Saturday, 29 April 2017

Markets fall but buying opportunity could be coming soon

Markets fell on Friday.

The S&P 500 fell 0.2 percent, the STOXX Europe 600 fell 0.2 percent and the Nikkei 225 fell 0.3 percent.

Ian Winer, head of equities at Wedbush Securities, said that this “feels like a breather after a hell of a rally this week”.

However, the rally may be set to resume soon, according to Simon Maierhofer.

Writing in MarketWatch, Maierhofer said that a “number of longer-term indicators suggest higher prices” and that the best buying opportunity of the year in stocks could be coming up soon.

Friday, 28 April 2017

Nasdaq hits record high, S&P 500 could follow even as it “looks dangerous”

Markets mostly slipped on Thursday.

In the US, the S&P 500 fell less than 0.1 percent but the Nasdaq Composite rose 0.4 percent to a record high.

The STOXX Europe 600 fell 0.2 percent despite European Central Bank President Mario Draghi telling a news conference that “the euro area economy is becoming increasingly solid”.

Similarly, the Nikkei 225 fell 0.1 percent as the Bank of Japan raised it economic forecasts.

In the US, Patti Domm at CNBC wrote that “strong earnings momentum could drive the S&P 500 back to its all-time high in the very near future”.

Indeed, Nobel laureate Robert Shiller told CNBC that the stock market “could keep going up” even as he warned that it is overvalued and that it “looks dangerous”.

Thursday, 27 April 2017

Markets mixed as Trump tax plan released amid high stock valuations

Markets were mixed on Wednesday.

The S&P 500 fell less than 0.1 percent but the STOXX Europe 600 rose 0.5 percent and the Nikkei 225 jumped 1.1 percent.

Stocks fell in the US despite Treasury Secretary Steven Mnuchin and National Economic Council Director Gary Cohn releasing a one-page outline of President Donald Trump’s tax-reform plan in a press conference on Wednesday.

“The market was looking for more specific color on rates and the reduction of exemptions, but color on the repatriation tax, which is the single most important issue, was left unaddressed by that press conference,” said Nicholas Colas, chief market strategist at Convergex.

Investors may also be getting more nervous as the US stock market becomes increasingly expensive. Ben Carlson noted on Wednesday that the S&P 500’s cyclically-adjusted price-to-earnings ratio reached 30 this week.

However, that has not stopped Morgan Stanley from raising its allocation to US equities this week.

“Tactically, the outcome of the first round of the French elections has been market-friendly and investor sentiment does not look extended. We add to U.S. equities. We fund this by taking cash to neutral,” wrote Andrew Sheets, a strategist at Morgan Stanley, in a report.

Wednesday, 26 April 2017

Markets rise, Nasdaq breaks 6,000

Markets rose on Tuesday.

In the US, the S&P 500 rose 0.6 percent while the Nasdaq Composite rose 0.7 percent to close at a record 6,025.49.

The STOXX Europe 600 rose 0.2 percent, with the DAX 30 closing at a record high and the CAC 40 finishing at a nine-year high.

The MSCI Asia Pacific Index rose 0.7 percent.

Michael Antonelli, equity sales trader at Robert W. Baird & Co, noted that US corporate earnings “have been strong” and “so far it looks like the market is very optimistic on tax cuts”.

Meanwhile, Barclays on Tuesday reiterated its overweight rating on European equities. “A reduction in political risk, coupled with an end to the seven-year stagnation in earnings, should lead to an acceleration in foreign investor buying of European equities,” Barclays strategist Dennis Jose wrote in a note.

In contrast, some analysts think that investors' enthusiasm for Asian stocks is waning on concerns that economic and business cycles may have peaked.

Tuesday, 25 April 2017

Markets surge on French election result

Markets surged on Monday following the strong showing by centrist Emmanuel Macron in the French presidential election.

The S&P 500 rose 1.1 percent and the STOXX Europe 600 jumped 2.1 percent, with the CAC 40 surging 4.1 percent.

Asian markets were mixed though. While the Nikkei jumped 1.4 percent, the Shanghai Composite Index tumbled 1.4 percent on worries over potential government action to reduce market risk.

Safe-haven assets like gold, the Japanese yen, and US Treasuries all fell. The CBOE Volatility Index dropped more than 25 percent to below 11, its largest one-day percentage drop since August 9, 2011.

