Monday, July 3, 2017

Monday, July 3, Morning Global Market Roundup: Asian Stocks Start New Month On Firm Footing, Bonds Under Pressure

By Hideyuki Sano
Reuters
June 3, 2017

Asian stocks held two-years highs on Monday, starting the new month on a solid footing after two quarters of gains while expectations of credit tightening by the world's major central banks kept global bond markets under pressure.

MSCI's broadest index of Asia-Pacific shares outside Japan was flat, staying within a stone's throw of its two-year peak hit last week.

Japan's Nikkei ticked up 0.2 percent while U.S. stock futures gained 0.2 percent.

"Global share markets have so far withstood rises in long-term bond yields," said Masahiro Ichikawa, senior strategist at Sumitomo Mitsui Asset Management.

Signs of stabilizing in China's economy and a recovery in the European economy helped to boost global share prices in the first half of this year.

A private sector survey on China's manufacturing showed a surprise recovery in activity, adding to the evidence of steadying growth in the world's second largest economy.

The Bank of Japan's tankan corporate survey showed Japanese business sentiment improved slightly more than expected.

On Wall Street, the S&P 500 scored its biggest gain for the first half of the year since 2013 while the Nasdaq Composite's first-half gain was its best in eight years.

European shares had less luck after the European Central Bank and the Bank of England last week signaled their readiness to tighten their monetary policies, with pan-European Euro first 300 stock index hitting 10-week lows on Friday.

Global bond yields have risen sharply following hawkish comments from European Central Bank President Mario Draghi last Tuesday, with German bond yields posting their biggest weekly jump since December 2015 last week.

That helped to lift U.S. bond yields from lows, with the 10-year U.S. Treasuries yield hitting a 1-1/2-month high of 2.320 percent on Monday.

The rise came even as data showed U.S. inflation cooled in May. The annual rise in core consumer prices excluding food and energy slowed to 1.4 percent, its lowest since December 2015.

"In coming weeks, whether we can see a recovery in the U.S. momentum will be a key issue," said Hirokazu Kabeya, chief global strategist at Daiwa Securities.

In the currency market, the euro traded at $1.1417, not far from last week's high of $1.1445, which was its highest level in more than a year as the common currency drew support from expectations that the ECB will likely scale back its stimulus.

Jens Weidmann, head of Germany's Bundesbank and a member of the ECB's rate-setting body, said on Saturday that the ECB is working on moving away from its ultra-easy monetary policy.

The dollar traded at 112.35 yen, off Thursday's six-week high of 112.93.

The yen briefly gained on worries Japanese Prime Minister Shinzo Abe's reflationary policies may be at risk after his Liberal Democratic Party suffered an historic defeat in a local election in Tokyo on Sunday, though the impact did not last long.

Oil prices held firm after having gained for seven consecutive sessions by Friday, after data on that day showed U.S. oil rig count fell last week for the first time since early January.

Brent crude futures rose 0.3 percent to $48.90 per barrel while U.S. crude futures gained 0.5 percent to $46.26 per barrel.

In the Middle East, Qatari shares slumped to 1 1/2-year lows on Sunday as a deadline for Doha to accept a series of political demands by four Arab states were expected to expire late in the day with no sign of the crisis ending.

Saudi Arabia and three allies accusing Qatar of supporting terrorism have later agreed to a request by Kuwait to extend by 48 hours Sunday's deadline for Doha to comply, according to a joint statement on Saudi state news agency SPA.


Article Link To Reuters:

Oil Prices Rise On First Drop In U.S. Drilling In Months

By Henning Gloystein
Reuters
July 3, 2017

Oil prices rose on Monday, lifted by the first fall in U.S. drilling activity in months, although gains were capped by reports of rising OPEC output last month even as the group has pledged to cut supply.

Brent crude futures climbed 16 cents, or 0.3 percent, to $48.93 per barrel, after jumping 5.2 percent last week, its first weekly gain in six weeks.

U.S. West Texas Intermediate (WTI) crude futures rose 24 cents, or 0.5 percent, to $46.28 per barrel, adding to last week's 7 percent gain.

Prices were lifted as drilling activity in the United States for new oil production fell for the first time since January, dropping by two rigs.

Australian futures brokerage AxiTrader said on Monday in a note that this was "the first crack in the resolve of U.S. shale oil to continue to ramp up production regardless of the big fall in price" earlier this year.

U.S. crude futures fell 9 percent during the second quarter that ended in June while Brent futures declined 9.3 percent. That extended first-quarter losses for the contracts.

Despite the dip in U.S. drilling activity, the total rig count was still more than double the 341 rigs in the same week a year ago, according to energy services firm Baker Hughes Inc.

Also, global oil markets remain oversupplied as output from within the Organization of the Petroleum Exporting Countries (OPEC) hit a 2017 high.

June OPEC production was up by 280,000 barrels per day (bpd) to 32.72 million bpd, according to a Reuters survey, despite the group's pledge to hold back output in an effort to tighten the market.

"To put that in context, that is nearly a quarter of the 1.2 million barrels (per day) OPEC agreed to cut," said Greg McKenna, chief market strategist at Australian futures brokerage AxiTrader, adding this increase was driven by higher output from Nigeria and Libya, who were exempted from the cuts.


Article Link To Reuters:

Bets On Oil Rout Seen Peaking As Shale Boom Starts To Falter

Money managers add short positions at slower pace: CFTC; Bearish wagers on WTI reached highest level since August.


By Meenal Vamburkar
Bloomberg
July 3, 2017

Oil short-sellers have been on a roll, but their bets on declining prices may have begun to hit a wall.

Hedge fund wagers on lower West Texas Intermediate crude reached the highest level since August in the week ended June 27, after more than doubling in two months, according to Commodities Futures Trading Commission data. The bearish bets increased at a much slower pace than in the previous two weeks, though. The U.S. benchmark price had its longest rally of the year, climbing 7 percent last week, amid signs U.S. shale output is stuttering.

“That slowdown was the prelude to what should be probably a pretty sizable net change in the position next week,” John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund, said by telephone. The sell-off appears to be “running out of steam.”



Crude capped its best week this year on Friday as shale drillers reduced the number of oil rigs for the first time since January, and a government report showed U.S. production might not be growing so fast. Signs of a waning shale boom are helping allay fears that efforts led by the Organization of Petroleum Exporting Countries to ease a global supply glut aren’t working.

U.S. explorers last week hit pause on the longest stretch of uninterrupted growth on records dating back to 1987 -- after more than doubling their oil-rig count in a year. Output fell for the first time this year in April and was 190,000 barrels lower than the Energy Information Administration’s preliminary weekly estimates. The agency has also lowered estimates for production in the Permian, America’s most prolific oil field.

Money managers’ WTI net-long position, the difference between wagers on a price increase and bets on a decline, was little changed at 133,606 futures and options, according to the CFTC report released Friday. Long positions rose by 4.2 percent to 314,090 contracts, while short positions rose by 8.3 percent to 180,484, the CFTC said. Shorts had jumped by more than 30 percent in each of the previous two weeks.

