European shares brush off German Governement worries

Today’s Overview:

• European shares brush off German Governement worries
• Volkswagen raises mid-term outlook for group profits
• Wall Street takes off ahead of Thanks-Giving week
• Marvell M&A
• EBA moves to Paris

After the failed Jamaica-Coalition talks the German DAX and Gold tumbled down to 12945 and 1276 respectively. The shock was short-lived and the Index move up to the 13030 in the afternoon, finally closing at the 13060 mark. The big movers in the German market were Volkswagen rallying up 2,78% and RWE incurring a loss of 1,58%. Volkswagen raised its mid-term outlook for group profit and sales on Monday, sustaining investor hopes that the carmaker can further its recovery despite shouldering billions of costs for its electric-car offensive. The world’s largest automaker by sales announced on Friday more than 34 billion euros ($40.06 billion) of spending on zero-emission cars and digital mobility services by the end of 2022, revising up an investment pledge for more than 20 billion euros made in September. VW said rebounding emerging markets such as Brazil and Russia and demand for new VW-badged sport-utility vehicles (SUVs) may together lead group revenue to exceed the 2016 record of 217 billion euros by more than a quarter by 2020. On Monday evening German chancellor Angela Merkel said she would prefer fresh elections to ruling with a minority government after talks on forming the three-way coalition collapsed. This resulted the DAX to open on the lower-end and the Euro Sterling to reach an 8-day low.

Wall Street managed to make some progress yesterday, as they commenced a new week. At the close of trading, the Dow Jones Industrial Average was ahead roughly 72 points; the broader S&P 500 Index was up three points; and the technology heavy NASDAQ was higher by nearly eight points. Market breadth was positive, with winners ahead of losers on the NYSE. From a sector perspective, the industrials and the technology issues pressed ahead, while the energy and utility names retreated. Meanwhile, there was just one notable economic report released this morning. Specifically, the Index of Economic Indicators advanced 1.2% in the month of October, which was quite a bit better than had been widely anticipated. Tomorrow, existing homes sales for the month of October are due to be released. Technically, the stock market has been holding up reasonably well lately. Looking ahead, with the year drawing to a close, it remains to be seen if the bulls can find the strength to produce a holiday rally.

In further news the Chipmaker Marvell Technology Group Ltd said on Monday it would buy smaller rival Cavium Inc  for about $6 billion, as it seeks to expand its wireless connectivity business in a rapidly consolidating semiconductor industry. Shares of Marvell were down 0.8 percent to $20.14, while Cavium was up 7 percent at $81.14 in early trading.

The European Union is relocating two of its key agencies from London to Amsterdam and Paris post-Brexit. On Monday, the EU announced that the European Banking Authority (EBA) will be moving to Paris an early sign of the potential costs for the United Kingdom of leaving the political and economic union.

Todays Earnings Calendar:

• GameStop Corp.
• Guess? Inc.
• HP Inc.

Todays Economic Calendar:

• Chicago Fed National Activity Index
• Existing Home Sales

Dow breaks the 22’000 mark

The German DAX was able to profit from the great reports released by the Labor Department. The reports were a catalyst for a weaker EURUSD which fueled investments in the German Index. 2 hours before close the DAX is up 0,75% at the 12247 points mark. The German Index was able to make a 100 point jump thanks to the big jump in Daimler. Daimler was able to increase sales of cars by 12,1 in July.

As per recent sessions, the chief influences were second-quarter earnings. And as before, the profit tide was strong and supportive, although there were some outliers among the companies issuing their releases, including MetLife, Inc., the giant insurer. That stock fell back some 3% after posting results on Wednesday. Overall, though, the reporting season has been a good one, with some three-quarters of the companies in the S&P 500 exceeding their bottom-line consensus views. That is helping to counter the choppy economic news we have been seeing on occasion. On this count, the Institute for Supply Management reported that its non-manufacturing survey had slowed down in July, registering a well-below consensus expansion rate of 53.9. Expectations had been for a tally of 57.0. In June, this survey had come in at 57.4. Breaking this report down, we see that July’s results were headlined by slower rates of growth in new orders, employment, supplier deliveries, backlogs, and exports. One category, pricing, rose strongly in July, however, as it had in the companion manufacturing survey released on Tuesday. Still, this report, disappointing as it was, didn’t shake Wall Street, as the initial pause in the Dow’s rally was brief. So, as we moved into late morning, that composite strengthened a bit further, although the other indexes remained under water. As we moved into the first part of the afternoon, the market steadied, but the Dow again started to move in and out of the black. The other indexes retained their losses, as selective profit taking persisted. As before, most of the 10 leading equity sectors were lower, but just marginally so, while losing issues held a modest lead over gaining stocks on both the Big Board and the NASDAQ. Things changed little as we moved into and through the latter stages of the afternoon, as most investors’ eyes were focused on the just-released Labor Department report on non-farm payrolls and the unemployment rate (see below). That posting can be a game changer if there is a major departure from expectations. That said, the Dow did firm somewhat for a time, before weakening again into the close. So, when the final tallies were in, we saw that this index had set another record high, while rising a modest 10 points on the day. Losses were spread across the other large and small composites, however.