“With Macron heavily favored in head-to-head polling against Le Pen, it seems most likely that the negative market scenarios—priced in over recent weeks—will recede between now and the runoff,” said Timothy Graf, head of macro strategy for Europe, the Middle East and Africa at State Street Global Markets.

Monday, 24 April 2017

Markets relieved as Macron wins first round in France

Investors heaved a sigh of relief at the end of the weekend as centrist Emmanuel Macron won the first round of voting in the French presidential election on Sunday.

Macron will face far-right leader Marine Le Pen in the final voting on 7 May.

Following the Sunday vote, the euro jumped the most in a month and the yen retreated. US stock-index futures and Japanese shares also rose.

Jordan Rochester, a foreign exchange strategist at Nomura Holdings Inc, said that the market “will likely fully price in the outcome of the second round today in favor of Mr Macron”, adding that Macron as the next president of France “should be positive for the French economy and for broader European economic stability”.

Chris Weston, chief market strategist at IG Ltd, said he expects the CAC 40 Index to open about 140 points higher when trading begins in Paris, signaling gains of almost 3 percent. “There’s going to be some relief coming through.”

Saturday, 22 April 2017

Markets mixed after Paris attack

Markets were mixed on Friday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 was flat and the MSCI Asia Pacific Index rose 0.7 percent.

Oil fell. West Texas Intermediate crude fell 2.2 percent while Brent fell 1.9 percent.

Markets generally held up well on Friday after an attack in Paris on Thursday night that left a police officer as well as the assailant dead.

Nevertheless, Michael Hewson, chief market analyst at CMC Markets, noted that the attack could influence France's presidential election, increasing the likelihood “of a face-off between Marine Le Pen on the right and Melenchon on the left”, which “is unlikely to be well received by the markets”.

Markets were also possibly supported by an announcement by US President Donald Trump that he would be releasing a “massive tax cut” package next week.

Friday, 21 April 2017

Markets rise as politics dominate trading

Markets mostly rose on Thursday.

The S&P 500 rose 0.8 percent and the STOXX Europe 600 rose 0.2 percent. Asian stocks were little-changed though.

US stocks were boosted by some better-than-expected corporate earnings reports as well as comments by Treasury Secretary Steven Mnuchin that a tax bill is likely to be unveiled very soon.

European stocks were boosted by a 1.5 percent jump in the CAC 40 after a poll showed centrist candidate Emmanuel Macron coming out ahead of far-right candidate Marine Le Pen in France's presidential election.

With markets becoming increasingly focused on political developments, Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, said on CNBC on Wednesday that “all trades are purely political” and “all economic data is irrelevant”.

Schlossberg added that if the Trump administration fails to get tax reform and infrastructure spending done in the summertime, then “a huge part of the 'Trump rally' just simply dies on the vine”.

Schlossberg also said that the progress of far-right and far-left candidates to the next round in the French presidential election would be the “absolute worst-case scenario for the market”.

Thursday, 20 April 2017

Markets mixed as investors move out of expensive US stocks

Markets were mixed on Wednesday.

The S&P 500 fell 0.2 percent but the STOXX Europe 600 rose 0.2 percent.

Earlier in Asia, the Shanghai Composite Index fell 0.9 percent but the Nikkei 225 rose 0.1 percent.

US stocks were dragged down by oil. West Texas Intermediate crude fell 3.8 percent on Wednesday while Brent fell 3.6 percent.

US stocks also fell amid the reallocation of funds away from them towards other markets, according to Bank of America Merrill Lynch's latest global fund manager survey.

“A net 83% of investors think [the] U.S. is the most overvalued region, the highest response on record,” said BAML strategists Michael Hartnett and Jared Woodard in a note.

Wednesday, 19 April 2017

Markets fall, UK stocks plunge on election announcement

Markets fell on Tuesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 fell 1.1 percent and the MSCI Asia Pacific Index fell 0.5 percent.

Tepid corporate earnings weighed on stocks in the US while a surprise announcement of an early UK general election pulled the FTSE 100 down 2.5 percent.

“The market is very fragile,” said Nicholas Teo, a trading strategist at KGI Securities in Singapore. “The strategy seems to be that investors are selling when the market is up.”

Tuesday, 18 April 2017

Markets mixed but stocks “only game in town”

Markets were mixed on Monday.

The S&P 500 rose 0.9 percent, the Nikkei 225 rose 0.1 percent but the Shanghai Composite Index fell 0.7 percent. European markets were closed.

