by Blaine Rollins, CFA, 361 Capital
I suspect that this will be the view of many readers for the week. It is a good time to take a break. 2nd quarter earnings are in the books, Congress and the White House are out until September and the Fed is sizing up waders and fishing poles for that annual break to Jackson Hole on the 24th of August. As we glide into the end of summer, we can go knowing that Q2 earnings were better, but stocks had a more difficult time navigating the numbers. The U.S. economy continues to show signs of slowing, but not as bad as the U.S. Dollar is fearing, so shift some of that blame to Washington uncertainty. The International stock markets still looks like the easier bet from both a momentum and valuation perspective. Energy stocks are so unloved that if the sector was a football team, they wouldnât even be able to get a matchup on Thursday night. Meanwhile the rest of the U.S. stock market just keeps grinding sideways to slightly higher. When Congress returns on September 5th, they will be taking on the Debt Ceiling and Tax Reform. Hopefully they can at least tackle the former or else the market could decide to grind in a different direction. Have a great break everyone.
Friday jobs data shows that the economy continues to bounce around 200,000 jobs created monthlyâŠ
(@ukarlewitz)
Further detail showed a Goldilocks job report with growth and with low inflationâŠ
In terms of job growth, the July jobs report soundly beat expectations, showing the addition of 209,000 nonfarm payrolls (Briefing.com consensus 181,000). However, in terms of wage growth, investors received another unimpressive reading as the report showed an increase of just 0.3% in average hourly earnings (Briefing.com consensus +0.3%). In other words, it was another âGoldilocksâ report.
Investors have rallied around these âGoldilocksâ reports in the past as theyâre not hot enough to raise rate-hike concerns that are typically present amid a pick up in economic activity and not cold enough to give investors a reason to question the state of future economic growth.
Rate-hike expectations did shift up a tad following the July jobs report with the fed funds futures market assigning an implied probability of 50.4% to a December rate hike, up from 46.8% on Thursday.
U.S. Treasuries sold off in a curve-steepening trade following the release, leaving the 10-yr yield (2.26%) and the 2-yr yield (1.35%) higher by four basis points and one basis point, respectively. Meanwhile, the U.S. Dollar Index (93.35, +0.65) rallied 0.7% to eke out a modest victory for the week (+0.3%).
In the equity market, the heavily-weighted financial sector (+0.7%) outperformed from start to finish, settling the session at the top of the leaderboard.
(briefing.com)
Will this new stronger employment data point help turn the U.S. Dollar higher? We will all be watching very closelyâŠ
Two thirds of the U.S. Economy is tied to services, so last weekâs downturn in the ISM Non-Manufacturing Index is worth watchingâŠ
(WSJ/Daily Shot)
The miss of the services ISM data, as well as July auto sales, kept the Economic Surprise Indexes in check during the weekâŠ
(WSJ/DailyShot)
While GDP may have a current headwind, given the ongoing ISM manufacturing data, there should be few worries on the horizon for negative GDP growthâŠ
The chart above is one of my enduring favorites. It shows that the ISM manufacturing index does a pretty good job of tracking the growth rate of the economy. Whatâs especially nice is that the index comes out with a relatively short lag of just a week or two, whereas we usually have to wait months to get a read on the economy. What itâs saying now is that GDP growth in the current (third) quarter is likely to be in the range of 2-4% annualized. That wonât necessarily mean that the underlying pace of growth is picking up though; itâs more likely that some faster reported growth in the current quarter which will make up for the relatively weak growth of recent quarters. Such is the volatile nature of GDP stats.
(Scott Granis Blogspot)
Can valuations hold to these higher levels if U.S. growth continues to slow?
(Yardeni.com)
Meanwhile, the international economies continue to improve nicely off of a low base. Here is ItalyâŠ
(WSJ/Daily Shot)
Even the broken Italian banking sector is showing rapid improvement as credit improves and loan growth estimates rise with their economyâŠ
(WSJ/Daily Shot)
Another big and former broken Euro economy, Spain, remains on the mend as evidenced by its bond spread versus GermanyâŠ
(WSJ/Daily Shot)
Two comments from this weekâs earnings calls also point to improving European strengthâŠ
Europeâs economy is strong
âour economists are reasonably positive on the next 12 to 18 monthsâ economic outlook. And may I say in particular, in Europe, you have seen the Q2 figures and provided that there is not any extraordinary event, I would say, the economy should carry on doing pretty well on the back of a high level of confidence with more clarity on the political side, et cetera.â âSocGen CEO Frederic Oudea (Bank)
Could Europe see inflation?
