Jerome Powell led Federal Reserve hiked the benchmark lending rate by a quarter-percentage point and projected a steeper path of rate hikes
Mutual Fund Report for PRFDX
Mutual Fund Report for PRJPX
Today Tesla shareholders are meeting to decide one thing: is Elon Musk worth a $2.6 billion compensation package? The Tesla board will seek shareholder approval to approve the Musk comp package — the largest-ever of its kind — underscoring the company’s outsize ambitions and how intimately connected its future success is to Musk. And as Bloomberg notes, "if the plan's accepted and he turns Tesla into both a mass-market automaker and one of the world’s largest companies, he'll become perhaps the richest man on the planet." Or perhaps not, as one major shareholder has already said no. According to Reuters, CalSTRS is opposing the Musk compensation package, with Anne Sheehan, Director of Corporate Governance, sayind that "given the size of the award, we believe the potential dilution to shareholders is just too great." adding that "we have concerns about the lack of focus on profitability for the company, and the one profitability metric that is used excludes the cost of stock-based compensation." The question is will others follow? Votes on the compensation plan will be cast at a special shareholder meeting in Fremont, California, at 9 a.m. local time (noon ET). As Bloomberg adds, the board needs support from investors holding a majority of the shares—not counting those owned by Musk and his brother Kimbal, who’s a Tesla director—to make the award. Not surprisingly, CalSTRS is not alone: proxy advisory firms Institutional Shareholder Services Inc. and Glass Lewis & Co. have urged investors to vote against the package. Meanwhile, large shareholders Baillie Gifford & Co. and T. Rowe Price Group Inc. have signaled they're likely to support it. Additional details: Under the proposed terms, Musk would earn one-12th of the options every time Tesla hits a pair of goals: one tied to its market value and the other linked to either revenue or earnings excluding certain charges. For Musk to get all the options, Tesla would have to become worth $650 billion—more than Facebook Inc.—and produce more revenue than Procter & Gamble Co. Below Bloomberg lists some of the main pros and cons shareholders will be mulling as they cast their ballots: Pro: Investors (and Musk) might reap massive gains Tesla has said in regulatory filings that Musk’s award could yield him more than $50 billion if all goals are achieved. That’s an astronomical sum, compared to what other U.S. executives make. Still, Musk will reap gains only if shareholders do, too. Some large investors have said the package aligns with their interests, signaling they don’t mind if Musk gets wealthier, as long as they also see big returns. Con: Musk already owns about 20 percent of Tesla. Does he really need more money? More than half of Musk’s roughly $20 billion fortune is tied up in Tesla stock. That’s led some to question whether the largest award in corporate history is needed to make sure he remains focused on the business. Pro: Musk got a similar award in 2012, and it was a success About six years ago, Tesla gave the CEO a big bundle of stock options worth roughly $78 million at the time. He could realize gains from those only if Tesla met certain product development milestones and drastically increased its market value, and it has: Tesla celebrated delivery of its 250,000th car in the third quarter. Tesla’s market cap has grown about 16-fold, and Musk’s award has ballooned in value to more than $1 billion. Con: The award could be hugely expensive and dilutive Large stock awards can be costly for investors in two ways: They increase a company’s expenses and they dilute the stakes of existing shareholders. If Musk is successful, Tesla's investors might feel the effects of both. Pro: It signals big ambitions It’s unlikely Tesla could hit the top market value threshold of $650 billion solely by selling electric cars. As a result, the award indicates that Musk has other ideas for the company, including transforming energy storage through utility-grade applications and the kinds of future-of-mobility plans outlined in his Master Plan, Part Deux. Con: It doesn’t show how or when Tesla will be profitable Musk’s 2012 award depended on the company successfully building and mass-producing electric cars while simultaneously growing its market value. The new grant outlines an aspiration of making Tesla one of the world’s biggest companies but without any clues about how the company will get there. The plan also doesn’t offer any indication as to when Tesla will have its first-ever profitable fiscal year. Pro: It will keep Musk close to Tesla Musk is also the CEO of Space Exploration Technologies Corp. and has embarked on several other projects of late, including tunnel digger Boring Co. and a brain-computer interface startup called Neuralink. That’s led to concerns he’s looking to lessen his involvement with Tesla. But the new award binds him to the company for a decade, requiring him to remain either CEO or executive chairman and chief product officer. Con: It underscores Tesla’s reliance on Musk If Musk were to leave, it would be a huge blow, the company has repeatedly told investors in regulatory filings. The big award further emphasizes how integral the board thinks the CEO is to Tesla’s future. Several top executives have left the company lately, calling into question what Tesla would do if Musk decided to do something else. Pro: It’s the only pay he’s gonna get The big award aside, Tesla’s board has said Musk won’t receive any other compensation to underscore that he’ll win only if shareholders do, too. The company is required by California state law to pay him a minimum-wage salary that adds up to roughly $37,000 per year, but Musk has never accepted it.
