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03Jul2017 Pre-Market Commentary: Wall Street To Open Higher On The Beginning Of The Third Quarter, WTI Crude Prices Trading Higher In The Low 46 Handle, Gold Spiraling Downwards

Written by Gary

US stock markets are going to close early today at 1 pm. Today futures are pointing to a moderately higher opening (SPY +0.4%) but may falter because of light holiday trading.


Here is the current market situation from CNN Money

European markets are broadly higher today with shares in France leading the region. The CAC 40 is up 1.02% while Germany's DAX is up 0.61% and London's FTSE 100 is up 0.27%.

What Is Moving the Markets

Here are the headlines moving the markets.

Futures higher in positive start to third quarter

(Reuters) - U.S. stock index futures were higher on Monday, with all three major indexes on track to begin the third quarter on a positive note.

Tesla's Musk says Model 3 gets regulatory nod for production

(Reuters) - Tesla Inc's high-volume Model 3 sedan passed all regulatory requirements for production two weeks ahead of schedule, Chief Executive Elon Musk tweeted on Sunday night.

Airbus unveils leaner structure, confirms sales shake-up

PARIS (Reuters) - Airbus on Monday formally kicked off a leaner corporate structure under Chief Executive Tom Enders, following a recent merger between its parent company and its dominant planemaking arm, and confirmed a reorganization of its commercial sales.

France's Danone to sell Stonyfield to Lactalis for $875 million

PARIS (Reuters) - French food group Danone has agreed to sell its U.S dairy business Stonyfield to Lactalis for $875 million, a move designed to address competition concerns stemming from its acquisition of U.S. organic food group WhiteWave.

European shares start third quarter firmer, dollar gains

LONDON (Reuters) - European shares kicked off the new quarter with solid gains as talk of higher interest rates boosted banks, while the dollar rose from nine-month lows as U.S. Treasury yields hit their highest since mid-May.

Britain misses out as global manufacturing surges

LONDON/SINGAPORE (Reuters) - British factories were left out of a demand-driven surge in activity across much of Asia and Europe in June, as weakness in sterling failed to translate into export growth, surveys showed.

Exclusive: Okada sues family in bid to regain control of gambling empire

TOKYO (Reuters) - Japanese casino and slot machine tycoon Kazuo Okada has filed a lawsuit against his son, daughter and wife in Hong Kong in an attempt to regain control of his sprawling business empire, according to a court filing and Okada.

Oil slides as rising OPEC output outweighs U.S. decline

LONDON (Reuters) - Oil prices eased on Monday after rising for seven sessions in a row, as evidence of increasing OPEC crude production snuffed out earlier gains made on the back of data that pointed to moderating U.S. output.

Washington tells India Westinghouse could be sold by year end: sources

NEW DELHI (Reuters) - The U.S. administration has told India that Westinghouse Electric Co will emerge from bankruptcy and be sold by the year end, industry and diplomatic sources have said, raising the prospect of a Washington-supported sale or bailout for the nuclear firm.

Is Gundlach Wrong On 2-Year Notes: Some Thoughts From Bloomberg

After this weekend's mini tweetstorm by Jeff Gundlach on the fate of 2Y Tsys, here is a response from Bloomberg's macro commentator Wes Goodman.

Jeffrey Gundlach, the chief investment officer at DoubleLine Capital LP, says that it's "very hard" to be optimistic on two-year Treasuries with yields at an eight-year high. He may have a point, but they still could be a haven amid a broad bond-market sell-off.

Two year US Treasury yield at an EIGHT YEAR high, AND above the 1Q 2008 rally pivot point. Very hard to find a bull case for that puppy!

— Jeffrey Gundlach (@TruthGundlach) June 30, 2017

While Treasuries may be poised to extend last week's losses, two-year notes will probably dodge most of the declines.

As central bankers from Europe, the U.K., Canada and the U.S. have begun talking about the prospects for tightening, short-term yields should be roaring higher. And they are, in all those regions except the U.S.

The Fed has indicated it plans to raise rates once more in the second half of 2017. That would mark a slowdown in the pace from the one hike every three months since December. What's more, traders aren't convinced policy makers will even move again this year. The odds of a hike by Dec. 31 are barely 50%, based on federal funds futures and the effective rate as calculated by Bloomberg's implied probabilities model.

At least some of the Fed tightening will come in the form of balance-sheet reduction, mitigatin ...

Silver Is Now Offered At a Discount, Report 2 July, 2017

Have you ever been in a discussion about gold, when someone blurts out "we don't have enough gold to operate a gold standard!" We have a standard retort. "Oh, that's interesting. Please tell us how much gold you think would be necessary, and how you calculated it."

We have never heard a coherent answer to this question. Most people just don't like gold, and will say whatever words they think will dismiss the monetary question entirely, without actually having to address the issues.

The common answer from the gold community is not much better, "We could have a gold standard, if gold was at the right price."

Here is the typical logic: divide the money supply by the amount of gold. The result tells you the price of gold to fully back the money supply. Let's first use M1 (we are aware that which measure of money supply to use is debated, but we don't think it much matters). M1 today is $3.5 trillion, according to the Fred Economic Data published by the St Louis Fed.