âIn terms of raw materials, theyâre biting us in Europe. No doubt about it. We have the same story there. It takes us a while to recover via pricing, but weâre starting to get pricing in Europe as well.â âEcolab CEO Doug Baker (Business Services)
Eurozone GDP growth > U.S. GDP growthâŠ
(@jsblokland)
As for EM, well this chart says it allâŠ
(RenMac)
Confirming signs of EM strength would be the current surge in Chinese commodity prices..
@YuanTalks: The rally in industrial #commodity #futures continues in #China. #Steel rebar limit up, #IronOre surging over 6%
(@YuanTalks)
Second quarter sales surprises are surgingâŠ
This has been helped by the falling U.S. Dollar, as well as better-than-expected unit volumes and pricingâŠ
The biggest earnings report of them all hit last week and it didnât disappointâŠ
The technology giant posted quarterly diluted earnings per share of $1.67 on revenues of $45.4 billion. Thomson Reuters consensus estimates were $1.57 per share and $44.89 billion in revenues. Perhaps the most important metric in the report, iPhone sales, totaled 41.03 million in the quarter, up from 40.4 million in the same period last year. Sequentially, unit sales dropped by 19% from 50.76 million, and iPhone revenues dropped by 25% to $24.85 billion.
For the fourth quarter of 2017, Apple said it expects to post revenues in a range of $49 to $52 billion with a gross margin of between 37.5% and 38%. Consensus estimates for the September quarter are $1.81 per share in earnings and revenues of $49.21 billion. If one feat can be claimed here, Apple now holds a whopping $262 billion in liquidity (cash and short-term to long-term securities). Appleâs international sales are still more than 50% of its operation now.
For the week, Financials, Europe and Bonds led while Biotech and Energy were the worst performersâŠ
(@alsabogal)
Speaking of EnergyâŠthe drillers continue to get drilledâŠ
(WSJ/Daily Shot)
Which has coincided with the closure of one of the most high profile hedge funds in the sectorâŠ
Andrew Hall, a legendary trader who made billions betting on oilâs rise, is shutting down his hedge fund after he misjudged the impact of a boom in U.S. production that upended the market.
Mr. Hall, who gained wide notice for fighting over a $100 million payout from his former employer Citigroup Inc. during the depths of the financial crisis, confirmed Thursday that he is closing the main fund at the firm he founded, Astenbeck Capital Management LLC.
The decision to close the fund follows years of investor defections and marks the latest reckoning for a Wall Street trader who struck out on his own.
Mr. Hall, 66 years old, is known for making big, long-term bets on rising oil prices, a strategy that worked well when commodities were soaring but has fared poorly as prices deteriorated in the past three years. His bullish stance on oil ran headlong into the shale revolution, which in the past decade defied predictions that the world would soon run out of easily accessible crude.
(WSJ)
Did you think Oprah was only good at picking books?
Weight Watchers International Inc. soared the most in five months after adding subscribers for another quarter, the latest sign that its Oprah Winfrey-fueled marketing and updated diet program are resonating with customers.
The shares gained as much as 27 percent after second-quarter results handily beat estimates and the New York-based company delivered a rosy forecast. The jump marks the biggest intraday gain since March and extends an eye-popping rally for a stock that previously slumped for five straight years. The shares have now more than tripled in 2017.
@ivanhoff: Oprah owns 10% of $WTW acquired at $6.79. Itâs trading at 42 today.
Just when they said active management was dead, stock pickers have now beat their benchmarks for the fifth straight monthâŠ
(Business Insider)
Something to think about for that next vacation break, with or without the kidsâŠ
According to the industry website CruiseCritic.comâwhich is like TripAdvisor for seafarersâDisney Cruise Line gets higher average ratings from passengers without children than from those with them. (The company is immensely popular with both demographics.)
On the cusp of its 20th year of sailing, Disney Cruise Line has been around long enough to have megafansâeven if kids who grew up sailing with the company have yet to get their first job out of college. So why do grown-ups have such a soft spot for Disney Cruise Line? âQuality. The quality is there, the food, the cleanliness,â said John. âThe crew,â added Joanne, 53. âThey are so friendly.â
Finally, some feel good charts to review while you are sitting in the sand and looking out over that big oceanâŠ
(@sama)
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