Royal Bank of Scotland swung to a profit in the second quarter as the taxpayer-owned lender reduced charges for past misdeeds. RBS, bailed out by the British government during the 2008 financial crisis, said Friday that net income totaled 680 million pounds ($894 million) after a loss of 1.08 billion pounds in the same period last year .Adjusted operating profit, which excludes litigation and restructuring costs, more than doubled to 1.69 billion pounds as RBS increased lending, cut spending and reduced the amount of money it set aside for bad loans. “We see the first six months of this year as proof of the investment case for this bank: our path to sustainable profitability is becoming clearer and closer and we have resolved some of the most significant issues this bank faced,” CEO Ross McEwan said in a statement. RBS also said its NatWest Markets unit has carried out contingency planning for Britain’s looming departure from the European Union by ensuring that the bank’s license ithe Netherlands is valid. Depending on the outcome of Britain’s negotiations with the EU, the bank may need a beachhead in Europe to continue operations on the continent.

As to the employment report, the Labor Department has reported that the nation had added 209,000 positions in July; expectations had been for a gain of 180,000. At the same time, the unemployment rate came in at 4.3%; the consensus had been for a 4.3% rate. In June, the jobless rate had been 4.4%. This ties the low rate since the recession in 2007-2009. Also, job gains for May were reduced from 152,000 to 145,000; for June, though, they were revised up from 222,000 to 231,000. Importantly, and the best feature of this report was the fact that average hourly wages rose by nine cents, or above expectations in July.

This report, while better than forecast, still wasn’t strong enough, with a labor-force participation rate of 62.9%, to push the Federal Reserve to be more aggressive in raising interest rates. At most, we see just one additional interest rate increase this year, with that uptick unlikely to come before December. As for the stock market reaction, the U.S. equity futures, up modestly before the report was released, strengthened a little further in the moments following the issuance. Treasuries, though, weakened, with yields rising somewhat on the better-than-expected data.

 

Tesla losses smaller than expected

After a big earnings-flood the German Index started by opening with a loss at 12140 points. The DAX documented a downwards movement and nearly fell under the 12100 points mark and was able to recover in the afternoon. 1 hour before close the Dax is trading at 12145 points cumulating a loss of 0,28%. The big winner of the day is Commerzbank which is up 2%.

Following another record-breaking performance on Tuesday, and an after-the-close earnings beat by Apple that day, it was widely expected that the equity market would start the middle session of this five-day span with formidable gains. And, indeed, that is just what transpired, as the Dow Jones Industrial Average broke through the psychologically important 22,000 barrier during the first minutes of trading yesterday morning. Not surprisingly, the early charge was led by a nine-point gain in the shares of Apple. But this is just one stock, and when that increase was not followed by a broader rally, the market wilted. In fact, as we passed the first hour of trading, the S&P 500, the NASDAQ, the S&P Mid-Cap 400, and the small-cap Russell 2000 all had moved into the red, with the Dow, the lone remaining winner. But even that upturn had eased notably from an early 70-point plus advance to one of fewer than 30 points. Profit taking was the main culprit, it would seem, as the economic and political tidings were rather sparse and not unwelcome. The stock market then stayed range bound for several hours during the middle of the day, with the Dow generally holding to about a 40-point advance, while the other indexes remained under water. The Dow, heavily influenced by Apple stock, which remained some 5% higher on the day, continued to hold above the 22,000 mark. Apple shares were heavily influenced both by the latest quarterly results and also the upcoming iPhone cycle 8, which is expected to begin this fall. Meanwhile, it took just 107 days for the Dow to go from 21,000 to 22,000. The biggest contributor to this additional surge has been Boeing, the aerospace and defense giant. In other news, private U.S. companies added 178,000 jobs last month, a tad below the consensus forecast of 185,000 jobs. Returning to the stock market, the Dow strayed modestly above 22,000 as the afternoon progressed. The recent batch of economic reports, albeit stronger, in the main, seem insufficiently formidable to encourage the Federal Reserve to more aggressively step on the monetary brakes. The pending jobs and non-manufacturing issuances would seem to fall into that category. Current thoughts on the Fed suggest that the bank will next raise interest rates in December, making it three such increases this year. We now would expect a similar level of tightening in 2018, assuming economic growth does not slacken. The Dow held its ground into the close, while the NASDAQ, once down more than 40 points, came all the way back, even going into the black briefly in the final hour. The S&P Mid-Cap and the smaller-cap Russell 2000, however, stayed well into minus territory, as sector rotation evolved notably. At the close, some late buying lifted the Dow comfortably above 22,000. In all, that index ended the day’s action at 22,016; while the S&P 500 and the NASDAQ were, respectively, just above and below the breakeven lines, and, as noted, the S&P Mid-Cap and Russell were off on the day, while losing issues were out ahead of gaining stocks on the NSYE.