Mutual Fund Report for PRSIX
T. Rowe Price's (TROW) assets under management decrease from the prior month due to lower sponsored U.S. mutual funds and other investment assets.
Invesco (IVZ) reported a decrease in its February 2018 preliminary AUM compared with the prior month.
Legg Mason (LM) reports decline in assets under management (AUM) on decrease in equity and fixed income AUM.
Authored by Lance Roberts via RealInvestmentAdvice.com, Let me start out by saying I hate market comparisons. While history certainly does “rhyme,” they are never the same. This is especially the case when it comes to the financial markets. Chart patterns may align from time to time, but such is more a function of pattern-fitting than anything else. However, when it comes to fundamentals, standard-deviations, extensions, etc., it is a different story. A recent article by Ryan Vlastelica brought this to mind. “While the strategy of investing in internet-related companies will likely always be first associated with the dot-com era, the long-lived bull market has proved to be just as strong a period for a sector that has influenced nearly every aspect of the economy. Friday marks the ninth anniversary of the financial crisis bottom, and since that period—by one measure, the start of the current bull market—internet stocks have been among the best performers on Wall Street.” “’The current tech rally is possibly the greatest investment story ever told,’ wrote Vincent Deluard, global macro strategist at INTL FCStone, who was speaking about the sector broadly, and not these ETFs in particular. He noted that the MSCI World Technology Index has added $5.7 trillion in market capitalization since February 2009, ‘when the entire sector amounted to just $1.5 trillion.’” Since Ryan was probably in elementary school during the “Dot.com” era, and many current fund managers weren’t managing money either, it is easy to dismiss “history” under a “this time is different” scenario. Even the ETF’s used as an example of the “this time is different” scenario didn’t even exist prior to the “dot.com bubble” (The QQQ didn’t come into existence until 1999) Unfortunately, while the names of the companies may have changed, the current “dot.com boom” is likely more than just a “rhyme” with the past. Investors Once Again Being Misled From a fundamental basis, there is a difference between today and the “Dot.com days of yore.” In 1999, “dot.com” companies were all bunched together and few actually made money. Fast forward to 2018, and the division between an “internet company” and every other company is now invisible. In fact, companies like Apple and Amazon are no longer even classified as “technology” companies but rather consumer goods companies. But nonetheless, fundamentals don’t discriminate between classifications, and once again investors are paying excessively high prices for companies that generate very little, if any, profit. Just after the “dot.com” bust, I wrote a valuation article quoting Scott McNeely, who was the CEO of Sun Microsystems at the time. At its peak, the company was trading at 10x its sales. (Price-to-Sales ratio) In a Bloomberg interview Scott made the following point. “At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees.That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking? How many of the following “dot.com” companies do you currently own which are currently carrying price-to-sales in excess of 10x? (Price-to-Sales above 2x becomes expensive. If I included companies with P/S of 5x or more, the list was just too expansive for this post.) As noted above, there were only 3-ETF’s that existed just prior to the “dot.com” bubble -SPY, QQQ, and DIA. In order to do some better comparative analysis, I had to dig to find a technology-based mutual fund that existed back in 1990. Not surprisingly, there were very few but the T. Rowe Price Science and Technology (PRSCX) fund fit the bill and tracks the technology index very closely. When we compare the fund to Shiller’s CAPE ratio, not surprisingly, since Technology makes up a quarter of the S&P 500 index, there is a high correlation between Technology and overall market valuation expansion and contraction. As was the case in 1998-2000, the fund exploded higher as exuberance over the transformation of the world was occurring before our eyes. Investors globally were willing to pay “any price” to “get in on the action.” Currently, investors are