Thursday, July 20, 2017

Catch The Aeterna Zentaris ($AEZS) Profit Taking After Yesterday's Big Gain And Sell It Short Today @ $2.65; +/- .20

Thursday, July 20, Morning Global Market Roundup: Asia Stocks Hit Near-Decade High

By Nichola Saminather
July 20, 2017

Asian shares rose to their highest levels in nearly a decade on Thursday, bolstered by a surge in global markets, while the yen eased after the Bank of Japan reinforced expectations that it will keep massive stimulus in place far longer than other major central banks.

European markets were also set for a positive start, with financial spreadbetter CMC Markets expecting Britain's FTSE 100 and France's CAC 40 to open up 0.1 percent and Germany's DAX to start the day 0.2 percent higher.

MSCI's broadest index of Asia-Pacific shares outside Japan added 0.1 percent, hovering near its highest level since December 2007.

Australian stocks rose 0.5 percent and South Korea's KOSPI was up 0.3 percent.

Chinese blue chips advanced 0.1 percent, while the Shanghai Composite edged up 0.2 percent. Hong Kong's Hang Seng crept up 0.2 percent.

The MSCI World index inched up in its 10th straight session of gains and set a record high for the sixth consecutive day, lifted by all-time closing highs on Wall Street in the wake of strong earnings reports.

"Fresh all-time highs had once again been printed on various US indices including the S&P 500 and the NASDAQ, inspired by earnings," Jingyi Pan, market strategist at IG in Singapore, wrote in a note.

"Gains in the U.S. and the higher crude prices are (helping) energize regional markets while earning reports in the Asian region will also be watched."

In currency markets, the yen weakened after the BOJ once again pushed back its projected timing for hitting its 2 percent inflation target, as it cut price forecasts until fiscal year 2020.

The yen slipped 0.2 percent to trade at 112.135 yen to the dollar following the BOJ decision. The weaker yen helped the Nikkei extend gains to 0.6 percent.

The euro was steady at $1.1511 on Thursday, ahead of a meeting of the European Central Bank later in the session.

The common currency hit 14-month high this week following seemingly hawkish comments by ECB President Mario Draghi.

At Thursday's meeting, the ECB may drop a reference to its readiness to increase the size or duration of its asset-purchase program before announcing in the autumn how and when it will start winding down its bond buying.

"The euro has surged enormously on the back of hopes that the ECB is going to start the process of shutting the door on loose monetary policy," Naeem Aslam, chief market analyst at ThinkMarkets UK, wrote in a note.

"The ECB needs to be clear about its forward guidance and it should reinforce that in a subtle manner. Coming out of the gates too aggressively would create shock waves in the market."

The dollar index, which tracks the greenback against a basket of trade-weighted peers, rose 0.1 percent to 94.894.

The Australian dollar set a new two-year high on Thursday, still heady from the minutes of the last Reserve Bank of Australia meeting, released Tuesday, which showed the central bank had turned more upbeat on the economic outlook.

It pulled back from that high to trade down 0.2 percent from Wednesday's close at $0.7939.

The Canadian dollar was 0.1 percent weaker at C$1.262 to the dollar. On Tuesday, it touched a 14-month high on record domestic factory sales and stronger oil prices.

Oil prices dipped after hitting a two-week peak on Wednesday on a bigger-than-expected weekly draw in crude and gasoline inventories in the United States.

U.S. crude eased less than 0.1 percent to $47.10 a barrel, after jumping 1.6 percent overnight.

Global benchmark Brent also lost nearly 0.1 percent to $49.67, holding on to most of Wednesday's 1.8 percent gain.

Gold slid as the dollar pulled higher, falling 0.15 percent to $1,238.10 an ounce on Thursday.

Article Link To Reuters:

Oil Steady After Big Drop In U.S. Fuel Stocks, But Markets Remain Bloated

By Fergus Jensen
July 20, 2017

Oil prices held steady on Thursday, hanging on to gains made the previous session when falling U.S. crude stocks lifted the market, as analysts offered mixed supply outlooks for the commodity ahead of a key OPEC meeting next week.

Crude oil prices are still capped below the key $50-per-barrel mark on concerns about high supplies from the Organization of the Petroleum Exporting Countries (OPEC) despite its pledge to cut output along with non-OPEC producers.

Brent crude futures, the international benchmark for oil prices, were at $49.66 per barrel, just 2 cents down from their last settlement.

U.S. West Texas Intermediate (WTI) crude futures were at $47.10 per barrel, 2 cents below their last close.

Prices jumped more than 1.5 percent in the previous sessions for both crudes on a report showing U.S. crude and fuel stocks fell in the United States last week.

"Both contracts now face some significant technical resistance ahead, which may give traders some pause for thought after crude's impressive one-week rally," said Jeffrey Halley of futures brokerage OANDA.

U.S. crude inventories fell by 4.7 million barrels in the week to July 14, according to data from the Energy Information Administration, against analyst expectations for a decrease of 3.2 million barrels.

"Over the past 15 weeks, U.S. oil inventories have fallen ... 13 times, and in most cases, the falls were more pronounced than expected," said Fawad Razaqzada, market analyst at futures brokerage

"Yet, U.S. crude oil inventories still remain near the upper half of the average for this time of the year," he added.

The ongoing high U.S. inventories - crude stocks are now just over 490 million barrels - as well as high output from OPEC are preventing prices from rising much further, traders said.

OPEC and non-OPEC producers are due to meet in St. Petersburg, Russia, next Monday to discuss the current situation in oil markets. OPEC, along with Russia and other non-member producers, has pledged to cut production by 1.8 million barrels per day (bpd) between January this year and March 2018.

A lack of compliance by some, though, and exemptions for Nigeria and Libya have undermined that OPEC-led effort, preventing prices from rising by much.

Analysts, however, pointed to rising political risk factors, including potential U.S. sanctions on Venezuela and tensions in the Middle East and North Africa, that could impact oil prices.

"We don't expect to see this quietness to last forever, as geopolitical risks are rising again," ANZ bank said in a note.

Article Link To Reuters:

Three Years Into Cheap Oil, Gulf Is Still Depending On A Rebound

Low prices combined with output cuts are weighing on growth; Isolation of Qatar has added to perception of regional risks.

By Ahmed Feteha
July 20, 2017

Energy-rich Gulf Arab nations have scrambled to adjust to the slump in oil prices since 2014. Three years on, their economies are mired in weak growth and largely just as dependent on crude as they ever were.

The six members of the Gulf Cooperation Council have curtailed subsidies and introduced new taxes to bolster non-oil revenue and reduce ballooning budget deficits. Much of the savings, however, have been due to spending cuts and the pace of reforms has slowed across the region, said Monica Malik, chief economist at Abu Dhabi Commercial Bank. Overall progress in economic diversification has been limited, she said.

Absent a rebound in oil prices, analysts say it’s unlikely that these nations can repair their finances without deeper spending cuts that could further hurt growth. The standoff between a Saudi-led bloc and Qatar is also undermining investor confidence at a time when the GCC is seeking foreign funds.

Five charts illustrate oil’s dominance and the challenges facing the region.

First-quarter budget data from Saudi Arabia and Oman showed an improvement in their budget deficits alongside higher oil revenue, after the price of Brent crude rose to as high as $57.10 per barrel in January. It has since retreated under $50, well below what the two nations need to balance their budgets.

Saudi Arabia, OPEC’s biggest producer, increased non-oil revenue in 2016 and introduced taxes on tobacco products and soda drinks in June this year. The government, however, reversed a decision to cut the bonuses and some allowances of state employees. A second round of subsidy cuts will also likely be delayed to later in 2017 or early next year, according to people with knowledge of the matter.

Risk Perception

The average cost of protecting government bonds of Saudi Arabia, the U.A.E., Kuwait and Qatar was at a three-year low about six weeks ago, when the Qatar dispute erupted. It has since jumped by about 40 percent to 94 basis points, according to data compiled by Bloomberg.

“The Qatar situation has an added an element on the political and economic risk side, so it is not surprising to see risk perceptions going up,” said David Butter, associate fellow at Chatham House in London. “Most countries in the GCC are still in relatively solid financial positions,” he said, but there are “underlying issues” around the long-term sustainability.

Growth Suffers

Austerity measures and oil-output cuts are weighing on economic growth in the region. The Saudi economy contracted in the first three months of this year for the first time since 2009. The International Monetary Fund expects average growth in the GCC to slow to 0.9 percent this year, compared with 5 percent during the last oil boom between 2000 and 2013.