On Wednesday Tesla reported a smaller quarterly loss than expected and said production of its Model 3 sedan remained on track to hit targets. The electric-car maker reported a loss of $1.33 per adjusted share on revenue of $2.79 billion. Analysts had forecast Tesla lost $1.88 per share and earned $2.51 billion in revenue, according to Bloomberg. In the earnings letter, Tesla said it averaged over 1,800 net Model 3 reservations daily and was confident it could produce just over 1,500 vehicles in the third quarter. Deliveries to non-Tesla employees would start in the fourth quarter, Tesla said. Tesla had said it planned to produce 500,000 vehicles annually by 2018 and would ramp up costs to meet that goal. The company burned through $1.16 billion in cash in the second quarter, up from $144 million a year before.

BMW, the German carmaker, posted stronger than expected profits after sales of its latest models in Europe and Asia helped offset a decline in the US. The Munich-based maker of luxury cars said operating margins at its automobiles unit rose to 9.7 per cent in the second quarter, from 9.5 per cent last year, near the upper end of its 8 to 10 per cent target. The figure compares with 9.2 per cent at Daimler’s Mercedes unit and 9.1 per cent at Audi, the luxury unit of Volkswagen. The improved margins helped BMW post a 9.2 per cent climb in profit before tax to €3.06bn in the quarter as revenues climbed 3.1 per cent to €25.8bn. After earnings report BMW is up 0,95%.

Continental’s second-quarter adjusted operating profit fell 10 percent as the auto parts maker raised spending on production and R&D capacities, but the company slightly lifted its sales outlook on growing demand for electric-car components. Adjusted earnings before interest and tax (EBIT) declined to 1.16 billion euros ($1.37 billion), near the low-end forecast of 1.15 billion in a Reuters poll of analysts. But the world’s second-largest automotive supplier raised its full-year sales guidance by 500 million euros to more than 44 billion euros and stood by its profit forecast which includes an adjusted EBIT margin target of 10.5 percent. Continental, which makes driver-assistance technology, fuel-injection systems and vehicle tires, said it expects about 450 million euros in raw material cost headwinds until the end of the year, 50 million euros less than previously forecast.

 

 

Commerzbank reports €637m of net losses

After recovering some of its losses on Tuesday,  the German Index is stuck on the spot, being down a mere 0,63 points, 2 hours before close. The only German stocks sticking out today are Heidelberg, a German Cement producer Lufthansa and Vonovia which are down 3%, up 2% and up 2,5% respectively. Vonovia, a German real estate broker, reported today that its half-year FFO 1 rose 18 percent to 457.7 million euros from 387.8 million euros, and FFO 1 per share grew 15.7 percent to 0.96 euro from 0.83 euro last year. Adjusted EBITDA from operations for the period totaled 607.6 million euros, up from last year’s 558.1 million euros. Rental income for the first half came in at 833.2 million euros, higher than the 774.4 million euros a year ago. Given the strong operating performance in the first half of 2017, Vonovia said it is confirming the forecast it has published for the year as a whole. The company continues to expect FFO 1 between 900 million euros and 920 million euros, representing about 20 percent above the previous year’s figure of 760.8 million euros.

After an unimposing start to the new week on Wall Street, traders got yesterday’s session off to a strong start, with stocks roaring out of the gate quickly. To wit, the Dow Jones Industrial Average, fresh off of an all-time high on Monday, fashioned another early record yesterday, soaring up close to the psychologically critical 22,000 mark in the first few minutes of trading. The principal spark for the further gains of the core indexes has been a solid earnings season, which continued in the latest session. Also helping, from time to time, have been supportive economic results. The market continued to press higher, but there was some weakening in spots, especially among the smaller indexes, such as the S&P Mid-Cap 400 and the small-cap Russell 2000. As before the principal focus remained the corporate arena, with so many of the reporting companies easily beating expectations for the second quarter. The solid earnings season thus far, in which 73% of the companies domiciled in the S&P 500 Index had surpassed earnings expectations for the latest period has been a big part of the continuing bull market in 2017. The stock market then meandered about in generally higher territory through the early to middle hours of the session, boosted by some generally supportive profit reports, along with a few misses or lackluster guidance. All the while, the Dow was unable to reach the 22,000 level. This pattern then continued into the close, with the session ending with the Dow holding a gain of 73 points. Lesser increases were tabulated by the S&P 500 Index (up six points) and the NASDAQ (ahead 15 points).Then, after the close of trading iconic technology stalwart Apple Inc. issued better-than-expected fiscal third (June) quarter results. Not only did Apple beat the consensus, but the tech giant gave investors something to cheer as they looked ahead to the next few months. On point, Apple sold more iPhones than expected and gave upbeat fourth-quarter guidance. The stock, already on the cusp of record highs, then surged in after hours trading, and seems poised to open higher this morning, a trend that should give the market an overall early lift this morning. In fact, U.S. equity futures, in general, are moving higher in pre-market action today, implying that the Dow Jones Industrials will possibly cross the 22,000 line this morning. Elsewhere, stocks in Asia were mixed overnight, though there was nice strength in the tech issues following the Apple beat, while in Europe the major bourses are trading lower in the early going. In other markets, oil is flat; gold is a little lower, backing away from a seven-week high; and Treasury yields are nominally higher.