once again chasing returns in the “FANG” stocks with little regard to underlying value. The near vertical ramp in the fund is reminiscent of the late 1990’s as valuations continue to escalate higher. The chart below shows this a bit more clearly. It compares the fund to both the RSI (relative strength index) and inflation-adjusted reported earnings of the S&P 500 on a QUARTERLY basis. Using quarterly data smooths volatility of these measures over time. A couple of interesting points arise. The RSI of the market is as overbought today as it was leading up to the “Dot.com” crash and more overbought today than just before the “financial crisis.” Despite massive stock buybacks and cost reductions through wage and employment suppression, reported earnings have only grown by a little more than $11 / share since the peak of the market in 2007. In other words, despite the ongoing bullish commentary about how great earnings are, they have actually only achieved a 1.14% annualized rate of growth. Of course, investors have disregarded the lack of real earnings growth. The valuation surge is also shown in the analysis below. I have taken the price of the fund and divided by the inflation-adjusted reported earnings of the S&P 500, or a modified “P/E” ratio. While not a strictly apples-to-apples comparison, the point is that since Technology makes up roughly 25% of the market, it is a big driver of the “P” and not a huge contributor to the “E.” Again, on this basis, investors are once again paying a high price for poor fundamental quality in the “hope” that someday the fundamentals will catch up with the price. It has never been the case, but one can always “hope.” Is The Dot.Com Bubble Back? Whether you believe there is a “bubble” in the Technology stocks, or the markets, is really not important. There are plenty of arguments for both sides. At the peak of every bull market in history, there was no one claiming that a crash was imminent. It was always the contrary with market pundits waging war against those nagging naysayers of the bullish mantra that “stocks have reached a permanently high plateau” or “this is a new secular bull market.” (Here is why it isn’t.) Yet, in the end, it was something unexpected, unknown or simply dismissed that devastated investors. This is why the discussion of “this time is not like the last time” is largely irrelevant. Individuals no longer “invest” to become a “shareholder” in a publicly traded business. The “quaint concept” of “valuations” died with the mainstreaming of investing during the 1990’s as the “Wall Street Casino” opened for business. Today, investors only think in terms of speculating on “electronically traded bits of paper” in the hopes the value will rise over time. The problem, of course, is they are never told when to “sell” to capture that valuation increase which is the most critical aspect of the investment process. Instead, individuals continue to “bet” the “greater fool” will always appear. For now, the “bullish case” remains alive and well. The media will go on berating those heretics who dare to point out the risks that prevail, but the one simple truth is “this time is indeed different.” “When the crash ultimately comes the reasons will be different than they were in the past – only the outcome will remain same.” Eventually, like all amateur gamblers in the Las Vegas casinos, the ride is a “blast while it lasts” but in the end, the “house always wins.”
Franklin's (BEN) preliminary assets under management (AUM) of $744.9 billion for February 2018 were down 3.4% from the prior month, impacted by net market losses and outflows.
Mutual Fund Report for PRFDX
The ECB raises its 2018 growth view to a healthy 2.4%, from 2.3% estimated last December
Below we share with you three top-ranked mid-cap growth mutual funds. Each has earned a Zacks Mutual Fund Rank #1 (Strong Buy)
The Zacks Analyst Blog Highlights: 3M, Walmart, Kimberly-Clark, Automatic Data Processing and T. Rowe Price Group
The Zacks Analyst Blog Highlights: 3M, Walmart, Kimberly-Clark, Automatic Data Processing and T. Rowe Price Group
(Bloomberg) -- Два американских облигационных фонда, выделяющиеся среди конкурентов своими доходами, утверждают, что до завершения падения доллара еще далеко. В чем они расходятся во мнениях, так это в том, какие валюты будут укрепляться.Валютные стратегии T. Rowe Price International Bond Fund и BrandywineGLOBAL Global Opportunities Bond Fund...
