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12May2017 Pre-Market Commentary: Wall Street To Open Lower, WTI Crude In The High 47 Handle, Core CPI And Retail Sales Came In Lower Than Expected

Written by Gary

US stock market futures point to a fractionally lower opening today (SPY -0.2%), while the dollar is heading for its best week of the year. In addition to U.S. data, investors will be keeping an eye on a two-day meeting of G7 finance chiefs in Italy.


Here is the current market situation from CNN Money

European markets are higher today with shares in London leading the region. The FTSE 100 is up 0.25% while Germany's DAX is up 0.19% and France's CAC 40 is up 0.08%.

Thursday's Key Earnings

Nordstrom (NYSE:JWN) -4.1% AH on falling comps.
Macy's (NYSE:M) -17% as weak sales continued.
Teva (NYSE:TEVA) +2% with plans to offload assets.

Today's Markets

In Asia, Japan -0.4%. Hong Kong +0.1%. China +0.7%. India -0.2%.
In Europe, at midday, London +0.1%. Paris flat. Frankfurt +0.1%.
Futures at 6:20, Dow -0.2%. S&P -0.3%. Nasdaq -0.2%. Crude -0.2% to $47.76. Gold +0.4% to $1228.60.
Ten-year Treasury Yield -2 bps to 2.37%

Today's Economic Calendar

8:30 Consumer Price Index
8:30 Retail Sales
9:00 Fed's Evans: Monetary Policy
10:00 Business Inventories
10:00 Consumer Sentiment
12:30 PM Fed's Harker: Economic Outlook
1:00 PM Baker-Hughes Rig Count

Looking at the last three columns (below), the first one (Actual), is what was reported this morning. The second column (Forecast) is what analysts had forecast and the third column is the previous report. Full calendar HERE.

Futures point to lower open on Wall Street ahead of big day of data

What Is Moving the Markets

Here are the headlines moving the markets.

World stocks retreat from record highs as valuations give cause for a pause

LONDON (Reuters) - Global stocks paused near record highs as worries over China's banking system provided an excuse for investors to lock in some profits. The dollar was set for its best week of the year on bets the Federal Reserve will raise U.S. interest rates in June.

Futures slip with focus on retail sector

(Reuters) - U.S. stock index futures were lower on Friday ahead of a barrage of economic data, including a report on retail sales that is closely watched by investors to gauge the strength of the economy.

Fiat Chrysler recalls 1.25 million trucks for software error

WASHINGTON (Reuters) - Fiat Chrysler Automobiles NV said Friday it would recall more than 1.25 million pickup trucks worldwide to address a software error linked to reports of one crash death and two injuries.

U.S., China agree to first trade steps under 100-day plan

WASHINGTON/BEIJING (Reuters) - The United States and China have agreed to take action by mid-July to increase access for U.S. financial firms and expand trade in beef and chicken among other steps as part of Washington's drive to cut its trade deficit with Beijing.

Top-10 Glaxo investor Woodford sells out, criticises board

LONDON (Reuters) - British fund manager Neil Woodford said on Friday he had sold out of pharma company GlaxoSmithKline after a "frustrating" stint as an investor spanning more than 15 years.

GE's Immelt bets big on digital factories, shareholders are wary

GROVE CITY, Penn. (Reuters) - At a General Electric Co factory in this rural town, Keith Spahn, 60, used to take measurements of parts from railroad locomotives that are in for repair by hand.

U.S. judge calls for criminal probe into trade secrets theft raised in Uber case

SAN FRANCISCO (Reuters) - A U.S. judge on Thursday called for an investigation into allegations of trade secret theft that were raised in a court battle between Silicon Valley giants Uber [UBER.UL] and Alphabet over their rival self-driving car programs.

At G7, world finance chiefs are trying to gauge Trump's plans

BARI, Italy (Reuters) - Finance chiefs from some of the world's richest nations began a two-day meeting in Italy on Friday, with Europe, Japan and Canada hoping to come away with a clearer picture of U.S. President Donald Trump's plans on important policies.

U.S. used-car glut is a dealer's dream, automakers' nightmare

ORWELL, Ohio (Reuters) - Three years ago if a customer walked onto Dan Reel's used car lot seeking a late-model off-lease Ford Escape, his answer was short: tough luck.

Home Capital Depositors Have Withdrawn 94% Of Funds In Past 6 Weeks

According to its latest daily update, Canada's biggest non-bank lender Home Capital Group showed the rate of withdrawals by depositors was slowing, one day after the company raised doubts about its ability to continue as a going concern, albeit for a simple reason: there are almost none left. In other words, over the past six weeks, depositors have withdrawn 94% of funds from Home Capital's high-interest savings accounts since March 28, when the company terminated the employment of former Chief Executive Martin Reid.

Also on Friday, Home Capital said its liquid assets stood at C$962 million at the end of Thursday, which, combined with the total undrawn on the HOOPP credit facility (which as a reminder yields 22.5%) gives the distressed company access to C$1.56 billion in available liquidity and credit capacity.

Also overnight, Home Capital released the terms of the usurious credit facility with the Healthcare of Ontario Pension Plan, that was first announced April 26 in a May 11 filing.