Short-Covering


“The real question is: Have all the fears about the OPEC production cuts been basically priced into the market?” said Gene McGillian, manager for market research at Tradition Energy in Stamford, Connecticut.

Much of the price rebound this week might have been driven by short-covering, he said. That’s when short-sellers take advantage of low prices to go on a buying spree and return securities they borrowed and sold when prices were higher.

Wagers from oil producers show explorers are less pessimistic, trimming their net-bearish position for a second week, according to the CFTC. This year they’ve been the most active in the futures and options market since 2007, with the total number of short and long positions peaking in May.

As for fuels, net-bearish bets on gasoline prices fell 3.3 percent, while net-short wagers on diesel rose 22 percent, the CFTC report showed.

We may be seeing “the last breath” of this sell-off as we enter a period of short-covering, Kilduff said. The market “ran out of more sellers,” he said.


Article Link To Bloomberg:

Bets On Oil Rout Seen Peaking As Shale Boom Starts To Falter

For Whom The Bell Tolls, Sell

Is this a bull market or a mania? You never know for sure, except in retrospect.


By Andy Kessler
The Wall Street Journal
July 3, 2017

You think this market’s crazy? One day in early 1987, with Wall Street humming, a meeting after trading closed involved several cases of champagne. The Dow Jones Industrial Average had breached 2000 that day, a cause for celebration. A week and a half later, more champagne was ordered when the average passed 2100. Then again a few weeks later for 2200. Eventually my boss stopped buying bubbly when breaking records became the norm. Japanese insurance companies would show up at the brokerage firm where I was a securities analyst and ask for a list of our five favorite stocks, then hand it to their salesman and say “buy 50,000 of each.”

On Friday, Oct. 16, 1987, the average dropped 108 points. Rumors swirled that we’d celebrate with cases of Bud Light. No matter: I was with some traders and a client in a stretch limo, headed to watch Mike Tyson fight Tyrell Biggs for the heavyweight championship—an event staged by Donald Trump in Atlantic City, N.J. Man, I miss the 1980s.

The market truly crashed the next Monday, dropping 508 points, or 22.6%. In retrospect, there had been signs all over the place. How did everyone miss them? Well, as the old Wall Street adage goes, no one rings a bell at the top (or bottom) of the market.

So here we are in 2017. The stock market is supposed to be the great humbler, but the records are coming fast and easy. The Dow Jones Industrial Average is up 8% for the year and flirts with a record practically every day. Some of this is structural: Bonds are no fun, since the yield curve is flattening and three-month Treasurys are 1%. So money flows to stocks—and other weird things.

A friend of mine used to run a large-growth mutual fund. In the dot-com mania of 1999, he told me that tens of millions of new capital would flow in every single day. Trying to figure out where to put it, he would consider the new batch of initial public offerings—and then inevitably he just would buy more Yahoo or America Online or Cisco or, what the heck, Yahoo again.

Today, money is flowing into exchange-traded funds. But because ETFs are weighted by market cap, that money flows into the biggest names: Facebook , Amazon, Apple, Microsoft , Google. Classic momos, or momentum stocks. The church of what’s working now. What could possibly go wrong?

Sure, the economy is picking up, earnings are growing, and the business is being transformed by mobile, cloud and artificial intelligence. But who doesn’t already know that? On the flip side, we’re at the start of a 30-year cycle of interest-rate raising, nonhousing debt is higher than in 2008, and deciphering China’s direction is as hard as Chinese arithmetic.

Remember, bull markets end when the perception of earnings growth disappears, maybe because of a recession or even simply pending inflation. Manias, on the other hand, end when the market runs out of buyers.

In 1987, Treasury Secretary James Baker refused to support the dollar, and Japanese buyers left town. In late 1999, Federal Reserve Chairman Alan Greenspan flooded the economy with money to head off a potential panic over the Y2K computer glitch. Then in early 2000 he pulled the money back in, ending the stock-buying frenzy. In 2007, the subprime mortgage-backed security market rolled over as foreign buyers left, though because of thinly traded markets it took another year to show up in prices.

Another ding-dong: In less than a year at least 50 companies, including one named Mysterium, have raised hundreds of millions of dollars via something called Initial Coin Offerings, selling a percentage of a new cryptocurrency service in exchange for other digital coins. That’s a modern version of a blank-check company, which usually ends in tears.

So are we facing a raging bull market or a mania? Sadly, you’ll only know in retrospect. I’m not saying it’s a top today, though if it is, I’m happy to take credit. It could go on for a while. Pundits pore over charts of volatility and put-call ratios. Forget that. Real investors survey the landscape and look for signs of a market gone loco. In one week in late 1999, the hedge fund I used to run had two groups from the Middle East each insist on wiring us $500 million. Practically “The Gong Show.” We politely declined and then started returning money to our existing investors.

Are there any bells ringing now? How about a few months back when someone looked me in the eye and insisted—without cracking a smile—that Uber was a bargain at a $68 billion valuation? Or when, with shades of AOL and Time Warner , Amazon bought Whole Foods for $13 billion—and then its stock went up by more than that amount? Or when Tesla missed its numbers again and the stock rose anyway? Or when the price of a bitcoin, backed by nothing but the faith of devotees, hit $3,000, tripling over a year? Or when Hertz stock rose 14% on news of a deal with Apple for a self-driving car that is still vaporware?

Listen for whom the bell tolls.


Article Link To The WSJ:

France’s Liberal Strongman

The emerging style of Emmanuel Macron carries echoes of the overmighty ‘imperial presidency.’


By Paul Taylor
Politico EU
July 3, 2017

In this era of illiberal authoritarianism, Emmanuel Macron is trademarking a paradoxical brand: the liberal strongman.

The young, centrist French president, flush with electoral successes that have wiped out the old political class and given him an absolute majority in parliament, is taking full advantage of the Fifth Republic constitution, made to measure for General Charles de Gaulle, to consolidate his power.

With bone-crunching handshakes and plain speaking, he seems determined to show himself as much the alpha male on the global stage as Donald Trump, Vladimir Putin or Recep Tayyip Erdoğan, but in the cause of liberal values — multilateral governance, open trade, human rights and diversity — that make him the antithesis of their nationalist ideologies.

At home, Macron has displayed ruthless opportunism. In just six weeks in office, he has split and decimated the main political parties, turned his own fledgling movement into the biggest political force in the country, upstaged his own center-right prime minister, Edouard Philippe, and eased his main centrist ally, François Bayrou, out of government over a party funding scandal. He has humiliated Manuel Valls, the former Socialist premier under whom he served, imposed new rules of the game on the media and moved to entrench emergency search and arrest powers permanently, on grounds of national security.

The 39-year-old political novice has forced political old-timers to kiss his ring or face electoral oblivion. His advance from stripling to strongman belies his youth and relative inexperience.

At some point, the new French president’s taste for personal power and his libertarian instincts are likely to collide.

De Gaulle had the aura of a war hero turned national savior and statesman who returned to power in 1958 at age 67 to “rescue” France from the revolving-door governments of an unstable parliamentary system. Macron has accrued similar powers after serving only as a presidential adviser and briefly as economy minister, and never before holding elected office.