As if markets did not have enough to worry about with this weekend's Italian election and SPD "grand coalition" referendum, overnight stocks were slammed by growing worries of global trade war as well as a warning from BOJ governor Kuroda that Japan's QE may be coming to an end. As noted earlier, Kuroda hint that the BOJ will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019 sent the USDJPY tumbling, pushing it to the lowest level since November 2016. Kuroda's statement slammed Japan stocks, with the Topix Index deepening losses while Japanese bond yields climbed. As Bloomberg noted, Kuroda’s comments were seen as further evidence that the era of massive central-bank stimulus is coming to an end. Earlier this week, Fed chair Jerome Powell opened the door to speculation that the central bank may quicken the pace of monetary tightening, a move investors worry could derail economic expansion. A few hours later, just before 6am ET, a tweet from Donald Trump claiming that "trade wars are good, and easy to win" added to the pain, sending the dollar and S&P futures tumbling to session lows, as the market gradually realizes that Trump may not be backing down. The result this morning is a sea in global equity markets... ... while S&P futures are currently trading near sessions lows, with the Dow set to open about 200 points lower and the E-mini trading around 2,660, over 100 points below Tuesday's highs. In Europe, the Stoxx Euro 600 Index dropped for a fourth day, with Germany’s DAX gauge reaching a six-month low, as carmakers slumped; 85% of the Stoxx 600 was in the red. Industrial and auto names are the underperformers this morning over fears of production cost hikes. Noticeable laggards contain the likes of Fiat Chrysler (-4.9%), LafargeHolcim (-5.0%) ArcelorMittal (-4.0%), ThyssenKrupp (-2.8%), and Peugeot (-1.8%). DAX dropped as much as 3%, a notable laggard as investors grow cautious over Sunday’s SPD vote and as such, the index made a breach of the psychological 12000 level. Political risk is also filtering through to the FSTE MIB (-2.1%) as markets prep themselves for this weekend’s Italian election. As a result of the confluence of risk events, volatility appears to again be on the rise, with the VIX rising above 24 this morning. The VIX is up over 43% this week in anticipation of more turmoil. “We’re entering a period of turbulence,” Sebastien Page, head of asset allocation at T. Rowe Price, told Bloomberg TV from Baltimore. “So at the margin we are taking away from equities, adding both bonds and cash.” In macro, the biggest loser was the dollar, slammed by Trump's "trade wars are easy to lose" tweet even as bond yields stabilized just above 2.80%. The euro found some support amid profit taking on shorts; The yen rose versus all G-10 peers and advanced as much as 0.9% against the dollar to a 15-month high of 105.28; the yen had climbed initially on risk-off sentiment spurred by concerns over U.S. trade protectionism. The Norwegian krone rallied to a one-month high against the euro after the central bank cut its inflation target to 2% from 2.5%. The pound held steady ahead PM May’s Brexit speech later in the day In other overnight news, Special Counsel Robert Mueller is reportedly compiling a case against Russians who carried out hacking and information leaking which was intended to hurt Democrats in 2016 election. There were also reports that White House is said to be preparing to replace Trump National Security Adviser McMaster. However, NSC spokesman later stated that US President Trump labelled the story related to the departure of National Security Adviser McMaster as fake news. Over in the UK, PM May said Brexit deal must give UK control of its border, laws and money, while she added they will place ‘5 tests’ on the Brexit deal. Meanwhile, the UK Cabinet is said to be in dispute regarding text ahead of PM May's key Brexit speech, while there were also reports that UK PM May will not commit to mirroring EU regulations. Elsewhere, oil declined amid concerns about increasing U.S. crude production, while copper headed for a two-week low as most industrial metals fell. Commodity newsflow has been dominated by Trump’s announcement on import tariffs for steel and aluminium. Aluminium futures fell 0.5%, while Shanghai steel prices 5-day rally came to a halt amid fears that the tariff plan could lead to a glut. Precious metals hover around yesterday’s high as risk off flows support gold, alongside the softer USD. WTI and Brent crude futures trending lower this morning with prices dictated by the risk off sentiment. Levels to the downside for Brent which may over some support is situated at USD 63.19 (yesterday’s low) at USD 61.75. On today's calendar, Foot Locker is among a handful of companies set to report earnings. The university of Michigan sentiment is expected on the macro side. Market snapshot S&P 500 futures down 0.4% to 2,665.25 STOXX Europe 600 down 1.3% to 370.17 MXAP down 0.8% to 174.38 MXAPJ down 0.9% to 571.54 Nikkei down 2.5% to 21,181.64 Topix down 1.8% to 1,708.34 Hang Seng Index down 1.5% to 30,583.45 