Selasa, 30 Juli 2019

There’s a generational shift in the Fed’s thinking, and here’s what it means for stocks - MarketWatch

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The Fed’s going to switch gears on how it responds to inflation.

It’s here — the Federal Open Market Committee meets on Tuesday for a two-day meeting that is expected to end with lower interest rates and Federal Reserve Chairman Jerome Powell stating for the umpteenth time from the podium that no, President Donald Trump is not directing interest rates.

But let’s for a second take a longer-term view, and not whether the Fed can meet expectations or whether Powell will tank markets as he often does during press conferences.

Opinion: How to read between the lines of the Fed’s rate-cut statement

MarketWatch’s Call of the Day comes from JPMorgan’s Asian equity strategy team, which points out the Fed is changing its so-called reaction function, which its in-house economists believe will result in a move to an inflation-averaging framework. That means the Fed will purposely let the economy overheat if inflation has been undershooting its target for some time. This isn’t just a Fed thing — the European Central Bank also is considering a review.

Okay, great, but what does that mean? Well, it should mean lower bond yields. Lower bond yields are not necessarily good news for stocks if that means lower growth expectations. But JPMorgan says that should the yield on the 10-year Treasury TMUBMUSD10Y, -0.21%   average 2%, U.S. equities should trade an average valuation multiple of 20 times. “Thus, while typically we would assume that lower yields come with more downside due to lower growth expectations than upside due to re-rating, a structural step down in yields can actually sustain a higher average level of valuations,” the strategists say.

Growth stocks — because they are by definition long-duration assets — and yield stocks should benefit, the strategists say.

The market

After a meh Monday — the Dow Jones Industrial Average DJIA, -0.20%  rose, the S&P 500 SPX, -0.33%  fell — U.S. stocks slumped at the open.

The British pound GBPUSD, -0.5812%  continued to drop like a rock on concerns over a no-deal exit of the U.K. from the European Union.

Gold GC.1, +0.48%  and oil CL.1, +0.62%  futures rose.

Europe stocks SXXP, -1.55% languished, while Asia ADOW, -0.10% finished mostly higher.

The buzz

Beyond Meat BYND, -9.74%  was the talk of markets after reporting better than expected sales, and then announcing a big stock sale of 3.25 million shares (mostly from stockholders, so it won’t get much in the way of proceeds.) Whether you think the valuation is insane or not, good luck shorting it — as of Monday, shares were commanding a borrow fee of 135.9%, rising to 150% for new borrows, according to analytics firm S3 Partners.

Capital One COF, -7.45%  could see pressure as the bank announced a massive hack of 100 million customers. Related:Everything you need to know about data breaches but were afraid to ask

U.S. and Chinese negotiators are due to restart trade talks in Shanghai, the first time negotiators have met since Trump said China would probably wait until after the U.S. election to strike a deal. Possibly coincidentally, Huawei said its sales rose even accounting for the U.S. blacklisting it.

Data released by the Commerce Department showed the weakest rise in consumer spending in four months in June, alongside scant inflation of just 1.4% over 12 months, well below the Fed’s 2% target.

On the earnings front, pharmaceutical giant Merck MRK, +1.45%  beat earnings estimates, and rival Eli Lilly LLY, -0.10%  raised its earnings guidance. After the close, Apple AAPL, -1.07%  reports results. Preview: It looks like 2016 again for Apple, and that is not a good thing

The chart

If you want to understand why the Federal Reserve will be cutting interest rates despite a decent economy at home, consider this chart. FactSet Research looked at earnings growth for S&P 500 components that have reported second-quarter earnings, and broke them out by companies that generate more than 50% of sales in the U.S. versus those that generate more than 50% of sales outside the United States.

No surprise — earnings are hammered for those reliant on overseas money, but they’re holding up for companies that generate sales stateside.

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https://www.marketwatch.com/story/theres-a-generational-shift-in-the-feds-thinking-and-heres-what-it-means-for-stocks-2019-07-30

2019-07-30 13:44:00Z
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Merck shares jump after earnings and revenue smash Wall Street estimates - CNBC

Merck shares jumped more than 3% on Tuesday after the pharmaceutical giant reported second-quarter earnings and revenue that easily beat Wall Street's expectations.

The company also narrowed its earnings and revenue forecast for the year.