He is determined to carry out a “Jupiterian presidency,” a reference to the king of the gods in Roman mythology. The term evokes a leader who sets a long-term course, speaks only occasionally in public and stays aloof from daily affairs. It is an intentional contrast with his predecessors, Nicolas Sarkozy and François Hollande, who gave a running commentary in the media on daily events, micro-managed government and party business, but were unable to enact a strategic plan to reform the country.

Macron’s role models are De Gaulle and Francois Mitterrand, each of whom had grand, long-term objectives — decolonization and modernization for the former, social justice and European integration for the latter — that enabled France to punch above its weight on the world stage. Macron’s objectives are a fusion of theirs: economic reform and European integration.

The new French leader’s critics say he is already showing signs of succumbing to the foibles of personal rule: an over-concentration of power, a tendency to sideline intermediate institutions such as trade unions and political parties and a demagogic use of the symbols of power. His long, slow walk through the courtyard of the Louvre Palace on the night of his presidential election triumph and his early use of the ornate Versailles Palace — home of the “Sun King” Louis XIV — to host Russian President Vladimir Putin illustrated his taste for harnessing the trappings of state to project personal authority.

Macron plans to use Versailles again on Monday as the backdrop for a rare solemn address to a congress of both houses of parliament, which last met in November 2015 when Hollande declared that France was at war with terrorism after Islamist gunmen killed more than 100 people in the Paris region.

Macron’s style carries echoes of the overmighty “imperial presidency” in the United States criticized in Arthur M. Schlesinger Jr.’s 1973 seminal book. The historian of the White House showed how Franklin D. Roosevelt built up the executive office, augmented its staff and took greater control over a range of government agencies created during the New Deal and World War II, on which subsequent presidents built to expand their power.

In the U.S., the president wields broad executive powers as commander-in-chief and head of state of the most powerful nation on earth. But his domestic authority is subject to a series of checks and balances — Congress, the courts, watchdog agencies and the media — which have combined to challenge and thwart presidential overreach in the first months of Trump’s erratic rule.

French presidents, especially when they have a cohesive parliamentary majority, face fewer constraints and a weaker, more supine media. The absence of political or judicial counterweights carries its own dangers. It can lead to abuses such as Mitterrand’s use of wire-tapping to shield his double private life, or Sarkozy’s flouting of campaign spending limits, which might never have led to prosecutions if he had been reelected in 2012.

French presidents, especially when they have a cohesive parliamentary majority, face fewer constraints and a weaker, more supine media


It can also lead to opposition shifting to the streets. Successive French rulers, including De Gaulle, faced mass protests that forced them to change course, abandon reforms or offer concessions. Macron is likely to face such a challenge later this year to his planned decrees to loosen labor market regulation.

At some point, the new French president’s taste for personal power and his libertarian instincts are likely to collide.

The Macron paradox is that his avowed aim is to decentralize some of the very powers he has gathered into his hands. The homeland of Montesquieu — the 18th-century political philosopher who developed the idea of the separation of powers — has a strong executive, a weak legislature and an under-resourced judiciary prone to government influence.

The new president wants parliament to spend less time rubber-stamping laws and more time scrutinizing the work of government. He has pledged to strengthen the independence of the judiciary and moralize public life. Furthermore, Macron envisages ceding some budgetary sovereignty to a future eurozone finance minister, although he has yet to flesh out his proposals.

Each step would arguably strengthen France. But it would also indubitably dilute the president’s power, and make taking the next step all the more difficult. Macron is likely to find that the real test of a liberal strongman is whether he can stay liberal when the going gets rough.


Article Link To Politico EU:

Trump And The Truth About Climate Change

By Joseph Stiglitz
Project Syndicate
July 3, 2017

 Under President Donald Trump’s leadership, the United States took another major step toward establishing itself as a rogue state on June 1, when it withdrew from the Paris climate agreement. For years, Trump has indulged the strange conspiracy theory that, as he put it in 2012, “The concept of global warming was created by and for the Chinese in order to make US manufacturing non-competitive.” But this was not the reason Trump advanced for withdrawing the US from the Paris accord. Rather, the agreement, he alleged, was bad for the US and implicitly unfair to it.

While fairness, like beauty, is in the eye of the beholder, Trump’s claim is difficult to justify. On the contrary, the Paris accord is very good for America, and it is the US that continues to impose an unfair burden on others.

Historically, the US has added disproportionately to the rising concentration of greenhouse gases in the atmosphere, and among large countries it remains the biggest per capita emitter of carbon dioxide by far – more than twice China’s rate and nearly 2.5 times more than Europe in 2013 (the latest year for which the World Bank has reported complete data). With its high income, the US is in a far better position to adapt to the challenges of climate change than poor countries like India and China, let alone a low-income country in Africa.

In fact, the major flaw in Trump’s reasoning is that combating climate change would strengthen the US, not weaken it. Trump is looking toward the past – a past that, ironically, was not that great. His promise to restore coal-mining jobs (which now number 51,000, less than 0.04% of the country’s nonfarm employment) overlooks the harsh conditions and health risks endemic in that industry, not to mention the technological advances that would continue to reduce employment in the industry even if coal production were revived.

In fact, far more jobs are being created in solar panel installation than are being lost in coal. More generally, moving to a green economy would increase US income today and economic growth in the future. In this, as in so many things, Trump is hopelessly mired in the past.

Just a few weeks before Trump’s decision to withdraw from the Paris accord, the global High-Level Commission on Carbon Prices, which I co-chaired with Nicholas Stern, highlighted the potential of a green transition. The Commission’s report, released at the end of May, argues that reducing CO2 emissions could result in an even stronger economy.

The logic is straightforward. A key problem holding back the global economy today is deficient aggregate demand. At the same time, many countries’ governments face revenue shortfalls. But we can address both issues simultaneously and reduce emissions by imposing a charge (a tax) for CO2 emissions.

It is always better to tax bad things than good things. By taxing CO2, firms and households would have an incentive to retrofit for the world of the future. The tax would also provide firms with incentives to innovate in ways that reduce energy usage and emissions – giving them a dynamic competitive advantage.

The Commission analyzed the level of carbon price that would be required to achieve the goals set forth in the Paris climate agreement – a far higher price than in most of Europe today, but still manageable. The commissioners pointed out that the appropriate price may differ across countries. In particular, they noted, a better regulatory system – one that restrains coal-fired power generation, for example – reduces the burden that must be placed on the tax system.

Interestingly, one of the world’s best-performing economies, Sweden, has already adopted a carbon tax at a rate substantially higher than that discussed in our report. And the Swedes have simultaneously sustained their strong growth without US-level emissions.

America under Trump has gone from being a world leader to an object of derision. In the aftermath of Trump’s withdrawal of the US from the Paris accord, a large sign was hung over Rome’s city hall: “The Planet First.” Likewise, France’s new president, Emmanuel Macron, poked fun at Trump’s campaign slogan, declaring “Make Our Planet Great Again.”