Commerzbank lost more money than analysts expected in the second quarter of the year but said it expected a “slightly positive” result for 2017 despite the cost of a big restructuring programme. Germany’s second-biggest bank made net losses of €637m ($753.2m) in the second quarter, worse than the €556m predicted by analysts polled ahead of the results and far worse than the €215m net profit a year earlier. The bank had already warned that it would swing to a loss in the three months to end June, after it brought forward an €810m cost relating to 9,600 redundancies under a restructuring plan. “We have booked the provisions for the personnel reductions early and in full and have made further progress in the implementation of our strategy,” said chief executive Martin Zielke.

The Economic Calendar for today:

1. MBA Mortgage Application
2. EIA Petroleum Status Report

NASDAQ tech-stocks sell-off

The German Index is still under a lot of pressure noting 0,51% lower at the end of the week. After a technology sell-off on the NASDAQ yesterday and the continuous rise in the EURUSD investors are having a hard time finding incentives on the German market. Good economic data from the Eurozone and from the U.S. have been no catalysts for bearish buying behavior. The Euro zone sentiment is at its highest since August 2007. In the afternoon only 7 out of the 30 DAX members are recording a positive yield. At the lead of the winners pack is Adidas, which has upgraded its forecast on Thursday, with a yield of 2,54%. On the other end of the statistical tail is Continental with a intraday loss of 2,12%.

Fresh off of an earnings-driven record high in the Dow Jones Industrial Average on Wednesday, generated by a strong profit gain from aerospace and defense giant Boeing and some follow-up gains in that issue. Yesterday morning, Wall Street began the penultimate session of the week pressing nicely higher. In fact, within minutes of the open, the Dow had fashioned a gain of nearly 80 points. A strong profit showing by social networking behemoth Facebook, announced late Wednesday, helped the NASDAQ jump by close to 40 points in the first few minutes, meanwhile. Of course, it was not just earnings that have helped the stock market along in recent weeks, but also relief that the Federal Reserve had ended its FOMC meeting on Wednesday with the decision to keep interest rates unchanged. For the most part, though, the equity market’s strength reflects optimism that the rest of earnings reporting season will be a good one. The upward bias persisted further into the morning, though the early gains would prove the high-water mark for the day. Also on the profit front, Dow issue Verizon pleased investors with its profit report, and the stock perked up nicely, gaining more than 7% by mid-session. Overall, earnings season has been a good one, albeit with some high-profile misses. The reporting period still has another few weeks to go, but as far as the large-cap companies are concerned, this is the biggest week of the cycle. By early next month, more of the mid-and smaller-cap names will be on the clock.

The NASDAQ, which went from the earlier 40-point advance to a decline just north of 100 points. The sharp reversal was apparently brought about by valuation concerns in the tech space, following the morning’s euphoria. Still, Facebook retained some strength as the day wound down. On the other hand, the market was helped by additional firmness in the oil pieces on optimism that output can be better managed. Encouragingly, when the afternoon sell-off did not mushroom into a severe decline, the Dow firmed into the close, with that index, once in jeopardy of closing in the red, pushing up as the final bell sounded, gaining 85 points on the day. Then, after the close, chipmaker Intel, a Dow stock, posted strong second-quarter share net, giving that issue a likely modest lift this morning. Finally, in a pivotal government release just made, the nation’s gross domestic product advanced by a modestly reassuring 2.6% in the second quarter. That was materially better than the downwardly revised 1.2% gain logged in the opening period (initially posted at 1.4%), and in line with estimates issued before the latest GDP release. This was a big improvement over the first quarter, as noted, and suggested that the economy remained on track, with growth likely to hold in the current range going forward. The nice second-quarter pickup reflected positive contributions from personal spending, nonresidential fixed investment, and exports.

Credit Suisse reported a strong rise in net income for its second quarter on Friday, adding that assets under management had hit new highs for the bank. Assets under management hit a record high in the second quarter, led by gains in the wealth management division, as the Swiss bank enters into the second phase of its three-year restructuring program. The stock was up 1.8 percent in opening deals Friday.  The wealth management arm saw net new assets of $23.4 billion, a 12 percent increase on the previous year and the bank’s strongest asset inflows in six years. Overall assets under management were up 8 percent on the year at $737 billion. Net profit was up 78 percent year-on-year while net income came in at 899 million Swiss ($927 million) francs for the first half of this year. This compared to a net loss of 132 million Swiss francs for the same period last year. The surge comes as a boon to the bank’s chief executive, Tidjane Thiam, who was tasked with overhauling the bank and reducing its exposure to market movements. He said the strategy is now starting to pay off.

Intel is up 0,59% after reported better-than-expected earnings for the second quarter. In the second quarter the Client Computing Group made a strong showing with 12 percent revenue growth at $8.2 billion in revenue. The Internet of Things Group, for its part, was up a hefty 26 percent year over year, at $720 million in revenue. Intel’s typically high-margin Data Center Group, which includes sales to public cloud infrastructure providers and also competes with AMD, is key – last year its revenue rose 8 percent year over year, compared with the Client Computing Group’s 2 percent growth. This time around, the Data Center Group was up 9 percent at $4.4 billion. Altera is part of the newly formed Programmable Solutions Group, which had the worst performance of the quarter for Intel — $440 million in revenue, which is down 5 percent year over year. The top performer was Intel’s Non-Volatile Memory Solutions Group, whose revenue of $874 million was a record high, up year over year by 58 percent. With respect to guidance, Intel says it’s expecting 80 cents in earnings per share on $15.7 billion in revenue for the third quarter. For the full year, the company expects $3 in earnings per share and $61.3 billion in revenue. On the company’s conference call with financial analysts, Intel CEO Brian Krzanich committed to a spending target of 30 percent of revenue and said he’s expecting the company to reach that goal no later than 2020. The company will make these ongoing changes to meet that goal while also driving growth, Krzanich said.

The Economic Calendar for today:

1. U.S. GDP
2. Employment Cost
3. Consumer Sentiment

 

 

Daimler profits are up 70%

The DAX has been profiting from the bullish markets and is up 0,35%, reaching the 12310 point mark. The strongly criticized German car industry is still suffering the repercussion from the cartel allegations. Daimler and BMW are the only DAX members recording stock losses. Volkswagen is up 2,35%. Reports have surged, from the usually well-informed Sueddeustche Zeitung, that Daimler was first in coming clean with Germany’s and Europe’s cartel watchdogs, and it could avoid a multi-billion fine. Volkswagen came in second, and could get a 50% rebate on the punishment. BMW, one of the least suspicious in the dieselgate scandal, is kept holding the bag.

Following an inconclusive session on Monday and the start of the Federal Reserve’s two-day FOMC meeting yesterday morning, the bulls got the new session rolling in a big way with an immediate jump forward of more than 150 points in the Dow Jones Industrial Average. Along with the Dow’s snappy opening gain, the Standard and Poor’s 500 Index soared to another intraday all-time high, advancing to just shy of 2,480 at the opening bell. The NASDAQ, however, was held back, posting a small early loss under pressure from a 28-point loss in shares of Alphabet on news of an antitrust fine. The strong start, however, could not be sustained, and as we neared the one-hour mark of trading, the 57-point Dow gain had been pared to some 65 points. The NASDAQ, meantime, barely held at breakeven, while the S&P 500 Index saw its gain cut to a handful of points. The big influence was earnings, as industrial giant Caterpillar posted bottom-line results that exceeded expectations and shares of that Dow-30 component jumped nicely in early dealings. It was a far different story for fellow Dow stock 3M Company. That industrial giant disappointed investors with its top-and-bottom-line miss, and the stock tumbled. The Dow’s pullback didn’t continue, however, and as we passed the one-hour mark, that index again started to press higher, soon returning to past the 100-point advance mark. The strength continued through the morning, so that as the noon hour arrived, the market was up strongly, with the Dow’s advance holding at a formidable 130 points, in spite of the 3M profit miss and subsequent price drop. The strong advance persisted into the close, with the Dow’s triple-digit point gain staying intact until shortly before the concluding bell. As was the case earlier, the bullish tone was driven by better-than-expected earnings, not only from the Dow’s Caterpillar, but also from McDonald’s, another component of that 30-stock composite. Those two issues continued to overcome the further weakness in 3M. Also, most of the leading sectors were trading higher, led by basic materials and energy, while stocks rising in price easily topped those equities falling back. In short, there were few places for the encumbered bears to hide. When all the number were thus in, the Dow, with a last minute push higher closed higher by 100 points; the S&P 500 added seven points; and the NASDAQ eked out a small win. More substantial gains were posted by the smaller indexes. Now, as we await a new day, additional earnings data, and a report on sales of new dwellings (following Monday’s solid report of sales of existing homes, the big story will be the Fed. The central bank, which commenced its latest FOMC meeting yesterday, will end matters this afternoon at approximately 2:00 PM (EDT), with a likely decision, as noted above, to keep interest rates unchanged.

Daimler has posted another quarter of record sales and revenue, creating a strong base off which it says it will be able to “exploit new business models” amid industry disruption. The Stuttgart-based carmaker said net profit for the second quarter rose 2% to €2.51bn, as revenue rose 7 per cent to €41.2bn, Operating margins for Mercedes cars rose from 6.4% a year ago to an amazing 10.2%. Overall operating profit jumped 15% to €3.75bn, led by a stunning 70 % climb in Mercedes-Benz profits, to €2.4bn. Profits fell by double digits at the group’s vans, buses, and trucks’ divisions. After overtaking BMW to be the world leader leader in luxury car sales last year, Mercedes increased car sales by 9 % to 595,178 units.Total Daimler sales across all units were up 8 per cent from a year ago to 822,504 units.Chief executive Dieter Zetsche called the quarter excellent. “We have set ourselves ambitious targets. And we are achieving them – in terms of unit sales and of profitability.” The car industry is in the early stages of being upended by “megatrends” that will see passengers use electric, self-driving cars that are shared rather than owned. Mr Zetsche said Daimler’s “strong core business is the best basis” to meet this transformation. Meanwhile, the legacy business model is expected to keep growing. Daimler said worldwide demand for all cars is expected to 1-2 per cent this year, which would mark an 8th straight year of growth. US sales are expected to fall, but Europe and China should see slight growth, while India should see “significant” growth.