Divide this by the amount of gold. Often, this is supposed to be the amount of gold held by the Fed itself, some 8,000 tons or 233 million ounces. The answer comes out to $15,000 per ounce.

Or, you could take global M2 money supply of about $70 trillion and divide by total known gold stocks of 180,000 tons or 5.79 billion ounces, which is $12,000 per ounce.

It doesn't work that way. Each ounce of gold is not a bucket, to collect its pro rata share of the dollar rainwater that falls out of the sky.

To use a historical anecdote as an analogy, the Medievals thought that if you throw a rock, it flies straight until it runs out of force, and then it turns the corner and falls straight down. It's tempting, easy, simple, convenient—and wrong. Rocks do not fly that way. And the price of anything, including gold, is not set by dividing quantities.

This approach is based on an assumption, that every printed bank no ...

Musk Announces First Model 3 Delivery On July 28, Forecasts Exponential Growth From There

Tesla stock is popping this morning after Tesla investors and Elon Musk fanboys got some much-anticipated, if largely expected, news on the rollout of the Model 3 when shortly after 11pm Pacific time Elon Musk tweeted that the mid-range model has passed all its regulatory requirements for production two weeks ahead of schedule. "Expecting to complete" the first car Friday, Musk wrote in a Twitter post.

Model 3 passed all regulatory requirements for production two weeks ahead of schedule. Expecting to complete SN1 on Friday

— Elon Musk (@elonmusk) July 3, 2017

The company will hold a handover party for its first 30 customers of the Model 3 on July 28, he said in a separate post.

Handover party for first 30 customer Model 3's on the 28th! Production grows exponentially, so Aug should be 100 cars and Sept above 1500.

— Elon Musk (@elonmusk) July 3, 2017

Tesla aims to produce 100 of the cars in August before ramping up to 20,000 a month in December, Musk said.

Looks like we can reach 20,000 Model 3 cars per month in Dec

— Elon Musk (@elonmusk) July 3, 2017

This is how Musk envisions the Model 3 production ramp up to look like, courtesy of Bloomberg.

SocGen: "Global Stocks Are Trading At 21.5x P/E: What Equities Need Now Is Higher Revenue Growth"

As we begin the second half of the year, which follows one of the best 6-month periods for global stocks in history, largely courtesy of a record ongoing liquidity injection by central banks (which however, is rapidly slowing down), here is SocGen's x-asset strateigst, Andrew Lapthorne, laying out where we stand, noting that the MSCI World positive run continues - at 21.5x P/E, the same level where it was in 2004 from where it continued on a 70% run -even as Europe has its worst month since Brexit, and summarizes that what global stocks need to continue their rally is not high bond yields, but higher revenue growth.

Global developed equity markets managed by a whisker to deliver another positive month in June with MSCI World rising 0.2% in US dollar terms. This enabled the index to maintain is longest monthly positive run - eight positive months in a row - since the 2003/04 recovery when it rose for eleven straight months. As was the case back in 2003/04, this latest streak has been entirely backed by a run up in reported profits, i.e. 100% of the price return over this period was courtesy of higher reported EPS, with valuation changes contributing very little, i.e., the PE multiple, high that is it still is, has stuck at 21.5x over the entire eight months.

21.5x PE is also where MSCI traded back in March 2004, yet despite this high multiple MSCI World went on to deliver a further 70%+ return over the next 40 months. Could we see the same again? Well, profit margins are not as depressed today as they were in 2004 (so potential for margin expansion is more muted) but more importantly sales growth is still in short supply. Globally, sales growth ran at 13% per annum between 2004 and 2007. Switch to the present and we see that even with the pick-up in commodity prices over the last ...

Finally, Something Good From Yahoo

An investment in its offspring, Altaba, offers a high reward if management can reduce its tax liability, and it has limited downside.

China's Bond Market Is Attractive---for the Wary

The world's third-largest bond market offers some moneymaking opportunities, but the biggest risks are hard to price.

Time to Choose Sides in Global Markets

The first half of 2017 has ended with big moves in global bond yields and exchange rates, sparked by a belated realization that central banks are increasingly edging toward reining in extraordinary policy measures. The stage is set for a scrappier second half.

The Wall Street Journal: Airline reservations company Sabre names first chief information officer

Airline reservations software maker Sabre Corp., addressing the growth of digital technology across the travel industry, said Friday it has named its first chief information officer.

The Wall Street Journal: Suncor halts investment in its tar-sands core business, and investors flock in

One of the best-performing oil companies in the past year is gaining favor with investors in part by embracing an unusual strategy: promising not to reinvest in its core business "in the foreseeable future."

Key Words: Documentarian Pelosi sees founding documents as rare common ground in a divided America

Made by documentarian Alexandra Pelosi and set for a July 4 premiere on HBO, the 58-minute film features actors, media personalities, politicians (including every living U.S. president), other celebrities and notables, and even children reciting the Declaration of Independence, the Constitution and the Bill of Rights.

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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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