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Macro

Asia Markets Mixed in Quiet Trade Pre-Jackson Hole


Morning Briefing August 24th 2017


There is a full data calendar on both sides of the Atlantic Thursday, but the start of the Kansas City Fed's annual Jackson Hole Symposium could garner most of the afternoon headlines.

The European data calendar kicks off at 0645GMT, with the release of the French manufacturing and services sentiment indicator, alongside the Business Climate Indicator.

At 0700GMT the Spanish Q2 GDP data will be released.

The main UK data is published at 0830GMT, when the 2nd read of the UK Q2 GDP data is published, along with the latest Index of Services.

UK growth is seen being confirmed as coming in modestly higher, with nine of the ten analysts polled by MNI expecting the second estimate of second quarter GDP to come in unchanged at 0.3% q/q.

The July UK Finance (formerly BBA) mortgage lending data will cross the wire at the same time.

At 1000GMT, the CBI's August Distributive Trades data will cross the wires.

Across the Atlantic, the US calendar kicks off at 1230GMT, with the release of the latest Jobless Claims numbers.

The level of initial jobless claims is expected to rise by 3,000 to 235,000 in the August 19 week after a 12,000 decline in the previous week. The four-week moving average, which has declines for three straight weeks, would fall by 2,500 in the coming week as the 245,000 level in the July 22 week drops out of the drops out of the calculation, assuming the MNI forecast is correct and there are no revisions.

The Canadian Quarterly financial statistics for enterprises will be released at the same time.

Back on the Continent, the BNB Business Sentiment index will be released at 1400GMT.

US data expected at 1400GMT includes the latest Building permits revisions and the NAR existing home sales numbers.

The latest Natural Gas Stocks data is expected at 1430GMT, ahead of the Kansas City Fed Manufacturing Index at 1500GMT.

The latest Fed weekly M2 Money Supply Data will be released at 2030GMT.

Global Economic Trading Calendar


Markets


SNAPSHOT: Below gives key levels of markets in the second half of the Asia-Pac session: - Nikkei 225 down 27.21 points at 19409.86 - ASX 200 up 14.943 points at 5751.8 Shanghai Comp. up 0.561 points at 3288.652- JGB 10-Yr future up 6 ticks at 150.82, JGB 10-Yr yield down 0.9bp at 0.03% - Aussie 3-Yr future up 2 ticks at 98.02, Aussie 3-Yr yield down 1.7bp at 2.005% - Aussie 10-Yr future up 3 ticks at 97.36, Aussie 10-Yr yield down 2.8bp at 2.645%  - US 10-Yr future down 2+ ticks at 126.27, US 10-Yr yield up 1.22bp at 2.1782%

US TSY/RECAP: Treasuries ended Wed higher on risk-off mood, forced short-cover, FX-tied buying as US$ ebbed vs. JPY, flatteners done, yields up 1.5-45bp. Tsys began NY higher, T-Notes open Asia at 126.29+, 10-Year yield last at 2.166%

JAPAN DATA: Capital flows for the week to August 19, according to data from the Ministry of Finance:
Japanese investors:  - Bought net Y320.7 bln in foreign equities
- Sold net Y453.2 bln in foreign bonds  - Bought net Y5.7 bln in foreign money market instruments
- Resulting in a net sale of Y126.7 bln Foreign investors: - Sold net Y300.1 bln in Japanese equities
- Sold net Y185.1 bln in Japanese bonds - Bought net Y2.2696 trln in Japanese money market instruments
- Resulting in a net purchase of Y1.7844 trln

AUSSIE BONDS: The AOFM announce the breakdown of the results of their A$3bln sale of 0.75% Nov 2027 linker yesterday. - EFP Spread to 10-Year future:-180.75bp - 69.2% of the issue was taken by fund managers, 23.1% by banks -16.6% of the issue taken by offshore investors; 10.2% of total bidders were from the UK. - Bids at the final clearing price: A$5bln (covered 1.66x)

US EURODLR FUTURES: Still holding near the top of yesterday's range but slightly lower across the strip. Quiet ahead of Jackson Hole comments. Volumes very thin due to lazy Asia trade, thin summer volumes and upcoming events.

OIL: Oil is flat in Asia, WTI last down $0.05 at $48.36, but it holding the gains seen after the DoE inventory figures yesterday. WTI jumped from $47.79 to $48.42 on the data which showed that headline crude stockpiles fell 3.33mln bbls, a slightly bigger draw then expected, with the breakdown of the data also bullish for oil with a larger than expected decline in gasoline stocks. The draw brings crude stocks to the lowest levels since January 2016, despite an EIA report that US crude production has risen to the highest levels since July 2015 at 9.528mln BPD. - Oil is also being supported as Tropical Depression Harvey makes its way towards the Gulf Coast with some predicting land fall as a hurricane by the end of the week.

STOCKS: Japanese stocks went into the lunch break in negative territory with the Nikkei 225 currently down 25.84pts at 19408.80. The Hang Seng Index is surprisingly up around 110pts despite the fact Typhoon Hato is set to cost Hong Kong billions to restore the city. - The ASX is up 15pts, contributing most to the move is the materials sector, particularly aluminium. This comes as a new mine has just been approved in Aus. - European and US stocks ended their sessions in the red, suffering from Trumps rally and the looming Jackson Hole speech.

GOLD: Gold is lower in Asia, the yellow metal last down $2.82 at $1,288.14. Gold rose sharply on Wednesday, rising over $7.50 during the session after comments from Trump at a rally in Arizona that he would shut down the government in order to build the border wall. Gold is seeing slightly cautious trade ahead of the Jackson Hole Economic Symposium which starts today, markets are expecting comments from Fed's Yellen and ECB's Draghi amongst others.

FOREX: Quiet consolidation was the theme for the Asian-Pacific region, investors were largely on hold with the Jackson Hole Symposium looming, leaving the dollar broadly unchanged against its peers. Dollar-yen held a Y108.85 to Y109.24 range, last at Y109.17. Aussie-dollar carved out a $0.7892 to $0.7916 range, last at $0.7902. Better-than-expected NZ Trade data pushed the Kiwi up to $0.7236 before then dropping to $0.7210 as UST yields made modest gains. Elsewhere, Euro-dollar was last at $1.1803 and Cable at $1.2788, after trading in respective ranges of $1.1794 to $1.1818 and $1.2778 to $1.2806.

Technical Analysis


BUND: (U17) Focus Shifts To 165.44-93

*RES 4: 165.93 Monthly High Apr 18
*RES 3: 165.55 Monthly High June 14
*RES 2: 165.44 High June 26
*RES 1: 165.29 Bollinger band top

*PREVIOUS CLOSE: 164.89

*SUP 1: 164.71 Hourly support Aug 23
*SUP 2: 164.59 Hourly resistance Aug 23 now support
*SUP 3: 164.13 Daily Bull channel base
*SUP 4: 164.00 Hourly support Aug 18    

*COMMENTARY: The 164.00 support provided the base for a rally that has defined the week so far with bulls now initially focused on 165.44-93 where Apr & June highs are located. Layers of support are accumulating with bears now needing a close below 164.59 to ease bullish pressure and shift focus back to 164.00-13 where the bull channel base is located. Below 164.00 is needed to initially target 163.17-69.
 