“We’re going to see poor levels of growth across the GCC on lower oil production, although they’ve been helped in the first quarter by the relatively higher prices,” Butter said.

Vulnerable Pair

Bahrain and Oman have the lowest credit ratings of the GCC nations, with less oil to sell, thinner fiscal buffers and in Bahrain’s case, more debt. That picture is unlikely to change unless crude prices rise dramatically. Bahrain needs $101.1 a barrel for its budget to break even, the highest among Middle East and North African net oil exporters, according to the IMF.

Oman’s budget deficit soared to about 21 percent of GDP last year, the highest in the GCC. Official data shows little progress made on fiscal consolidation in the first four months of this year.

Blessing In Disguise?

Yet for Qatar, the world’s biggest exporter of liquefied natural gas, the economy’s reliance on hydrocarbons is proving to be a blessing in disguise. Revenue from LNG and oil exports has remained intact through the diplomatic row.

And while Standard Chartered Plc economists expect Qatar’s non-oil economy to slow this year as a result of the crisis, they still see overall gross domestic product expanding 2.5 percent -- little changed from 2016.

Article Link To Bloomberg:

Facebook In Talks With Publishers On Supporting Subscription Models

By Anya George Tharakan and Sheila Dang
July 20, 2017

Facebook Inc (FB.O) is in early talks with several news publishers about how its social media site can better support subscription business models, the company's head of news partnerships, Campbell Brown, said in a statement on Wednesday.

The statement comes a day after TheStreet reported that Facebook plans to launch a subscription-based news product, citing comments by Brown at a conference. Facebook will begin initial tests in October, TheStreet reported.

The feature is likely to allow publishers to create a paywall on Facebook's Instant Articles and guide readers to a publisher's home page to opt for a digital subscription, according to TheStreet.

Instant Articles lets publishers post articles directly to the Facebook app.

The idea for a paywall is based on premium and metered plans and has been in the works for a while, TheStreet said, citing Brown at the Digital Publishing Innovation Summit in New York.

Facebook also started the roll-out of a new tool that allows publishers using Instant Articles to measure how those articles perform compared with their own mobile websites.

Shares of Facebook closed up 0.79 percent at $164.14 on Wednesday.

Article Link To Reuters:

Amazon Launches Shopping Social Network Spark For iOS

By Angela Moon
July 20, 2017 Inc (AMZN.O) has launched a social feature called Spark that allows members to showcase and purchase products on its platforms, the retail giant's first clear move into the world of social media.

Spark, which is currently only available for Amazon's premium paying Prime members, encourages users to share photos and videos, just like popular social media platforms Instagram and Pinterest. The new feature publicly launched on Tuesday for use on mobile devices that use Apple's (AAPL.O) iOS operating system.

Spark users can tag products on their posts that are available on Amazon and anyone browsing the feeds can instantly find and purchase them on the platform. Users can also respond to posts with "smiles," equivalent to Facebook's "likes."

"We created Spark to allow customers to discover - and shop - stories and ideas from a community that likes what they like," said an Amazon spokeswoman.

"When customers first visit Spark, they select at least five interests they'd like to follow and we'll create a feed of relevant content contributed by others. Customers shop their feed by tapping on product links or photos with the shopping bag icon."

Amazon has also invited publishers including paid influencers and bloggers to post on Spark. Their posts are identified with a sponsored hashtag.

Many Amazon users on social media called the service a cross between Instagram and Pinterest with a touch of e-commerce.

Brand strategist Jill Richardson‏ (@jillfran8) said: "Been messing with #AmazonSpark all morning and I am LIVING. It's like Pinterest, Instagram, and my credit card had a baby and it's beautiful."

Community manager Lucas Miller‏ (@lucasmiller3) also tweeted: "So #amazonspark is going to be a dangerous pastime. The app is already too easy to shop..."

Amazon shares closed up 0.2 percent at $1,026.87 on Wednesday.

Article Link To Reuters:

Musk Says First Passengers On SpaceX Rockets Must Be ‘Brave’

SpaceX CEO discusses prospects for human space travel; First attempt of Falcon Heavy rocket launch will ‘be exciting.’

By Alan Levin
July 20, 2017

Elon Musk tamped down expectations about Space Exploration Technologies Corp.’s new rocket designed to carry private citizens into space, saying whoever chooses to be among the first passengers will need to be "brave."

The SpaceX Falcon Heavy, a rocket with two extra boosters attached and a total of 27 engines that must fire simultaneously, will have enormous stresses and has been difficult to test on the ground, Musk said Wednesday in Washington.

He jokingly urged attendees of a conference on the International Space Station to watch the first attempted launch.

"It’s guaranteed to be exciting,” he said. When asked whether the risks would make potential customers pause before signing up for a flight, he said: "I want to make sure we set expectations accordingly."

SpaceX has an ambitious agenda for the cosmos in coming years. The company began taking deposits from private citizens for a trip around the moon on the Falcon Heavy rocket. And it is working with NASA to carry astronauts to the International Space Station. But the company has only transported cargo so far, and Musk said shifting to carrying passengers is “a huge step up.”

Getting certified to carry NASA astronauts has been a challenge for SpaceX, as there is a much higher bar than transporting hardware for the agency, Musk said. He called NASA’s oversight for "really tough" but justified because of the potential risks to humans.

"It’s the right motivation,” he said.

SpaceX and NASA are now working through some “small technical bones of contention" for certification to carry passengers, he said. Meanwhile, the U.S. Federal Aviation Administration, which regulates commercial space flight separately from NASA, hasn’t yet set certification standards for carrying private citizens for hire.

The company continues its attempts to reuse more of its rockets and launch equipment, a more-efficient approach that has been the biggest innovation in space flight in recent years, Musk said.

SpaceX has successfully landed its rocket boosters and used them again. It’s now "quite close" to being able to reuse the fairing that clamps over the rocket’s payload, a relatively light-weight aerodynamic cover, he said.

The fairing costs between $5 and $6 million. "Imagine we have a pallet of cash worth $6 million dollars falling through the sky," Musk said he has told his staff. "Would we try to catch it? I say we do."

He didn’t provide details about how the fairing would be captured.

Musk’s talk on Wednesday was to an overwhelmingly friendly audience of scientists as eager as he is to explore space. Topics ranged from how his project to build tunnels to stem the Los Angeles region’s traffic congestion might help colonize Mars to the health risks of traveling beyond Earth’s atmosphere.

He downplayed the potential for human conflict on Mars, calling it "pretty open territory" where competing entities could find plenty of room without challenging each others’ claims. After praising NASA and noting it stood to get increased federal funding, he drew applause.

The billionaire entrepreneur said development of the Falcon Heavy had been much tougher than he imagined. By adding two additional boosters to each side of a rocket, it added to the vibrations, created new stresses to the main rocket and was difficult to test without an actual launch.

"There is a lot of risk associated with Falcon Heavy, a real good chance that that vehicle doesn’t make it to orbit," he said. "I’m saying full disclosure here, man."

Government reviews have echoed some of his concerns. The Government Accountability Office found earlier this year that SpaceX and competitor Boeing Co. must contend with potential safety hazards that may postpone approvals for transporting astronauts until 2019. A U.S. contract with Russia for transportation to the space station expires that year.

The GAO’s findings follow a September report by NASA’s Office of Inspector General, which warned of “multiple challenges that will likely delay the first routine flight carrying NASA astronauts to the ISS until late 2018.” Agency funding challenges, delays in NASA’s evaluation process and technical challenges with spacecraft designs have all contributed to the program falling behind schedule.

There have been two major mishaps with its rockets since 2015, a sign of how difficult rocket science can be.

On June 28, 2015, a SpaceX Falcon 9 rocket disintegrated shortly after launch from Cape Canaveral, Florida. Another Falcon 9 blew up on the ground in Florida.

But SpaceX has also had numerous successes, making it one of the most formidable companies in the space market. It has pioneered reusable rockets, for example, which it has successfully landed in Cape Canaveral and on an ocean barge.

Article Link To Bloomberg:

Robots Take Over Retail Jobs

Wal-Mart and other large retailers, under pressure from Amazon, turn to technology to do workers’ rote tasks.

By Sarah Nassauer
The Wall Street Journal
July 20, 2017

Last August, a 55-year-old Wal-Mart WMT -0.43% employee found out her job was being taken over by a robot. Her task was to count cash and track the accuracy of the store’s books from a desk in a windowless backroom. She earned $13 an hour.

