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24Oct2017 Pre-Market Commentary: Wall Street To Open Higher, New Highs Very Possible, WTI Crude Trading In The Low 52 Handle, GM Shares Rise On Earnings Beat, Solid Forecast

Written by Gary

US stock market index futures are again pointing to a fractionally higher opening (SPY +0.2%). Positive reports from McDonald's and Caterpillar, likely to set the tone for the day.

Here is the current market situation from CNN Money

European markets are mixed today. The CAC 40 is up 0.40% while the DAX gains 0.27%. The FTSE 100 is off 0.03%.

What Is Moving the Markets

Here are the headlines moving the markets.

Auto industry tells Trump 'We're winning with NAFTA'

WASHINGTON (Reuters) - Major automakers, suppliers and auto dealers are launching a new coalition on Tuesday to urge U.S. President Donald Trump not to withdraw from the North American Free Trade Agreement.

Bond yields grind higher, Caterpillar smashes forecasts

LONDON (Reuters) - Benchmark bond yields cranked higher on Tuesday, as data from top euro zone economies bolstered the case for a cut to ECB stimulus and results from Caterpillar pointed to robust global construction growth.

GM shares rise on earnings beat, solid forecast

DETROIT (Reuters) - General Motors Co posted a quarterly net loss on Tuesday due to charges stemming from the sale of its Opel unit in Europe to France's Peugeot SA , but excluding charges its results handily beat analyst expectations and the company reaffirmed its full-year earnings outlook.

McDonald's quarterly U.S. comp sales beat estimates

(Reuters) - McDonald's Corp reported better-than-expected quarterly sales at established U.S. restaurants on Tuesday, as it attracted more customers with its $1 and $2 beverages and premium customizable sandwiches such as Sriracha artisan chicken.

Fiat Chrysler shares rise as third-quarter net profit, debt beat forecasts

MILAN (Reuters) - Fiat Chrysler Automobiles (FCA) on Tuesday reported a higher-than-expected 50 percent jump in third-quarter net profit and lower debt than forecast by analysts, pushing is shares up 3 percent.

Amazon rivals turn to legal fine print to stem Whole Foods strategy

SAN FRANCISCO (Reuters) - Whole Foods Market met a new foe this summer during talks to lease a top retail space in a San Francisco mall: the Target next door.

Futures higher with earnings of Dow companies in focus

(Reuters) - U.S. stock index futures were higher on Tuesday, with earnings from a host of Dow components, including McDonald's and Caterpillar, likely to set the tone for the day.

Microsoft to drop lawsuit after U.S. government revises data request rules

(Reuters) - Microsoft Corp said it will drop a lawsuit against the U.S. government after the Department of Justice (DOJ) changed data request rules on alerting internet users about agencies accessing their information.

United Tech tops profit estimates, raises forecasts

(Reuters) - United Technologies Corp on Tuesday reported a higher-than-expected quarterly profit, and raised its full-year earnings per share and sales forecasts for the second time this year.

Nosebleed Valuations Persist In US High Yield


In August, we had reviewed a few charts showing that US high yield valuations were divorced from fundamentals, as well as to other yield products. This week, refreshing those charts, we can see that things are just as bad.

The top-left chart shows that US high yield spreads are diverging from the tightening of bank lending standards relative to credit demand.

Such divergences of high yield spreads and the Fed's Bank Loan Officer Survey are rare historically, with the last time being in 2006-2007.

The top-right chart shows that trends in corporate cashflow to debt ratios also tend to lead credit spreads.

Whenever cashflows fall relative to the total stock of outstanding debt, it shows that the ability to repay debt is deteriorating for US corporates, which usually leads to wider credit spreads. Again there is a big divergence here at present.

The bottom two charts compare US high yield level to prime bank lending and EM sovereign debt and shows that even relative to other yield products, US high yield looks too expensive.

Simply put, US high yield seems to be the most vulnerable asset class to a risk-off event.