But the consequences of Trump’s actions are no laughing matter. If the US continues to emit as it has, it will continue to impose enormous costs on the rest of the world, including on much poorer countries. Those who are being harmed by America’s recklessness are justifiably angry.

Fortunately, large parts of the US, including the most economically dynamic regions, have shown that Trump is, if not irrelevant, at least less relevant than he would like to believe. Large numbers of states and corporations have announced that they will proceed with their commitments – and perhaps go even further, offsetting the failures of other parts of the US.

In the meantime, the world must protect itself against rogue states. Climate change poses an existential threat to the planet that is no less dire than that posed by North Korea’s nuclear ambitions. In both cases, the world cannot escape the inevitable question: what is to be done about countries that refuse to do their part in preserving our planet?


Article Link To Project Syndicate:

Xi, Abe Get Phone Calls From Trump As Asian Tensions Rise

Handling North Korea issue key topic for individual calls; U.S. has also renewed criticism of South Korea, Japan on trade.


By Andy Sharp
Bloomberg
July 3, 2017

North Korea’s nuclear ambitions dominated phone calls between Donald Trump and the leaders of Japan and China, as the U.S. president’s tougher stance on Kim Jong Un and pressure on nations in North Asia over trade sparks renewed tensions.

The separate chats with Japanese Prime Minister Shinzo Abe and Chinese President Xi Jinping preceded Trump’s expected meetings with the leaders of Asia’s two biggest economies at the Group of 20 nations summit in Germany this week. They came against the backdrop of a freshly strident tone from the Trump administration about China’s need to rein in Pyongyang, and on Japan and South Korea over trade imbalances with America.

“The recent actions show Trump is not happy with China and other Asian countries,” said Song Guoyou, an international relations professor at Fudan University in Shanghai. “The businessman wants better deals. Now everyone just has to return to the negotiating table.”

Trump and Abe agreed on the need for China to be firmer with North Korea, Japan’s Chief Cabinet Secretary Yoshihide Suga told reporters on Monday. Kyodo News said the chat was a prelude to a planned meeting in Germany between the leaders of the U.S., Japan and South Korea. In his call with Xi, Trump also repeated his desire for more balanced ties with America’s trading partners, according to a White House statement.

After Trump enlisted Xi’s help in April to press Kim to curtail his nuclear weapons and missile programs, the U.S. president dialed back his public criticisms of China. That tone has changed in recent weeks: Trump now says China isn’t doing enough to help on North Korea and the U.S. slapped sanctions on Chinese companies for doing business with the isolated regime. The administration also announced a $1.3 billion arms sale to Taiwan.

‘Negative Elements’


The U.S. Navy conducted another “freedom of navigation operation” in the South China Sea on Sunday, a U.S. official said. The U.S. has previously sailed warships close to reclaimed reefs China classes as its territory in the disputed waters, as well as features claimed by the likes of Vietnam and Taiwan. China’s Foreign Ministry protested the “trespassing” by the U.S. Navy and said it had dispatched military vessels and planes in response.

On the call, Xi told Trump that the “relationship had been affected by some negative elements,” state broadcaster China Central Television said. He urged his U.S. counterpart to uphold the “consensus we reached at Mar-a-Lago,” in a reference to the warm first encounter between the two leaders at Trump’s Florida resort in April.

The biggest danger if Trump runs out of patience with China is that his threats to take unilateral action against North Korea escalate. North Asian nations have warned a military strike on the regime could be disastrous for the region given Kim’s ability to hit Japan and South Korea with missiles.

Giving ‘Gifts’

“Right now, U.S.-China relations are not as good as China thinks they are, nor as bad as they could be with a president as volatile as Trump,” said Susan Shirk, a former deputy assistant Secretary of State for East Asia. “The common threat of a nuclear North Korea has brought the two leaders together, but the honeymoon period is likely to be short, as it becomes clear that the Chinese government doesn’t want to cut off Kim Jong Un.”

Trump has also adopted a more strident tone on trade. In his first meeting with new South Korean President Moon Jae-in last week, he demanded a “fair shake” for U.S. automakers in the country and called for a halt to exports of “dumped steel.” Meanwhile, U.S. Trade Representative Robert Lighthizer stressed concern in a meeting with Japanese Trade Minister Hiroshige Seko over a decades-old trade deficit with Japan.

Shirk and other analysts said the best way for leaders to manage their ties with Trump is to provide him with small “gifts” that enable him to claim victories that appeal to his domestic audience.
Japan Trade

Ralph Cossa, president of the Pacific Forum CSIS in Honolulu, said there was some fear before Moon’s meeting with Trump that the U.S. president would threaten to walk away from the U.S.-South Korea free-trade agreement.

“Instead, all they talked about was correcting a few ‘unfair’ practices at the margins,” Cossa said. “I did not hear any reference to ‘renegotiate’ or ‘scrap’ the agreement, but only to small potential side deals that would allow Trump to declare a ‘win’ without undoing an important agreement that has benefited both sides.”

So far, the attacks on South Korea over trade have been harsher than on Japan. But Trump has singled out Japan before: When he pulled the U.S. out of a Pacific trade pact in January he criticized Japan for failing to buy American-made vehicles. The U.S.’s trade shortfall with Japan was almost $69 billion last year, more than double the $27.6 billion deficit with South Korea, according to U.S. Census Bureau data.

Abe responded by launching a charm offensive with Trump, spending five hours on the golf course with him during a two-day visit to the U.S. in February. But their relationship could be tested if Trump attacks the country over trade or the weakness of the yen against the dollar.

The Pacific Forum CSIS’s Cossa said that “flattery goes a long way” in dealing with Trump.

“Contrast the way our Asian friends and allies, especially Prime Minister Abe but also President Xi and now Moon, have approached Trump with the way many European leaders have approached him,” he said. “Moon expertly set the stage for the meeting by stressing all the areas of agreement with Trump and using Trump’s words to make his own points.”


Article Link To Bloomberg:

From Oil Gushers To Golf Balls: Saudi Aramco Bets On Chemicals

Aramco says $20 billion complex near coast a ‘Game Changer!’; Diversification push is part of crown prince’s post-oil plan.


By Javier Blas
Bloomberg
July 3, 2017

Under a tent in the Saudi desert, Ziad Al-Labban’s showing off his vision for the world’s largest oil supplier -- and it looks like an Ikea store.

Al-Labban has spent his career helping Saudi Aramco meet about 10 percent of global crude demand, but right now all he wants to talk about are all the petrochemicals used in the modern home he’s replicated at Sadara, the sprawling new $20 billion complex he runs in the industrial hub of Jubail.

The mattress in the bedroom, the plates in the kitchen, even the Chevrolet Caprice in the driveway -- he’s too excited reeling off the vast array of products enhanced by his chemicals to notice the scorching heat. At 46 degrees Celsius (115 Fahrenheit), it’s way hotter than most places have ever been.

"Do you see that plasma TV?" Al-Labban asks enthusiastically, pointing to the entertainment center in the model living room. "We will produce the chemical coating that goes into that screen."