Shanghai Composite down 0.6% to 3,254.53 Sensex down 0.4% to 34,046.94 Australia S&P/ASX 200 down 0.7% to 5,928.90 Kospi down 1% to 2,402.16 German 10Y yield fell 3.1 bps to 0.613% Euro up 0.07% to $1.2275 Italian 10Y yield fell 2.7 bps to 1.679% Spanish 10Y yield fell 1.7 bps to 1.49% Brent Futures down 0.2% to $63.70/bbl Gold spot up 0.1% to $1,317.76 U.S. Dollar Index down 0.3% to 90.10 Bulletin Headline Summary from RanSquawk European bourses firmly in the red following the sell-off seen in Asia and Wall St. with 85% of the Stoxx 600 in the red after Trump’s aluminium and steel tariffs spooked markets The Dollar is on the backfoot again with the DXY unable to extend its recent rebound to or through 91.000 Looking ahead, highlights include Canadian GDP, Baker Hughes, BoE’s Carney and UK PM May’s Brexit speech Top Overnight News The official response in China, the world’s largest steel producer, to the announced U.S. tariffs was muted; foreign Ministry spokeswoman Hua Chunying merely said in Beijing Friday that China urges the U.S. to follow trade rules The EU will consider imposing its own “safeguard” tariffs on imports of steel and aluminum in response to President Trump’s decision to levy national security tariffs, the Financial Times reports, citing EU Trade Commissioner Cecilia Malmstrom as saying in an interview The Bank of Japan will start thinking about how to exit its massive monetary stimulus program around the fiscal year starting in April 2019, Governor Haruhiko Kuroda said Friday, marking the first time he’s provided any clear guidance on timing for normalizing policy Norway lowered the inflation target of its central bank to 2 percent from 2.5 percent, the Finance Ministry said in a statement. The government also said that inflation targeting shall be forward-looking and flexible Asian stocks were negative across the board as region followed suit from Wall St. where the majors posted their 3rd consecutive losing streak after reports of incoming Trump tariffs stoked trade war fears and amid raised prospects of 4 Fed hikes this year. The announcement by President Trump to set tariffs on aluminium and steel imports next week also resulted to a global backlash in which EU, Canada and Mexico vowed countermeasures or retaliation against the US, while the China Iron and Steel Association branded the measure as ‘stupid’. As such, ASX 200 (-0.7%), Nikkei 225 (-2.5%) and KOSPI (-1.0%) saw commodity-related pressure with steel names in Asia’s top US-bound steel exporters Japan and South Korea suffering the brunt of the impending tariffs, while heavily-exposed automakers were also reeling from the news. Hang Seng (-1.5%) and Shanghai Comp. (-0.6%) conformed to the downbeat tone, although weakness in the mainland was to a lesser extent as China was said to only export a limited amount of steel to US and after another weekly net liquidity injection by the PBoC. Finally, 10yr JGBs were initially higher with demand spurred amid a broad risk-averse tone and with the BoJ present in the market for 1yr-10yr JGBs under an unchanged Rinban operation, although pressure was later seen on comments from BoJ Governor Kuroda that they will be considering exit around fiscal 2019. PBoC injected CNY 40bln via 7-day reverse repos, CNY 30bln via 28-day reverse repos and CNY 20bln via 63-day reverse repos for a net weekly injection of CNY 120bln vs. Prev. CNY 580bln net injection last week. BoJ Governor Kuroda said BoJ will be considering exit around fiscal 2019 and that there could be a policy change before 2% target is reached, but BoJ may also keep rates unchanged even with CPI at the target. Kuroda had also commented that he will maintain current policy for now as momentum is good and that he is cautious on raising the yield target even if yields increase and other central banks exit loose policy. Top Asian News Kuroda Says BOJ Will Be Thinking About Exit Around 2019 Tencent’s Wild Ride Makes China Small Caps a Relative Refuge Australia’s ASIC Accuses Rio of Deception on Mozambique Deal European bourses are also firmly in the red (Eurostoxx 50 -1.5%) following the sell-off seen in Asia and Wall St. with 85% of the Stoxx 600 in the red after Trump’s aluminium and steel tariffs spooked markets amid fears of potential trade wars. Industrial and auto names are the underperformers this morning over fears of production cost hikes. Noticeable laggards contain the likes of Fiat Chrysler (-4.9%), LafargeHolcim (-5.0%) ArcelorMittal (-4.0%), ThyssenKrupp (-2.8%), and Peugeot (-1.8%). DAX (-2.2%) a notable laggard as investors grow cautious over Sunday’s SPD vote and as such, the index made a breach of the psychological 12000 level. Political risk is also filtering through to the FSTE MIB (-2.1%) as markets prep themselves for this weekend’s Italian election Top European News ECB’s Rimsevics Back at Central Bank Despite Bribery Probe South Africa Says Bank of Baroda Holds ‘Proceeds of Crime’ Russia Is EU’S Energy Guardian as Cold Grips, Gazprom CEO Says LandSec Chairman’s Retirement Cuts Boardroom Diversity Amsterdam Prepares for Bumper Crop of IPOs as