Here's how the company did compared with what Wall Street expected:

  • Earnings: $1.30 per share vs. $1.16 per share forecast by Refinitiv
  • Revenue: $11.76 billion vs. $10.96 billion forecast by Refinitiv

The company expects full-year earnings per share between $4.84 and $4.94 versus the $4.75 a share Wall Street expects. It sees 2019 revenue coming between $45.2 billion and $46.2 billion. Wall Street was expecting revenue of $44.74 billion this year. Merck said the reduction in the earnings range reflects the inclusion of a charge of about $1.1 billion related to the acquisition of biotech firm Peloton Therapeutics, announced in May.

"Our science-led strategy and execution across our key growth pillars have driven another quarter of accelerating revenue growth with strength across our global portfolio," Merck Chairman and CEO Ken Frazier said in the earnings release.

Merck said sales of Keytruda immunotherapy surged 58% in the quarter to $2.6 billion. Keytruda, which boosts the immune system to attack cancer, has driven growth for Merck and put pressure on Bristol-Myers Squibb's rival drug Opdivo.

Sales of Merck's Gardasil vaccine to prevent certain types of cancer were up 45.7% to $886 million. Sales of vaccines to children, which includes the company's MMR vaccine for measles, jumped 58% to $675 million.

The financial results come as the entire pharmaceutical market struggles amid scrutiny from the White House and Congress to lower prescription drugs costs. The SPDR S&P Pharmaceuticals XPH, an ETF that tracks the pharma industry's biggest companies, has increased roughly 3% year to date as of Monday's close, significantly lagging the S&P 500's 20% rise over the same time period.

This is a developing story. Please check back for updates.

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https://www.cnbc.com/2019/07/30/merck-q2-2019-earnings.html

2019-07-30 11:43:48Z
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Worried about the Capital One hack? Here's what to do - CNN

Approximately 100 million people in the United States and 6 million more in Canada are affected, the company said, with about 140,000 Social Security numbers, 1 million Canadian Social Insurance numbers and 80,000 bank account numbers compromised.
If you're a Capital One (COF) customer worried about your data, there are immediate steps you can take to safeguard your personal information, experts say.
Here's what you should do.

Don't panic

First off, "get ready to spend some time and energy," to make sure everything's in order, said Erica Sandberg, a consumer finance expert based in San Francisco.
The bank says it will notify everyone who was affected by the breach, and offer them free credit monitoring and identity protection services.
Take advantage of those services.

Check your accounts now

Look over your credit card and banking statements, and report any suspicious activity to the bank as soon as possible.
"If you find suspicious activity on your credit card, banks like Capital One allow you to freeze your card so that purchases can no longer be made," said Sara Rathner, a credit card expert at personal finance website NerdWallet.
"You can do this easily on the Capital One app or online."
Capital One disclosed a major data breach on Monday that affected over 100 million people.
Some experts suggest being extra cautious to avoid potential future hacks.
"Change your passwords on all accounts," said Sandberg. "Yes, again."

Freeze your credit

Taking this step means that no one will be able to access your credit reports without your permission. In other words, if someone tries to take out a loan in your name, banks can't review your report so they won't authorize the credit.
"This can be done for free online through each of the three main credit bureaus: Experian, Equifax [and] TransUnion," said Rathner.
Just be aware that it could lead to inconveniences, too.
"You can unfreeze it for your own applications but there will be a short delay. If you're buying a home, vehicle, or applying for a loan or credit card, give yourself time to work on this," said Sandberg.
"A lender or business won't be able to gain entry to your credit file until you unfreeze it."

Stay vigilant

Cybersecurity attacks happen all the time, but there are some best practices that could help protect your information in the future.
The key is staying vigilant, experts say.
One way to do that is to sign up for a credit monitoring service, if you're not offered one by the bank and are still worried.
Equifax will pay up to $700 million over its data breach. Here's how to claim your money
You could also check your credit reports yourself to make sure fraudulent accounts haven't been opened in your name — and flag any reported balances that don't match up to your statements, said Rathner. Do this at least once every quarter.
Another option is to request notifications about activity on your accounts from banks and other service providers. "If the companies offer activity alerts via text or email, it may make sense for you to sign up for them," writes cybersecurity giant Norton by Symantec.

Watch out for scams

"Don't respond to phone calls or emails from creditors," warns Sandberg. "Call them using the phone number you find on the legitimate website."
Also, check that you're only visiting secure sites when browsing the web. "Reputable sites begin with https://. The "s" is key," says Norton by Symantec. "This is especially important when entering credit card or other personal information."
The extreme ways people protect themselves from hacks
Lastly: Remember this could happen to anyone, anywhere.
"There are countless hacks going on all the time. We just don't hear about them because they're smaller, and the lenders and security teams tend to catch them before damage is done," said Sandberg.
"I'm a Capital One cardholder and will be doing all of this."

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https://www.cnn.com/2019/07/30/tech/data-breach-capital-one-hack/index.html

2019-07-30 11:20:00Z
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Procter & Gamble shares up on earnings beat - CNBC

Procter & Gamble's Joy brand dishwashing liquid is arranged for a photograph in Tiskilwa, Illinois.

Daniel Acker | Bloomberg | Getty Images

Procter & Gamble on Tuesday topped analysts' estimates for its quarterly earnings and revenue and released an optimistic outlook for its next fiscal year.

Shares of the company rose 4% in premarket trading.

Here's what the company reported compared with what Wall Street was expecting, based on a survey of analysts by Refinitiv:

  • Earnings per share: $1.10, adjusted, vs. $1.05 expected
  • Revenue: $17.09 billion vs. $16.86 billion expected

The consumer products giant reported a fiscal fourth-quarter net loss of $5.24 billion, or $2.12 per share, compared with net income of $1.89 billion, or 72 cents per share, a year earlier. P&G said that the primary driver of the loss during the quarter ended June 30 was an $8 billion charge for accounting adjustments to the carrying values of its Gillette Shave Care business.

Excluding items, P&G earned $1.10 per share, beating the $1.05 per share expected by analysts surveyed by Refinitiv.

Net sales rose 4% to $17.09 billion, topping expectations of $16.86 billion.

The Cincinnati, Ohio-based company said that it expects fiscal 2020 revenue growth in the range of 3% to 4%. This includes a slight negative impact from foreign currency. Wall Street was forecasting fiscal 2020 revenue of $69.76 billion, up 3.5% from fiscal 2019.

It also expects adjusted earnings per share to increase by 4% to 9%. P&G said that its current forecast for commodities, foreign currency, transportation and tariffs is expected to result in a "modest net benefit" to earnings growth in fiscal 2020. Analysts were estimating that the company's adjusted earnings next fiscal year would rise 5.1% to $4.75 per share.

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https://www.cnbc.com/2019/07/30/procter-and-gamble-q4-2019-earnings.html

2019-07-30 10:52:16Z
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Mortgage Rates Were Falling Before Fed Signaled Rate Cut - The Wall Street Journal

Mortgages accounted for two-thirds of the $13.67 trillion in U.S. household debt in the first quarter, according to the New York Fed. A house for sale in Miami. Photo: Lynne Sladky/Associated Press
By
Paul Kiernan

WASHINGTON—The Federal Reserve is prepared to cut interest rates this week for the first time since 2008, but the biggest source of debt for U.S. consumers—mortgages—has been getting cheaper since late last year.

Mortgage rates have fallen recently to the lowest levels since late 2016, tracking a broader slide in U.S. Treasury yields. The average rate on a 30-year, fixed-rate mortgage was 3.75% last week, down from 4.94% in November, according to Freddie Mac .

“The most significant impact of an expected Fed rate cut is already upon us,” said Greg McBride, chief financial analyst at Bankrate.com, referring to the drop in mortgage rates.

The decline contrasts with trends in other consumer rates since the Fed last tweaked monetary policy in December by raising its benchmark federal-funds rate by a quarter-percentage point to a range between 2.25% and 2.5%.

The cost of auto loans, which rose only modestly as the Fed tightened policy from 2015 through last year, has fallen less than mortgage rates since December. The average rate on a five-year, new-car loan was 4.72% last week, down from 4.93% in mid-December.

Consumer rates that tend to more closely hew to Fed policy decisions rose in the weeks after its December rate increase, and have remained mostly steady since. These include the average rate on variable credit-card debt, which was 17.85% last week, up from 17.6% in December, and the average rate for a home-equity line of credit, which was 6.74% last week, up from 6.27% in December, according to Bankrate.com.

“The big change has been in mortgage rates,” said Tendayi Kapfidze, chief economist at LendingTree.

While the decline in mortgage rates hasn’t done much to lift U.S. home sales from their slump, it has important implications for homeowners, buyers and the broader U.S. economy. Mortgages accounted for two-thirds of the $13.67 trillion in U.S. household debt in the first quarter, according to the New York Fed.

Market Talk

The Fed’s expected interest-rate cut this week isn’t likely to provide much impetus to U.S. consumers. Why? Rates on the biggest source of household debt—mortgages—have already been falling since late last year. The average 30-year, fixed-rate mortgage has fallen to 3.75% as of last week from 4.94% in November, tracking a broader decline in 10-year Treasurys. Rates on debt that more closely follow the fed-funds rate, such credit cards and home equity lines of credit, can be expected to fall after the Fed’s expected move. But since consumers are already doing fine, economists say that wouldn’t make a huge difference. paul.kiernan@wsj.com

For home buyers or owners looking to refinance their mortgages, the lower rates could easily save thousands of dollars over the life of a loan or enable them to purchase a bigger house than they could have afforded in December. The decline in mortgage rates since then would shave $175 off the monthly payment on a $250,000, 30-year loan.

“The interest rate is certainly appealing,” said Kay Spiva, a realtor in Abilene, Texas, where a growing population has helped the local housing market buck the national trend. “We’ve been strong to start with, and if the interest rates go down, I can only see that continuing.”

Because they are typically paid off over decades, mortgage rates are more correlated with 10-year Treasury notes than with the short-term rates controlled by the Fed.

But in recent months, 10-year yields have responded to many of the same factors that have convinced Fed policy makers to lower interest rates at their policy meeting Tuesday and Wednesday.

Concerns about Brexit, rising trade tensions and slowing economic growth in Asia and Europe have prompted several central banks around the world to ease monetary policy. Negative interest rates outside the U.S., combined with expectations of weaker economic growth and soft inflation have weighed on long-dated Treasury yields.

Fed officials were prepared to cut rates by a quarter-percentage point after their two-day policy meeting concludes Wednesday. While such a move may or may not pull mortgage rates any lower, it could eventually filter into shorter-term rates such as credit cards.

But economists say the overall impact of a Fed rate cut on U.S. consumers is likely to be muted.

More

In part, that’s because the two categories of household debt that have grown the most during the current expansion—student and auto loans—tend to have fixed rates that don’t move in lockstep with the fed-funds rate, economists at Wells Fargo said in a research note this week. Adjustable-rate mortgages and credit-card debt have shrunk, they noted.

It’s also because consumers were already doing fine at a time of low unemployment, rising wages and muted inflation.

Consumer spending grew at an inflation-adjusted, annualized pace of 4.3% in the second quarter from the previous three months, the Commerce Department said Friday, underpinning broader economic growth.

“Consumers are showing their resiliency,” said Jack Kleinhenz, chief economist at the National Retail Federation. “The expected cut is not so much from a domestic standpoint but from a global standpoint, in support of the global expansion, which then has feedback effects into the United States.”

Write to Paul Kiernan at paul.kiernan@wsj.com

Share Your Thoughts

How have changes in consumer rates affected you? Join the conversation below.

Copyright ©2019 Dow Jones & Company, Inc. All Rights Reserved. 87990cbe856818d5eddac44c7b1cdeb8

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https://www.wsj.com/articles/mortgage-rates-were-falling-before-fed-signaled-rate-cut-11564479004

2019-07-30 09:30:00Z
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Huawei is somehow setting domestic records in a time of great uncertainty and market stagnation - PhoneArena

Although details surrounding Trump's decision to loosen restrictions imposed on Huawei's business ties with US companies remain unclear, the Chinese tech giant seems to be largely out of the woods, betting the farm on Android and essentially admitting the Hongmeng project was a well-orchestrated ruse while having reason to expect solid overall sales results around the world this year.

That's not only more than twice the market share of Oppo, which ranked second in its own homeland between April and June, but also the largest slice of the Chinese pie eaten up by any vendor in no less than eight years. That's right, Huawei has done something no company has been able to do since 2011, and this incredible feat came during not just a time of great uncertainty for the brand, but also general industry stagnation.

China's smartphone sales total, mind you, declined from 103.6 million units in Q2 2018 to 97.6 mil this previous quarter, which meant every top five vendor except Huawei reported substantial drops ranging from 14 to 20 percent. In fifth place, Apple took the smallest hit, nevertheless declining to a worryingly tiny 5.8 percent share, while Oppo, Vivo, and Xiaomi experienced similar slumps, having to settle for 17.9, 17.1, and 11.5 percent market shares respectively.

As far as actual shipment figures are concerned, Huawei's 37.3 million units represent an astounding progress of 31 percent from 28.5 million in Q2 2018, with Oppo and Vivo each selling a little over 17 million smartphones during the April - June 2019 timeframe, Xiaomi dropping from 14.4 to 11.5 million units, and Apple settling for only 5.7 million quarterly iPhone sales in the world's single largest market.

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https://www.phonearena.com/news/q2-2019-china-smartphone-sales-report-huawei-record-market-share_id117804

2019-07-30 10:03:51Z
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The Fed’s real message: Save the economy from Trump - POLITICO

Jerome Powell

Fed Chairman Jerome Powell continues to be the subject of criticism from President Donald Trump. | Jacquelyn Martin/AP Photo

finance

The central bank is expected to cut rates this week in part to offset President Donald Trump’s trade war.

In the case of Donald Trump vs. the U.S. Federal Reserve, the president of the United States is likely to secure a winning verdict this week.

Central bank officials are expected to cut interest rates for the first time since the global financial crisis not because Trump demanded it. Instead, they will move in part because the president’s bruising trade policy has helped fuel a global manufacturing slowdown and injected deep uncertainty into executive suites around the world.

Story Continued Below

Fed Chairman Jerome Powell won’t directly say it directly after his meetings Tuesday and Wednesday. But the central bank will reverse course at least in part to save the Trump economy from Trump.

“There is just no question that Powell has been 'Trumped' here,” said Ed Yardeni, president and chief investment strategist of Yardeni Research Inc. “Just read Powell’s comments during his recent congressional testimony and trade comes up eight times in the context of weighing on the global economy. All Trump had to do was keep up geopolitical trade uncertainty for a while and he’d get the Fed to cut rates.”

Trump continued to hammer away at the Fed in public comments and tweets on Monday, arguing that a series of rate hikes over the last three years slowed what would otherwise be a much faster economy.

“The Fed ‘raised’ way too early and way too much,” Trump tweeted. “Their quantitative tightening was another big mistake. While our Country is doing very well, the potential wealth creation that was missed, especially when measured against our debt, is staggering.”

But the data does not really support his argument. Interest rates, adjusted for inflation, remain historically low. And consumer spending, which is where higher rates might slow things down, remains the dominant engine of growth. It is on the corporate investment side — where the 2017 tax cut was supposed to unleash a wave of growth — where conditions have stalled.

The U.S. GDP report out last week showed growth slowing to a 2.1 percent pace in the second quarter from 3.1 percent in the first. Most of the gains came from consumer spending, which rose a strong 4.3 percent. Business investment declined by 0.6 percent, the first such drop since the first quarter of 2016. Exports, a key metric for Trump’s promise to reinvigorate American manufacturing, plunged by 5.2 percent and imports rose, increasing the trade deficit.

Trump administration officials say the president is taking a longer-term view of trade relationships and hopes to eventually win concessions from China on important issues including forced technology transfer and intellectual property theft.

They also contend the Fed went too far in rate hikes. National Economic Council Director Larry Kudlow said in a recent interview that the Fed should make an "insurance" cut in rates to prevent any slowdown and give the tax cuts more time to work.

Meanwhile, signs of a declining manufacturing sector in the U.S. and abroad continue to pile up. The J.P. Morgan Global Manufacturing Purchasing Managers Index, or PMI, reading recently moved into contraction territory for the first time since 2012. Of the 30 nations issuing a PMI report for June, 18 registered a contraction including China, Japan, the UK and Germany.

In the United States, the Institute for Supply Management index for manufacturing dropped for a third straight month in June to 51.7, still indicating expansion but at the weakest level since October 2016, before the trade battles began. Fresh manufacturing data for the U.S. and China will come out later this week.

Job growth in manufacturing companies has also slowed from 22,000 new jobs per month last year to 8,000 per month this year. The Fed said earlier this month that U.S. industrial production was technically in recession, meaning two straight quarters of contraction.

Powell on multiple occasions has cited concerns that trade fights were hurting growth and denting confidence, while being careful not to antagonize Trump directly.

“What we’re seeing is business fixed investment … it’s really slowed down now,” Powell said in congressional testimony earlier this month. “There’s no perfect way to identify these things, but we do connect that to trade policy uncertainty and also uncertainty on global growth, weaker manufacturing around the world.”

The Fed has made clear that trade tensions loom large in its worries about risks to the economy. Company investments in long-term projects like factories and technology picked up during the first half of 2018 in the wake of corporate tax cuts, but those investments have faded much faster than expected.

The central bank’s business contacts tell the Fed they aren’t sure where to put their money because they’re not sure where tariffs might show up next.

“If you’re a manufacturing company in our economy, of any size, chances are pretty good that your supply chain goes across national borders,” Powell said in his testimony. “That supply chain is really part of how you do business, and you just assume that it’s working and you can focus on your clients. When your supply chain is called into question — we hear this a lot from businesses — when it’s called into question, you pull back.”

Powell said trade uncertainty “spiked” in May. Though he didn’t explain why, that coincides with the president’s threat to put tariffs on Mexico over the ongoing migration crisis. Trump's tweet on Mexico spooked investors because it threw the future of the renegotiated NAFTA deal into doubt and raised the possibility of retaliatory tariffs from the U.S.’s third-largest trading partner.

The central bank has also quantified the direct impacts of the trade battles, though those are less a factor in the growth picture. In its semiannual monetary policy report to Congress earlier this month, the central bank estimated that new tariffs might have lowered U.S. imports by roughly $70 billion.

The impact of Trump’s trade wars are starting to weighing on some corporate earnings like those of equipment maker Caterpillar, Apple and chip-maker Nvidia, among others. Economists fear it could get worse.

“Trump’s trade policies are starting to show up in corporate balance sheets,” said Joseph Brusuelas, chief economist at consulting firm RSM. “In the third quarter you’d expect to see profit-margin compression across a wider array of earnings reports and the consumer will feel it, which could cause a pullback in consumption. That’s where the problem is for the White House.”

Businesses are also becoming less bullish about future growth, in part because they are uncertain how they will be impacted by tariff policy. The National Association for Business Economics on Monday reported that in its latest survey, members said they believed growth will slow and corporate sales and profits will decline this year.

Inside the survey, 56 percent of goods-producing firms said they had altered supply chains in response to trade policy and 38 percent said they’d delayed investments.

The Fed will likely step into this slowdown scenario on Wednesday with a rate cut of at least a quarter point and perhaps as much as a half a point. Trump already predicted on Monday that whatever it does will not be enough for him.

Economists, meanwhile, question whether a Fed rate cut will do very much to alter the economic picture. Part of the Fed’s rationale for a cut is that the inflation central banks feared would arrive with the jobless rate at historic lows has not arrived. In that sense, the pivot to cuts will be a big win for progressives who have long argued for Powell and the central bank to allow the economy to run hotter.

But with borrowing costs still very low, it’s not likely to change underlying corporate behavior, which may only respond to a more certain policy environment.

“The biggest risk to growth for the economy is the uncertainty as to where economic policy is headed,” said Steven Ricchiuto, chief U.S. economist at Mizuho Securities USA. “And it’s not as if the Fed can fix some of these problems related to uncertainty caused by the administration and these global-related issues.”

There is also some fear that the Fed cutting interest rates will keep investors searching for investments that offer a higher rate of return. These so called “high yield” investments include lower-grade corporate debt and high-risk loans that have risen in volume in recent years and could create significant problems if a sharper slowdown forces defaults.

“The lack of credit is not the problem in the global economy,” Yardeni said. “Central bankers are convinced they can fix problems, when in fact they can’t. And the reach for yield is starting to get borderline insane with the lack of covenants in bonds and loans. I’m starting to get a little feeling of deja vu all over again.”

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https://www.politico.com/story/2019/07/30/powell-trump-trade-interest-rates-1625961

2019-07-30 09:05:00Z
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