Al-Labban has managed Aramco units before, including in the U.S., but this one is like no other. Sadara, a venture with Dow Chemical Co., emblazons its website with “Game Changer!” for a reason. The facility’s completion is key to the kingdom’s efforts to diversify the economy, develop new industries and create jobs for millions of youth. It’s the largest plant of its kind ever built in a single phase, taking more than 60,000 workers five years to assemble.



Peak production is just weeks away, which is good news for Crown Prince Mohammed bin Salman. With the economy flatlining and the budget strained, he’s put next year’s initial public offering of shares in Saudi Arabian Oil Co., as Aramco’s formally known, at the center of his “Vision 2030” blueprint for life after oil. Some royals expect a $2 trillion valuation, which would let them raise $100 billion by selling just 5 percent, though many analysts expect half that.

Opening up the national cash cow to foreign investors for the first time since it was nationalized in 1980 is a major gamble for the kingdom’s traditionally conservative leaders. They’re betting that spending billions of dollars to become a major chemical player will appeal to potential investors by easing Aramco’s -- and thus the country’s -- dependence on crude output.

"Our goal is to be a top-tier energy and chemical company by 2030," Abdulaziz Al-Judaimi, Aramco’s senior vice president of downstream, said in an interview at the company’s headquarters in Dhahran, two hours’ drive south of Sadara.



If all goes as planned, Sadara will crank out multiple tons of the glycol ethers, isocyanates and other chemicals used in everything from golf balls and gum to sofas and soaps. But the ambitions of Aramco, formed when the Saudis signed their first oil concession with U.S. investors in 1933, don’t stop there.

With Sadara up and running, Aramco is drawing up plans for another $20 billion complex, this one with Saudi Basic Industries Corp., or Sabic, until now the dominant chemical company in the country.

"We will expand organically, but we also see inorganic opportunities," Al-Judaimi said, suggesting a deal-making appetite that’s rare for a company with little experience in mergers and acquisitions. “Chemicals is a global business.”

While the diversification will reduce Aramco’s exposure to volatile energy markets, the sector traditionally delivers low margins and requires know-how the company currently lacks. Its Petro-Rabigh venture on the Red Sea with Japan’s Sumitomo Chemicals Co. Ltd. hasn’t turned a profit in years.

Still, Al-Judaimi, one of Aramco’s top seven executives, said the company can achieve “a significant increase in value per ton if we do chemicals rather than just refined fuels.” He said Aramco and its partners boosted chemical capacity 60 percent last year to 28 million tons. It also created a new subsidiary, yet to be named, to “oversee its rapidly growing chemicals and plastics portfolio,” according to the prospectus for a recent Islamic bond sale.

Drawbacks to the pivot include “increased exposure to a low-margin, low-labor business,” said Jim Krane, a research fellow at Rice University’s Baker Institute in Houston. Aramco concedes its chemical investments won’t add that many jobs, but argues that they’ll drive growth in other sectors that will.

Within the oil industry, chemical units have often been marginal to the bottom line, but crude under $50 has changed the calculus for majors like Exxon Mobil Corp., Royal Dutch Shell Plc and Total SA. Producing petrochemicals is usually more profitable when oil prices fall, making the feedstock cheaper. Aramco has never published its accounts, but data from peers show that processing crude into chemicals rather than fuel can earn several extra dollars per barrel.

In 2015, Aramco invested 1.2 billion euros ($1.37 billion) in a 50-50 venture with German group Lanxess AG that makes elastomers, used to make golf balls more bouncy and chewing gum softer. The joint venture, which is active in nine countries, reported 2016 earnings before interest, taxes and amortization of $373 million.

IPO Concerns


For all the hype about capturing extra margin, through, the chemicals push presents significant risks. If the gambit flops, the kingdom would have poured tens of billions of dollars into a low-margin industry that could have been put to work elsewhere. Worse, after the IPO, foreign investors may start demanding the company stick to its core competency -- pumping crude.

The expansion is also a tacit acknowledgement that Aramco needs to adapt to the dramatic changes in global energy use that analysts at the International Energy Agency, among many others, see coming. The IEA predicts demand for passenger-vehicle fuel will increase just 0.1 percent a year through 2040, compared with a 1.5 percent annual rise in petrochemical consumption.

"The chemicals business is growing faster than fuels, so investing in chemicals is a way to mitigate the risks of our concentration on oil refining,” Al-Judaimi said. “We see a premium to chemicals over fuel.”

Yet it’s not all about profit for Aramco. The 2030 plan envisions the company’s chemicals buildup as a catalyst to spur manufacturing that will create jobs beyond oil. Such investments will "foster the growth" of local industries, it said in its 2015 annual report.

Changing Model

Back in Jubail, the government is building a special zone called PlasChem Park that will be "devoted exclusively to chemical and conversion industries that make direct or indirect use of Sadara’s products.” Within a decade, Sadara expects companies based in the park to buy as much as a third of its output. Halliburton Co. has already set up shop and Luxembourg-based Ravago SA plans to start producing plastics there later this year.

Over at the canopied showcase, Al-Labban says his shiny new factory, which is crisscrossed by 2,500 kilometers of pipelines, is aiding the transformation of an economic model that has dominated this country for most of the past century.

"We want to create value out of oil and gas inside Saudi Arabia,” the Sadara chief said. “We don’t want to just export crude.”


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Saudi Heavy Crude Price To Asia May Hit Highest In Over Three Years

By Florence Tan
Reuters
July 3, 2017

World No.1 oil exporter Saudi Arabia could raise prices for the heavy crude it sells to Asia in August to the highest in more than three years, trade sources said.

The move would come after refiner profits on churning out fuel oil from heavy crude hit record highs, with state oil giant Saudi Aramco cutting heavy crude production as part of a drive led by the Organization of the Petroleum Exporting Countries (OPEC) to rein in global output.

Saudi Aramco may lift the official selling price (OSP) for Arab Heavy crude to Asia by 20 cents a barrel to $1.65 below the average of Oman and Dubai quotes in August, its narrowest discount since December 2013, according to four Asian crude buyers.

A fifth trade source surveyed by Reuters said the price for the grade would remain unchanged from this month.

A hike in prices for Saudi heavy crude could buoy demand for such oil from other Middle Eastern producers, as well as supplies from Russia, Angola and the Americas.

"Maybe they (Saudi Aramco) will cut Arab Heavy supplies for August because of the OPEC cut and summer demand for power generation," said a trader with a North Asian refiner.

Tighter heavy crude supplies have reduced fuel oil output and helped push profits on making that product in Asia to an all-time high of a 59 cents premium against Dubai crude on June 22.

Meanwhile, the four sources who expected a climb in Saudi heavy crude prices predicted that flagship Arab Light's OSP would fall to a two-month low for August, down 20 cents a barrel after the Dubai market weakened last month.

Saudi crude OSPs are usually released around the fifth of each month, and set the trend for Iranian, Kuwaiti and Iraqi prices, affecting more than 12 million barrels per day (bpd) of crude bound for Asia.

Saudi Aramco sets its crude prices based on recommendations from customers and after calculating the change in the value of its oil over the past month, based on yields and product prices.

Saudi Aramco officials as a matter of policy do not comment on the kingdom's monthly OSPs.