EUROSTOXX50: Capped On Approach To 55-DMA

*RES 4: 3497.29 High Aug 16
*RES 3: 3495.20 55-DMA, Bear channel top
*RES 2: 3484.66 High Aug 17
*RES 1: 3467.78 High Aug 23

*PREVIOUS CLOSE: 3438.63

*SUP 1: 3432.05 Low Aug 23
*SUP 2: 3412.87 Bollinger band base
*SUP 3: 3410.02 Low Aug 21
*SUP 4: 3399.34 200-DMA

*COMMENTARY: The index managed a pop above the 21-DMA (3464.98) Wednesday but follow through remains lacking on approach to the 55-DMA & bear channel top and 3495.20-3539.48 region as a whole. Bulls look for a close above 3539.48 to end bearish hopes and initially target 3615.06 June highs. The 3390.04-3411.06 support region is key. Bears need a close below to confirm a break of the 200-DMA and initially focus on 3335.77-3355.40.

Eurex Futures Market Close


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This article is from Eurex Exchange and is being posted with Eurex Exchange’s permission. The views expressed in this article are solely those of the author and/or Eurex Exchange and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


14332




Technical Analysis

Raw Sugar (SB) Weekly MACD Trying to Positively Cross


Raw Sugar (SB) rallied over 1% higher yesterday, resuming a bounce off the key .129-.133 support zone (following a 2 week slide).  With SB's current green weekly candle showing gains above last week's range, odds are increasing for a continued reversal higher in the weeks to come.  SB's next key upside target will be .1400.  Longer term, SB bulls will have to contend with triangle resistance (on the daily chart) and descending wedge resistance (on the weekly chart).  Weekly, daily and 4hr RSI, Stochastics and MACD are rallying, consolidating recent gains or bottomish.  I am flat after profitably closing a long yesterday and will look to re-enter long today in the green zone (of the daily chart), targeting the red zone (in the daily chart) for Friday.  The amber/yellow zone is where I might place a stop if I was a swing trader (although in my personal account with which I seldom hold overnight I set my stops tighter).

 

Raw Sugar (ICE SB Oct17) Weekly/Daily/4hr

 

Click here for today's technical analysis on USDCHF, Cotton

 

Tradable Patterns was launched to demonstrate that the patterns recurring in liquid futures and spot FX markets can be analyzed to enhance trading performance. Tradable Patterns’ daily newsletter provides technical analysis on a subset of three CME/ICE/Eurex futures (commodities, equity indices, and interest rates), spot FX and cryptocurrency markets, which it considers worth monitoring for the day/week for trend reversal or continuation. For less experienced traders, tutorials and workshops are offered online and throughout Southeast Asia.

 

This article is from Tradable Patterns and is being posted with Tradable Patterns’ permission. The views expressed in this article are solely those of the author and/or Tradable Patterns and IB is not endorsing or recommending any investment or trading discussed in the article. This material is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


14331




Options

Volatility 411: Threats Of Government Shutdown Cools Markets


CBOETV - Kevin Davitt, Senior Instructor, CBOE Options Institute, discusses the potential debt ceiling issue, the VIX moving higher and size VIX calls.

Options involve risk and are not suitable for all investors. Prior to buying or selling an option, a person must receive a copy of Characteristics and Risks of Standardized Options. Copies are available from your broker, or at www.theocc.com. The information in this program is provided solely for general education and information purposes. No statement within the program should be construed as a recommendation to buy or sell a security or to provide investment advice. The opinions expressed in this program are solely the opinions of the participants, and do not necessarily reflect the opinions of CBOE or any of its subsidiaries or affiliates. You agree that under no circumstances will CBOE or its affiliates, or their respective directors, officers, trading permit holders, employees, and agents, be liable for any loss or damage caused by your reliance on information obtained from the program.

Copyright © 2016 Chicago Board Options Exchange, Incorporated.   All rights reserved.

This video is from CBOE and is being posted with CBOE’s permission. The views expressed in this article are solely those of the author and/or CBOE and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


14330




Options

Hedge Funds Are Flocking to Buy Wells Fargo Stock


The scandalized bank has quietly become one of the most popular stocks in the hedge fund community.
 

It’s time to buy Wells Fargo (ticker: WFC).

