Tuesday, February 21st, 2017
Returning after a long weekend and a pretty good week for the markets, there is some optimism out there with futures pointing to a higher opening and bond yields leaking higher in early trading.
We are most interested with the US dollar index, however. Spiking higher this morning it is now well above “par”, though still a couple of pennies below the highs seen towards the end of the year. Pretty much all measures are flashing lower against the big dollar, and loonies are strong as well – provided you aren’t headed south of the border this afternoon.
With the US into a slow but certain rate-hike tightening cycle (60% chance at the May meeting), advisor perspectives gives us a nice set of charts on global leading indicators. We are just getting back to the global levels last seen prior to the 2007 financial crisis. This looks like it will be far and away the longest cycle between previous and next peaks of this indicator. This would suggest there is plenty pf expansion left in this cycle.
Eurozone business activity is expanding this month. The Latest Markit flash survey shows manufacturing spiking to 55.5, up from 55.2 in January. European shares are up pretty much across the board. The FTSE 100 is down slightly, but should we even consider that Europe anymore? To put this into perspective, the current pace of expansion is the highest since early 2011.
Though Snapchat is getting most of the IPO attention at the moment, the eventual public sale of Saudi Arabia’s giant, state-run oil company Aramco will be the real record setter. It looks like Saudi Arabia is leaning towards listing in New York, though London and Toronto are also still in the running. Others such as Singapore, Hong Kong, Tokyo and Shanghai are not as likely. (Reuters)
Are robots coming for everything? We find this article from Wired indicating that the end of accounting is nigh due to automation pretty interesting, given that the likes of Quickbooks and MS Money were among the first software packages to get widespread corporate use among PC owners (we were using it in the mid 90’s). Much like wealth planning and investment advice, we are as confident as ever that automation of certain tasks and strategies will be a tool that many of us will embrace, but the problems are fluid enough that humans will always be required.
Dubai will soon be buzzing with automated flying passenger drones. Engadget writes on this recent announcement. Though this video is way more interesting. Not quite like the Jetsons, but the future is fast approaching.
On a similar topic, there is an interesting Bloomberg article on the future of batteries. The age of the giant battery is almost upon us. Institutional investors are placing huge bets financing large scales energy storage projects. It’s a growing industry and as long as the deployment of renewable energy sources continues (wind and solar) the requirement of energy storage to balance out the uneven loads will also grow. Battery costs are plummeting, and with it the cost to store a kilowatt hour will fall below $500 by 2021.
Diversion: How the BBC makes Planet Earth look like a Hollywood movie
Home Depot reported another strong quarter of earnings as rising home prices are making owners want to reinvest into their houses. The shares were up nearly 3% in premarket trading after the company increased the dividend by 29% and issued a $15bb share buyback program. Macy’s beat estimates amidst cost cutting efforts to deal with slumping foot traffic. The company is said to be in early talks with rival Hudson’s Bay about a possible takeover. Facebook Messenger now has the ability for you to purchase and sell foreign exchange. They partnered with TransferWise, which allows users to set up alerts for when FX rates hit certain levels. Veresen is selling their power business for $1.2bb, they expect the deal to close in the second quarter and do not expect much in the form of tax savings from the deal.
Oil is up 1.79% to $54.74. Money managers are net long a record 903 million barrels of oil, via futures and options. The combined position is valued at $49 billion, which is the highest since July of 2014. Even so, managers might still have the means to raise their bullish bets, since prices are much lower than they were before. Here is some color from Reuters’ John Kemp:
“And while the notional value of the net long position has more than doubled from a recent low of $20 billion in the middle of November it remains well below the peak of $69 billion reported in July 2014...”
In other commodities news…
“BHP First-Half Profit Soars on Price Rally to Beat Estimates” – BBG
“Shell Shakes Up Oil Trading World With Brash Buying Sprees” – BBG
Gold is down 0.81% to $1229.05. Prices are falling due to a rising USD and risk-on sentiment in equities.
FIXED INCOME AND ECONOMICS
It’s PMI day with European sentiment already out and the U.S. survey due out slightly after the equity open. Eurozone purchasing managers indices surpassed expectations with final February numbers showing the manufacturing area rising to +55.5 to improve from January’s +55.2 reading. Services and composite numbers also rose to +55.6 and +56.0 respectively and multi-month highs. While this may signal that growth dynamics continue to improve into the first quarter for the region, the link between sentiment surveys and broad growth readings is imperfect as illustrated by the fact that as PMI readings improved in Q4, Eurozone GDP growth did not accelerate from the growth pace in Q3. Germany and France nonetheless highlighted the improved metrics for the board market as they rose to levels of +54.4 and +56.7 each. A similar reading in the U.S. is expected with American Manufacturing PMI poised to hit +55.4 while the services sector is poised to rise to +55.8 ticks.
The U.S. dollar rally continues this morning on the heels of follow-through from hawkish Fed comments and strong economic data. The dollar’s trend higher in February experienced a temporary setback late last week before CPI, PPI and retail sales for January all exceeded expectations and greatly improved the chances we see a tightening move next month. Fed Chair Yellen’s hawkish testimony before Congress briefly raised the probability of a rate hike in March to almost 50% before tailing off to the current 36% liklihood. Yellen suggested that “waiting too long to remove accommodation would be unwise” but the FOMC would clearly like more time to “assess the impact of prospective fiscal policy”. After losing over 1% from its 1-month high on Wednesday, the DXY finished the week slightly higher (+0.15%) but demand for the dollar could be slowing. Data from the CFTC showed speculators reduced their net long USD position to its lowest level in four months. Said index is up to +101.52 at time of writing.
CHART OF THE DAY
QUOTE OF THE DAY
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