The Banking and Strategy Initiative

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The week ahead, US Economy and Markets: June 23, 2014 – June 28, 2014

It’s Monday Again: Iraqi Oil, Mark McKenna at Blackrock’s new avatar, College Endowment Funds and US Housing Blues

Iraqi Oil troubles scored a new cycle high for Brent Crude at $114.83 as stock futures trade flat to 10 points lower in the new week, underlining resilience in the equities markets and returning investors as the Economic tea leaves continue to point to developing exits from High yield, IG bonds and US bonds that continue to trade however at ultra low yields of 3.4% on the 30 yr bond and 2.60% on the 10 year bond.

Blackrock in the meantime finally announced its first event driven fund with Harvard’s Mark Mckenna heading the Event based Strategy fund (like the Fidelity Special Situations Fund of repute in decades gone by) even as industry outflows shore up and EM debt and equity funds provide some respite from the low rate environment. The thought of bond portfolio losses has taken trading business in FICC down to 21 days of losses at JP Morgan this quarter (Sanford Bernstein/Daniel Pinto) but a long winded earnings season and the new Amazon Fire phone underline the high confidence level of food and retail chains.

Kroger posted the last earnings report of the season with sales up in double digits much like Starbucks new unbeaten record, and at $33 bln Kroger includes a $1 Bln from Simple Truth, its own organic food brand that has popularly featured in revues(=good old song and dance ‘in the press’) celebrating the death of Whole Foods’ untenable premium pricing in the same Organic foods segment.

Last week’s Economic data reports showed new highs on the Philly Fed index at 17.3 as we predicted, near its peak in a block of 3 years since March 2011. The Mid west will also follow Chicago leading indicators and the Chicago PMI into new robustness in housing data as we come to the Existing And New Homes Sales reports today and tomorrow. The Midwest was the last subdued region of Housing pick up , after an early peaking post crisis in the East and continuing high prices in the West took care of business underlining 10-12% growth in housing data leaning on Multifamily units in the absence of singe family unit buoyancy and good enough for CRE investors to start making some comeback moves in the commercial sector as well this year. However BofA is still at a crossroads trying to close a deal with Tony West ( in Eric Holders office) including their not good enough offer yet of $6 mln in FHFA penalties. Citi is similarily expected to ramp up its penalty scores after an early judgement that let them get away with $270 mln in fines was successfully challenged. JP Morgan’s $13 Bln settlement with $4.5 Bln in FHFA fines has set the bottom for regulators who are trying to also close out other deals before the November Elections when Holder also remits office

Meanwhile College Endowment funds seem to have come to a new cross roads though a far cry from the $1 bln fund Harvard started with to extend investment charters a decade or so back. The $33 Bln fund now saw high profile exits with a 11.3% score for the 2013 year and endowment funds again underlining a bare sub 5% score at ivy league funds including University of Chicago and Dartmouth College, with i-Bank cirriculum specialists at Columbia and U Penn also under 7% at the top for a block of 5 years

In more fines, BNP Paribas is paying a likely $9 bln for ignoring US sanctions and Barclays and UBS , also in Europe go to town with a technology solution to overcome the impasse caused by the breakdown of FX desks and still looking at more than a third cuts in FX and rates business for the quarter ending next week. the Pound Sterling in the meantime scored its first 1.70 of the season and will likely still cross higher having covered a lot of ground on the Euro which will however define the downtrend fro both currencies as the Oil Crisis devolves out and the ECB and Deutsche Bundesbank continue to nod rightly having started off a process of added liquidity for correction in the European markets . China set up its first Yuan liquidity desk in London last week as well. European Services data also corrected again from last month’s highs as reported before the US open.

After Yellen’s no nonsense presser that allowed the media to update their rate hike forecasts and buoyant inflation reports counting as noise nevertheless the week will see more focus on end of month data ready for play next Monday as the Tuesday afternoon release of the S&P Case Schiller Index is followed by the Durable goods order data and GDP data release on Wednesday. The Durable Goods data will show improvement without help from Boeing orders. The GDP based inflation scores are likely to be a healthy 1.3% but the GDP degrowth is likely going to be an unwelcome shock for the markets though the Fed also downgraded annual forecasts. Investors would also have been spooked for Wednesday by the Tuesday afternoon report from the State Street investor index which hit a high of 119.5 in May. Key month end data from Japan is due after hours on Thursday and the China Flash data , looking weak as markets trend down back to 2020 in Shanghai, will be published Monday night next week.

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This entry was posted on June 23, 2014 by in Uncategorized.

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