Here are the details via BBG:


C$2 billion credit facility is secured against two pools of mortgages, Pool A and Pool B, "reflecting two tiers of collateral credit quality"

If collateral from Pool A is pledged, co is able to draw upon 50% of posted value from facility; Pool B allows 26%

This would suggest that the "fair" LTV of HCG's loans, most of which are "less than prime" is somewhere between 26% and 50%, and begs questions where other alt-lenders are marking their own books, not to mention what loss reserves thay will be forced to disclose soon as a result of the HCG fiasco.

Additionally, the company revealed that

Frontrunning: May 12



World stocks ease off record highs, Fed rate hopes boost dollar (Reuters)

Trump Escalates FBI Fight With Comey Attack. The FBI Fights Back (BBG)

Trump attacks on fired FBI chief meet resistance (Reuters)

China Stocks Are Tumbling Again. This Time, the World Doesn't Care (BBG)

Yuan Becomes Oasis of Calm in China's Volatile Markets (WSJ)

U.S., China agree to first trade steps under 100-day plan (Reuters)

Home Capital Says Reputational Hit Casts Doubt on Survival (BBG)

Indonesian Islamist leader says ethnic Chinese wealth is next target (Reuters):

It Just Got Harder to Move Staff to Frankfurt After Brexit (BBG)

U.S. airlines meet with Homeland Security on expanding laptop ban (Reuters)

Attorney General Revives Policy of Tougher Sentences for Drug Offenders (

BofA Has A Last Minute Warning Ahead Of Today's Retail Sales Number

With retailers reporting abysmal Q1 earnings data, there is much at stake in today's retail sales report, perhaps even more than in the CPI report (which either this month, or June at the latest, will post a steep drop due to energy "base effect" as oil prices today are now lower than a year ago). Yet despite the deplorable earnings reports by prominent retail names , Wall Street remains optimistic and expects a strong rebound in April, with consensus looking a +0.6% mom headline print increase and +0.4% mom rise in the core.

Such expectations may prove overly optimistic. The reason is that according to the latest Bank of America's internal credit and debt card spending report, retail sales ex-autos increased far less than consensus expects, or 0.2% mom seasonally adjusted. This leaves retail sales ex-autos running at a 0.1% mom rate on a three-month moving average. And while there are month to month fluctuations, the BAC data has converged with the Census data on a three-month average, which according to the bank suggest that "there are slight downside risks to the consensus forecast for Friday's retail sales report. (Note that the BAC data in the chart is as of April while the Census data is as of March)."

Furthermore, the biggest risk appears to be in the divergence between actual data in grocery store spending and the government's seasonally adjusted estimates. BofA explains:



There has recently been a gap between our data and the Census Bureau figures for overall grocery store spending. Our data shows that card sp ...

About That "Underwhelming" US-China Trade Deal: Much Less Than Meets The Eye

Overnight, the US Department of Treasury released the initial result of the 100-day Sino-China trade and economic negotiations, a month after the presidential summit at Mar-a-Lago in early April. Under the negotiations led by Steven Mnuchin and Secretary of Commerce Wilbur Ross in the United States and Vice Premier Wang Yang from China, the two countries reached agreements on some "early harvest" items and made progress on some key issues in agricultural trade, financial services, investment, and the energy area.

While there were no surprises in the agreement, whose terms had been leaked previously by the president himself, here are some of the key details per Citi:

Consensus reached to open China's market wider for US agricultural and energy products

On agricultural trade, China will allow imports of US beef on conditions consistent with international food safety and animal health standards and consistent with the 1999 Agricultural Cooperation Agreement, and will hold a meeting in May to conduct science-based evaluations of pending U.S. biotechnology product applications. Meanwhile, US promises to resolve the issue on importing cooked poultry products from China. In the energy field, US will treat China no less favorably than other non-FTA trade partners with regard to LNG export authorizations.

China to give wider access for US financial services industry

Out of the ten bullets, half of them focus on financial services. By 16 Jul 2017, China will allow wholly foreign-owned financial services firms in China to provide credit rating services, and begin the licensing process on credit investigation and electronic payment services. Most importantly, China will issue both bond underwriting and settlement licenses to two US banks. The US is also expected to make concessions on Chinese banks' operations in the US.

China Trade Plan Is Big Deal for Natural Gas

Trump's 10-point China trade plan contains a plug for U.S. natural gas exports. Such an alignment of interests could have collateral impacts on other gas producers especially Australia and Russia.

Beware Companies Taking Too Big a Bite Out of Apple

Companies that supply Apple have been on a tear across Asia. But many are vulnerable to the tech giant's whims.

AIG Gets a CEO Who Can Stand Up to Icahn

American International Group is poised to choose a strong hand to restore confidence in the insurance giant. AIG plans to name industry veteran Brian Duperreault as chief executive, The Wall Street Journal has reported.

Rail Week Ending 06 May 2017: A Relatively Good Week

Week 18 of 2017 shows same week total rail traffic (from same week one year ago) improved according to the Association of American Railroads (AAR) traffic data. The economically intuitive sectors again declined.

Economic Report: Retail sales strengthen in April, brightening economic outlook

U.S. retail sales rose 0.4% in April, the Commerce Department said Friday.

Economic Report: U.S. consumer prices rebound in April

U.S. consumer prices rose 0.2% in April, the Labor Department said Friday.

Market Extra: Exclusive: Lawyer for man dragged from United flight isn't laughing at viral New Yorker cover

Dao's attorney, Thomas Demetrio, partner at Chicago law firm Corboy & Demetrio, told MarketWatch that the cover art, although "clever" minimizes his clients pain and suffering.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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