The wounded giant is attracting positive attention from sophisticated investors despite lingering concerns about the bank’s sales scandal. Bank workers, as is widely known, opened fake accounts for customers to meet sales goals, and car-loan borrowers were forced to buy unneeded auto insurance.

Though the chicanery has damaged the stock and the bank’s reputation, hedge fund managers are loading up. So many have established positions that Wells Fargo appears on the just-released Goldman Sachs list of 50 stocks appearing most often among the top 10 holdings of fundamentally-driven hedge fund portfolios.

Wells Fargo is down about 2% this year, whereas other banks, including J.P. Morgan(JPM) are up about 7% for the same period. The performance discrepancy suggests hedge funds think Wells Fargo will close the performance gap.

Wells Fargo, which is hardly having a good year, joins a list of the market’s best performing stocks, including Facebook (FB), Amazon.com (AMZN), Apple (AAPL), C.R. Bard (BCR) and Alibaba Group Holdings (BABA).

Though more disturbing developments could arise to pressure Wells Fargo’s stock, sentiment is already so subdued that anything short of a massive scandal, which is probably unlikely because management has likely scoured the business to identify and eliminate such risks, should not much bother the stock.

If you agree, consider using a half-and-half strategy to build a position or to add to an existing stake. If you want to buy 1,000 shares, consider selling five puts, such as the October $50 put for 70 cents, and buying 500 shares. The short put enables investors to pocket the premium if the stock rises, thereby lowering the cost of buying the stock. If the stock declines, investors can buy the stock on a pullback. If the stock advances, reset the trade and keep selling puts. Shares are currently trading near $52.

Investors who don’t want to buy stock immediately can consider selling Wells Fargo’s October $50 put for 70 cents and buying the October $52.50 call at $1.44. The expiration was chosen to capture the bank’s next earnings report, which is scheduled for October 13th before the market opens.

The risk reversal positions investors to buy the stock on a decline and profit from an advance. At $57, the call is worth $5. When the stock is at $50, investors are obligated to buy it. Over the past 52-weeks, the stock has ranged from $43.55 to $59.99.

In time, Wells Fargo will emerge from the cloud of scandal, and investors will once again celebrate the bank as one of Warren Buffett’s key holdings. Hedge fund managers seem to be anticipating just that.

Steven M. Sears is a Senior Editor and Columnist with Barron's. He is the author of "The Indomitable Investor: Why a Few Succeed in the Stock Market When Everyone Else Fails." Mr. Sears previously reported for Dow Jones Newswires and The Wall Street Journal. He has reported upon most major modern financial events, including the Asian Contagion, the bursting of the Internet Bubble, the Credit Crisis, and Europe's sovereign debt crisis. He also was part of exchange executive teams that modernized the U.S. options market, and introduced electronic trading. Interact with him on Twitter @sm_sears.

Get investing analysis that moves stocks and markets—Subscribe to Barron’s for just $1 a week.

This article is from Barron's and is being posted with Barron’s permission. The views expressed in this article are solely those of the author and/or Barron's and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


14329




Macro

Macron at 100 Days: New French President Faces Busy Autumn


A large chunk of French President Emmanuel Macron’s first 100 days in office came at a time when many Europeans were on holiday break. Here, Philippe Brugere-Trelat, Franklin Mutual Series Executive Vice President and Portfolio Manager, Franklin Mutual European Fund, says it’s unfair to judge Macron on such a short timeframe. He asserts that the first true test for his reform agenda will come in autumn, and says that France and Germany seem to be working even more closely to keep the European Union together in the wake of last year’s UK Brexit vote.


Sworn in on May 14, French President Emmanuel Macron vowed to loosen labor laws and cut both taxes and spending.

August 22 marked his 100th day in office, when many Europeans were returning from summer vacations.

It’s hard to gauge the president’s success on such a short timeframe, but Macron’s party’s rounding victory in June’s French parliamentary elections stands out as a highlight. In my view, nobody expected his Republic on the Move party, known as LREM, and its Democratic Movement allies to secure such a strong majority with 350 out of 577 seats.

Although polls have shown that Macron’s approval ratings have fallen since the election, I don’t see this drop as cause for concern. The ebbs and flows of popular polls are natural, in my opinion, following the giant wave of hope that swept Macron into office. That hope is now meeting the cold light of reality.

In my view, Macron has now the means to carry out the keystones of his reform agenda. Since the June elections, Macron and his government have been hard at work putting together proposals to reform the labor market, tighten the French budget and promote European Union (EU) cohesiveness.

I think it’s premature to judge Macron’s effectiveness before he presents his plan in September.

That said, I think Macron’s upcoming negotiations with France’s trade unions will be a true litmus test for his presidency. Unions in France have enjoyed extensive political power for a very long time, and are likely to kick off protests in September that will gain widespread media coverage and may unsettle some French voters.

If Macron is successful with labor reforms, I believe he will prove to be a leader that can get things done both in France and the broader EU. In particular, I think a victory on that front would establish his legitimacy with German Chancellor Angela Merkel.

I believe close cooperation between France’s Macron and Germany’s Merkel will be very positive for the future of the EU, particularly at a time when the Brexit negotiations are taking place. I see EU economies looking for stronger leadership, and both Germany and France could lead that effort.

I think real cooperation between France and Germany can be a key economic driver of the EU. It might be seen in the financial sector, in the defense sector, and in infrastructure, for example, which I believe would be beneficial to the economy and the stock market. There is momentum which is ready to start rolling once Macron has proved he is indeed the man who can deliver on the long-expected reforms of France’s labor market.

The media, like everybody else, is impatient to see Macron meet expectations. I have every reason to think he will. He has the backing of the parliament and he has the backing of the French people. I think Macron is very pro-European. I believe part of his initial measures to be presented during the next three months will be measures to promote a closer European unity. That said, Macron has first to earn his credibility.

The comments, opinions and analyses expressed herein are for informational purposes only and should not be considered individual investment advice or recommendations to invest in any security or to adopt any investment strategy. Because market and economic conditions are subject to rapid change, comments, opinions and analyses are rendered as of the date of the posting and may change without notice. The material is not intended as a complete analysis of every material fact regarding any country, region, market, industry, investment or strategy.

This information is intended for US residents only.

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What Are the Risks?

Franklin Mutual European Fund

All investments involve risks, including possible loss of principal. Value securities may not increase in price as anticipated or may decline further in value. Special risks are associated with foreign investing, including currency fluctuations, economic instability and political developments. Because the Fund invests its assets primarily in companies in a specific region, it is subject to greater risks of adverse developments in that region and/or the surrounding regions than a fund that is more broadly diversified geographically. Political, social or economic disruptions in the region, even in countries in which the Fund is not invested, may adversely affect the value of securities held by the Fund. The Fund’s investments in smaller-company stocks carry an increased risk of price fluctuation, especially over the short term. The Fund’s investments in companies engaged in mergers, reorganizations or liquidations also involve special risks as pending deals may not be completed on time or on favorable terms. These and other risk considerations are discussed in the fund’s prospectus.

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This article is from Franklin Templeton and is being posted with Franklin Templeton’s permission. The views expressed in this article are solely those of the author and/or Franklin Templeton and IB is not endorsing or recommending any investment or trading discussed in the article. This material is for information only and is not and should not be construed as an offer to sell or the solicitation of an offer to buy any security. To the extent that this material discusses general market activity, industry or sector trends or other broad-based economic or political conditions, it should not be construed as research or investment advice. To the extent that it includes references to specific securities, commodities, currencies, or other instruments, those references do not constitute a recommendation by IB to buy, sell or hold such security. This material does not and is not intended to take into account the particular financial conditions, investment objectives or requirements of individual customers. Before acting on this material, you should consider whether it is suitable for your particular circumstances and, as necessary, seek professional advice.


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Disclosures

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