Deutsche to move 300 bn worth of assets

The German Index was able to make some ground up today reaching a high of 12’300 before lunch-time. Right now the German Index is trading at 12’270. This regain of confidence is fueled by the IFO German business confidence report, which hit a third record high. The Munich-based Ifo economic institute said its business climate index, based on a monthly survey of some 7,000 firms, rose to 116.0 from 115.2 in June. That beat a Reuters consensus forecast of 114.9. Investors have been bullish on Commerzbank and Deutsche Bank increasing 1,35% and 2,29% respectively.

In the U.S. unlike so many Mondays this year, the latest start to a new trading week on Wall Street did not begin with another bullish roar. Rather, it commenced with something closer to a bullish yawn. The market did not unravel, to be sure, nor was there a major early reversal. In fact, stocks did comparatively little given how extended the market is these days. Still, there was some tilt to the downside in early dealings, with the loss in the Dow Jones Industrial Average swelling to about 80 points in late morning, before some buying surfaced near noon to pare the deficit somewhat. Still, we entered the afternoon with that blue chip composite off by about 50 points. However, on upbeat sentiment on the technology group ahead of a succession of major profit issuances in the days to come, the NASDAQ was ahead by some 10 points. The Dow pared its losses a little further in the next hour on the optimistic sentiment with regard to earnings. The optimism, meantime, seems warranted as almost 75% of the companies in the S&P 500, which have released earnings in the latest quarter have topped expectations. Meanwhile, stocks continued to waver somewhat as the afternoon proceeded. The equity market, which remains overbought, has been finding it somewhat difficult to carve out a path to still higher prices recently. Analysts expect this range-bound trading to persist for a while assuming that there are no unwanted surprises entering the picture, from any number of sources. The market continued on this uneven path, with the Dow lower and the NASDAQ up nicely into the late afternoon.

In the aftermath of the Brexit vote from a year earlier, German banking giant Deutsche Bank has been making plans to downsize its London operations. Now, the bank led by CEO John Cryan is reportedly thinking about moving an Exxon-Mobil’s worth of assets out of the U.K. Bloomberg reported Monday, citing people with knowledge of the matter, that the bank is considering moving about a fifth of its balance sheets, about 300 billion euro, from the U.K. to Frankfurt.

After a successful start to 2017, the second quarter continued to be positive for Covestro. Ongoing robust demand for polymer materials led to a year-on-year improvement in utilization of available capacities for the industry as well as for Covestro. The result was a sharp increase of 56.5% in EBITDA and 110.4% in net income. At the same time, core volumes dropped slightly by 1.6% against a strong prior-year quarter. On a half-year basis, however, core volumes increased by 3.5% over the same period in the previous year. The company is optimistic for the medium term as well: “We want to keep growing in line with our customer industries, which are expected to grow faster than the global gross domestic product. In the next five years, we anticipate generating a cumulative total of EUR 5 billion in free operating cash flow,” says CEO and interim CFO Patrick Thomas. “This cash could be used for bolt-on acquisitions in the specialties segment, if the opportunity arises. Moreover we follow our intention to grow organically.” In the second quarter of 2017, sales rose by 17.0% to EUR 3,498 million, mainly due to higher selling prices, which had a positive effect of 15.3% on sales. The increase in selling prices is attributable to strong capacity utilization and a year-on-year rise in raw material prices. FOCF amounted to EUR 319 million and was up 34.6% over the prior-year quarter. “We want to continue to take advantage of the ongoing robust demand for our products as much as we can. Especially in the Polyurethanes and Polycarbonates segments, we will further invest in our production plants and take steps to eliminate bottlenecks,” explains Chief Commercial Officer Dr. Markus Steilemann. The company keeps the forecast for the full year unchanged which was adjusted after the strong first quarter. Covestro still expects core volume growth in the low-to-mid-single-digit percentage range, with free operating cash flow still significantly above the average of the last three years. For fiscal 2017, Covestro continues to anticipate ROCE significantly exceeding the previous year’s level.  The same is true for this year’s EBITDA, which is also projected to be significantly above the previous year. For the third quarter of this year, Covestro expects EBITDA to increase substantially above the prior-year quarter. Covestro also still anticipates positive global economic development with stronger overall growth of 3.0% for the world’s economy in 2017 compared to the previous year.

Economic Calendar for today:

1. FOMC Meeting Begins
2. FHFA House Price Index
3. S&P Corelogic Case-Shiller HPI
4. Consumer Confidence

Philips announces share buyback program

The DAX continued its downfall this week, by dropping 0,47%. This downfall is fueled by the German car industry and the strong EURUSD. As we reported on Friday, allegations have surged suggesting that the German auto industry has not complied with various anti-trust regulations. These cartel suspicions have put a lot of downward pressure on the big players in the German auto industry. Daimler AG, BMW and Volkswagen being down 2,86%, 3,58% and 1,88% respectively.