Gold Is Better Store of Value Than Bitcoin - Goldman Sachs

Gold is better store of value than bitcoin - Goldman Sachs report

- Gold will continue to perform well thanks to uncertainty and wealth demand
- Bitcoin's volatility continues to impact its role as money
- Gold up 12% in 2017, bitcoin over 600%
- BTC is six times more volatile than gold - see chart
- Gold's history and physical property shows it meets requirements as a medium of exchange and store of value

Since the birth of bitcoin there has been one question that has repeatedly grabbed headlines and led debates all over the world - will bitcoin replace gold?

Caterpillar Soars 7% To All Time High After Smashing Earnings, Boosting Guidance

Dow futures are higher by over 100 points following a spate of big beats among Dow components including 3M, GM, UTX, but none more so than Caterpillar which just announced blockbuster Q3 EPS of $1.95, nearly 50% higher than the $1.22 consensus estimate (and above the highest forecast), on revenue of $11.4 billion, which also was well above the $10.73 billion expected, which also was at the top end of the range.

More importantly, CAT also boosted its earnings and revenue forecast for the full year: the company now sees FY revenue $44 billion, up from a previous range of $42 billion to $44 billion, and 2% above the consensus estimate of $43.13 billion. It also expects this to translate into profit per share of about $4.60, or adjusted profit per share of about $6.25, far above the previous outlook for 2017 which was about $3.50 per share and adjusted profit per share of about $5.00

The company reported that Machinery, Energy & Transportation (ME&T) operating cash flow was about $600 million during the third quarter, and ME&T's debt-to-capital ratio improved to 36.1 percent, down from 38.6% at the end of the second quarter. The company ended the third quarter of 2017 with an enterprise cash balance of $9.6 billion.

"Higher sales volume and our team's focus on cost discipline resulted in improved profit margins across our three primary segments," said Caterpillar CEO Jim Umpleby.

The focus was on the outlook. This is what CAT said:

Caterpillar continues to see strength in a number of industries and regions, including construction in China, on-shore oil and gas in North America, and increased capital investments by mining customers. We are working with our supply chain to increase production levels to satisfy customer demand for those markets that have improved.

Apple To Cut 2017 iPhone X Shipments In Half As Even Wozniak Says "I'd Rather Wait"

After reports the iPhone 7 was outselling the iPhone 8 sent Apple's stock lower on Wednesday, more troubling news about the company's complication-plagued supply chain for the iPhone X, its special tenth anniversary model, emerged this morning courtesy of Nikkei, which is reporting the company has halved its planned shipments for the number of iPhone X's it will sell by year's end to 20 million.

Initial shipments of Apple's highly anticipated iPhone X are expected to total around 20 million units, only half the planned amount for this year, The Nikkei has learned. The reduction stems from the California-based company's struggles to solve technical issues with components supporting the model's new face authentication feature.

The X is the first iPhone to adopt an organic light-emitting diode display and do away with the home button. At the beginning of mass production, defects occurred in the bonding process for the OLED panels, and although the problem was largely resolved around July, problems continued in assembly of the face authentication module. Manufacturers were only able to improve the first pass yield -- the number of good units - toward the end of September.

The iPhone X is currently being produced at a rate of 10 million units per month, but with the sales scheduled to begin on Nov. 3, Apple is likely to only provide 20 million units this year.

Since the market has largely ignored the news, the production troubles could benefit the company by restricting supply at a t ...

A New CEO Isn't the Cure for BHP's Ills

Big BHP shareholder Elliott is agitating for a board review of management—but the miner's current leadership isn't really the problem.

China's Latest Fintech Offering Looks Overpriced

Shares in Alibaba-backed Qudian have been on a wild ride since they floated in the U.S. last week. Investors should shop elsewhere.

Feeding Babies in China Is a Booming Business Again

The world's largest infant-formula market is surprisingly volatile. Investors shouldn't expect the good news for Western consumer groups to last.

This is the greatest bull market in complacency

Investors are ignoring what may be the biggest policy error in history, warns John Mauldin.

Professional investors are taking a hands-off approach to popular tech stocks

They will only buy more shares if one of three things happen, says Nigam Arora.

The Wall Street Journal: WeWork to buy Lord & Taylor's New York City flagship store for $850 million

Real estate startup WeWork Cos. has struck a deal to acquire Lord & Taylor's flagship New York City store for $850 million, a move that will convert the landmark building into the startup's headquarters next year.

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