Instead, Wal-Mart Stores Inc. WMT -0.43% started using a hulking gray machine that counts eight bills per second and 3,000 coins a minute. The Cash360 machine digitally deposits money at the bank, earning interest for Wal-Mart sooner than if sent by armored car. And the machine uses software to predict how much cash is needed on a given day to reduce excess.

“They think it will be a more efficient way to process the money,” said the employee, who has worked with Wal-Mart for a decade.

Now almost all of Wal-Mart’s 4,700 U.S. stores have a Cash360 machine, making thousands of positions obsolete. Most of the employees in those positions moved into store jobs to improve service, said a Wal-Mart spokesman. More than 500 have left the company. The store accountant displaced last August is now a greeter at the front door, where she still earns $13 an hour.

“The role of service and customer-facing associates will always be there,” said Judith McKenna, Wal-Mart’s U.S. chief operating officer. But, she added, “there are interesting developments in technology that mean those roles shift and change over time.”

Shopping is moving online, hourly wages are rising and retail profits are shrinking—a formula that pressures retailers, ranging from Wal-Mart to Tiffany & Co., to find technology that can do the rote labor of retail workers or replace them altogether.

As Inc. makes direct inroads into traditional retail with its plans to buy grocer Whole Foods Market  Inc., Wal-Mart and other large retailers are under renewed pressure to invest heavily to keep up.

Economists say many retail jobs are ripe for automation. A 2015 report by Citi Research, co-authored with researchers from the Oxford Martin School, found that two-thirds of U.S. retail jobs are at “high risk” of disappearing by 2030.

Self-checkout lanes can replace cashiers. Autonomous vehicles could handle package delivery or warehouse inventory. Even more complex tasks like suggesting what toy or shirt a shopper might want could be handled by a computer with access to a shopper’s buying history, similar to what already happens online today.

“The primary predictor for automation is how routine a task is,” said Ebrahim Rahbari, an economist at Citi Research. “A big issue is that retail is a sizable percentage of the workforce.”

Nearly 16 million people, or 11% of nonfarm U.S. jobs, are in the retail industry, mostly as cashiers or salespeople. The industry eclipsed the shrinking manufacturing sector as the biggest employer 15 years ago. Now, as stores close, retail jobs are disappearing. Since January, the U.S. economy has lost about 71,000 retail jobs, according to data from the Bureau of Labor Statistics.

“The decline of retail jobs, should it occur on a large scale—as seems likely long-term—will make the labor market even less hospitable for a group of workers who already face limited opportunities for stable, well-paid employment,” said David Autor, an economist at the Massachusetts Institute of Technology.

Earlier this year, Beverly Henderson took a pay cut and gave up her health-care benefits when she left Wal-Mart in the wake of the back-office changes. “I’m 59 years old,” she said. “I never worked on the floor. I’ve always worked office positions and I had no desire.”

She is now an office manager at a local business she says can’t afford to give her the same perks or $16.75 an hour she made after 16 years with Wal-Mart.

“I would have never left Wal-Mart. They were paying me decent,” said the Southport, N.C., resident.

At Wal-Mart, Ms. Henderson managed store invoices, a job the company used technology to mostly centralize.

Automation is filtering through many parts of retail. Tiffany is using machines to polish basic pieces, like silver jewelry, during the production process. Home Depot Inc. now has self-checkouts in most stores and is testing adding scanner guns to make them useful for shoppers buying bulky products like lumber.

“We want to simplify the stores so that we can free up our associates…so they can focus on selling,” Carol Tomé, Home Depot’s chief financial officer, said in an interview.

Wal-Mart has long squeezed efficiency out of its business, both in stores and throughout its vast supply chain. Although it employs 1.5 million people in the U.S., it has around 15% fewer workers per square foot of store than a decade ago, according to an analysis by The Wall Street Journal.

Some Wal-Mart stores are experimenting with touch screens to let shoppers process returns. Self-checkouts are becoming a larger percentage of its total registers, according to a person familiar with company strategy.

Several of Wal-Mart’s published patent applications propose technology to improve customer service. One describes a system that uses facial recognitionto detect customer dissatisfaction and adjust staffing accordingly. In addition, jobs at hundreds of stores are shifting to support new services such as grocery pickup for digital orders.

In two stores, Wal-Mart is testing touch-screen displays that show shoppers the differences between devices like internet-connected speakers and thermostats. “We don’t need an associate to understand how that works, but the associate is there to service customers and check them out,” said Ms. McKenna.

The Cash360 machines in the back of stores allow cashiers to process the money for electronic depositing, after scanning their hands for unique vein patterns.

The goal isn’t to reduce a retailer’s staff, said Brian McCabe, the president of the subsidiary of security firm G4S PLC that developed the cash-management system with Bank of America Corp. “We can optimize labor,” he said. “How a given retailer exercises that benefit or opportunity is up to them.”

Article Link To The WSJ:

U.S., Canada, Mexico Agree On Fast-Paced NAFTA Talks

By Anthony Esposito and David Ljunggren
July 20, 2017

U.S., Mexican and Canadian officials have agreed to an aggressive timetable to renegotiate the North American Free Trade Agreement (NAFTA), sources said, aiming to conclude early next year to avoid Mexico’s 2018 presidential elections.

The plan is to hold seven rounds of talks at three-week intervals, according to two Mexican officials who asked not to be identified because of the sensitivity of the issue.

Described by one Mexican official as a "very aggressive calendar," the sources said the goal was to conclude the talks before the electoral campaign was in full swing.

Negotiators fear the renegotiation process could become a political punching bag in Mexico due to President Donald Trump's repeated swipes at Mexico and as Andres Manuel Lopez Obrador from the leftist National Regeneration Movement (MORENA) party leads a number of early polls for next year's election.

Trump has pushed for a renegotiation of NAFTA, threatening to dump it if he cannot rework the accord to the benefit of the United States. He argues it has fueled a trade deficit with Mexico and cost thousands of U.S. jobs.

The first round of talks to upgrade the accord underpinning over a trillion dollars of trilateral trade between the United States, Mexico and Canada is due to take place in Washington from Aug. 16-20, U.S. Trade Representative Robert Lighthizer said on Wednesday.

The talks will alternate sites among the three countries and the second round is slated to happen in Mexico, one of the Mexican sources said. However, a U.S. Trade Representative spokesperson said the countries have not all agreed to the number of rounds and the frequency of talks.

A well-placed Canadian source familiar with discussions said the United States had proposed the "staggering" schedule but could also not confirm whether an agreement had been reached on the timetable.

U.S. administration officials said Mexico had asked for the negotiations to be completed by the end of the year before the Mexican presidential election heats up.

Lighthizer has said he hopes the negotiations could be wrapped up by the end of the year, while noting that he was not prepared to set a deadline for the talks. John Melle, assistant U.S. trade representative for the Western Hemisphere, will lead the day-to-day negotiations of NAFTA for the United States.

Lighthizer, who by U.S. rules is the chief NAFTA negotiator, said in June that completing the negotiations by the year end was a "very, very quick time frame and we're not going to have a bad agreement to save time."

Impact On Immigration

David MacNaughton, Canada's ambassador to Washington, told reporters on Tuesday, "Obviously if we could get a clarification of the trading relationship sooner rather than later, it would be better, but having said that, we're not going to rush into a bad deal."

Canadian officials said there is no chance of making substantial changes to NAFTA if talks wrap up by the end of 2017. Modernizing the pact in a serious way will take two years, they forecast.

After the United States unveiled on Monday its much-anticipated objectives for the renegotiation, the agenda was generally viewed as fairly limited in scope and greeted as such by Mexico and Canada.

A U.S. administration official and a congressional source said there were growing concerns within the Trump administration, on Capitol Hill and in the business community that Trump policies could embolden anti-U.S. populist Lopez Obrador, who has tapped into Mexico's resentment toward Trump.

Some see the series of recent high-level visits by Trump cabinet members to Mexico, including Homeland Security Secretary John Kelly, Secretary of State Rex Tillerson and Energy Secretary Rick Perry, as signs of those concerns.

U.S. officials caution that if things go badly on the trade front, Mexico would gain leverage on immigration. It has been praised by U.S. officials for curbing the flow of Central American immigrants through Mexico, but it could decide to reduce its border enforcement.

"If the current president of Mexico were to capitulate in any major way to Trump's unreasonable demands, then it would be a huge bonanza for Lopez Obrador," said Fred Bergsten, a senior fellow at the Peterson Institute for International Economics.

