
Chart Time!
Market Snippets
- IPO Watch: We are on track to have the 2nd most active month of April in over a decade. We now expect to finish this month with 44 deals pricing with only 16 IPOs this time last year.
- The West Coast/California drought has finally ended, with Gov. Jerry Brown lifting the drought emergency in most parts of California, barring a few San Joaquin Valley counties.
- Apple Inc has secured a permit to test autonomous vehicles in California, fueling speculation that it is working on self-driving car technology. (FT)
- The U.S. Federal Communications Commission (FCC) will lift a ban on telecom companies engaging in merger talks, and Wall Street is betting on T-Mobile US Inc, Sprint Corp and Dish Network Corp to be the first ones out of the gate.
- Netflix will reach 100 million subscribers this month, the streaming video company said, even as it reported slower-than-expected subscriber growth for Q1. They are also projecting to burn $2B in cash this year.
- United Airlines is changing its policy on booking its own flight crews onto its planes following the recent fiasco in which a man was forcibly dragged off an overbooked flight to clear a seat for an airline employee. UAL says it will ensure that crews riding on its aircraft as passengers are booked at least 60 minutes before departure, avoiding the removal of passengers from their seats after already boarding the plane. Competing airlines are
following with their own changes; Delta customer service agents are now authorized to dole out as much as $2,000 to a passenger who gives up a seat, while a high-level supervisor can pay out as much as $9,950. (FT) - When it comes to copyright infringements, Facebook Inc takes the offense seriously. The company recently invested in automated filtering systems to target and promptly remove intellectual property violations, which led to a crackdown on fan tributes and cover songs.
- Bank of America Corp (BAC) reported a higher-than-expected jump in quarterly profit as bond trading surged and the lender earned more from advising on debt and equity offerings and deals.
- Goldman Sachs Group Inc (GS) reported a lower-than-expected quarterly profit as gains in investment banking were offset by weak trading revenue.
- Apple is testing a revamped iPhone with an all-screen front, curved glass and a stainless steel frame alongside upgrades to the current models. (Bloomberg)
- Verizon Communications said on Tuesday that it had reached a deal to buy at least $1.05B worth of fibre-optic cable and associated hardware from Corning over three years, as the US telecom giant moves to expand coverage and capacity on its high-speed wireless broadband network.
- Bank examiners knew of about 700 whistleblower complaints against Wells Fargo in 2010 but failed to follow up on the information, an internal report by the US Office of the Comptroller of the Currency said.
International Snippets
- China Huishan Dairy Holdings, a company that was collateralizing its cows to fund stock buybacks may be the next Chinese mega-fraud. I expect to see more frauds like this out of China in the coming year or two. But, seriously? Cows? Talk about a market top.
- OPEC Secretary-General Mohammad Barkindo said on Wednesday that all oil producers taking part in a supply-cut pact are committed to bringing global inventories down to the industry’s five year average and restoring stability to the market.
- China’s Baidu will share software technology it is developing for self-driving cars in a bid to catch up with competitors including General Motors and Waymo, the self-driving unit of Google parent Alphabet. (WSJ)
- Every golf course in China is equipped with cameras at almost every tee. Why? Because senior managers at state-owned enterprises are forbidden from enjoying such a frivolous pastime. (Benzinga)
- Italy’s credit rating was cut closer to junk territory on Friday by analysts at Fitch, who cited “weak economic growth” and the country’s “persistent track record of fiscal slippage”. Fitch reduced the rating to “BBB” from “BBB +”, leaving it just two notches above speculative-grade. “Italy’s persistent track record of fiscal slippage, back-loading of consolidation, weak economic growth, and resulting failure to bring down the very high level of general government debt has left it more exposed to potential adverse shocks,” the ratings group said.