In the U.S. the most recent five-day stretch of trading once again favored the bulls. The second-quarter earnings season, which kicked into gear last week, has thus far proven constructive for equities, but the results have not been as strong as the figures produced by Corporate America during the March period. The trading session on Friday saw some profit taking, as a couple of earnings reports disappointed. The setback, though, was pared into the closing bell. Also hurting stocks on the final day of last week was a drop in oil prices. The price of West Texas Intermediate contracts fell sharply, finishing the week in the vicinity of $45 a barrel, a level that will make it hard for the oil and gas companies to deliver solid earnings results. This comes ahead of some meetings this week among OPEC and non-OPEC leaders looking to find a solution to work down the glut of oil presently in the market. Not surprisingly, the energy sector was the biggest laggard among the 10 major equity groups. There also was weakness in the basic materials and technology areas. Conversely, there was interest in the higher-yielding consumer staples, telecommunications, and utilities sectors. Last week may prove to be the appetizer before the main course for the investment community. Indeed, the volume of quarterly results scheduled to be released over the next five days will far exceed last week, with data due on 12 Dow-30 companies, highlighted by the latest figures from the oil giants Exxon Mobil and Chevron on Friday. Too, the news on the economy will be much heavier this week, including the first reading on second-quarter GDP from the Commerce Department on Friday. These events will keep investors busy and will play a big role in whether the bulls will be able to keep the party going. As of now the Dow is down 0,22%.

Rocket Internet has been given a €22.00 price target by equities research analysts at Barclays PLC in a research report issued to clients and investors on Monday. The firm currently has a “neutral” rating on the stock. This downgrade has pushed the Rocket Internet stock down 5,05%.

Netherlands’ Royal Philips NV PHIA said Monday it will begin a 1.5 billion euros ($1.71 billion) share buyback program as it posted a 36% rise in second-quarter net profit. The health-technology company’s net income from continuing operations during the three months to the end of June rose to EUR161 million from EUR118 million the year earlier, while sales increased 4% to EUR4.3 billion from EUR4.13 billion during the second quarter in 2016. Adjusted earnings before interest and taxes or Ebit, the company’s preferred measure of its operational performance, rose 15% to EUR439 million during the quarter from EUR383 million a year earlier, Philips said.

The Economic Calendar for today:

1. PMI Composite Flash
2. Existing House Sales

 

 

General Electric hits 19 month low

The strong Euro, the falling oil prices and the supposed cartel allegations in the German auto-industry has propelled the German DAX to hit a low this week, quoting at 12‘240 points. At 15 o’clock the index was trading at a minus of 170 bps. U.S. crude prices fell 1 percent today in a sudden move after a report said supply from OPEC is rising. Reuters said OPEC’s July oil supply was set to rise by 145,000 barrels per day (bpd) compared to June, citing PetroLogistics, a company that tracks OPEC supply forecasts. The increase in oil supply would push production above 33 million barrels per day. WTI futures erased earlier gains on the report, trading at $46.52 per barrel. The European Central Bank President Mario Draghi’s difficult task of calming markets was laid bare on Thursday afternoon, as an initial dovish message by the ECB was quickly drowned out by talk of inflation and an end to asset purchases. The bank held interest rates and asset purchases steady on Thursday, amid speculation that it will start to scale back its ultra-loose monetary policy in the fall. It also struck a somewhat dovish tone and insisted that it would be poised to step in should the outlook take a downward turn. The German news outlet “Der Spiegel” reported that the German carmakers Volkswagen, Audi, Porsche, BMW and Daimler secretly worked together from the 1990s onwards on issues including polluting emissions from diesel vehicles. Volkswagen reported the cartel to German competition authorities in a letter seen by the “Der Spiegel”, as did Mercedes- Benz maker Daimler.

The U.S. stock market, which climbed nicely to end a mostly range-bound session on Wednesday, got out of the gate quickly yesterday morning, aided by comments from European Central Bank President Mario Draghi. But the buying was short lived. Indeed, as the half-hour mark of the session was passed, the composites were mixed, with the Dow Jones Industrial Average easing back modestly, while the S&P 500 Index and the NASDAQ scored additional all-time highs. In the case of these latter indexes, their early strength, too, lessened as the morning progressed, with the NASDAQ easing into the red for a spell. Meanwhile, investors were continuing to watch the release of corporate earnings. Most of the issuances were upbeat, if uneven, at times, with some three-quarters of the companies domiciled in the S&P 500 Index topping profit expectations. That is in keeping with the recent past on Wall Street and is reassuring for a market that is certainly not undervalued at this time. The solid earnings performances are helping to keep serious profit taking at bay, for now. Then, after a brief selloff, which took the Dow down to a morning-worst decline of some 65 points, the market, as has so often been the case this year, regrouped and as the afternoon began, the Dow’s loss had eased to a more manageable 10-20 points. The other indexes, both large- and small-cap, meantime, stayed modestly in the black, for the most part. A few stocks underwent moves of note, including PPG Industries, with that diversified chemicals manufacturer announcing an acquisition that did not sit well with investors, even though the giant corporation posted solid quarterly metrics in the meantime. The Streets strength was on display again in the afternoon, as the three large-cap averages all managed to turn positive as the final hour began. The market remained near the breakeven point until late in the session when the Dow saw enough, but still modest, selling to put that average down by 29 points. The S&P 500 Index was essentially flat, while the NASDAQ managed to gain a handful of points. The smaller indexes were little changed. As to economic influences, the Index of Leading Economic Indicators provided an upward surprise, increasing in June by 0.6%. That sharp increase followed unimposing 0.2% gains in both April and May. Expectations had been for a rise of 0.4%, within a forecast range of 0.2%-0.5%. Looking out to the concluding session of this week and casting our eyes abroad, as we most always do, we see that the markets lower in Asia overnight, while in Europe, the principal bourses are tracking downward.

GE slid down 1,7% this morning after releasing its Q2 results and reporting a 12% drop in revenue. Net profit slumped 58 percent to $1.34 billion, or 15 cents a share, in the quarter ended June 30, from $3.30 billion, or 36 cents a share, a year earlier. GE’s energy connections business provides electrification and automation products to the oil and gas, mining, utility and marine industries. Revenue fell to $29.56 billion from $33.49 billion, slightly better than the $29.02 billion consensus estimate of analysts polled by Thomson Reuters I/B/E/S. Adjusted earnings fell 45 percent to 28 cents a share, compared with estimates for 25 cents. GE’s closely watched cash flow from operations fell 67 percent to $3.6 billion from a year ago, reflecting the loss of contributions from the appliances division that the company sold.

 

Morgan Stanley tops expectations

After a bad start to the week the German DAX was able to recover from some of its losses in the early trading hours. In the afternoon the DAX has been has been circling around the 12’430 point mark. The sideward movement in the DAX is mainly due to the ECB meeting tomorrow. The EURUSD had to take a break on its rise and has weakened as of today.

In the US the stock market, following an indecisive start to the week on Monday, looked poised to press higher yesterday–or at worst mark time once again. And, in fact, the equity futures were showing little change several hours before the start of trading on our shores. Then, in some apparent rethinking, the bears started to flex their muscles. This shift was not dramatic at first, and there was no wholesale selloff of stocks through much of the morning, but there was some movement lower from the start. However, the impetus was not earnings season, which now is under way, but rather the dysfunction in Washington, which has taken a turn for the worse. Specifically, the bears resurfaced following news that the Republican leaders in the U.S. Senate had decided to abandon their health care bill, which was designed to repeal and replace the Affordable Care Act (ACA). The reason is that two more GOP Senators had gone on record with their intention to oppose the measure. That would leave the Senate Republicans two votes short of the 50 needed for approval. And without a new health care bill, efforts at tax reform–a key part of the bull market story–would be that much harder. So, stocks wilted and fell, even with no worse than a mixed early showing on the corporate earnings front. As noted, stocks pulled back, and the situation worsened as the morning progressed, with the Dow Jones Industrial Average falling to a morning-worst loss of almost 160 points before some subsequent buying surfaced to pare the deficit. For the moment, at least, earnings are taking a back seat to Washington. Interestingly, it was mostly the Dow that fell back, as the NASDAQ, on comparative strength in the technology group, managed to hold with just modest losses. As for the Dow, it was also influenced by a drop in the shares of Goldman Sachs, as the financial services giant reported a drop in bond trading revenues. Meanwhile, the Dow’s loss continued to ease into the lunch hour as a one-time near 160-point deficit was cut in half as the noon hour arrived. The S&P 500 Index’s loss was minimal at that time, while the NASDAQ was in the black. As we entered the afternoon, it looked as though we would remain in the loss column throughout the day’s session. The stock market continued to press lower as the afternoon moved along, but the deficit on the Dow gradually eased as the session proceeded, even though a proposal to just repeal the ACA failed as a third GOP Senator voiced her opposition even before a vote could be taken. When the final numbers were in, the worst morning’s setback had been overcome, with the Dow cutting its loss by some two-thirds to end matters off just 55 points. The S&P 500 Index managed to end on the plus side of the ledger, if incrementally, while the NASDAQ inked a 27-point increase. Just modest losses were tallied by the smaller composites, as losing stocks, once well ahead of winners, were just narrowly in the lead on the Big Board.

Morgan Stanley reported second quarter earnings Wednesday that soundly topped expectations, helped by an increase in stock trading revenues and profits from its wealth management business. Earnings per share: 87 cents vs. 76 cents expected by a Thomson Reuters consensus estimate. Revenue: $9.50 billion vs. the $9.09 billion estimate. The shares are trading about 3 percent higher this morning. Equity sales and trading net revenues increased by $100 million to $2.2 billion, little changed from a year ago but up 7 percent from the first quarter, “reflecting strong contributions across products and regions,” Morgan Stanely said in a statement. Overall sales and trading revenue decreased by $100 million, or 2 percent, from a year ago, to $3.2 billion. Bond trading revenue fell $100 million, or 4 percent, to $1.2 billion in the second quarter, “driven by lower volatility and sporadic activity during the quarter,” the release said. Fixed income trading revenue was $1.7 billion in the first quarter. The second quarter marked the second in a row for which Morgan Stanley’s fixed income trading revenue topped that of Goldman Sachs.

Today’s Economic Calendar:

1. MBA Mortgage Applications
2. Housing Starts
3. EIA Petroleum Status Report