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Saudi Arabia And Allies Give Qatar Two More Days To Accept Demands

By Noah Browning and Omar Fahmy
Reuters
July 3, 2017

Saudi Arabia and three allies accusing Qatar of supporting terrorism have agreed to a request by Kuwait to extend by 48 hours Sunday's deadline for Doha to comply, according to a joint statement on Saudi state news agency SPA.

Without stating whether Qatar had rejected the ultimatum as was widely expected, Kuwaiti state news agency KUNA said Kuwait's Emir Sheikh Sabah Al-Ahmad Al-Jaber Al-Sabah had asked Saudi Arabia and the three other countries boycotting Qatar to grant it an extension.

Kuwait has been acting as a mediator after Saudi Arabia, the United Arab Emirates, Bahrain and Egypt severed diplomatic and travel ties with Doha, accusing it of supporting terrorism and being an ally of regional foe Iran.

Qatar has called the charges baseless and its foreign minister, Sheikh Mohammed bin Abdulrahman al-Thani, said the stiff demands - including closing Qatar-based al Jazeera TV and ejecting Turkish troops based there - were made to be rejected.

The countries have threatened further sanctions against Qatar if it does not comply with their list of 13 demands presented to Doha through Kuwait 10 days ago.

Egypt said on Sunday that foreign ministers from the four boycotting countries would meet in Cairo on Wednesday to discuss Qatar, without providing further details.

They have not specified what further sanctions they could impose on Doha, but commercial bankers in the region believe that Saudi, Emirati and Bahraini banks might receive official guidance to pull deposits and interbank loans from Qatar.

The U.S. State Department, which is an ally of all countries involved, endorsed Kuwait's role as a mediator and called for both sides in the dispute to exercise restraint.


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China, Hong Kong Launch Long-Awaited Bond Connect Scheme

By Umesh Desai and Andrew Galbraith
Reuters
July 3, 2017

China and Hong Kong launched a long-awaited "Bond Connect" programme on Monday that links China's $9 trillion bond market with overseas investors, the latest step in Beijing's efforts to liberalise and strengthen the country's capital markets.

HSBC Holdings and an asset management unit of Bank of China said they have completed their first trades using the scheme.

The launch of the connection was timed to coincide with the 20th anniversary of Hong Kong's handover to Chinese rule and trading will initially commence "Northbound", meaning foreign investors will be able to buy and sell Chinese bonds.

"We continue to hold the view that there could be more than $1 trillion of additional global fixed income investments to be allocated to China domestic bonds over the coming decade," a note from Goldman Sachs said on Monday.

The connection will increase the supply of yuan-denominated assets that can be held by global investors as Beijing steps up the internationalisation of its currency.

"Bond Connect will clearly make it easier for investors to access the Chinese bond market, which in turn makes it easier for investors to hold renminbi," Andy Seaman, chief investment officer of London-based Stratton Street, said in a note.

BOCHK Asset Management said it had bought Chinese government and corporate bonds, conducted yuan spot trades related to these deals, and subscribed to a primary bond market issuance by Agricultural Development Bank of China. HSBC said it had completed its first deal as a market maker through the link but did not give additional details.

Media reports said 20 market makers for the bond connect scheme had been approved, including 14 Chinese and six overseas institutions.

BNP Paribas said it had received approval as a market maker and had also executed its first trade under the scheme.

The scheme will also see deals coming through the primary market. China Development Bank said it planned to issue up to 20 billion yuan ($2.95 billion) of one-year, three-year and 10-year fixed-rate bonds for tender on Monday. HSBC said it is one of the underwriters.

China has been keen to increase foreign participation in its bond market, the world's' third-largest, where overseas holdings were less than 2 percent. This is below the international norm of about 10 percent, BNP Paribas said.


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Oil Enters Bear Market As Investors Lose Faith In OPEC’s Cuts

Crude ends the quarter 9% lower, and bullish investors are ‘starting to go short’


By Alison Sider
The Wall Street Journal
July 3, 2017

Oil prices tumbled in the second quarter, swinging into a bear market as many investors who at the start of the year clung to hopes of rapidly shrinking stockpiles finally cut their losses.

Crude ended the quarter 9% lower, and sank as much as 21.9% in June from highs in February. A loss of 20% or more typically signals the start of a bear market.

It is a sharp shift from the first months of 2017, when investors had been divided over whether members of the Organization of the Petroleum Exporting Countries would stick to pledges to cut output, but generally believed those cuts would help ease the global supply glut and lift prices.

For a time, it seemed almost nothing could shake oil investors out of their malaise. Prices fell even after OPEC announced it would extend its cuts into next year and the U.S. Energy Information Administration reported that U.S. stockpiles fell nearly every week during the quarter.

At the same time, U.S. output has risen more quickly than many predicted: The EIA is now forecasting that it will average a record of 10 million barrels a day next year. Output from Libya and Nigeria, OPEC members exempt from the production-cut agreements, has ramped up as well.

Bullish investors “are burned, they are tired and they are surly. Now they’re starting to go short,” said Robert McNally, president of The Rapidan Group. “Hell hath no fury like a hedge fund scorned.”

Hedge funds and other speculative investors have piled into bets on falling oil prices. Bullish bets still outnumber bearish ones, but by the slimmest margin since August, according to data from the Commodity Futures Trading Commission.

Prices ended the quarter on a high note, rising 2.47% Friday, after oil-field services firm Baker Hughes Inc. reported that the number of rigs drilling for oil in the U.S. edged lower by two, the first weekly decline since January, raising hopes that U.S. drillers are responding to lower prices by pulling back. During the last week of the quarter, prices of U.S. crude futures rose 7%—the largest weekly increase since Dec. 2, the week OPEC struck its deal to cut output. The seven-session streak of gains assuaged worries that prices were on course to fall below $40 a barrel.

But the world is still awash in oil.

“All the bearish things are kind of still in play” said David Leben, director of commodity derivatives at BNP Paribas .

Even though many analysts still say that crude inventories are falling and that OPEC’s efforts will work, many investors are no longer buying it. Increasingly, the market is divided between those who believe that OPEC’s efforts are paying off and those who don’t.

“It’s alarming to people because this cycle has played out very fast,” said Robin Wehbé, managing director of the Boston Company, who runs the Dreyfus Natural Resources Fund. “The oil market has gone from a cartel-managed business to an open-market-driven business.”

Saudi Arabia, OPEC’s de facto leader, has a lot riding on higher oil prices. The country is targeting oil prices of $60 a barrel to smooth the way for the initial public offering of Saudi Aramco, its national oil company. That is one reason some investors still hope that OPEC will make deeper cuts.

Citigroup is among the firms that believe the market is actually getting tighter, but the firm’s analysts say for now, negative sentiment could be hard to shake.

Citi analysts say the chances that Brent crude futures will climb to $60 by the end of the year are less than 50%, down from their previous estimate of a 65% chance. Brent settled at $47.92 Friday.

“The fund community has been burned so badly as to reduce the likelihood of them jumping back in no matter what the fundamentals,” the analysts wrote in a June 26 research note.