Paul Nolte, portfolio manager at Kingsview Asset Management, said that “while valuations are still way too high, stocks remain the only game in town if you’re looking at them versus bonds”.

However, in China, stocks fell over an escalating regulatory crackdown on stock manipulation, and despite a report on Monday showing that the economy grew 6.9 percent in the first quarter from a year earlier, accelerating for the second consecutive quarter.

Monday, 17 April 2017

US stocks expensive but Japan “too cheap to ignore”

With US stocks expensive, John Hussman thinks that investors should keep their powder dry.

“Based on current valuation extremes, the outlook for prospective 12-year S&P 500 total returns remains dismal, likely averaging less than 1% annually by our estimates,” he wrote in his latest article. “Dry powder has considerable value here, not because of the return it currently generates, but because of the opportunity it may afford to establish constructive and even aggressive market exposure over the completion of this cycle, at higher prospective returns than are currently available.”

Alternatively, investors may want to consider the Japanese stock market. According to a Bloomberg report, Japanese stocks have become “too cheap to ignore”.

“It’s a buying opportunity,” Hiroshi Matsumoto, head of Japan investment at Pictet Asset Management, was quoted as saying.

Braver investors could consider emerging stock markets. A New York Times article noted that emerging market stocks have risen almost 17 percent in the 12 months through March.

“What has been driving emerging market returns in the last year was the recovery in commodity prices, which led to a number of commodity producers’ doing well,” said Arjun Divecha, head of the emerging markets equity team at GMO.

Saturday, 15 April 2017

Geopolitical tensions rattle markets but it is China's debt that may explode

Markets have been rattled in recent days by geopolitical tensions in Syria and North Korea.

Then on Thursday, the US used its largest non-nuclear bomb to attack the Islamic State's holdings in Afghanistan.

And on Friday, as the aircraft carrier USS Carl Vinson sailed towards the Korean Peninsula, China's Foreign Minister Wang Yi urged all parties “to stop provoking and threatening each other and not to make the situation irretrievable”.

However, ZeroHedge reminds us that it is China's huge debt that could really threaten global financial markets.

ZeroHedge asserts that “just one number truly matters: that of the global credit impulse, which as we cautioned for the first time two months ago, had recently turned negative, mostly as a result of the recent deceleration in China's credit creation”.

ZeroHedge added that “the reflation trade of the past year was entirely the function of Chinese credit dynamics”, so this deceleration could adversely impact the global credit impulse.

On Friday, Reuters reported that China's banks made 1.02 trillion yuan in new loans in March, down from 1.17 trillion yuan in February.

However, China's total social financing, a broad measure of credit and liquidity in the economy, surged to 2.12 trillion yuan in March from 1.15 trillion yuan in February, reflecting probably a surge in off-balance sheet lending.

Wendy Chen, an economist at Nomura, said: “We don't think the strength in shadow banking activity will continue.”

Indeed, the concern is that bad loans may already be at destabilising levels, with Reuters noting that “some China watchers warn a debt crisis may be inevitable if loan and money supply growth continues to sharply outpace the rate of economic expansion”.

Friday, 14 April 2017

Stock markets fall but gold rises

Markets fell on Thursday.

The S&P 500 fell 0.7 percent, the STOXX Europe 600 fell 0.4 percent and the Nikkei 225 fell 0.7 percent.

Stock markets fell as fear appears to be creeping back into markets, with the Credit Suisse Fear Barometer, which measures the cost of buying protection against declines in the S&P 500 Index, nearing an all-time high this week.

However, gold rose 0.8 percent on Thursday and the US dollar fell after US President Donald Trump said the currency “is getting too strong”.

Brien Lundin, editor of Gold Newsletter, said that gold “seems likely to build upon its gains in the weeks ahead”.

Thursday, 13 April 2017

Markets mixed, volatility rises

Markets were mixed on Wednesday.

The S&P 500 fell 0.4 percent and the Nikkei 225 fell 1.0 percent but the STOXX Europe 600 rose 0.2 percent.

“We think the rally driven by hope of faster growth was overdone and there is a potential for disappointment,” said Wouter Sturkenboom, senior investment strategist at Russell Investments.

Indeed, the US 10-year Treasury yield fell three basis points to 2.27 percent while the CBOE Volatility Index rose to a five-month high.

Bloomberg reports that investors such as Rick Rieder at BlackRock Inc. and Bob Michele at J.P. Morgan Asset Management say they have been betting that price swings will grow more dramatic in the days and months ahead.