Companies Line Up In FX, the Dollar is on the backfoot again with the DXY unable to extend its recent rebound to or through 91.000 despite hawkish talk from 2018 FOMC voter Dudley (said four tightening moves this year would still constitute a gradual pace of policy normalisation). His comments, and Powell’s second testimony for that matter, were completely overshadowed by the latest moves from President Trump to protect US steel and aluminium producers that have triggered a fresh round of global trade war concerns (and retaliatory remarks unsurprisingly). The index is back down in the low 90.000s having marginally eclipsed nearest chart resistance around 90.900 at one stage yesterday, and the Greenback is a broad loser vs other G10s, bar the Pound and Loonie due to ongoing Brexit and NAFTA related uncertainty/risks. Yet again it is the Jpy that is outperforming and not just against the Usd, but generally as the headline pair trades sub-106.00 and close to ytd lows around 105.55, with put options at the 105.00 strike also weighing, albeit offset by reported barriers at 105.50 and the figure. Eur/Jpy has retreated a bit further below 130.00 and not far from 129.50 support, while Gbp/Jpy is eyeing 145.50. Eur/Usd has rebounded firmly above 1.2200 having slipped to a fresh 2018 low on Thursday around 1.2155, but could remain capped ahead of 1.2300 and drawn to a very big expiry at 1.2250 (3.1 bn). Cable only seeing mild upside within a 1.3750-1.3800 wide range in wake of a firmer than forecast UK construction PMI, with more focus on PM May’s latest Brexit address in response to the EU’s draft on Wednesday after Carney failed to mention anything specific on monetary policy in his text. Usd/Chf has reversed sharply on safe-haven positioning (like the Usd/Jpy and Jpy crosses) to just above 0.9350 vs almost 0.9500 late yesterday as global stocks continue to recoil on the heightened prospect of protectionism. EUR/NOK was dealt a blow after The Norwegian Finance ministry lowered the Norges Bank inflation target to 2.0% from 2.5%. However, the move was partially reversed after Norges Bank stated that this will be unlikely to lead to a significant change in the implementation of monetary policy. Back to the majors, Usd/Cad is hovering around 1.2850 ahead of Candian GDP data. In commodities, newsflow has been dominated by Trump’s announcement on import tariffs for steel and aluminium. Following this, aluminium futures fell 0.5%, while Shanghai steel prices 5-day rally came to a halt amid fears that the tariff plan could lead to a glut. Precious metals hover around yesterday’s high as risk off flows support gold, alongside the softer USD. WTI and Brent crude futures trending lower this morning with prices dictated by the risk off sentiment. Levels to the downside for Brent which may over some support is situated at USD 63.19 (yesterday’s low) at USD 61.75 (double bottom) Canada and EU vowed countermeasures against US steel and aluminium tariffs, while Mexico also stated that it would retaliate with its own tariffs against US if it is not excluded from the steel and aluminium tariffs. Furthermore, China Iron and Steel Association said US tariffs on steel and aluminium are 'stupid' trade protectionism measures and that China only exports a limited amount of steel to US, while China Metals Association said China is among the nations likely to retaliate against the US. Looking at the day ahead, the final reading for the February Uni. of Michigan’s consumer sentiment will also be out. Onto other events, the BOE’s Carney and the ECB’s Mersch will speak. The UK’s PM May will outline her vision for a post Brexit trade deal with the EU. Then on Saturday, the opening session of the Chinese People’s Political Consultative Conference begins and will run through to 15 March. Finally the Italian elections will be held on Sunday. US Event Calendar 10am: U. of Mich. Sentiment, est. 99.5, prior 99.9; Current Conditions, prior 115.1; Expectations, prior 90.2 DB's Jim Reid concludes the overnight wrap Fascinating start to March yesterday. In brief, Chinese manufacturing PMIs weakest since July 2016, US manufacturing ISM strongest since May 2004 (3rd strongest since April 1984) and just 0.6pt below the 34 year high, US prices paid (74.2) highest since May 2011, DAX (-1.97%) worse day since 8th Feb, S&P 500 (-1.33%) seeing the fifth successive plus or minus 1% move in either direction (Feb. had 13 such day vs. only 10 from Jan 17 to Jan 18), VIX spiking back above 25 at one point, Trump confirming Steel/Aluminium tariffs which accelerated the sell-off, a Reuters story suggesting guidance changes for the ECB next week may not happen and Mr Powell relegated to a sideshow. Anyway more on these stories later. The main event this weekend and heading into the start of next week is of course the Italian election. Before we jump into a preview, in terms of timing logistics, polling stations will officially be open from 7am to 11pm local time on Sunday, and it’s expected that the first exit polls will be out immediately after polls close. A more conclusive result should be available early on Monday. Our house view is that the risk of a hung parliament outcome remains high however it is a close call as the centre-right coalition has been closing the gap to get an outright majority. Ultimately if the result is inconclusive, our economists expect parties and institutions to work hard to form a grand coalition, however the risk of a second election should not be underestimated. Opinion polls show that within the centre-right coalition the more moderate Forza Italia is beating the right-wing Eurosceptic Northern League (NL) ally, but that the gap is within the margin of error. Our colleagues highlight that with the most voted party likely to select the new prime minister, the market might feel more uncertain about the commitment to the euro with a NL-led government. It’s worth noting that opinion polls also suggest that Five Star is likely to be the first party, but at the same time is unlikely to win an outright majority and so the chances of an anti-establishment/ Eurosceptic post-election alliance winning a majority is very low. You can find more in our economists’ report here. For us the big talking point following the election result – whichever way it goes – will likely be the outlook for fiscal policy in Italy. Fundamentally all political parties and coalitions have proposed expansionary measures and as our economist’s point out the centre-right appears to be the most aggressive. Clearly this could be a short term positive. The risk further out though is that these measures are unfunded leading to higher deficits and therefore undermining the sustainability of public finances. This is particularly significant in terms of potentially intensifying tensions between Brussels and Rome and possibly encouraging sanctions. So one to watch medium-term. In addition to their earlier pieces, late yesterday our Euro team also did a Q&A of the most frequent questions they've been asked by clients this week including what is the most negative outcome and what the most plausible negative outcome. See the report here. Now onto reviewing markets. Starting with the tariffs story, President Trump said he’ll impose tariffs on imported steel (25%) and aluminium (10%) and expects to sign a formal order next week. In terms of initial responses, the EC President Juncker said that "we will not sit idly while our industry is hit with unfair measures that put thousands of European jobs at risk", adding that the EU will react "firmly and commensurately". Canada’s Foreign Minister Freeland said “Canada will take responsive measures to defend its trade interest and workers”. Back last week, China’s Ministry of Commerce noted that it reserves the right to retaliate if the tariffs are imposed so we watch China’s response with interest. Finally back in the US, the Senate Finance Committee Chairman Hatch said “tariffs…are a tax hike the American people don’t need…I encourage the President to carefully consider all of the implications”, while the House Ways and Means Chairman Brady noted the President “is right to target unfair trade” but urged him to narrow the focus on the tariffs. Elsewhere, Ohio Democratic Senator Brown noted “this welcome action is long overdue….” Over the last 10 days we're starting to see some cracks in the global data which is perhaps why risk is struggling at the moment after the big bounce post the early Feb vol shock. Indeed the PMIs have started showing some more mixed readings. First the flash Euro PMIs were notably weaker than expected last week, then the Chinese manufacturing PMI (50.3) hit the lowest since July 2016 yesterday, while the US manufacturing ISM (60.8) was at the highest since May 2004 and the 2nd highest in the 361 months since December 1987 and the 3rd highest in the 405 months since May 1984!! Also worth noting that the US prices paid component also surged 1.5pts to 74.2 (vs. 70.0 expected) – the highest since 2011) – which should add to the building inflation argument. In the EMR each month we usually do our quick and dirty comparison between the manufacturing PMIs/ISM and the YoY change in equity markets. Given the diverging trends at the moment and the added complication of the big move in the USD over the last 12 months we thought we’d do this month’s as an expanded standalone note which we did yesterday (“Equities cheap or PMIs still too high?”). Interesting the results show the S&P 500 is 15% cheap given yesterday’s data! Meanwhile the DAX is 32% cheap which goes down to 18% if we adjust for the Euro surge of the last 12 months. We try not to take these readings too seriously but when there is such a big gap it usually tells us that something isn’t right and to investigate further. This morning in Asia, markets have extended the US sell off with the Nikkei (-2.15%), Kospi (-0.96%), Hang Seng (-1.29%) and China’s CSI 300 (-0.56%) all lower. Datawise, Japan’s January unemployment rate was below market and fell to a c24 year low (2.4% vs. 2.8%) while the February core CPI (ex-fresh food) was slightly above expectations at 0.9% yoy (vs. 0.8%). Now recapping other markets