Equities Start to Heat Up

Its summertime and I know you are all busy playing golf, tennis, swimming, beaching or just relaxing and having an afternoon cocktail so I won’t take up a lot of your time, today. The stock market has looked good these past two weeks as we’ve showed signs of making new highs led by the technology sector. Seeing technology lead the way higher is what you want to see as it represents the growth engine of the economy. Below is a chart of the NASDAQ
which represents the technology sector:


The other indices have largely followed as we approach the beginning of earnings season. On Friday, several of the large banking institutions released earnings which were largely good with no red flags. No credit concerns from the banks for now which is good to see as the second half of 2017 unfolds.

I think earnings will be good in the next few weeks with exceptions in energy and retail which are both under pressure. We will have to keep a close eye on these sectors as retail acts as an early warning sign for a recession and lower oil prices could impair spending and capital investment for the energy stocks.

Watch for new highs in the indices while you enjoy your Sunday fun-day but remember there is always a Monday morning.


Economic & Central Banking Snippets

  • An important measure from the recent confirm jobs report was the number of people who voluntarily quit their job. It’s an indicator of the confidence that Americans have in their job market. More than 3.2 million people left their jobs in May, the highest in years.

Confidence in labor market


  • Industrial production gained 0.4% in June on a modest pickup in manufacturing in-line with gains in manufacturing hours in the employment report and a continued strong rebound in mining (1.6%) on further gains in oil and gas drilling and production. (MS)
  • Retail sales fell 0.2% overall in June, with autos flat, gas stations down 1.3% on lower prices, home improvement store sales up 0.5%, and the core retail control gauge excluding those categories falling 0.2%. (MS)
  • Headline PPI rose 0.1% in June (2.0% Y/Y v. 2.4%) and the core ex food, energy, and trade services gained 0.2% (2.0% Y/Y v. 2.1%) on a 0.1% rise in core goods and 0.3% gain in core services. (MS)


Politics! Politics! Politics!

  • France is considering introducing tax breaks for the wealthy as soon as next year in an effort to attract more entrepreneurs and investors, prime minister Edouard Philippe said in an interview. Mr Philippe’s comments to the Financial Times show how he wants France to build on the election of pro-business President Emmanuel Macron and burnish its credentials as an investment location.
  • U.K. Prime minister Theresa May will publish the government’s flagship piece of Brexit legislation, the first of eight Brexit bills Mrs May hopes to get enacted. But pro-Europeans are already seeking to amend legislation to ensure the UK makes a softer exit from the EU. (FT)
  • The latest Republican healthcare bill has the following provisions: 1) The new bill allows insurers to sell “skinny” insurance plans that don’t meet the minimum coverage requirements currently in place under the Affordable Care Act. 2) The Individual Mandate and the penalty would be eliminated for Americans who choose to go uninsured. 3) There will be major cuts to Medicaid and an overhaul to the entire Medicaid system. 4) The controversial 3.8% surcharge tax on high-income earners and the 0.9% payroll tax will remain. 5) Opioid Abuse is addressed by allowing $45 billion in funding to combat the opioid crisis and substance abuse treatment and recovery. (WSJ)
  • Mexican industry is exploring revising trade rules to ensure U.S. workers benefit from a renegotiated North American Free Trade Agreement (NAFTA) to address head-on U.S. President Donald Trump’s biggest beef with the treaty. With talks due to start next month between the United States, Mexico and Canada, Mexican officials have stressed the need to craft a new deal that would strengthen the region against competitors, particularly in Asia. (Reuters)
  • Britain has for the first time explicitly acknowledged it has financial obligations to the EU after Brexit, a move that is likely to avert a full-scale clash over the exit bill in talks next week. In a written statement to parliament touching on a “financial settlement”, the government recognized on Thursday “that the UK has obligations to the EU… that will survive the UK’s withdrawal — and that these need to be resolved”.


Market Snippets

  • Department stores have long given prestige cosmetics prime space on the ground floors of their stores. Desperate to get shoppers in the door, department stores are discounting the one item they had long been able to sell at full price: cosmetics. Last month, Lord & Taylor offered 15% off almost all cosmetics and fragrances. Bloomingdale’s gave members of its loyalty program a $25 reward card for every $100 beauty purchase. Shoppers are increasingly skipping the mall to buy online. Specialty chains like Sephora and Ulta Beauty Inc. are siphoning away customers. Brands such as Estée Lauder, Clarins and Dior now sell to such chains as well as through their own websites. (FT)
  • TV networks including ESPN are bracing for a drop in advertising revenue for football games in the coming season, which could drag down sales growth for sports broadcasts overall, advertising and television executives say. A decline in ratings for National Football League games last season has hurt sales this year, along with a saturated market for college games and spending cuts by drug and auto companies. While a few deals have yet to close, some of the biggest sponsors have indicated they’ll be spending less.
  • Roku, which makes streaming media devices and software, is preparing an initial public offering it expects to launch before year-end, according to people familiar with the company’s plans. The Los Gatos, Calif., company is seeking a valuation of roughly $1 billion and recently hired Morgan Stanley, Citigroup and Allen & Co. as underwriters on the IPO.
  • Citigroup has given investors hope that the recent rebound in its performance is more than a blip by beating Wall Street expectations and defying fears of a steep fall in its fixed income trading business. Announcing “broad based sequential loan growth across regions and products”, Citi said its revenues rose 2% to $17.9B.
  • JPMorgan Chase has kicked off Wall Street’s earning season with a bullish start, bolstered by its lending business despite trading revenue fall. The bank posted its best ever quarterly net income and earnings per share of $1.82 that was well above analyst predictions of $1.59.
  • Wells Fargo’s profits have risen for the first time in seven quarters as support from higher interest rates helped the US bank overcome pressures from its sham accounts scandal. Higher margins from lending and lower charges on soured loans helped net income rise 5% from a year ago to $5.8B, or $1.07 per diluted share. Revenues were little changed at $22.2B.


International Snippets

  • The UK drugs industry is going to court in an attempt to stop the country’s taxpayer-funded National Health Service from imposing strict limits on the price it will pay for medicines. The highly unusual action comes amid fears that a crackdown introduced in April may prevent patients from securing cutting-edge medicines for the most serious diseases, while intensifying concerns about a post-Brexit investment slump in Britain’s lucrative life sciences industry.
  • It’s been a long time coming but Greece finally has its latest tranche of eurozone bailout cash, ensuring Athens will not be defaulting on its creditors later this month. The European Stability Mechanism, the eurozone’s bailout fund, today approved a €8.5B cash injection after the country successfully completed its second review as part of an €86B rescue agreed in 2015. The fresh funds will allow the Greek government to pay a €6.8B bill due to its private sector creditors, the European Central Bank and the International Monetary Fund, due later this month. The remaining cash will be used to help pay off some of the government’s arrears.
  • The Royal Bank of Scotland agreed to pay $5.5B to settle claims relating to toxic mortgage-backed securities in the US. The bank said most of the costs were covered by indemnities and cash that it had already set aside. FT, Guardian)
  • China is on course to import a record amount of iron ore as its mills turn to the seaborne market to secure supplies of the steel-making ingredient. Deliveries to China hit 94.7m tonnes in June, up from 91.5m tonnes in May, according to customs data released on Thursday. The figures also showed imports for the first six months of the year had risen more than 9% to 539m tonnes. If that level of buying is sustained in the second half of the year then China’s imports of iron ore will exceed last year’s record of 1.024B tonnes. (FT)

Paul McCarthy

Mr. McCarthy is the President and founder of Kisco Capital.