Wednesday, 12 April 2017

Markets fall amid geopolitical concerns

Markets were mostly lower on Tuesday.

The S&P 500 fell 0.1 percent, the Nikkei 225 fell 0.3 percent, the DAX 30 fell 0.5 percent but the FTSE 100 rose 0.2 percent.

Ongoing geopolitical concerns over Syria and North Korea kept safe haven assets supported. The US 10-year Treasury yield fell six basis points to 2.30 percent while gold rose 1.6 percent.

Richard Perry, market analyst with Hantec Markets, wrote in a note that “there has been a negative shift in risk sentiment as safe haven assets outperform” and as a result, “equities will tend to suffer”.

Oil rose though amid talk of a possible extension to the OPEC-led production cut agreement. West Texas Intermediate crude rose 0.6 percent and Brent rose 0.5 percent.

Tuesday, 11 April 2017

Markets mixed as investors look to earnings for further gains

Markets were mixed on Monday.

The S&P 500 edged up 0.1 percent, the STOXX Europe 600 was flat and the Nikkei 225 rose 0.7 percent.

“Stocks are not cheap, and it’s tough to find something that looks inexpensive, but we’ve seen them much more expensive and we should continue to grind higher as we get into earnings,” said John Brady, managing director at RJ O’Brien & Associates.

Phil Orlando, chief equity market strategist at Federated Investors, agrees. “We’re expecting good numbers and I think we’ll break to the upside if the numbers come in positive, but markets are always vulnerable to any kind of disappointment,” he said.

However, Avi Gilburt wrote that while he is “still looking for a much higher U.S. stock market in 2017”, he expects further weakness until May.

This decline represents a buying opportunity, he wrote, as he expects the S&P 500 to “rally to the 2,500 region into the summer”.

Monday, 10 April 2017

Markets likely to shrug off Syria strike

US stocks fell last week, with the S&P 500 declining 0.3 percent.

The S&P 500 ended the week with a slight 0.1 percent dip on Friday. A US military strike on a Syrian airbase initially provoked selling but the market recovered later in the day.

Reactions among analysts to the attack on Syria were mixed.

Sean Callow, senior strategist at Westpac Banking Corp, said that “there is likely to be a lingering sense of unease”.

However, Shane Oliver, head of investment strategy at AMP Capital Investors, said that the strike is “unlikely to have a lasting impact in markets”, an opinion shared by Jim McCaughan, CEO of Principal Global Investors.

Indeed, Kevin Marder said that “the market has bullishly become more of an earnings-driven affair”, while geopolitical incidents may “provide a buying opportunity”.

Saturday, 8 April 2017

Markets mixed after weak US jobs report and military strike on Syria

Markets were mixed on Friday.

The S&P 500 dipped less than 0.1 percent but the STOXX Europe 600 rose 0.1 percent and the Nikkei 225 rose 0.4 percent.

US stocks were held back by a weak employment report. A Labor Department report showed that the US economy created just 98,000 new jobs in March, the smallest gain in almost a year.

Some analysts see a silver lining though.

“It wasn’t exactly a disaster, maybe it backs off some of the ultrahawks [on the Fed] and we only get two rate hikes this year,” said Bill Stone, chief investment strategist at PNC Asset Management Group.

A US military strike against a Syrian airbase on Friday helped boost stocks of defence contractors but Nigam Arora thinks that apart from very mild boosts to gold and oil, markets will not be significantly affected in the long term.

Friday, 7 April 2017

US and European stocks rebound as Trump-Xi meeting begins

Markets were mixed on Thursday.

The S&P 500 rose 0.2 percent and the STOXX Europe 600 rose 0.2 percent.

However, the MSCI Asia Pacific Index fell 0.8 percent as the Nikkei 225 plunged 1.4 percent.

“We are seeing a short-term snap back from yesterday’s sharp selloff with the hardest-hit sectors recovering,” said Frank Cappelleri, chartered market technician at Instinet.

“Every time the market dips, investors come back,” said Paul Nolte, portfolio manager at Kingsview Asset Management.

Investors will be keeping an eye on the two-day meeting between US President Donald and Chinese President Xi Jinping that began on Thursday.

Connor Campbell, financial analyst at Spreadex, wrote in a note that “there is the chance for fireworks in the next 24 hours”.

However, Julian Evans-Pritchard, China economist at Capital Economics, said “we don’t expect any major policy announcements to come out of the meeting”.