Article Link To Reuters:

Trump's Honeymoon With China Ends As Dialogue Turns Frosty

Economic talks end with no joint statement from two countries; Ross says trade imbalance not driven by market forces.

By Andrew Mayeda and Saleha Mohsin
July 20, 2017

The brief honeymoon between the world’s two largest economies appears to be over.

Three months ago, President Donald Trump had warm words for his Chinese counterpart Xi Jinping after the two leaders bonded at Trump’s Mar-a-Lago resort in Florida. Within weeks, the Trump administration was touting early wins in talks with China, including more access for U.S. beef and financial services as well as help in trying to rein in North Korea.

Now, the two sides can barely agree how to describe their disagreements.

High-level economic talks in Washington broke up Wednesday with the two superpowers unable to produce a joint statement. Commerce Secretary Wilbur Ross scolded China over its trade imbalance with the U.S. in his opening remarks, and then both sides canceled a planned closing news conference.

Trump campaigned on “protecting the forgotten man and putting America first, but if you can’t deliver their jobs back to them, the next best thing is to get them some retribution and that’s what’s happening here,” said Stephen Myrow, managing partner at research firm Beacon Policy Advisors LLC in Washington.

It was the first meeting under the Trump administration of the two countries’ most senior economic officials, a ritual that began in 2008. Rebranded as the Comprehensive Economic Dialogue this year, the discussions were led by Treasury Secretary Steven Mnuchin and Ross on the American side, and Vice Premier Wang Yang for the Chinese. Federal Reserve Chair Janet Yellen took part in the talks, and executives including Alibaba’s Jack Ma and Blackstone’s Stephen Schwarzman met on the sidelines.

Trade Irritants

As of Wednesday evening, the meeting produced no joint statement to reassure markets, as has been the practice since the talks began during the financial crisis. After last year’s forum, the two countries released a 6,589-word statement asserting the mutual interest they share in each other’s prosperity. The document also included commitments, such as one by China to reduce excess capacity in its steel industry -- still a major irritant as the Trump administration weighs whether to impose tariffs and quotas on steel imports.

"The Trump administration may have had unrealistic expectations of what China will do to balance trade," said Shen Jianguang, chief Asia economist at Mizuho Securities Asia Ltd. in Hong Kong. "Now it is the start of real hard negotiations."

At opening remarks by the two sides on Wednesday, Ross complained about the trade gap with China in unusually blunt terms. While U.S. exports to China have grown in recent years, imports from the Asian country have expanded even faster, leading to a $309 billion trade deficit, Ross said.

“If this were just the natural product of free-market forces, we could understand it, but it’s not,” Ross said, as Wang looked on. “So it’s time to rebalance in our trade and investment relationship in a more fair, equitable and reciprocal manner.”

In his opening remarks, Wang called cooperation “a realistic choice” for both countries, while adding his own view of how the U.S.-China relationship should proceed.

“Dialogue cannot immediately address all differences, but confrontation will immediately damage the interests of both,” Wang said, according to the state-run Xinhua News Agency.

Canceled Briefings

Shortly after, the Treasury sent an email to reporters saying the U.S. had canceled a news conference scheduled at the end of the day, when Mnuchin and Ross were to discuss the outcome of the meeting, which they expected to be concrete Chinese commitments. The Treasury department later emailed a notice that China had canceled its own media briefing.

Mnuchin and Ross issued a statement after talks that didn’t outline any new developments from Wednesday’s dialogue. “The principles of balance, fairness and reciprocity on matters of trade will continue to guide the American position so we can give American workers and businesses an opportunity to compete on a level playing field,’’ they said in the statement.

While confronting the Chinese over the U.S. trade deficit will play well politically in America, it’s not a good strategy for making progress with Chinese leaders, who are under their own political pressures at home, said David Loevinger, managing director of emerging markets sovereign research at TCW Group Inc.

The U.S. has had success by allying with economic reformers who will push back against “powerful vested interests” in China opposed to opening up its economy, said Loevinger, who played a leading role in economic talks with the Chinese as Treasury’s senior coordinator for China affairs in the Obama administration.

“In some ways the Teddy Roosevelt strategy of talking softly and carrying a big stick is effective with China, but in the administration’s case, they’re tweeting loudly with very little follow-up,” he said.

Article Link To Bloomberg:

Brits Bristle At Accusations Of Slapdash Brexit

The UK says it has EU right where it wants it.

By Charlie Cooper
Politico EU
July 20, 2017 

The U.K.’s performance in the first substantive round of Brexit negotiations this week got panned in Brussels and back home in London.

But British negotiators insist they have the EU right where they want it — and are confident in their approach, the criticism notwithstanding.

To be sure, the optics and public messaging out of Brussels hasn’t been good for the U.K. Approaching the end of this round, a narrative emerged that Britain came unprepared, one that was encapsulated by an image of U.K. Brexit Secretary David Davis and his team casually seated at the negotiating table Monday with no briefing papers. Across the table, the EU negotiators sat ready to consult thick wads of notes.

Within hours, Davis hopped on the Eurostar back to London, a return trip that was planned beforehand but one that did nothing to counter the perception created by a weekend of cabinet infighting at home. By Tuesday Michel Barnier, the EU chief negotiator, was accusing the British team of a lack of seriousness, threatening to stall the talks unless the U.K. shaped up.

“There is the feeling that the EU is getting their excuses in early for when negotiations get difficult: ‘The Brits were unprepared’,” said one individual familiar with senior level thinking on the U.K. team. “Is that narrative frustrating? Yes, but most people on the British side are big enough and ugly enough to know this is the kind of thing that happens in a negotiation.”

Far from rethinking their approach, the British team heads into the final day of this week’s talks sounding sanguine. They even say the official picture shows off their smarts: The lack of papers was intentional, designed to avoid giving paparazzi a scoop by snatching a photo of unsuspecting officials carrying notes on their way into the negotiation room.

When it comes to the meat of discussions themselves, British negotiators say they wanted to get a clearer view into Brussels’ position on financial obligations and give the Commission confidence that the U.K. will honor them. They’re now arguing over the size of the bill.

“There is confidence that they understand this is now a question of categorizing obligations and quantifying them,” said an individual familiar with the British position. This has long been the British view, but negative noises from Foreign Secretary Boris Johnson (who told Brussels it could “go whistle” over the so-called Brexit bill) and political instability in Westminster had alarmed EU negotiators. Now, the Europeans are reassured, the person insisted.

EU officials, though, continued to insist they were frustrated by the U.K.’s refusal to produce a formal counterproposal to the bloc’s estimate of the divorce bill.

Nelson’s Armada

Former Brexit Minister and Vote Leave campaigner David Jones said in an interview that the U.K. is holding better cards in the talks than the EU side appears to give them credit for.

Jones, who until shortly after the June 8 election was part of the team preparing the U.K.’s negotiating plan, pointed out that a no-deal scenario would hurt the EU too because the U.K. could leave without being subject to EU treaties, “which of course include us making payments.”

“Bear in mind they are at the moment getting over £10 billion per annum net from the U.K., which they are going to be concerned about … It’s a significant sum and I know that particularly some of the smaller EU nations are concerned about this,” he said.

The threats from the EU side that Barnier is prepared to stall talks if the U.K. does not engage properly on the issue of its Brexit bill were empty, Jones insisted.

“What we did from a standing start over a period of 12 months is quite remarkable,” he said. Despite being sacked from the Department for Exiting the European Union after the election, Jones said he is convinced his former colleagues have this thing under control. “We assembled a really high caliber team of officials there who had a wide range of expertise — former ambassadors and high commissioners — the best I’ve seen anywhere,” Jones said.

“No regrets at all. Delighted. Seriously, delighted.”

Jones said the British team was strong, naming former ambassador to Brazil and an ex-member of Jose Manuel Barrosso’s European Commission office, Alex Ellis, and former High Commissioner to Singapore, Anthony Phillipson.

The Brexit department has more than 450 staff and sent more than 90 officials to Brussels this week, outnumbering EU officials two-to-one — leading U.K. journalists to joke that the whole thing was being seen by some in Britain as a Nelson-era naval battle.

Doubling Down

The belief that second thoughts are emerging in the U.K. about Brexit gained momentum earlier this month when the former campaign director of Vote Leave, Dominic Cummings, admitted on Twitter that there are “some possible branches of the future” in which “leaving will be an error.”

