Wednesday Morning Market Prepper
- China’s Credit Boom
- Soft Inflation
- Junk Bonds Are Big Winner
- The Real Losers
- Quest for Grocery Dominance
- Better Alternative to Vending Machines
- Chinese EVs Coming to U.S.?
- Not Worried About Household Debt
- Trade War With China
- Looking Ahead
- He Sees Fed Rate Hike
- Futures inch up ahead of Fed minutes
- Target rallies after lifting profit guidance
- First round of NAFTA negotiations
- CBO warns on end to health subsidies
- Euro slips on Draghi-Jackson Hole report
- Apple gets serious about Hollywood
- Fiat joins self-driving consortium
- China reclaims U.S. debt holder title
- Brexit without an Irish border?
Yesterdays Unusual Option Volume:
Negotiators from Canada, Mexico and the U.S. kick off an ambitious first round of trade talks today as the countries try to fast-track a deal to modernize NAFTA. The timeline is for seven rounds of negotiations between now and the beginning of next year, as markets keep an eye out for fresh rumblings on trade protectionism. U.S.-Canada-Mexico trade has quadrupled since NAFTA took effect in 1994, surpassing $1.2T in 2016.
The Fed is set to release the minutes from its last gathering in July, when policymakers unanimously decided to keep interest rates unchanged and said they planned to reduce the central bank's massive holdings of bonds "relatively soon." Details of the discussion could further cement the expectation that the Fed will begin reducing its balance sheet at its next meeting in September.
The euro fell 0.3% to $1.1699 on a report that Mario Draghi won't rock the boat next week at Jackson Hole. Sources told Reuters the ECB president will not deliver a fresh policy message at the economic policy symposium, but rather wants to hold off from debate until the fall. His speech will instead focus on the conference theme of fostering a dynamic global economy.
Obamacare premiums would spike 20% next year, and by an extra 25% in 2020, if President Trump follows through on a threat to stop billions of dollars of federal health subsidies. The Congressional Budget Office also found that terminating the "cost-sharing reductions" would mean that 5% of Americans would live in areas that don't have an insurer in the individual market in 2018.
The Irish border should remain free of "physical border posts" after Brexit, the U.K. government said in an early attempt to resolve one of the most complex aspects of its divorce from the EU. Details of the plan are due out later today. Northern Ireland sold £2.7B of goods into Ireland in 2015 and some 30K people cross the 500 kilometer border every day without customs or immigration checks.
The eurozone economy expanded 0.6% in Q2, in line with expectations, while the annual figure was upgraded to 2.2% growth. "The market mindset is that Europe is recovering from a very deep, very long recession that hit at its financial core," said Christopher Peel, CIO at Tavistock Wealth. "The banking system is finally starting to show signs of having worked through the legacy of 2008-2009."
China is looking good enough that the IMF is raising its growth outlook, but the organization is doing so with a strong warning over growing debt in the world's second-largest economy. It forecasts non-financial debt in the country to hit around 300% of GDP in five years, but raised China's GDP forecast from 6.2% to 6.7% for 2017.
Meanwhile, China has reclaimed its position as the largest foreign holder of U.S. debt, displacing Japan which had held the top spot since October. It's increased its holdings for the fifth straight month, buying $44.3B of Treasuries in June for a total of $1.147T. The two countries account for more than a third of the total foreign ownership of U.S. Treasuries.
Iran's nuclear program could be restarted in a matter of "hours," warned President Hassan Rouhani, if the American government continues its confrontational policies toward the Islamic Republic. His remarks were a direct response to the Trump administration's announcement of fresh sanctions on individuals and businesses connected to Tehran's missile program.
Brazil has abandoned its fiscal targets for this year and through 2020, after a bribery scandal crippled President Temer's ability to push economic reforms through Congress and left the public sector with a gaping budget hole. That means Brazil's government debt burden, already the heaviest of any major Latin American economy at 73.1% of GDP, is set to continue rising fast in the coming years.
Mergers and acquisitions by Chinese companies in countries that are part of the Belt and Road initiative are soaring, even as Beijing cracks down on acquisitive conglomerates to restrict capital outflows. Chinese purchases in the 68 countries officially linked to the modern-day "Silk Road" have totaled $33B this year, surpassing the $31B tally for all of 2016.