Thursday, 6 April 2017

US stocks reverse sharply after Fed releases minutes

Markets were mixed on Wednesday.

The S&P 500 fell 0.3 percent, the STOXX Europe 600 was flat and the Nikkei 225 rose 0.3 percent.

The US 10-year Treasury yield fell after the minutes of the last Federal Reserve monetary policy meeting showed that it would not substantially shrink its bond holdings.

The Fed minutes also showed that some officials thought that stock prices were “quite high relative to standard valuation measures”.

Perhaps investors think so too.

Mark DeCambre at MarketWatch noted: “After staging what was shaping up to be a healthy stock-market surge, equity-index benchmarks buckled Wednesday, ending squarely in the red and registering their worst reversal since February 2016.”

Wednesday, 5 April 2017

Markets mixed amid tension over Trump/Xi meeting

Markets were mixed on Tuesday.

The S&P 500 rose 0.1 percent and the STOXX Europe 600 rose 0.2 percent but the Nikkei 225 fell 0.9 percent.

Oil rose. West Texas Intermediate crude oil rose 1.6 percent while Brent rose 2.0 percent.

“Markets are trading in a very tight wait-and-see range,” said Jeff Kravetz, regional investment strategist at the Private Client Reserve at U.S. Bank.

“There is justifiable tension/apprehension building over the meeting between Presidents Trump and Xi this week as the former's China bashing over alleged mercantilist policies presumably sets the stage for what could be testy talks,” said Vishnu Varathan, an economist at Mizuho Bank.

“There is an undercurrent of worries that the economy is losing momentum,” said Quincy Krosby, a market strategist, at Prudential Financial.

And while Mark Kepner, managing director of sales and trading at Themis Trading, thinks that the “price action in the stock market suggests there is still a ‘buy the dip’ mentality”, Nicholas Colas, chief market strategist at Convergex, wrote in a note that “with equity valuations high and volatility low, time isn't necessarily our friend”.

Tuesday, 4 April 2017

Markets mostly fall but Nikkei 225 rises on improved business sentiment

Markets mostly fell on Monday.

The S&P 500 fell 0.2 percent and the STOXX Europe 600 fell 0.5 percent.

The yield on the US 10-year Treasury note fell 5 basis points to 2.335 percent.

“I expect we’ll see some softness until earnings start to come in,” said Wayne Kaufman, chief market analyst at Phoenix Financial Services.

Earlier on Monday, however, the Nikkei 225 rose 0.4 percent after the Bank of Japan's quarterly survey showed that the diffusion index of large manufacturers’ views on their current business conditions improved for the second consecutive quarter.

Indeed, Goldman Sachs strategists wrote in a report that now could be the time for foreign investors to return to Japanese equities.

Or braver investors could move into emerging markets. A Bloomberg report suggested that a widened growth gap, improving earnings outlooks and a greater valuation discount support a bullish outlook for emerging equity markets.

Monday, 3 April 2017

US corporate profitability at turning point?

The S&P 500 rose 0.8 percent last week. While it was flat for March, it rose 5.5 percent for the first quarter as a whole.

The sustained rally in the US stock market has made stocks expensive, but Michael Batnick at Yahoo Finance pointed to a Credit Suisse paper that noted that US companies have become more profitable in recent decades, which might justify their higher valuations.

However, John Hussman wrote that going forward, US economic growth is likely to be constrained by slowing labour force and productivity growth. Slowing economic growth and a tighter laboor market will in turn widen the wage share of GDP and narrow corporate profit margins.

Saturday, 1 April 2017

Markets fall as positive fundamentals offset by stretched valuations

Markets mostly fell on Friday.

The MSCI World Index fell 0.4 percent, the S&P 500 fell 0.2 percent and the Nikkei 225 fell 0.8 percent.

However, the STOXX Europe 600 rose 0.2 percent.

Despite the dip on Friday, the S&P 500 ended the week up 0.8 percent. It was flat for March but up 5.5 percent for the first quarter.

“The reflation trade certainly lost some steam this month, but overall fundamentals are still positive, especially considering that earnings outlook for the first quarter is great,” said Quincy Krosby, market strategist at Prudential Financial.

Some analysts are not so sure about the outlook, however.

“Valuations are as stretched as they ever get,” said Bruce Bittles, chief investment strategist at Robert W. Baird & Co. “Certainly that's cause for concern if earnings don't grow the way they are anticipated to grow.”