Cummings, a former adviser to the recently reinstated cabinet minister Michael Gove, has been a long-term critic of the government’s approach to Brexit. In the same Twitter exchange he said that without a change at the top, the Brexit talks would be a “guaranteed debacle” and delighted many Remainers this week when he described Davis as “thick as mince, lazy as a toad.”

Cummings’ statements reflect his concern that the process will be hijacked by the civil service, with Davis as their stooge, rather than a genuine attack of nerves among Leavers. But it has reinforced the perception of a British negotiating team that’s underpowered for the scale of the task, and crucially, left rudderless by political turmoil at home.

The EU has its own problems standing in the way of quick progress, according to British officials.

From their standpoint, the main concern is that their EU interlocutors will be constrained by the demands of 27 national capitals. “There is a worry about how they are going to negotiate flexibly when they have to manage demands, including on the financial obligations, of 27 member states,” one person familiar with the U.K position said.

One U.K. government official familiar with the progress of talks was clear that the Brits will not be bounced into rushing out a proposal on the Brexit bill. “Our negotiating papers are entirely within our control,” the official said. “We’ll set out our position papers when we set them out.” The British are, as Davis made clear they would, challenging the EU’s proposals before they make their own.

Jones told POLITICO he had “no doubt at all” that “broad calculations” of the Brexit bill had been made by Department for Exiting the European Union (DExEU). But added: “You have to be in receipt of the bill or at least the methodology leading to the calculation of the bill. When I was there, that was never communicated to DExEU … you can’t do it in a vacuum, you’ve got to know what they’re asking for.”

Article Link To Politico EU:

More Americans Are Renters Now Than At Any Time In The Last 50 Years

There haven’t been this many households renting since 1965.

By Quentin Fottrell
July 20, 2017

Ten years after the U.S. housing market crashed, some things have gotten worse instead of better.

More U.S. households are headed by renters than at any point since at least 1965, according to new analysis of Census Bureau data by the Pew Research Center, a nonprofit think tank in Washington, D.C. “The total number of households in the United States grew by 7.6 million between 2006 and 2016,” it found. “But over the same period, the number of households headed by owners remained relatively flat, in part because of the lingering effects of the housing crisis.” And the rise in renters is significant, even accounting for the growth in the population over the last half-century.

The number of households renting their home has fallen since the peak of the U.S. property bubble in 2006, Pew found, while the percentage of households renting rose to nearly 37% last year from just over 31% in 2006. The 2016 rate, however is slightly less than the 37% in 1965. “Certain demographic groups ­— such as young adults, nonwhites and the lesser educated — have historically been more likely to rent than others,” Pew found. “However, rental rates have also increased among some groups that have traditionally been less likely to rent, including whites and middle-aged adults.”

Adults younger than 35 continue to be the most likely of all age groups to rent. In 2016, 65% of all households headed by people younger than 35 were renting, up from 57% a decade earlier. Last year, 41% of households headed by someone aged 35 to 44 were renting, up from 31% of all households in 2006. Rental households headed by someone aged 45 to 64 rose to 22% of all households in 2006 from 28% in 2016. But among baby boomers and the oldest Americans — those 65 or older — the rental rate remained steady at around 20%.

One reason so many people are renting: Only 45% of renters on average can afford the payments on a median-priced home in their area, according to a report on the state of housing from Harvard University’s Joint Center for Housing Studies released last June. Buying a house is even more out of reach for renters in expensive markets such as the West Coast, the Northeast and Florida. In these parts of the country, as few as 10% of renters could afford the mortgage payments if they bought a home, the report found. Economists recommend spending no more than 30% of gross income on housing.

Renting can also help families make ends meet, if they stick together. Tens of thousands of homes have a combined 3.6 million unoccupied rooms that could be rented out to a family member or stranger — and generate an average of $14,000 to $24,000 — according to an analysis of U.S. Census Bureau data in the 100 largest U.S. housing markets released Wednesday by real-estate website Trulia, earning between per year. “For many older Americans, renting a room provides an economic boost that may help them stay in a home longer. Prices are high, inventory is low, and new housing growth is stagnating.”

Article Link To MarketWatch:

Investors Should Brace Themselves For A Tumultuous ‘Lost Year’

The same indicators that predicted the 2016 low and the post-election rally is cautioning that a tumultuous ‘lost year’ lies ahead.

By Simon Maierhofer
July 20, 2017

Investors have been spoiled. The last bear market ended over eight years ago, and even the memory of the last 10%-plus correction, in January-February 2016, has been erased by relentless gains since then.

But based on one market-cycle forecasting tool, investors should brace for a tumultuous lost year. This lost year may include a frustrating trading range, another rally higher and a violent reversal.

As implied by the term “lost year,” the net gain over the next roughly 12 months is likely to be zero (or less).

How credible is this prediction? It is made by the same indicator that pinpointed the February 2016 low (when the S&P 500 SPX, +0.54% traded as low as 1,810) and the strong post-election rally.

Exotic But Effective

Few indicators are more polarizing than Elliott Wave Theory. Some love it, others hate. Unlike most indicators, which are lagging, this theory aims to predict. This is a lofty goal, and in recent years it has done well, and deserves investors’ attention going forward.

The Feb. 11, 2016 Profit Radar Report listed six reasons why to buy. One of them was the Elliott Wave Theory.

The Aug. 28, 2016 Profit Radar Report published the two forward projections below and stated:

“The two main reasons we want to buy in the foreseeable future is:

1) The breadth thrust off the June low

2) Bullish Elliott Wave Theory potential

The three most likely Elliott Wave Theory interpretations are all bullish. The question is not if, but how much and for how long.

The first chart below shows conceptually where the S&P 500 is at relative to the three most likely EWT options along with the odds for each scenario.”

The S&P 500 is now in the wave 5 target range projected around 2,400-2,500.

We Are Here

The blue arrows in the updated chart below show where the S&P 500 is currently within the larger bull market cycle.

Here are options for what could happen next:

•The stock market is the end of the bull market. This is unlikely because our major market-top indicator — a liquidity indicator that correctly foreshadowed the 1987, 2000 and 2007 tops — doesn’t show a bearish divergence (more detail about the major market top indicator is available here).

•The market is nearing a correction, followed by a continuation of the bull market. The red “squiggly” (not a technical term, but a good visual) on the left side of the chart outlines a temporary set of corrections, followed by new all-time highs.

• A correction followed by a bear market.
The red “squiggly” on the right side of the chart outlines a temporary correction, followed by a final rally before a bear market takes hold.

Decoding And Simplifying Elliott Wave Theory

Regardless of where exactly the market’s at, a correction is getting closer. The initial correction will likely be a wave 4 correction (see labels). Waves 4 are notoriously choppy and frustrating.

This choppy correction should be followed by another rally (wave 5) and a more pronounced drop (likely late 2017 or early 2018).

In a nutshell, although the S&P 500 is unlikely to make net progress in the coming year, there will be an opportunity for investors to lock in profits (at higher prices) and avoid a significant drawdown.

Elliott Wave Theory is perhaps the most exotic forecasting tool out there, but as a comprehensive S&P 500 analysis shows, it’s message is supported by other key indicators, like money flow, investor sentiment, cycles, and technical analysis.

Article Link To MarketWatch:

Goldman Sachs' Rotten Trading Quarter Is A Familiar Smell On Wall Street

By Olivia Oran
July 20, 2017

Big Wall Street banks have spent billions of dollars and untold man-hours in recent years transforming their trading desks from hedge-fund like operations trading on their own account into market-making businesses offering a price based on what customers want to buy or sell.

But the shift in business model, prompted by reforms following the 2008 financial crisis, has done little to shield banks from suffering big losses when markets move against them, traders and risk managers told Reuters this week.

Goldman Sachs Group Inc’s (GS.N) second-quarter results, which saw earnings rise to $3.95 per share from $3.72 in the same quarter last year, also included the worst commodities trading quarter in its history as a public company, prompting a 2.8 percent fall in the bank's stock in the last two days.

Bad inventory positions based on wrong expectations of customer demand were partly to blame, Chief Financial Officer Marty Chavez said.

In explaining the decline in trading revenue, Chavez compared the business to a store that needs to stock the right products on its shelves. It must also be able to absorb what clients are selling and create new products they might want, he said, calling risk management in trading an "art and science."

Goldman is not alone. In recent years, banks including JPMorgan Chase & Co (JPM.N), Citigroup Inc (C.N), Barclays PLC (BARC.L) and Deutsche Bank AG (DBKGn.DE) have all suffered losses from currency moves, interest rate positions, or misguided bond market bets.