President Trump has signed an executive order to speed approvals of permits for highways, bridges and other major building efforts as part of his proposal to spend $1T to fix aging U.S. infrastructure. The move revokes a previous order by President Obama that required strict building standards for government-funded projects to reduce exposure to consequences of climate change.
More business leaders are quitting President Trump's Manufacturing Council following the firestorm over his response to the clashes in Charlottesville. "For every CEO that drops out, I have many to take their place," he wrote on Twitter. Latest to step down: AFL-CIO President Richard Trumka, his deputy chief of staff Thea Lee and Scott Paul of the Alliance for American Manufacturing.
Getting serious about Hollywood... Apple (NASDAQ:AAPL) has set a budget of roughly $1B to procure and produce original content over the next year, WSJ reports, and could acquire and produce as many as 10 television shows. The budget will be in the hands of Hollywood veterans Jamie Erlicht and Zack Van Amburg, poached in June from Sony (NYSE:SNE) to oversee content acquisition and video strategy.
Fiat Chrysler is joining a self-driving car consortium led by BMW (OTCPK:BAMXF), Intel (NASDAQ:INTC) and its Mobileye (NYSE:MBLY) subsidiary that aims to develop fully driverless vehicles by 2021. CEO Sergio Marchionne has long said that automakers need to work together to develop the future technology because of the vast development costs. Last year, FCA (NYSE:FCAU) became the first carmaker to partner with Waymo, the driverless car unit owned by Alphabet (GOOG, GOOGL).
The exodus at Uber continues with the resignation of Chris Saad, the head of the developer platform. He worked at the ride-hailing company for close to two years. It comes as investor Benchmark Capital coordinates with another UBER shareholder, venture firm Lowercase Capital, to force former CEO Travis Kalanick and media magnate Arianna Huffington off the board.
Crocs may soon lose rights to its claim to fame: the iconic clog that put the company on the map. The classic design cannot be protected against copycats, the U.S. Patent and Trade Office ruled last week. Crocs (NASDAQ:CROX) is appealing the decision, stating it "has been greatly exaggerated in certain news reports" and "anticipates no meaningful impact on its business."
"I don't think I'm going to jail," convicted fraudster Martin Shkreli told Fox News, suggesting that "just being a flamboyant and personable figure" landed him in prosecutors' gun sights. He was found guilty on Aug. 4 of three of eight federal criminal charges he faced, including one count of conspiracy to commit securities fraud related to Retrophin (NASDAQ:RTRX).
A lot of activity from Elliott Advisors... The activist investor has increased its stake in BHP Billiton (NYSE:BHP) to 5%, boosting shares 1.4% premarket. It has also reached a deal with AkzoNobel (OTCQX:AKZOY) that will suspend litigation for three months, fully separate its specialty chemicals division and support management and board members.
The nation's largest movie theater chain isn't ready to embrace a plan to bring Netflix-style (NASDAQ:NFLX) subscription pricing to multiplexes. AMC Entertainment Holdings (NYSE:AMC) is seeking to block customers of MoviePass from seeing films in its more than 600 theaters after the third-party service dropped the cost of its unlimited movie pass to $9.95/month.
The fourth largest high grade debt sale of 2017! Amazon (NASDAQ:AMZN) has sealed a $16B corporate bond offering, a move designed to fund its acquisition of Whole Foods (NASDAQ:WFM). It comes after Amazon added "Instant Pickup" to its brick-and-mortar push, allowing shoppers to retrieve items immediately after ordering them. The program will first roll out at five U.S. college campuses.
In Asia, Japan -0.1%. Hong Kong +0.9%. China -0.1%. India +1%.
In Europe, at midday, London +0.6%. Paris +1.1%. Frankfurt +0.8%.
Futures at 6:20, Dow +0.2%. S&P +0.2%. Nasdaq +0.3%. Crude +0.3% to $47.69. Gold -0.3% to $1275.80.
Ten-year Treasury Yield +1 bps to 2.28%