Goldman Sachs on Wednesday also cut its three-month forecast for West Texas Intermediate, the U.S. benchmark for crude, to $47.50 a barrel from $55.

Investors are increasingly turning their attention to 2018, where the outlook is murky.

Many wonder whether OPEC producers will unleash a flood of oil once their agreement ends. The Goldman Sachs analysts said there is a “shrinking window of time” for global oil supplies to fall before OPEC is tempted to start churning out more oil. That leaves the analysts “cautious of calling for a sharp bounce in prices here,” they said.


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Dollar Gets Squeezed From All Sides

Greenback is down 5.6% this year, its worst two-quarter decline since 2011, as investors see more growth overseas.


By Chelsey Dulaney
The Wall Street Journal
July 3, 2017

The dollar suffered through its worst stretch in six years during the first half of 2017, as investors turned more confident that economic recoveries around the world are gaining on or surpassing growth in the U.S.

The currency lost 1% last week against a basket of major peers tracked by The Wall Street Journal, bringing its decline for the year to 5.6%. That is the dollar’s largest two-quarter percentage decline since 2011.

The dollar has come under fresh pressure after central-bank officials in Europe and Canada last week offered some of their strongest signals yet that they could soon begin winding down monetary policy measures designed to spur economic growth.

Investors, viewing these statements as a sign of strength and a possible portent of higher interest rates in those countries, rushed to buy the currencies. The euro soared to its highest level against the dollar in more than a year, while sterling and the Canadian dollar both rallied more than 2%.

The developments marked the latest bad news for the dollar, now the worst-performing of the major currencies this year.

Few had expected such a turnabout even six months ago. Investors had driven the dollar to a 14-year-high after the November U.S. presidential election on hopes that Donald Trump’s plans for a tax overhaul, deregulation and fiscal stimulus would accelerate growth while the Federal Reserve also raised interest rates.

Instead, the Trump administration’s plans have repeatedly hit political roadblocks while U.S. growth, employment and inflation data have begun to soften.

Even the Federal Reserve continuing to raise U.S. interest rates—one of the few positives for the dollar this year—is no sure thing. Some Fed officials recently have expressed concern about pushing up rates amid weakening inflation. The latest was Federal Reserve Bank of St. Louis President James Bullard, who said on Thursday that he doesn’t support raising short-term interest rates again this year.

“I think we have been overly hawkish, especially with regard to our future plans,” he told reporters during a London presentation.



Markets are pricing in a roughly 54% chance that the Fed sticks to its projection for at least one more rate increase in 2017, according to fed-funds futures contracts tracked by CME Group . That is down from 62% in March.

Meanwhile, investors are growing more bullish about economic recoveries in Europe and parts of the developing world, even as they fear a U.S. slowdown.

After years in which the U.S. economy outpaced growth in the eurozone, the 19-country currency bloc pulled ahead last year, and recent forecasts have its growth essentially even with that of the U.S. this year and next.

Emerging-market economies are expected to expand at the even faster rate of 4.7% this year, more than double the pace of U.S. and Europe, according to J.P. Morgan .

“The rest of the world’s tone is improving while the U.S. is decelerating, and the dollar is reflecting that,” said Mark McCormick, North American head of foreign-exchange strategy at TD Securities.

Some investors believe the dollar’s performance this year could spell the end for the bull market in the greenback. Periods of dollar strength have typically lasted for around seven years.



“We’re at this pivotal moment now where we’re in the midst of a major turn lower in the dollar,” said Bilal Hafeez, head of foreign-exchange strategy for Nomura Securities in London.

Alessio de Longis, a portfolio manager at OppenheimerFunds, entered the year betting on a broadly stronger dollar but now expects the dollar to trade sideways this year.

“The growth momentum in the U.S. is fading,” Mr. de Longis said. “Without a reinvigoration of tax reform, which doesn’t seem likely this year, the dollar bull market is probably over.”

Hedge funds and other speculative investors built up more than $28 billion in bullish bets on the dollar at the end of last year, according to Commodity Futures Trading Commission data. As of June 27, bullish bets on the dollar had shrunk to a net $2.7 billion.

Not everyone has lost confidence in a strong dollar: James Athey, a senior investment manager at Aberdeen Asset Management , still expects the dollar to rise against developed-market currencies such as the yen in the months ahead.

“The dollar has suffered greatly,” said Mr. Athey, who thinks dollar investors are too pessimistic about the Fed’s interest-rate path.

“We think the U.S. economy is still the most robust,” he added.

A weaker U.S. currency could help support the recent recovery in corporate profits, which grew at the fastest pace in nearly six years in the first quarter of the year. A falling dollar makes U.S. multinationals’ exports more competitive abroad.

A weaker dollar also would relieve pressure on emerging-market nations by making their dollar-denominated debts easier to service and relieving downward pressure on their currencies. Since many developing countries are also commodities producers, a weaker dollar helps these economies because it makes their materials cheaper for nondollar buyers.

Even in Europe, where exports to the U.S. have become more expensive as a result of the euro’s 8.6% rise against the dollar this year, signs of growth slowly picking up could mean European companies are better able to withstand a weakening dollar than in previous years. The benchmark Stoxx Europe 600 index has rallied 5% this year.


Article Link To The WSJ:

Stock Market Poised To Kick Off July 4th Week With Fireworks Of Its Own

Tech stocks may be ripe for bargain hunting.


By Sue Chang
MarketWatch
July 3, 2017

It may be a holiday-shortened week in the stock market, but investors can expect plenty of fireworks to keep them on edge. From economic data to the tech sector’s meltdown and even President Donald Trump’s fusillade of tweets, there will be no dearth of catalysts for stocks in the first several trading days of July.

Starting with manufacturing data and auto sales on Monday, it will be a busy week for economic news with implications for Wall Street.

“One of the things weighing on the market is whether the economy is slowing down given the weak data over the past few weeks,” said Brad McMillan, chief investment officer for Commonwealth Financial Network.

As such, investors are likely to keep a watchful eye on data for clues on whether the economy is contending with merely seasonal sluggishness or a more pernicious and prolonged slide, he said.

Lackluster inflation has been the bugaboo of central bankers world-wide, even if officials at the Federal Reserve and Bank of England are hinting at the end of the easy-money era that persisted in the fallout from the 2008 financial crisis and helped to buoy stocks and bond prices.

Against that backdrop, investors will be keenly awaiting minutes from the Federal Open Market Committee’s June meeting when policy makers lifted interest rates and struck a more hawkish tone. That account of Fed discussions is due Wednesday, while the weekly jobless claims are scheduled for Thursday, which may serve as a preview of sorts for June nonfarm payrolls on Friday.

“The whole week will basically be about leading up to this report. After the disappointing 138,000 reported in May, I suspect the report will come in stronger,” said Bob Pavlik, chief market strategist at Boston Private Wealth. “I wouldn’t be surprised to see some downward revision to May but the street will pay more attention to the headline figure.”

Economists polled by MarketWatch are estimating that 174,000 jobs will be created in June, compared with a woeful 138,000 in the prior month, with unemployment expected to tick higher to 4.4% from 4.3%.

The big market trend to monitor is likely to be newfound volatility in technology shares, highlighted by outsize moves in the Nasdaq Composite Index COMP, -0.06%The large-cap Nasdaq-100 index NDX, -0.11% the popular PowerShares QQQ Trust Series 1 QQQ, +0.04% which tracks the Nasdaq-100, and the tech-focused Technology Select Sector SPDR ETF XLK, -0.09% Those gauges all saw declines of at least 2% in June, but still boasts double-digit returns in the first half of 2017.

A steady run-up in tech has raised questions about valuations that continue to dog a sector that represents about 23% of the S&P 500’s price moves, boasting the biggest influence on the broad-market benchmark, ahead of health care and financials.

Despite the recent downdraft, some bullish strategists believe this may be the appropriate time to buy battered tech names opportunistically.

“I think those that are selling into the tech weakness are weak hands and just taking profits. If I didn’t own tech, I’d be watching for a bottom to form and as it did, I’d be a buyer of names such as [Google] which has been hit relatively hard,” said Pavlik.

Google’s parent Alphabet Inc. GOOG, -0.99% GOOGL, -0.87% was among the biggest Nasdaq laggards this week, slumping 5.7%. Amazon.com Inc. AMZN, -0.81% was also a big loser, dropping 3.6%, while Facebook Inc. FB, -0.04% dropped 2.6% and Apple Inc. AAPL, +0.24% slid 1.5%.

Richard Hastings, macro strategist at Seaport Global Securities LLC, also believes the dramatic retreat in high-profile tech stocks will subside.

“There’s just too much demand and the other sectors don’t have the futuristic talents that tech stocks enjoy,” he said.

Meanwhile, investors can always count on President Donald Trump to animate markets, if the news cycle ebbs during the week.

Many market pundits argue that Trump’s tweets have little lasting influence on stocks, but they are likely to remind frustrated investors that key policy mandates remain unfulfilled campaign pledges. Some even suggest that investors are becoming inured to the president’s social-media habits.

“The DC tweet storms are not a major catalyst for markets, despite what they feel like,” said Hastings. “If you like Martin Scorsese movies, then there’s a tweet for you. Every week. At this pace, it all gets boring and dull, so President Trump might turn up the heat and crank out some amazingly insulting New York City-style tweets that nobody believes, unless you’re from the metro area.”

One other consideration for investors is traditional investment trends over the remaining six months of 2017, which have traditionally proven a lackluster period for equities.

As the chart from Chris Verrone at Strategas Research Partners illustrates, stock-index benchmarks tend to underperform in July to October, compared with other months going back three decades.



Nonetheless, stocks could score a lift during the coming rough patch as “historically a strong first half often bodes well for an above average second half,” according to Verrone.

The Dow Jones Industrial Average DJIA, +0.29% and the S&P 500 SPX, +0.15% climbed on Friday to finish out June higher while Nasdaq ended the month in the red. However, all three major indexes logged strong gains in the first half of the year with the Dow rising 8%, the S&P 500 up 8.2% and the Nasdaq rallying 14%, its best six-month performance since 2009.


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Everyone Is Mad At Everyone

By Robert J. Samuelson
The Washington Post
July 3, 2017

This is the summer of our discontent. As Americans celebrate July 4, they are mad at their leaders, mad at their government and mad at each other. A recent Pew poll finds that “public trust in government remains near historic lows.” Just 20 percent of Americans trust the government to “do the right thing just about always or most of the time.” The comparable figures were 40 percent in 2000 and almost 80 percent in the early 1960s. There has been a long-term loss of trust.

At the same time — as is well-known — political polarization has soared. Republicans and Democrats increasingly harbor dire and even hateful views of each other. Among Republicans, 58 percent have a “very unfavorable” view of Democrats, up from 21 percent in 1994, reports another Pew survey. Democrats’ views of Republicans are nearly identical: 55 percent label Republicans as “very unfavorable,” roughly a tripling since 1994’s 17 percent. Poisonous politics strains personal friendships.

Historians will argue for decades over what drained public confidence in government. Any short list would include the war in Vietnam, Watergate, double-digit inflation in the 1970s (13.5 percent in 1980), other economic failures (the 2008-2009 financial crisis and 11 post-World War II recessions ), the wars in Iraq and Afghanistan, and the tendency of politicians to promise more than they can deliver. The disenchantment precedes President Trump and the Russia scandal, though they now contribute to it.

On the other hand, pinpointing responsibility for political polarization is easier. It’s the “political class,” including elected officials, political consultants, scholars and pundits (print, cable and digital). Too often, they abandon rhetorical self-restraint for inflammatory verbosity. The bloviation sets the tone of debate, which is the political equivalent of trash talk.

Ironically, the people who are most politically engaged — the people who consider themselves most morally “responsible” — pose the greatest threat to the political system, weakening its ability to compromise and condemning it to paralysis. The fringes of both parties have acquired political power and, to some extent, disenfranchised the larger and ideologically messier middle.

By Pew’s estimate, this messy middle — meaning that its members have a “roughly equal number of liberal and conservative positions” — remained the largest bloc of Americans at about 40 percent of the total in 2014. Here is what Pew says about the anomalous position of people in the middle:

“The majority do not have uniformly conservative or liberal views. Most do not see either party as a threat to the nation. And more believe their representatives in government should meet halfway to resolve contentious disputes rather than hold out for more of what they want.

“Yet many of those in the center remain on the edges of the political playing field, relatively distant and disengaged, while the most ideologically oriented and politically rancorous Americans make their voices heard through greater participation in every stage of the political process”
— voting, contributing, volunteering.

The stabilizing center of U.S. politics is marginalized. Its considerable power is dissipated and silently flows to activists of both parties, who increasingly define themselves by demonizing their opponents. Cooperation becomes harder, because the gulf between them becomes larger and the contempt of each for the other grows. The activists in both parties are the troublemakers — not all of them, but enough to matter.

Of course, dissent is essential. Democracy without dissent is not democracy. But dissent should be disciplined. It should not indulge in fantasies that make partisans feel good but are profoundly misleading. This inevitable disillusion is where we are today.

To take two familiar examples: The Republican promise to repeal and replace Obamacare while also reducing premiums and expanding coverage was never possible. It was make-believe. Similarly, the Democratic refusal to deal with the escalating costs of Medicare and Social Security is crushing other worthy government programs — a strange position for a pro-government party.

By and large, Americans are optimists. We see ourselves as a “can do” people who generally believe the future will be better than the past. But the fact that many Americans are having second thoughts about their society and its future is concerning.

What’s worrisome and not especially recognized is that many members of the political class — again, the pundits, journalists and scholars as well as elected officials, lobbyists and activists — have a vested interest in the status quo of division. Who they’re against defines who they are on both left and right. This protects elected officials against primary challenges by even greater ideological purists; it generates audiences and incomes for pundits; it makes activists feel morally superior. Who wants to give that up?

Not surprisingly, the system has become self-perpetuating. It feeds on mutual recriminations. On this July 4, the founders — who had deep disagreements, but compromised — would doubtlessly disapprove.


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