"It's not always easy to find a ready buyer and seller of the exact same assets that you're looking for," said Clifford Rossi, a former risk manager at Citigroup. "There may be timing issues – it's like musical chairs and the market maker may end up holding whatever is left over."

Under the so-called the Volcker rule, which was intended to limit proprietary trading, banks are now required to prove they are only holding enough inventory to meet "reasonably expected near-term demand."

The rule was implemented in response to the 2008 financial crisis, when Wall Street banks fueled problems in the mortgage market by making speculative bets with their own money.

But one of the Volcker rule's unintended consequences has been to drain liquidity in certain markets, which has made it more expensive and difficult for banks to source inventory for clients or manage their own risks.

New rules defining the amounts of capital banks must hold have made it more expensive for them to hold certain types of assets, while a long period of low volatility in some markets has made it trickier to gauge when trading activity will suddenly rise.

Unexpected gains in the Swiss franc in early-2015 caused losses at Citigroup and Barclays, Reuters reported at the time. Last quarter, Deutsche Bank lost $60 million on a wrong-way inflation bet, according to Bloomberg. JPMorgan lost billions of dollars on the notorious "London whale" trades related to credit default swaps in 2012. In late-2013, Goldman was burned by bad currency bets.

Just a Fluke?

In trying to prevent those kinds of losses, banks have developed software algorithms to anticipate market directions, put technology in place so that traders cannot breach risk limits, hired more risk managers, and empowered them to question decisions of dealers.

According to consulting firm Opimas, banks last year spent more than $100 billion globally on management and compliance systems and people.

But ultimately, those investments may prove futile in situations like the one Goldman faced last quarter, when some commodity prices collapsed, volatility in other markets was historically low, and customer activity dropped off. The unexpected trends led the bank's own commodities research analysts to ask in a June 29 report, "How did we (and the markets) get it so wrong?"

"Throwing more dollars and people on risk management doesn't necessarily mean there is less trading risk on Wall Street or that it is properly contained," said Mark Williams, a professor at Boston University's business school who focuses on risk management in banks.

Goldman has long prided itself on the independence and power of its risk management staff, who are known for questioning high-flying traders without fear of retribution. That helped Goldman become one of the most profitable Wall Street banks, while avoiding many of the pitfalls that beset rivals in the run up to the 2008 financial crisis.

In March, Goldman gave its risk management team even more prominence by moving it into an independent unit.

Some bank analysts are willing to give Goldman a break, given its track record.

"It's the nature of the business," said Oppenheimer analyst Chris Kotowski. "It becomes a problem if either it produces massive outsized losses that compromise capital ratios and imperil the company, or they make a habit out of it. It's too early to say this is a habit rather than a fluke."

Article Link To Reuters:

U.S. Stock Options Attractive As Earnings Reports Roll In

By Saqib Iqbal Ahmed
July 20, 2017

The U.S. equity options market is pricing in uncharacteristically low stock market gyrations in the early days of second quarter corporate earnings reports, offering attractive opportunities for investors, market analysts said on Wednesday.

On Wednesday, the CBOE Volatility Index .VIX, better known as the VIX and the most widely followed barometer of expected near-term stock market volatility, closed below 10 for the fifth straight day, the longest such streak since its inception.

This expectation of extended calm for stocks in the near-term flies in the face of how much stocks tend to move on earnings reports.

For example, when S&P 500 companies reported earnings during the first quarter, the average stock's one-day price move was four times greater than during non-earnings trading, according to derivatives analysts at Goldman Sachs.

"Stock volatility has shifted more into the earnings report and out of non-earnings periods - yet the options market has not adjusted to reflect the increasing importance of earnings for stocks returns," Goldman analysts said in a note on Wednesday.

"We view this set-up as very supportive of buying options ahead of earnings."

While subdued expectations for volatility has led to attractively priced options contracts across the board - whether investors are looking to hedge or to speculate - the pricing on contracts that profit from further gains are particularly appealing.

"The premiums on upside call options have gone very, very low and they are worth buying," said Pravit Chintawongvanich, head of derivatives strategy at Macro Risk Advisors in New York.

Just how cheap these options are can be gauged by their delta, a proxy for the market's implied probability that a contract will be profitable at expiry.

As of Wednesday morning, one-month S&P 500 call options that make money if the index rises above 2,500 by expiry were pricing a less than 6 percent chance of success, a record low probability, according to Chintawongvanich.

Calls convey the right to buy shares at a fixed price in the future, while put options give the right to sell shares at a certain price in the future.

"Going by history, the probability of rallying that much should be much higher," Chintawongvanich said, adding the probability should have been closer to 13 percent, even in a low volatility environment.

On Wednesday, the S&P 500 Index closed at a record high of 2,473.83, taking year-to-date gains to 10.5 percent.

Article Link To Reuters:

Markets’ Steady Climb In 2017 Defies Historic Odds

Major indexes haven’t gone a calendar year without a pullback of at least 5% in at least 30 years.

By Steven Russolillo
The Wall Street Journal
July 20, 2017

Stock markets go up and down: It is a fact of life. Except in 2017.

Three major stock-market benchmarks in the U.S., Europe and Asia have avoided pullbacks this year, commonly defined as 5% declines from recent highs. Never in at least the past 30 years have all three indexes—the S&P 500, MSCI Europe and MSCI Asia-Pacific ex-Japan—gone a calendar year without falling at some point by at least 5%.

In good years and bad, markets tend to fluctuate wildly, with stock indexes often falling by double-digit percentages before bouncing back. That hasn’t been the case this year, another reflection of the historically low volatility that has gripped the world. The CBOE Volatility Index, or VIX, finished Friday at its lowest since 1993.

Of course, 2017 is only a little more than half over, and plenty can change in the back half of the year. But the last time equity markets went this deep into a year without all three of those benchmark indexes suffering at least 5% pullbacks was nearly a quarter-century ago, in 1993, according to The Wall Street Journal’s Market Data Group. All three finished that year with sharp gains.

Many investors say they are optimistic that the steady grind higher will continue and defy historical odds that suggest the markets should eventually falter. That is because earnings growth appears to be accelerating globally, economic growth is improving and central banks largely remain accommodative, even amid recent moves to tighten policy.

The rise of quantitative trading and the flood of money into passive strategies such as exchange-traded funds have also dampened volatility, investors and strategists say. ETFs owned nearly 6% of the U.S. stock market in the first quarter, the highest share on record, according to an analysis of Federal Reserve data by Goldman Sachs.

Market calm has prevailed despite political and monetary turmoil. The U.K. vote last year to withdraw from the European Union, U.S. President Donald Trump’s election victory in November, the European Central Bank’s signal last month that it would soon start winding down its giant bond-buying program—none produced the sustained market swings many expected. That has raised concerns there might be another, less-well-understood dynamic at play that has kept trading so tranquil.

The steady performance hasn’t been universally celebrated. Some investors who have missed out on this year’s sharp rally are waiting for cheaper opportunities to get back in. Others are increasingly taking positions in the options market that protect themselves from large price swings.

“We all want markets to go up forever and for there never to be any problems,“ said Daniel Morris, senior investment strategist at BNP Paribas Asset Management, which has about $661 billion in assets under management. “But this environment has been a challenge for equity investors who are looking for growth at a reasonable price.”

The MSCI Asia-Pacific ex-Japan index, a benchmark that tracks big Asian companies listed globally, has surged 22% in 2017, propelled by strong rallies in tech giants such as Tencent Holdings Ltd. and Alibaba Group Holding Ltd.

The index’s biggest peak-to-trough decline during the year was 2%. If that performance continues for the rest of the year, it would be the smallest intra-year drop over at least the past three decades and a far cry from the index’s average 20% pullback each year, according to analysts at J.P. Morgan Asset Management.

Indeed, there have been only three instances over the past 30 years in which the Asia index’s biggest intra-year drop was less than 10%: 1991, 1993 and 2005.

Europe’s performance, measured by the MSCI Europe Index, has also been steady. The index’s biggest drop this year was 4%, far below its average intra-year decline of 16%, according to J.P. Morgan Asset Management.

And in the U.S., sharp gains in tech and consumer stocks including Facebook Inc., Apple Inc., Inc., Netflix Inc. and Google parent Alphabet Inc. have propelled markets higher alongside shallow and brief dips.

The S&P 500 has gained 10% this year. Its worst peak-to-trough drop has been 2.8%. If it finishes 2017 that way, it would be the second-smallest decline in a calendar year over the past 60 years, according to LPL Financial, an independent brokerage and investment firm. The smallest was in 1995, when the index suffered a 2.5% fall. It surged 34% that year.

