markets

Market Strategy – Canaccord

The lack of security features on Internet of Things (IoT) devices could have fatal consequences, according to expert testimony at a recent House Energy and Commerce Committee hearing. As reported by Technology Review, computer security experts testified that computers used in hospitals and other sensitive facilities to control elevators and ventilation systems feature poor security. As a result, these connected devices are vulnerable to hacking, like the webcams, camcorders, and baby monitors that were attacked to cause a widespread Internet outage in the eastern U.S. in October. However, an attack on a hospital could have far more serious consequences than lost Internet access,

and result in the loss of life. While the Dept of Homeland Security and National Institute of Standards and Technology have issued guidelines on securing IoT, some believe the government needs to create a regulatory body to test and approve IoT devices and set universal device standards. The growing adoption of IoT devices will continue to underscore the importance of security, thus benefiting IT hardware and supply chain companies with strong security offerings, including HPE and IBM, as well as those companies manufacturing IoT devices.

markets

JPM – Early Look – 12/5/2016

  • Market update – the Italian referendum outcome, while “bad” as far as risk sentiment is concerned, was also very consistent w/market expectations (the magnitude of the loss may have been a bit larger than anticipated but regardless “No” was expected to emerge victorious and contrary to other recent political events like Brexit or Trump, Renzi’s resignation isn’t likely to represent a seminal shift in either Italian or European politics).
Greg Blotnick - Lights
Greg Blotnick – Lights

 

  • Markets saw brief weakness following the Italian referendum news but have quickly reversed – the EUR hit 1.05 but has since rebounded to 1.06+ (it is flat-to-down small), US futures touched 2179 but have since rebounded to ~2200 (up ~7-9 points), and Eurozone equities are up ~1%.  Asian markets finished in the red, a function of timing (i.e. they closed before the post-referendum dislocation abated) and to a lesser extent the Taiwan/China news from the weekend (Trump talked to the Taiwan president late on Fri in a significant breach of protocol and decorum and he followed that up w/a tweet Sun night critical of China; while Trump’s team and the media are playing down the Taiwan call, the Washington Post said it was premeditated and deliberately provocative).  With Italy out of the way the calendar of major macro events left on the 2016 thins even further (other than the ECB on 12/8, FOMC on 12/14, and 2017 guidance from industrials such as GE, there aren’t many scheduled catalysts left this year).  However, the recent Trump trade/foreign policy comments does represent an underappreciated source of risk while his fiscal/regulatory agenda may be moderated/delayed as it makes its way through Congress (in fact the Taiwan developments and the Trump trade-related comments/events of the last week are arguably more incremental than the Italian referendum in that the former hasn’t been a big area of focus while the latter was very expected).
  • Calendar – the focus for Mon 12/15 will be on the US non-manufacturing ISM (10amET), Fed speakers (Dudley, Evans, and Bullard), and some analyst meetings (BDC, HA, BSFT, JCI, JUNO, Roche, and SLG).
  • Eurozone equities – the SX5E and SXXP saw brief weakness at the open before quickly rebounding (each is now up ~1%).  All the major sub-groups are higher but autos, insurance, luxury, and retail are outperforming.  Real estate, energy, and utilities are lagging (but each is still trading higher).  The Italian FTSEMIB is underperforming the rest of Europe (but is only down small).  The SX7P bank index is up ~0.75% although Italian banks are lagging.  Luxury stocks are outperforming (Swatch, Christian Dior, Richemont, etc.)
  • Treasuries/sovereign bonds – TSY yields are up small (2 and 10yr yields are up 2 and 3bp, respectively).  In Europe, Italy is the big focus – 10yr BTP yields are up ~12bp to 2.01% (keep in mind though that they are lower than the recent high of 2.13% set back on 11/24).  10yr yields are largely higher across the board in Italy (even Bunds where 10yr yields are up ~5.5bp).
  • FX – the DXY rose overnight after the Italian news but has faded from its highs and is now up ~20bp.  The EUR hit ~1.05 overnight but has since bounced to ~1.06 (flat-to-down small).  The JPY was flat at the time of the Japanese close but has since come for sale (it is off ~60-70bp vs. the USD).  The NZD is down ~80bp after the unexpected resignation of the country’s PM.
  • Asia – most of the major Asian markets finished in the red: Japan (TPX -0.75%, NKY -0.82%), HK (Hang Seng -0.26%), HSCEI -0.71%), mainland China (SHCOMP -1.21%, Shenzhen -0.78%, CSI 300 -1.69%), Taiwan (TAIEX -0.31%), Korea (KOSPI -0.37%), Australia (ASX 200 -0.8%), and India (up ~0.5%).  India was the only major market to see gains.  If the Asian bourses could have stayed open for a few more hours they likely would have performed better but unfortunately they had to close in the hours immediately following the referendum.  Asia-specific news was pretty quiet although the Trump/Taiwan/China news from the weekend did seem to weigh on sentiment a bit.  The services PMIs didn’t have a huge impact on trading.
  • Japan – it was an extremely quiet session to start off the week with a Risk-Off mood after a “no” vote in Italy. NKY traded lower as $/¥ couldn’t reclaim its ¥114 level after the dip over the last weekend post US NFP and ahead of the referendum. The rotation into Beta has run out of steam with Banks -1.8%, Insures -0.8%, Other Financials -1.4% lagging. On the flip side, Cyclicals remained strong as all commodity-related including Shippers +0.3%, Trading cos +0.3%, Machinery +0.1% rose on the back of iron ore, crude, and coking coal. In single stocks, SUMCO +3.8% rose on news Chinese Group may acquire wafer maker Siltronics as consolidation reignited hope for wafer price hikes. CHUGAI fell 2.2% on Shire’s report of adverse events FEIBA when used with a biosimilar to ACE910 for hemophilia (Roche/Chugai). SQUARE ENIX rose +3.5% on weekend Final Fantasy 15 sales updates. FAST RETAILING fell -2.2% on WTE SSS in November showing the divergence in 1H and 2H November results in the sector. Within retails, Ryohin Keikaku -0.3%, Adasria -4.4% slumped on inline Nov. SSS while only United Arrows +0.9% bucked the weak trend.
Greg Blotnick - Metals
Greg Blotnick – Metals
  • Hong Kong/China – HSI headed slightly lower -0.26% following a series of macro headwinds (Italy and Trump/Taiwan).  SHCOMP underperformed on fear of trade/currency war with the US (Trump’s Sun night tweet didn’t help).  Sector wise Rails -2.1%, Steel -1.9% and Infrastructure -1.7% plays were hit the most while Macau gaming stocks +2.1% were the clear outperformer. Macau ripped on ongoing re-rating and headed back towards 52-week highs; JPMorgan’s DS Kim raised PTs across the board to model the secular growth (Galaxy +2.5% Wynn +3.5% Sands +2.05%). For the HK insurers, Daily reported that China Unionpay card Nov overseas insurance deals plunged, AIA +0.55% reacted negatively and came off its highs. In the HK props CKP -1.26% fell hard after the announcement it will acquire aircraft leasing operations from CK Hutch -0.43%. Additionally CK Infrastructure -0.31% made a firm offer to acquire Duet Assets for A$3/ share, or a 28% premium. In the auto space, BYD -3.42% broke down on further speculation of EV subsidy cuts; Brilliance +1.31% pushed higher on growth expectations.  Lonking reacted very positively to the positive profit update up 7.50% in a red tape.
  • US macro updatetying all the recent moving pieces back to the SPX results in a relatively unchanged outlook.  Improving nominal growth (a trend underway well before the election), anticipation of the Trump/Ryan fiscal/regulatory agenda, favorable seasonality, and performance anxiety/chasing from people left behind by the post-11/8 rally are acting as tailwinds but headwinds include higher yields, a stronger USD, very elevated political expectations, and growing headline risk around trade/foreign policy.  Central banks have been an afterthought lately but two important decisions will be made in the next two weeks as Draghi and the ECB (on Thurs 12/8) announce the fate of the post-Mar APP (the market is anticipating a 6 month extension at the current EU80B pace) while Yellen and the Fed (on Wed 12/14) not only hike rates (which is widely expected) but update their 2017 dot and growth forecasts to account for the myriad recent economic developments (improved nominal growth, 4.6% UR, the potential for stepped up fiscal stimulus, etc.).
markets

