The Banking and Strategy Initiative

Chillin' out till it needs to be funded

It’s Monday Again!: A great recovery in February as stores sales improve with the grain US:GS, US:SBUX, US:TSLA, US:JPM, US:WFC, US:DIS, EEM, US:KSS, US:GPS, US:M, US:PNC, US:KBW (US Economy & Markets : The Week Ahead March 10 – March 14, 2014)

A flurry of retailers results announcements all of the last week of February more or less covered for the restated US GDP to 2.4% in Q4 and Auto sales were an important 15.5 mln as expected even as Ford and GM posted negative growth numbers. While the January contraction in market share for the US giants was expected because of Ford phasing out its earlier F1 trucks, this month was expected to have better reports from the 2014 model introduced by Ford even as GM kep tackling the issue of piled up inventories with record incentives continuing into a snowy March

Pending Home Sales in the same week were another concern even as Month on Month camparisons showed a positive uptick in January data but the contract signings were a good 9% lower from a year earlier even as December contracts were revised to a -5.7% contraction instead of the -8% reported last month. China’s composite PMI finally ticked blow 50 putting paid to a global rally even as India and US emerged as leading Global Economies esp with equity markets in both nations celebrating a vote of confidence in their economic chutzpah

Even in China the Services PMI has already recovered strongly and Februarys trade data showing upa big deficit in tradeis actually on par with Chinese longer term design under the new charter hoping to generate growth from Domestic consumption. However the FEbruary trade deficit fro China may well be just a one off number which managed to depres all of Chinas vendor economies in Asia as Exports from China were sub par in February

The deficit data also falls in line with an expected Depreciation in the Yuan for the rest of 2014 as the Oil rally went phut after tempers were frayed quickly in Ukraine but the impact lost with a quick resolution in 24 hours. Crude is now trading at 108. The Euro also seems to have decided to take another go to 1.40 after no rates cuts were announced last wee but the currency will likely start selling off with the Dollar index not bending over after a long stay under 80 levels and the best targets for European recovery remain insipid, more so because UK announces a successful recovery to normal pre crisis levels in 2014

BofAs Moynihan in the meantime joined other Big Four CEOS in hefty awards taking the 2013 stub to $14 Bln. Mike Corbat landed just ahead at $14.4 Mln and Lloyd Blankfein at Goldman Sachs and Jamie Dimon at JP Morgan landed $26 mln and $20 mln respectively. The CCAR submissions will likely also see a good Capital plan from BofA to join the other three as the details of the Capital regulations seem to tie in perfectly with the preparations the big banks have been making since 2008. With the new TRUPs clarficications it is also a better time to back midsized US Banks like PNC Financials , even as small as SBNY (Signature Bank of New Ypork) though one wonders why US Bank is not leading in this rush and the community banks

Meanwhile short interest in theoverall market came as quickly as it had disappeared in February with the February 26 dateline showing an almost 10% jump and 13F reports from Hedge funds like Allianz and Greenlight also showing large shorts on the S&P 500 in SPY trades at the index peaks near 1860 on the S&P 500. Goldman Sachs and the Big Financials in the meantime used the first week of Marhch to break away from thier stasis in February ahead of great 2014 Q1 results just a month away though shorts on BAC (BofA) are also up 15% JP Morgan is trading 70 and may well .break out from the channel near that mark ( unlikely) while Goldman Sachs has moved on to 170 levels

After the Emerging Market – OECD markets ratio of growth in the rest of 2014 was sorted out with deprioritizing of single factor dependent monochrome EMs in favour of diversified markets like India, shorts on the Emerging markets ETFs like EEM also continue receding in March

Among lifestyle stocks, we expect Starbucks to blaze a trail in Marchand the next quarter as it starts back from a medium term bottom around $73 having posted a 5% same store sales lasta nd expecting to repeart the performance in Q1. In retailers on the other end of the spectrum of lifestyle stocks, Kohls and even JC Penney seemed to have a great story to tell with Krogers finally dropping the Safeway bid, which also turned in a creditable performance before getting done for $7.3 Bln with Crebrus which already owns a couple of other franchises.  Gap also turned in anoteworthy performance, almost better than big brother Macy’s and ready to roll on great gains in Operating margins and continuing restructuring gains this year. Tesla seems to have peaked with short interest likely to challenge investors  while Disney looks comfortably poised to lead market gainers in 2014

In asset classes unconstrained bond funds survived the first quarter well but the flight to safety probably means IG debt funds are back in the radar and MLPs struggle to make a mark with Munis stealing the limelight in new GO and sub issuance in February

The Friday Jobs report again underlined that the $10 Bln monthly improvement in Taper will continue and that a good year will count for around 30k lower jobs even with the Public sector now adding jobs and the almost static 11 Bln and more unemployed and discouraged workers slowly returning to the workforce though the overall productivity ration is unlikely to go back to pre crisis highs. The Consumer credit boom, esp the rolling credit jump in December is also turning down as we speak, March report for January suggesting Consumers had started hawkishly guarding their credit card balances again, now that holidays are over and consumption expenditure and prices have shown an uptick despite the snow and the heating bills

US 10 yr yields however are back to below 2.7% levels in this fortnight of action past with the US bonds the only haven in the rush to safety  even as Gold caps off a mini rally on news of a fractured recovery and continued global pains from China

Tomorrow’s JOLTS data could show record number of openings above 4 million after a long gap, while chain store sales data and the Redbook will find any positive score greatly energising markets and financial commentary. More retail sales reports give investors food for thought in the week later bu tthe Job less claims data, already having spiked twice from new lows near 300k, may well return to higher 340-350k levels this week and Inventories as Q3 and Q4 GDP analyses have much admitted are already at near lifetime highs and unsustainable levels mean no cheer even is they continue growing even as fuel rises on the Pump will also mean more drawdowns in EIA inventory show up optimistic of  better than 3% growth in 2014 in the week’s last report on Thursday before the FOMC meeting next week

Reports from Emerging markets banks at HSBC and StanC in the last week were also palpably positive and resilient despite minor setbacks in China and Korea for the UK based banks. HSBC also hopes to maske a grand return in UK mortgage banking and retail/wealth markets in the UK this year as Transaction abnking spreads return to normal but mainland Europe remains in the red in credit books leaving French houses including SocGen and BNP and others like UBS and Barclays a t a big enough disadvantage and carrying on a high cost disadvantage survival , bonuses in Europe creating much larger heartburns even as regulators try to look the other way

Next weeks FOMC meet, alongwith India’s Policy announcements on Tuesday will both be followed by long press conferences, a first for Janet Yellen on Wednesday

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