History suggests the stretch of calm won’t last. The S&P 500 has avoided a 5% or more pullback in just five of the past 60 years, according to LPL.

But for now, the catalysts that have propelled the rallies and minimized the pullbacks remain in place, including low odds of an imminent recession and strong earnings growth. The ratio of analysts revising their global earnings estimates higher rather than lower recently jumped to its highest level in about five years, according to Richard Turnill, global chief investment strategist at BlackRock, the world’s largest asset manager.

“The reality is central banks continue to be accommodative and the global earnings picture keeps on improving,” says Ryan Detrick, senior market strategist at LPL Financial. “Those two things can make up for a lot of other sins.”

Article Link To The WSJ:

Stocks Just Got Set Up For An Extended Summertime Rally

-- The Dow, S&P 500, Russell 2000 and Nasdaq all closed at record highs Wednesday, a sign to some technical analysts of an extended rally.
--- Analysts see earnings as a catalyst for now, with another possible boost coming from Washington if Congress begins to work on tax reform in September.
-- One technician says the market is set up for a near term gain of 3 to 5 percent.

July 20, 2017

Large caps, small caps, tech and energy stocks all joined in a rally Wednesday that took major market indices to record highs—a positive sign for even more gains.

Lagging oil prices, viewed as a potential headwind for stocks, snapped higher Wednesday and have more room to run, technical strategists say.

While some investors might look at the concerted move to new highs as a sign of froth, technical strategists say the market set up is a positive and it may still have some way to go.

"That's a good sign," said Paul LaRosa, chief market technician at Maxim Group. "To me, this points to higher prices in the near-term, in the next few weeks. Whether that continues or not, we'll find out. My overall feelings are it's not going to lead to a sustained rally, but my feeling is we'll see prices go higher from here in the near term."

There are catalysts for more highs. "It's earnings season now, and then maybe we'll get tax reform," LaRosa said. The Dow rose 66 points to 21,640 Wednesday, while the S&P 500 was up 13 to 2,473, both record highs. The Russell 2000 rose nearly 1 percent to a new high of 1,441, and the Nasdaq was up 0.6 percent to a record 6,385.

All 11 major S&P sectors were in the green, led by energy's 1.4 percent gain, its best day since July 3. The S&P technology sector was at a 17-year high of 992, breaking for the first time the tech bubble high set on March 27, 2000.

"I would say we can see between a 3 and 5 percent rally from here," LaRosa said.

Scott Redler, partner with, said he was watching energy to see if it would help the market break out, and it didn't disappoint. West Texas Intermediate oil futures jumped 1.6 percent to a six-week high of $47.12 per barrel. Oil moved higher on drawdowns in U.S. oil and gasoline supplies, both positive for reducing crude supplies.

"The summer time rally might have just gotten new energy, and energy could be the focus," said Redler.

"The XLE, which was trapped in a downtrend, closed above the 50-day moving average," he said. The XLE is the Energy Select Sector SPDR Fund ETF. "Traders would love to see a follow through in energy. It does feel a bit different. If the energy names outperform and break this downtrend, it will also be a bit of a tail wind in the broader indexes…Today, oil and small caps helped power the move. Even if tech, which is a little overbought, takes a small breather, there seems to be other sectors that could help keep the rally alive."

The XLE was up 1.5 percent, and closed at 65.96, its first close above the 50-day, at 65.88, for the first time since January. Redler, who follows short-term technical trends said WTI could go as high as $50 or $51.

"It feels like the market is driven by a slowly growing economy and good earnings growth," said Art Hogan, chief market strategist at Wunderlich Securities. "What you've seen is crude is trading at a six-week high. That's constructive. The yield on the 10-year has ticked up. That's constructive. [House Speaker] Paul Ryan was talking about tax reform today…If you're looking for positives, some of the key factors have been established, whether it's yields on the 10-year or commodities prices."

Hogan said the earnings season has been more positive than negative even with some high profile misses. Qualcomm and American Express both fell after their reports late Wednesday. "I think with the focus being on earnings and not macro, it feels like we shifted to micro rather than macro and that micro is positive. The usual suspects disappointed. We had disappointing IBM revenue, Goldman Sachs missed on fixed income and commodities trading but low and behold Morgan Stanley came and blow the doors off," said Hogan.

For now the trend is higher, but he also sees some negatives. "People are nervous we haven't had a 5 percent correction since August [to Nov. 4]...There's only been six years out of the last 50 where we've gone a year without one," Hogan said. "Stocks are starting to get pricey, and it doesn't feel like we're ever going to get anything out of Washington. The good news is I think the market spent the entire second quarter taking out any assumptions we're going to get any progress on policy in 2017. I think that's why the market didn't have any reaction to the health care bill vote failing. At some point in time, the next hurdle is that something gets legislated, or we're relying on monetary policy lower for longer."

Earnings expected Thursday include Abbott Labs, Travelers, Union Pacific, Bank of NY Mellon, Blackstone, Polaris, Sherwin-Williams and Unilever. KeyCorp, Danaher and Check Point Software also report before the open.

After the market close, reports are expected from Microsoft, eBay, Visa and Capital One.

Traders are also watching the European Central Bank which is not expected to move rates but could discuss its plan to taper back on asset purchases, or its quantitative easing program, later in the year. There are also jobless claims and the Philadelphia Fed manufacturing survey at 8:30 a.m. The leading index is at 10 a.m.

Article Link To CNBC:

Democrats Finally Have An Agenda. Here’s What It Looks Like.

By Dana Milbank
The Washington Post
July 20, 2017

“The Democrats,” Vice President Pence said recently, “have already settled on their agenda, and it can be summed up in one word: resist.”

He isn’t the only one with that view of Democrats. In the latest Washington Post-ABC News poll, only 37 percent of Americans think the Democratic Party “stands for something,” while 52 percent say it “just stands against Trump.”

The Democratic Congressional Campaign Committee, the House Democrats’ campaign arm, seemed to admit as much two weeks ago when it sent supporters an email with the proposed slogan: “Democrats 2018: Have you seen the other guys?”

Now Democrats are trying to fix that — and not a moment too soon.

On Monday, I am told, congressional Democrats — in the Senate and the House together — will roll out a legislative policy agenda, their de facto 2018 campaign platform. The details, after months of haggling and cat-herding, could yet disappoint, but the broad outlines as described to me are exactly what the doctor ordered.

As important as what’s in it is what’s not. Democrats jettisoned social and foreign policy issues for this exercise, eschewing the identity politics and box-checking that has plagued Democratic campaigns in the past, most recently Hillary Clinton’s. This will be purely an economic message.

They also resisted invitations to steer the party toward the center (as pollster Mark Penn advised) or in a more progressive agenda. This is meant to be a populist manifesto that doesn’t conform to the left/right debate but instead aims to align Democrats with ordinary, middle-class Americans fighting powerful special interests.

Titled “A Better Deal: Better Skills, Better Jobs, Better Wages,” it is expected to have many Democratic staples — tax increases on the rich, affordable college, infrastructure spending, higher wages, job training, paid family leave and the like — and a few new ones.

Hashed out over several months by Senate Minority Leader Chuck Schumer (N.Y.) and Sen. Chris Van Hollen (Md.), with House Minority Leader Nancy Pelosi (Calif.), DCCC Chairman Ben Ray Luján (N.M.), and Reps. Hakeem Jeffries (N.Y.), Cheri Bustos (Ill.) and David Cicilline (R.I.), it will be outlined Monday with a few sample proposals, to be followed in the coming weeks by more proposals, some to be introduced as legislation and some to be offered as Contract With America-style promises that a Democratic Congress would implement. Schumer told me in December that Democrats would have “five, six sharp-edged [policies] that can be described in five words,” although it sounds as if the plan hasn’t come out quite so lean.

The goal is to avoid repeating Clinton’s problem in 2016. She had so many proposals, and she scratched the itches of so many Democratic constituencies, that she lacked a coherent economic message. The full-throated populist agenda should also make it harder for President Trump to claim that he is the one fighting special interests, which he did to great effect against Clinton.

Democrats have been little but the anti-Trump party lately, successfully fighting his legislative agenda, particularly health care, and raising a ruckus about the Russia scandal and Trump’s other outrages. The danger is that an impression solidifies among voters that the party has nothing else to say.