RBC on Trump – the 2017 playbook

December 5, 2016
2017 Outlook – The Trump Playbook

 

greg blotnick rbc.png
Trump On Rally
Interest rates and inflation expectations have jumped over the past five months on the back of a tight labor market and the promise of Trump’s pro-growth policies. While the market’s recent rotation might seem abrupt, the S&P 500 is up only 3% since election day, leaving it with substantial potential upside.
2017 S&P 500 Price Target of 2,500
In our post-election report “A Whole New World – Biggest Paradigm Shift Since Reagan”, we wrote, “we believe that rising earnings and multiples will push equity returns into the double digits from our previous high-single-digit baseline.” Consistent with this view, we are initiating a 2017 price target of 2,500, representing 12.4% potential upside (before
dividends) from our current target of 2,225. See pages 4–5 for details.
EPS to Reaccelerate (2016: $119, 2017: $128, 2018: $140)
Following two years of near-zero growth, we expect profits to re-accelerate. A better
operating environment for Financials and Energy should contribute to faster growth in 2017 (+7.6%). 2018 EPS growth (+9.4%) assumes a 2–3% impact from Trump policies. This place holder for changes in taxes, regulation, and spending is quite modest, in our view, as an adjustment to corporate taxes alone could easily double this impact.

Upside to Multiples
Our 2017 year-end target is predicated on a 17.9x multiple on 2018E profits. 2016’s target
assumes 17.4x on 2017E EPS. We believe multiples will advance more quickly than earnings over the near term, as analysts wait for clarity on Trump policies before adjusting estimates. Markets Advance/Rotation in the Early Innings Small Caps and Financials are leading the broader market, up 10.6% and 12.3%, respectively, since the election. The market has been quick to reward low-P/E stocks and those with higher price volatility, as well as names with higher effective tax rates and more domestic business models.

10-year Treasury yields are up 53 bps since election day, 102 bps since July’s low. Bund and
JGB yields have not kept pace with Treasuries, resulting in a stronger dollar.