performance from yesterday. US equities weakened 1.3-1.7%, with all sectors in the S&P in the red and losses led by industrials, financials and tech stocks. Notably, shares in major US steel and aluminium companies rose 3%-9.5%. The VIX closed 13% higher to 22.47 after earlier spiking above 25. Elsewhere, a flight to safety and a dovish Powell testimony seemed to have benefited government bonds with the UST 10y yield down 5.4bp to 2.809% while Bunds (-1.2bp) and Gilts (-3.4bp) also firmed. The USD dollar index fell 0.44% while the Euro and Sterling gained 0.60% and 0.12% respectively. In commodities, the WTI oil fell for the third straight day (-1.05% to $60.99/ bbl) while precious metals were little changed (Gold -0.10%; Silver +0.31%). Finally most base metals retreated with the exception of aluminium given the aforementioned tariffs (Copper -0.08%; Zinc -0.23%; Aluminium +0.56%). Away from the markets and onto the Fed Chair Powell where he seemed a bit more dovish this time speaking in front of the Senate. He reiterated the need for gradual increase in rates over time, but added “there’s no evidence the economy is currently over heating”. On wage growth, he said “we don’t see any strong evidence yet of a decisive move up in wages” and does not see a tightening in labour market causing wages to hit “a point of acceleration”. Elsewhere, he noted recent tax cuts will add “meaningfully to growth for at least the next couple of years…but how much it will add to longer run growth is highly uncertain”. Finally he noted “…the tariff’s approach is not the best approach, the best approach is to deal directly with the people who are directly affected…” Following on, the Fed’s Dudley said “protectionism is not the answer” as tariffs “often backfire” and hurt workers. He noted “trade barriers are an expensive way to preserve jobs in less competitive or declining industries” and that “raising trade barriers would risk setting off a trade war…” Staying in the US, our economists have reiterated that core inflation typically lags real GDP growth by about six quarters but manufacturing indicators leads GDP by a quarter, so there is ample room for inflation to go higher over the next two years. Indeed, this is partly why they continue to expect core CPI to reach 2.3% by the end of 2018 and 2.6% by the end of 2019, which should keep the Fed on track for four hikes this year and three in 2019. Refer to their note for more details. Before we take a look at today’s calendar, we wrap up with other data releases from yesterday. In the US, the January PCE Core was in line at 0.3% mom and 1.5% yoy, but the three and six month annualised inflation was stronger at 2.1% and 2.0% respectively. The personal income was above market at 0.4% mom (vs. 0.3%) and spending in line at 0.2%. Elsewhere, the weekly initial jobless claims fell to the lowest since 1969 (210k vs. 225k expected) while continuing claims was slightly higher than expected (1,931k vs. 1,925k). Total vehicle sales was below market at 16.9m (vs. 17.2m expected). Following the above, the Atlanta Fed’s GDPNow model now estimate 1Q GDP growth of 3.5% saar (vs. 2.6% previous). Reviewing the European PMIs yesterday in more detail, the broad Eurozone reading was revised up a modest 0.1pts to 58.6 however remains 1pt and 2pts respectively below the January and December prints. So a slowdown albeit from very elevated levels. Germany was revised up 0.3pts to 60.6 (4-month low) while France was revised down 0.2pts to 55.9 (6-month low). In the periphery most notable was the 2.2pt decline for Italy to 56.8 (vs. 58.0 expected). That is also a 5- month low. Spain was a healthy beat (56.0 vs. 54.8 expected) and also marked a 3-month high. Netherlands actually touched an all-time high at 63.4 while Greece actually jumped to a 212-month high of 56.1. Meanwhile in the UK the reading declined slightly to 55.2 (vs. 55.0 expected) and in the US the print was 55.3 and down 0.2pts from January. However the closer followed ISM manufacturing actually jumped to a better than expected 60.8 (vs. 58.7) – the first >60 print since September last year and the highest since May 2004 as discussed at the top. Elsewhere, the Euro area’s January unemployment rate was in line with the market at 8.6% while Italy was 11.1% (vs. 10.8% expected). In the UK, the January mortgage approvals was above market at 67.5k (vs. 62k expected), but the February Nationwide house price index was below expectations at 2.2% yoy (vs. 2.6%). Looking at the day ahead, the Euro area’s January PPI, Germany retail sales and the final reading of Italy’s 4Q GDP are due. In the US, the final reading for the February Uni. of Michigan’s consumer sentiment will also be out. Onto other events, the BOE’s Carney and the ECB’s Mersch will speak. The UK’s PM May will outline her vision for a post Brexit trade deal with the EU. Then on Saturday, the opening session of the Chinese People’s Political Consultative Conference begins and will run through to 15 March. Finally the Italian elections will be held on Sunday.
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