The Banking and Strategy Initiative

Chillin' out till it needs to be funded

Its Monday Again!: Coke takes on Brazil, Euro moves down as EM debt continues in preference. US Economy and Markets (The week ahead- June 09 – 13, 2014)

brasilEven as Brazil faces a tepid response to the FIFA 2014 extravaganza and 2014 forecasts are cut from 2% to 1.44% after a slow 2.3% in 2013, Coke is moving in for a rich dividend in Futbol season as Rio’s favelas get lesser public airs than the fortunes of 32 soccer playing nations, including two Asian nations and many Latin American stars from Chile and Costa Rica to Uruguay and Argentina battling with Portugal and Spain to keep the Cup away to the Americas for another four years. The 2018 tournament is in Russia and redubitably the 2022 world Cup was awarded to rich but new Qatar. The World Cup kicks off on thursday weathering a tepid response to the mascot J Lo song as well

Meanwhile from the week earlier, celebrations in Europe over Draghi’s one handed “structural” moves tweaking policy rates to 0.15% and a negative deposit rate of -0.10% irrespective of added promised liquidity thru asset purchases of 7% of only non Financial sector advances Most asset purchase programs will likely depend on a Euro system of Central Banks to become more of a Banking union before making an impact. This is thus almost a salutory change barely holding for the Euro debt buyers and currency traders to Euro levels at 1.36. The equity rallyin Europe in the meantime also needs to exit local economy stocks having peaked on the same steam but may survive the rest of 2014 on Global memes including Pharma, Consumer and Construction originating from Europe. EM debt and Struct Finance tranches plays continue to hog yields and US Trsry remains down to 2.6 % on the 10 year bond belying the expected moves out into risky assets in a recovery year

China has also added another RRR cut for its second/third tier of smaller banks but is unlikely to hold growth at tepid 2013 levels , likely to go below a 7% growth mark in 2014. Meanwhile EM debt plays drive Turkey and Argentina to another cantankerous tippler trade while new look India hogs the best performance awards scoring the best in 2014 though without much higher inflows.

Back in the US revolving credit made a minute comeback to become one in three parts increase in consumer credit in May, for the first time showing up in bank coffers and inflation reports were positive. PMI was changed twice before reporting a record breaking 56 despite an unchanged employment score of 53.7 mostly on increase in demand with new orders above 58

Auto Sales for month reported a healthy 13.3 mln rate domestically and 16.8 mln including exports at an all time high as expected after a continuing high on the Chicago PMI from a high 63 in April to 65.5 in May. Factory orders spurred the markets belying fears on a trough earlier last month from a dip in aircraft orders in the Durable goods report. Services sector was back up in Orders and in the Non manufacturing ISM report including a new high in export of information and management services.

Equities however teeter to the 17000 mark in the new week on Deal news more than anything else with new highs spurred on despite increasing risk at new levels and most funds still tied up in safer debt business strengthening the continued oversupply mechanisms for Central Banks including the Fed keeping rates low till 2015 in hope of an unviable recovery mark beyond 3-3.5%. VIX closed last week at a low 11% even as McDonalds opened sour again on Monday with a1% cut in same store sales in America against an expected shoring up in this month(May)

The sing song ADP Private payrolls and the Friday BLS Jobs report were also good for the market sentiment which however is looking at a further increase in the reports from BLS to even 320k in the latter half of the year as a random return to 310k in the jobless claims reports spooked the markets earlier during our short holiday in May

Retail store sales reports with the Redbook due this week may again swing past without cheer after an extended snow season  as Chain store sales reported flat last week with Easter sales shifting to April this year

Deals include a $8.55 Bln Jimmy Dean bag for Tyson foods, the all cash offer $8 higher than Pilgrims. The Jimmy Dean Sausage addition, from the Hillshire Brands (US:HSH) purchase, shows the likely focus on retail lifestyle in quick foods, ready foods and even in retail stores like Kohls and Nordtrom ( expanding in Canada) with Seattle’s big announcement of a $15 per hour minimum wage not turning out the proverbial straw on the camel’s back as far as the robust pipelines of dealmaking is concerned. Marriott’s raised a cain too early on Monday with its earnings report in end April showing the best Revenues over Available Room in a long time

Dollar General (US:DG) somehow celebrates the Carl Icahn stake of 9% revealed in Family Dollar stores that pushed these (US:FDO) 15% higher. Morgan Stanley meanwhile sold its stake in the oil transportation and storage business Transmontaigne

Meanwhile Merck ( not the us based co but US:MRK) has managed to snag a Hep C drug portfolio with a $3.85  Bln purchase of Idenix (US:IDIX) and Apple’s 7 for 1 stock split is likely its ticket into the Dow average apart from finally breaking the run of bad returns despite an increase in Capital returned to shareholders from debt financed buybacks as it remains low on expected innovation in a busy product launch season still not done for 2014 despite a yosemite launch in May

Data this week includes the usual midweek morning blasts on MBA applications, stirring up hope of a resumed recovery on lower mortgage rates and the Job claims report Thursday even as Import and Export prices on Wednesday at best report  a continuing positive but lower than minimum inflation to sustain the Economy. The Retail sales data on Thursday will finally include a 0.6% bump including Autos and gas and another increase in Business inventories to keep pace with Sales.

The Ameritrade investor sentiment index is likely to show up better again after a fiesty fight between the buills and bears in march and April failed to bring down indices and the Bloomberg index last week is likely to continue to a better consumer sentiment index before the week closes on Friday. The week’s H.4.1 report which already shows the Fed Balance sheet at close to $5 Tln may not show much change but the June edition of the Household wealth report is already out mostly spurred on by increases in stock ($360 bln) and Realty ( $760 Bln) to an unrealistic $81.8 Bln even as middle class incomes continue falling in America. Also the rpeort showed an anemic rise in mortgage debt with Household debt remaining a subdued 2% higher as card debt remained slow and steady over the last 3 years. Public debt is still increasing despite the austerity and budget cuts up 7% this first quarter

Coca Cola is also increasing its stake in Keurig announced last week to 16% from the initial 10% as the erstwhile GMCR changed names in 2013 to its most popular singles and Coffee market saw consolidation in May with Mondelez/Kraft exiting their coffee business


This entry was posted on June 9, 2014 by in Uncategorized.


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