As if to illustrate the point, 23 liberal House Democrats announced Wednesday morning that they were filing a “resolution of no confidence” in Trump. It contains no fewer than 88 “whereas” clauses (whereas “the embassy of Kuwait held its national day celebration at Trump International,” and whereas “Trump referred to United States Senator Elizabeth Warren as ‘Pocahontas’ ”). The idea might work — if Democrats had a majority and if the United States had a parliamentary system.

A reporter asked Rep. Steve Cohen (Tenn.), sponsor of the no-confidence resolution, if he was focusing too much on Trump over jobs. “Bubble-gum chew and walk at the same time,” he recommended.

Except Democrats haven’t been doing both. Some think they don’t have to, because polls show that voters prefer a Democratic Congress. But as The Post’s Mike DeBonis and Emily Guskin point out, more Republicans and Republican-leaning independents (65 percent) say they will definitely vote next year than Democrats and Democratic-leaning independents (57 percent). To boost Democratic turnout, the party needs to be more than just anti-Trump.

Even if it doesn’t help their electoral prospects, Democrats need a clear agenda so they can govern if they do win. If they win without a sharp agenda, they would end up where congressional Republicans are now: in power but without a popular mandate for their agenda.

On Wednesday, I asked Rep. Linda Sánchez (Calif.), the No. 5 Democrat in the House, about the search for a unified agenda, and she bristled. “We’re not searching for an agenda,” she replied. “Democrats have always known what we stood for.”

They just did a really good job of keeping it under wraps.

Article Link To The Washington Post:

It's Time For Markets To Acknowledge Political Reality

Nothing of importance may get done, and all of the bets placed with Trump’s election may start to be taken off the table.

By Mark Grant
The Bloomberg View
July 20, 2017

There is nothing wrong with reaching for the stars. In fact, there is everything right in trying to attain your goals and fulfill your ambitions. The problems begin when you publicly make your intentions very clear and you can’t deliver on what you promised. This is the situation President Donald Trump currently faces. He has over-promised and is under-delivering, which almost never works out well.

This is not about taking sides on politics, but rather noting what a failing agenda may mean for markets. There will no doubt be collateral damage, and it’s best to prepare now instead of getting trampled by the herd when everyone is racing for the barn door.

What’s concerning is that the least of the market’s problems may be whether Obamacare is repealed, replaced, rejiggered, re-sold, replicated or rolled-over. The larger question is what can be delivered on the president’s agenda? The problem is that the “delivery boy” is stuck in his White House without transportation. If he can’t deliver the barbecue chicken, how do we know if we'll get the pizza?

After failing to replace Obamacare, Bloomberg News and others reported that Senate Majority Leader Mitch McConnell’s new proposal to simply repeal it appeared to be dead after less than 24 hours for lack of support among fellow Republicans. Bloomberg News also reports that Trump is now more likely than ever to end his first year in office without a single major legislative accomplishment.

This promise is going nowhere, fast.

There is still the hope, especially in the equity markets, that tax reform is coming. This would include a simpler tax program, a cut in both corporate and individual rates and some kind of repatriation of the $2 trillion that is held in overseas markets by American corporations. I am coming around to the position that this hope may be misguided. The “delivery boy” is stuck in traffic and the snarl is consequential.

According to the Wall Street Journal, the “House Republicans are unveiling an ambitious fiscal plan on Tuesday that could let them rewrite the tax code, revamp medical malpractice laws, change federal employees’ retirement benefits and partially repeal the Dodd-Frank financial regulations -- all in a single law without any votes from Democrats. The strategy, embedded in the House GOP fiscal 2018 budget, faces a host of political and procedural obstacles, including many of the same ones that derailed the party’s health-care bill in the Senate.”

So, what if nothing can get done? That notion may have been an outlier at one point, but no longer. The question is now real and daunting and applicable to where the markets might be going, and the bond markets may have the correct sense of it.

The flip side of the rejection of Trump’s agenda would be that no new spending will actually take place and that the current tax rates will remain embedded. This would be an addition to the notion that the world’s central banks have produced so much new cash and liquidity that they have overwhelmed the available supply of bonds in the marketplace, forcing rates even lower. What the central banks have done is significant enough, but when added to the dawning realization of Trump’s failure to deliver, this may be our new reality. Then we may still be in the high range of bond yields, as failure has its consequences.

What is clear is that substantial and serious risk is now present. Nothing of importance may get done, and all of the bets placed with Trump’s election may start to be taken off the table. It may not be Aldous Huxley and his “Brave New World,” but it is going to be a very different world than imagined. The borrowing needs of the U.S. Treasury, in these circumstances, could be far less than thought by almost everyone. The jig may be up.

Article Link To The Bloomberg View:

Rove: Is The Republican Congress Hopeless?

It takes an optimist, but I tell myself that maybe health-care reform isn’t dead.

By Karl Rove
The Wall Street Journal
July 20, 2017

Republicans began 2017 with impressive advantages. For the first time in a decade, they controlled the White House and both houses of Congress. Republicans had 33 governors to 16 Democrats and one independent, matching a record the GOP set nearly a century ago. With more state legislators than at any time since the 1920s, Republicans controlled both chambers in 32 states while Democrats commanded both in only 13.

The voters who made the GOP America’s dominant party expected it to pursue a robust agenda. Angry and marginalized Democrats would complain and obstruct, but the electorate believed Republicans would deliver on their promises, such as repealing ObamaCare and replacing it with what President Trump promised would be a “terrific” new program.

Yet after this week’s epic failure on health-care reform, the GOP looks like James Cagney in “White Heat,” yelling “Made it, ma. Top of the world!”—just before the oil refinery explodes around him.

Republicans proved incapable of coalescing around any health-care bill. One set of objections was that the proposed legislation would solve only some of ObamaCare’s problems, not all of them. Another was that as a matter of principle not a line of the Affordable Care Act should be left on the statute books.

But dissenting Republican legislators, by opposing either the Senate bill or the House version, would leave all of ObamaCare intact and all of its problems unsolved. The rebels have let the incomplete be the enemy of the good.

Some blame this debacle on ineffective leadership from the White House or Capitol Hill. Others say doing tax reform first would have made health care easier to tackle. Still others say Republicans never had a serious plan, didn’t hold enough hearings, or failed to include the critic’s preferred wing of the party in enough of the negotiations.

These claims may have some truth. But the main reason the GOP failed is that party unity and discipline mean nothing to too many Republicans in Congress. For senators like Rand Paul, Mike Lee and Jerry Moran, it’s their way or the highway. House leadership narrowly overcame this sentiment within the Freedom Caucus. The delay and disarray in the House deliberations, however, dispirited senators. The GOP’s narrow majority in the upper chamber also encouraged defections.

Majority Leader Mitch McConnell is now resorting to extreme measures, bringing up a bill to repeal ObamaCare without replacing it. He’s calling the vote without knowing if it can pass. In fact, three GOP senators have already announced they will vote against this, which would be enough to kill the measure. Although all but two Republican senators voted for a repeal-only bill in 2015, it didn’t matter then: President Barack Obama vetoed the bill as expected.

It is a sign of Republican desperation that some think their best hope is to repeal ObamaCare and then pray something comes together in the next two years to replace it. President Trump even seems to expect that Democrats will help. Good luck with that.

Still, the repeal-only maneuver might provoke a fresh start, perhaps with a new bill drafted by some ad hoc group of legislators. Maybe failing to pass anything now will prompt wavering Republican senators to start supporting incremental, if imperfect, progress. A defeat of repeal on a procedural motion to take up the bill could cause Congress to drop health care now but return to it later, after Republicans make progress on tax reform, infrastructure, the debt ceiling and the budget.

Or maybe this really represents the end of Republican engagement on health care. If so, the GOP will watch as enthusiasm among party activists and donors wanes, prospective candidates decide not to run, and the prospect of holding Congress in the 2018 election dims.

With Republicans in charge of everything in Washington, voters won’t blame Democrats when health-insurance premiums continue to rise, the number of providers further dwindles, and Americans in more counties are left with zero options on the ObamaCare exchanges. The public knows Democrats passed the law, but Republicans are still expected to clean up the mess.

As an optimist—and only an optimist can view the situation this way—I’m hoping this plays out like a made-for-TV drama. The protagonist appears near certain death at the commercial break but is miraculously saved when everyone returns with popcorn after the final Geico ad.

In the wake of this crushing political week, believing that the GOP’s health-care drama has a few more acts left to play is a thin reed of hope. But it’s the only one Republicans have.

Article Link To The WSJ: