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Sun, 28th May 2017

Anirudh Sethi Report

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Archives of “stock” Tag

Amazon shares hit record high after beating on earnings. Microsoft down, Google up.

Amazon beats again

  • Revenue $35.7B versus $35.31B expected
  • Earnings $1.48 per share versus $1.13 expected
  • Operating income $1 vs guidance in $250m to $900m range

Shares up to $960 from $917 at the close.

That likely makes Jeff Bezos the world’s second-richest man, trailing only Bill Gates.

Microsoft, meanwhile, only met estimates. Shares are down to $65.85 from $68.31 at the close.  Google is up to $900 from $873 on a beat. Intel down to $36.02 from $37.37.

Overnight US Market :Indices can’t hold onto gains. End marginally lower.

S&P down -0.05%. Nasdaq unchanged.  Dow -0.10%

The markets got the broad brush strokes of Pres. Trumps tax plan from the team of Mnuchin and Cohn.  The stock market was not all that impressed (or the 2x +200 days already had a lot priced in).
Anyway, the US stocks was able to still stay positive until the very end when the prices dipped into the red.
At the end of the day:
  • The S&P ended down -1.16 points or -0.05% to 2387.45. The high for the day toyed with the 2400 level (high reached 2398.16). The low came in at 2386.76.
  • The Dow fell by -21.03 points or -0.10%. The high extended to 21070. The low reached 20972.27. The index closed at 20975.09.
  • The Nasdaq is ending the day down -0.265 points, unchanged on the day. The high extended to 6040.89. The low 6021.719. The close 6025.227.

FTSE wipes out the year’s gains at the close

European stock market close 19 April 2017

  • FTSE-0.3 %
  • Cac +0.4%
  • Dax +0.2%
  • Ibex +1.2%
  • FTSE Mib +2.0%

European bonds

  • Italy 2.29% +3bp
  • Spain 1.68% +1bp
  • Portugal 3.82% +1bp
  • Germany 0.205% +5bp
  • Greece 6.70% -9bp

The damage was done yesterday to the FTSE but today it’s seen red YTD. The majority of that is due to the rise in the quid affecting it’s value.

SEC targets fake stock news on financial websites

The U.S. Securities and Exchange Commission is targeting stock rampers and scammers

And not too soon …
  • SEC to focus on stock promotion schemes “in which writers were secretly paid to post hundreds of bullish articles about public companies on financial websites”
  • Twenty-seven individuals and entities have been charged with misleading investors
    SEC says it found more than 450 problem articles

Citi: Central Banks “Took Over” Markets In 2009; In December The “Unwind” Begins

Citigroup’s crack trio of credit analysts, Matt King, Stephen Antczak, and Hans Lorenzen, best known for their relentless, Austrian, at times “Zero Hedge-esque” attacks on the Fed, and persistent accusations central banks distort markets, all summarized best in the following Citi chart…

… have come out of hibernation, to dicuss what comes next for various asset classes in the context of the upcoming paradigm shift in central bank posture.

In a note released by the group’s credit team on March 27, Lorenzen writes that credit’s “infatuation with equities is coming to an end.”

 What do credit traders look at when they mark their books? Well, these days it is fair to say that they have more than one eye on the equity market.

Understandable: after all, as the FOMC Minutes revealed last week, even the Fed now openly admits its policy is directly in response to stock prices.

As the credit economist points out, “statistically, over the last couple of years both markets have been influencing (“Granger causing”) each other. But considering the relative size, depth and liquidity of (not to mention the resources dedicated to) the equity market, we’d argue that more often than not, the asset class taking the passenger seat is credit. Yet the relationship was not always so cosy.  Over the long run, the correlation in recent years is actually unusual. In the two decades before the Great Financial Crisis, three-month correlations between US credit returns and the S&P 500 returns tended to oscillate sharply and only barely managed to stay positive over the long run (Figure 3).”

China Starts 2017 With Highest Number Of Corporate Defaults In History

Back in October 2015, roughly around the bottom of the recent commodity cycle, we reported a stunning statistic: more than half of Chinese companies did not generate enough cash flow to even cover the interest on their cash flow, and as we concluded “it is safe to assume that up to two-third of Chinese commodity companies are now at imminent danger of default, as they can’t even generate the cash to pay down the interest on their debt, let alone fund repayments.

While commodity prices have staged a powerful bounce over the past 18 months, and despite the government’s powerful drive to avoid major defaults over concerns about resulting mass unemployment, the inevitable default wave has finally arrived, and as Bloomberg reports overnight, “China’s deleveraging push has racked up the most defaults on corporate bonds ever for a first quarter, and the identity of the debtors is pretty revealing.”

 Seven companies have defaulted on a total of nine bonds onshore so far in 2017, versus 29 for all of last year, according to data compiled by Bloomberg. In a sign of the struggles facing China’s old economic model, most of them depend on heavy industry and construction. While it’s still far from a crisis point, the defaults shows how policy makers’ efforts to reduce the liquidity that had propelled the bond market until late last year is exacting casualties.

Cited by Bloomberg, Liu Dongliang, a senior analyst at China Merchants Bank Co. in Shenzhen said that “weak companies can’t sell bonds, which adds to the pressure on their cash flow.” As a result, “the pace of defaults will continue. It will be even more difficult for weak companies to sell bonds because corporate bond yields may rise further — the current yield premium doesn’t provide enough protection against credit risks.”

As discussed in recent months, the Chinese central bank has been curbing leverage in money markets leading to a spike in borrowing costs…

The Last Two Times After The Government Reported Data Like This, Stocks Crashed

Wall Street claims surge in stocks is based on rising corporate earnings.

So, let’s see. The Commerce Department’s Bureau of Economic Analysis released its third estimate of fourth quarter 2016 GDP and corporate profits today. This second revision of its first estimate of January 27 contains more data and is considered a more accurate approximation of what happened in the vast, devilishly hard-to-quantify US economy.

In terms of GDP, the fourth quarter was revised up slightly, but there were adjustments for prior quarters, and overall GDP growth for the year 2016 remained at a miserably low 1.6%. We’ve come to call this the “stall speed.” It’s difficult for the US economy to stay aloft at this slow speed. As Q4 gutted any hopes for a strong finish, GDP growth in 2016 matched the worst year since the Great Recession.

And corporate profits, despite a stock market that has been surging for years, are even worse. A lot worse. They’ve declined for years. In fact, they declined for years during the prior two stock market bubbles, the dotcom bubble and the pre-Financial-Crisis bubble. Both ended in crashes.

However, Wall Street remains assiduously silent on this.

China’s Largest Dairy Operator Suddenly Crashes 90% To Record Low, Muddy Waters Says “Worth Close To Zero”

In December 2016, Muddy Waters’ Carson Block said China’s largest dairy farm operator, Hong-Kong listed China Huishan Dairy Holdings Co., is “worth close to zero” and questioned its profitability in a report. Today, with no catalyst, it suddenly almost is. The stock collapsed over 90% in minutes to a record low.

The sudden crash wiped out about $4.2 billion in market value in the stock, which is a member of the MSCI China Index.

Overnight US Market :Dow closed -238 points.(YTD is up 4.58% )

It has been 109 days since the market moved 1% either way.  All indices down over 1% today.

The US stock market hit the skids today on concerns about the Trump agenda for healthcare, taxes, regulation…you name it.
In the major indices:
  • The Nasdaq traded to new all time highs at the start of the day but ended the day down -1.83%. Ouch.
  • The S&P index fell by -1.24%. The high reached 2381.93. The low extended to 2341.90. The all time high for the S&P reached 2400.
  • The Dow fell by -1.14 points to 20667. It peaked above 21000.
All three indices are now down on the month with the :
  • S&P now down -0.83%,
  • The Dow down -0.69% and
  • The Nasdaq down -0.54%.
For the year, the indices are still higher so all is not lost.  Looking at the major indices, the:
  • Nasdaq up 7.63%
  • S&P up 4.70%
  • The Dow up 4.58%

Deutsche Bank Prices €8 Billion Stock Offering At 35% Discount

Two weeks after Deutsche Bank first announced it would raise €8 billion in capital as part of a comprehensive restructuring, the German lender on Sunday announced the terms of its upcoming massive dilution.

In a nutshell, Deutsche Bank said it will raise €8 billion ($8.6 billion) by selling stock at a 35% discount to Friday’s closing price in a rights offering. The TERP (Theoretical ex-right price) of €15.79, is based on the last closing price of €17.86. The transaction subscription price is €11.65. The Subscription price represents a 26% discount to TERP based on the March 17 closing price.

The mechanics of the offering: Deutsche Bank will issue 687.5 million new shares at €11.65 apiece, it said in a statement Sunday, in-line with the firm’s March 5 announcement on the planned sale. The offer compares with the stock’s closing price of €17.86 on Friday, and is almost 41% lower than where the stock traded when Bloomberg first broke the news of the imminent capital raising on March 3.

As part of the rights offering, DB shareholders may subscribe for 1 new ordinary share for every 2 existing shares held. The subscription rights expected to be traded on German exchanges March 21-April 4, and on NYSE March 21-31. As Bloomberg adds, the reference price for rights is expected to be approximately €2.07.