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China tipped to surpass U.S. as top superpower

Will China supplant the United States as the world’s leading superpower and top player in the world economy?

A new Pew Research Center survey of 38,000 people in 39 countries found the widespread belief that China is well on its way.

Overall, a majority or plurality of respondents in only six of the countries surveyed believe the U.S. will remain on top.

“Publics around the world believe the global balance of power is shifting,” Pew wrote. “China’s economic power is on the rise, and many think it will eventually supplant the United States as the world’s dominant superpower.”

In both the United States and China, an increasing number of respondents agree with this thesis.

Two out of three Chinese now predict their country will overtake the U.S., an eight percentage point increase since 2008. The number of Americans who agree has jumped 11 percentage points to 47%.

When it comes to pure economics, the survey suggests that some people even think that China is already ahead of the U.S.

By almost any statistical measure, the U.S. economy is still top dog. But the perception that China has already built the world’s most powerful economy reflects the tremendous gains that have resulted from sustained 10% GDP growth over the past three decades.

Related story: China GDP growth slows to 7.5%

The survey also indicates that countries around the world have divergent views of the U.S. and China.

The U.S. retains a higher overall approval rating, with 63% of people around the world having a favorable view of America. China’s rating is marginally lower at 50%.

While the results differ from country to country, the report concludes that “China’s increasing power has not led to more positive ratings for the People’s Republic.”

Related: Economic slowdown tests China’s leaders

Pew isn’t the only group interested in the implications of China’s growing power. The Middle Kingdom’s increasing influence has also attracted plenty of predictions in Washington.

The U.S. National Intelligence Council released a report last year that offers a series of prognostications about how the world might change in coming decades.

One of its attention-grabbing assertions: China’s economy will surpass that of the U.S. by 2030.

“China alone will probably have the largest economy, surpassing that of the United States a few years before 2030,” the report said.

View this article on CNNMoney

Financial Markets

US homebuilder confidence, sales outlook soar

U.S. homebuilders are feeling more optimistic about their home sales prospects than they have in more than seven years, a trend that suggests home construction will accelerate in coming months.

The National Association of Home Builders/Wells Fargo builder sentiment index jumped to 57 this month from 51 in June.

A reading above 50 indicates more builders view sales conditions as good, rather than poor. The index hasn’t been that high since January 2006, well before the housing market crashed.

Measures of customer traffic, current sales conditions and builders’ outlook for single-family home sales over the next six months vaulted to their highest levels in at least seven years.

Steady job growth, low mortgage rates, rising home prices and tight supplies of homes for sale have supported a recovery in housing this year.

 

By Alex Veiga, AP Real Estate Writer

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J.P. Morgan, Wells Fargo earnings TODAY

NEW YORK (MarketWatch) — Two of the country’s biggest banks, J.P. Morgan Chase and Wells Fargo, are expected to report rising profits on Friday as they kick off earnings season for the financial sector.

Long considered the bellwether for its broad reach, J.P. Morgan’s (NYSE:JPM)   results will signal buoyant capital markets activity, and growing fees, for big banks, say analysts.

Wells Fargo (NYSE:WFC)  , the country’s biggest mortgage originator, will give a wider picture in terms of lending profits for the industry.


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J.P. Morgan Chase and Wells Fargo kick off earnings season in the financial sector

While analysts acknowledge that the environment remains challenging, expectations are that it will be a respectable quarter from the banks.

The financials sector is predicted to have the highest earnings growth rate, at 16.8%, of any sector for the second consecutive quarter in the S&P 500, according to analysts at FactSet.

“We expect the capital markets sensitive banks to fare a bit better than the regional players given some support from improved core trading and investment banking results,” said Moshe Orenbuch, analyst at Credit Suisse, in a research report.

Bank of the Ozarks is down after hours on its quarterly earnings report. New data out on European industrial production. J.P. Morgan and Wells Fargo will kick off bank earnings season before the bell. Victor Reklaitis has all you need to know about the next 24 hours in markets.

The market has already warmed to the two giants — shares for both stocks have seen major moves in the first half of 2013, up more than 24% year-to-date through Monday.

The J.P. Morgan gains in particular have come despite the firm being under intense shareholder and public scrutiny over the dual roles of Chief Executive and Chairman Jamie Dimon. Analysts want to know if second-quarter earnings growth can be sustained.

“What we’re watching for is the capital markets related revenues especially the trading side,” said Jeff Harte, analyst at Sandler O’Neill & Partners. “April and May were strong and then all of a sudden June looked like it was weak.”

Analysts expect the firm to report a profit of $5.6 billion or $1.44 per share for the second quarter, compared to $4.96 billion or $1.21 per share in the year-earlier period. The company is expected to report revenue of $24.96 billion, compared to $22.18 billion in the second quarter of 2012.

  

It’s been a good year for J.P. Morgan and Wells Fargo shares.

The recent market sell-off driven by an increase in rates in Treasury bonds could be positive for the firm’s fixed-income business, according to analysts.

The outlook by the firm for the mergers and acquisition and underwriting business will be key, given the sluggishness in the second quarter.

Lower credit losses and the release of credit reserves will be positive news.

“We expect mortgage credit to get better,” said Harte.

Bank of America Merrill Lynch analysts say the headwinds to watch out for the firm are a longer-than-expected low interest rate environment, a worsening of the European sovereign crisis, and further regulation and scrutiny of the financial industry.

Going into the next quarter, Bank of America analysts recommend bank stocks, including J.P. Morgan, with defensible revenue trends and the least likely to have earnings per share revised downwards.

J.P. Morgan’s price target remains at $57 a share for the analysts.

Wells Fargo is considered by many analysts as a super regional bank with its massive portfolio of loan originations, which are approximately a third of the total market share in the U.S.

“Wells Fargo’s quarterly earnings are not subject to swings in capital markets activities as some of the other bigger banks,” said David Hilder, analyst at Drexel Hamilton.

Up to 30% of Wells Fargo’s total non-interest income comes from mortgage banking revenue, but with higher interest rates in recent months, there are concerns that revenues will be down for the second quarter compared to the first quarter, from lower refinancing.

Another concern for analysts is the firm’s net interest margin, the difference between what the bank earns on loans and what it pays depositors.

The capital markets and investment banking arm, approximately 30% of the non-interest income for the bank, is expected to be strong by analysts, given the run-up in the stock market.

Wells Fargo is expected to report net income of $4.98 billion, compared with $4.4 billion the year before.

The firm is expected to report a profit of 92 cents per share, according to analysts surveyed by FactSet, compared to 82 cents for the same period the year before.

The country’s biggest mortgage lender is expect to report revenue of $21.17 billion for the first-quarter, compared with $21.28 billion the year earlier.

Market Volatility

Rates to stay low for long time ? Market Up

 The Federal Reserve will not be in a hurry to raise short-term interest rates, even after the unemployment rate comes down markedly, Chairman Ben Bernanke said Wednesday.

The Fed has set an unemployment rate threshold of 6.5% for the first rate hike from the current near-zero levels that have been in place since December 2008. The central bank has gone to great pains to stress that this tool is separate from the bond-buying program. The jobless rate was 7.6% in June.

Bernanke said the central bank will be in no rush to hike rates once the threshold is reached.

“There will not be an automatic increase in interest rate when unemployment hits 6.5%,” Bernanke said in the question-and-answer session of a speech to economists.

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Ben S. Bernanke, chairman of the U.S. Federal Reserve, in June

Given the weakness of the labor market, and low inflation “it may be well sometime after we hit 6.5% before rates reach any significant level,” Bernanke added.

U.S. stock futures rose on the comments, with the S&P 500 (GLC:SPU3)   contract tacking on about 0.7%.Read After Hours column for more markets coverage.

The Fed chairman drew a clear distinction between asset purchases and rate hikes.

The purpose of the asset purchases is to give the economy some forward momentum, Bernanke said.

Ian Shepherdson, chief U.S. economist at Pantheon Macroeconomics, said he was sticking with his forecast of a September tapering after Bernanke spoke.

Bernanke did make some fairly dovish comments.

He said that it is too early to tell if the economy had weathered the headwinds from fiscal policy and said the U.S. still faces “significant risks”

He also said that the unemployment rate probably understates the weak condition of the labor market.

And he stressed that the Fed was concerned about the current very low inflation rate.

If inflation does not move up closer to the central bank’s 2% target, “that would be a good reason to remain accommodative,” he said.

 Bernanke defended his decision to lay out a potential timetable for winding down asset purchases after the Fed’s last meeting.

The Fed chairman said the central bank could start winding down its $85 billion a month bond-buying program later this year and end it altogether by mid-2014.

“Notwithstanding some volatility that we’ve seen in the last six weeks, speaking now and explaining what we are doing might have avoided a much more difficult situation,” he said.

If financial conditions tighten too much to jeopardize the Fed’s goals, “we would have to push back,” he said.

At the moment, “with some luck,” positive factors will generate faster growth and labor market improvement through the rest of the year, he said.

Bernanke spoke after the central bank released the minutes of the Fed’s last policy-making meeting.

The minutes show a wide range of views among the central bankers on when to start to wind down the asset purchases.

But about half of the Fed’s top 19 officials said it would be appropriate to end the asset purchase plan late this year.

investing-education-ben-bernanke

Fed Minutes: Some Participants Felt Fed Will Need to Explain

Federal Reserve officials expressed concern about how well the central bank was conveying its policy intentions to a jittery investing public, according to minutes from the most recent meeting.

The June FOMC session was significant in that Chairman Ben Bernanke followed it by telling the media that the Fed was prepared to start winding down its bond-buying program by the end of 2013.

That revelation, in a news conference, rattled markets, sending stocks on a 7 percent decline and interest rates surging higher.

The minutes indicated a clear concern from committee members, who gave marching orders to Bernanke about what to say at the media gathering.

“At the conclusion of the discussion, most participants thought that the Chairman, during his postmeeting press conference, should describe a likely path for asset purchases in coming quarters that was conditional on economic outcomes broadly in line with the Committee’s expectations,” the minutes said.

“In addition, he would make clear that decisions about asset purchases and other policy tools would continue to be dependent on the Committee’s ongoing assessment of the economic outlook.”

Financial markets reacted strongly to the remark, triggering the worst performance for stocks all year.

The minutes indicated an in-depth discussion about how financial markets were reacting to the quantitative easing measures, which entail $85 billion a month in purchases of Treasurys and mortgage-backed securities.

“A few stated their view that a prolonged period of low interest rates would encourage investors to take on excessive credit or interest rate risk and would distort some asset prices,” the minutes said. “However, others suggested that the recent rise in rates might have reduced such incentives.”

FOMC members showed a strong inclination to orchestrate Bernanke’s comments to the media. The news conferences are a relatively new wrinkle in Fed policy during which the chairman addresses reporters at every other meeting.

Members directed Bernanke to detail “a likely path” for a pullback in the asset purchases that would be dependent on economic data continuing to improve.

In its economic review, the committee said growth is increasing at “a moderate pace,” language consistent with previous statements. There was some concern that higher mortgage rates would derail the housing recovery, but mostly agreement that things were continuing apace.

_ By CNBC’s Jeff Cox. 
 

Financial Markets

Chinese buyers bring big money to U.S. housing market

Flush with cash, Chinese homebuyers are flooding into the U.S. housing market, and paying top dollar.

“The Chinese came out really huge in the past year,” said Jonathan Miller of Miller Samuel, a New York-based appraiser.

Chinese buyers accounted for 18% of the $68.2 billion that foreigners spent on homes during the 12 months ended March 31, according to the National Association of Realtors.

At a median price of $425,000, the Chinese are also buying more expensive homes than other foreign buyers, who spent a median of nearly $276,000 on U.S. homes. And nearly 70% of those pricey Chinese deals were made in all cash.

Nowhere is the influx of Chinese homebuyers felt more strongly than in California, where more than half of the homes sold to foreign buyers went to Chinese nationals.

Sally Forster Jones, an agent with Coldwell Banker International in Los Angeles, said Chinese are snapping up many of the trophy properties on the city’s Westside. She estimates that she’s sold about 10 multi-million dollar homes to Chinese nationals over the past 12 months.

“The uptick in sales to Chinese buyers started several years ago but it has increased dramatically lately,” she said.

Most of her Chinese clients are wealthy industrialists or real estate tycoons, many of whom spend less than half the year in the States.

“Some have children going to school in Los Angeles and use the homes as residences for them and [as a place] to stay at when they visit their kids,” said Jones.

China’s gross domestic product has grown by high single-digit, sometimes double-digit rates for the past 10 years, producing a lot of cash for the country’s top business people who view U.S. real estate as a safe and stable investment.

Rick Turley supervises real estate offices for Coldwell Banker in eight counties in and around San Francisco, including Silicon Valley. Many of his Chinese clients work in technology.

“The current hot spots are Palo Alto, Menlo Park and Cupertino, near Apple headquarters,” he said.

Most purchase the homes to raise their family and they pay special attention to the local school systems. Turley also has Chinese clients who buy homes for their kids. Last year, a family from Shanghai bought a condo for their daughter who was attending Stanford. The daughter has since graduated and now works at Google, he said.

Many Chinese buy homes through the U.S. government’s EB-5 Immigrant Investor program, which is considered a fast-track to getting a green card. To qualify, foreigners must invest at least $500,000 in a business that provides or preserves 10 jobs. This could be a home that is part of a bigger business project, such as a condo complex. Nearly 80% of all EB-5 visas went to Chinese nationals in 2012, according to the government.

 

Beyond California, sunbelt states in general are attracting a lot of foreign attention these days. Post-housing-bust bargains in resort and retirement areas like Las Vegas and Naples, Fla. have have gotten buyers from Canada, for example.

Four states accounted for 58% of all foreign sales. Florida had 23%, California 17% and Arizona and Texas 9% each. New York, an international business center and immigration gateway, and Virginia, close to the Washington corridors of power, both came in at 3%.

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Egypt Unrest Pushes Oil Prices Top $100

Oil prices topped $100 a barrel Wednesday, as traders feared tensions in Egypt could spread to the broader Middle East.

U.S. oil prices rose as high as $102.18 early Wednesday, the highest they’ve been in over a year.
While oil production from Egypt is negligible, the country controls the Suez Canal and pipeline, which move about 4 million barrels of oil per day. Plus, the country is one of the largest and most powerful in the Middle East and North Africa — home to about a third of the world’s oil production.
“The fear of contagion in the Middle East to major oil producers is the ultimate concern,” Matt Smith, a commodities analyst at Summit Energy in Louisville, Ky, wrote in a research note Tuesday.
Protestors in Egypt have been demanding the country’s democratically elected, Islamist president step down, saying he has not governed the country in an inclusive manor. The protests are the largest the county has seen since the 2011 uprising that ousted longtime dictator Hosni Mubarak.
Related: Eight states raise their gas tax
Seven people have died in the protests, and the Egyptian military has given the president 48 hours to resolve the dispute. Some have hinted there may be a coup, though it’s uncertain what actions the military will take. That deadline approaches Wednesday night.
Oil prices have risen about 16% in the last two months. Traders cite an improving economy, rising demand for crude oil from refiners in the United States, and problems getting supplies of light, sweet crude to market as other reasons for the price run up.

“In my mind, it’s only a matter of time before crude breaks $100,” said Addison Armstrong, director of market research at Tradition Energy, an energy brokerage based in Stamford, Conn.

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Wall St. Gains For Second Day

NEW YORK (Reuters) – Stocks rose for a second straight day on Tuesday, with market momentum remaining strong as investors grew more optimistic about the economic outlook.
Trading will likely be thin this week, with U.S. markets closing early on Wednesday and all of Thursday for the Fourth of July holiday. This lower volume could signify greater volatility, especially with the release of the nonfarm payroll report on Friday.
“While all eyes are on the payroll report, markets are holding up as investors are holding out on the hope that we’ll see higher highs,” said Todd Schoenberger, managing partner at LandColt Capital in New York. “We’ll mostly tread water until Friday, but people aren’t selling their gains.”
Wall Street has shown signs of positive momentum recently, with investors becoming more optimistic about the economic outlook since Federal Reserve officials signaled the central bank’s bond-buying stimulus policy wasn’t ending imminently.
Adding to the positive tone, Ford Motor Co (NYS:F) rose 1.4 percent to $15.96 after reporting “very encouraging” growth of 13.4 percent in June car sales.
The Dow Jones industrial average (^DJI) was up 42.60 points, or 0.28 percent, at 15,017.56. The Standard & Poor’s 500 Index (^GSPC) was up 4.23 points, or 0.26 percent, at 1,619.19. The Nasdaq Composite Index (^IXIC) was up 5.62 points, or 0.16 percent, at 3,440.11.
Equities surged in the first half of the year, hitting record highs before pulling back dramatically in June, on concerns the Fed would begin reining in its stimulus measures, which have helped fuel this year’s gains.
While markets have stabilized after a recent slump, the S&P 500 remains more than 3 percent below its record closing high.
William Dudley, president of the New York Fed, will speak at 12:30 p.m. about national economic conditions. His comments will be closely scrutinized for clues on when the Fed will begin to scale back its quantitative easing.
Data showed May factory orders rose 2.1 percent, above expectations for a 2 percent rise. Earlier in the day, the Institute for Supply Management’s New York index came in at 578.1, compared with 579.6 in the previous month.
Wall Street has shown an ambiguous attitude toward U.S. data over the past six weeks, as positive reports sparked declines as investors fretted that signs of economic strength would prompt the Fed to prematurely scale back its bond-buying program.
The Labor Department will report June non-farm payrolls on Friday, and economists have forecast an increase of 165,000 jobs.
The stock market will have a shortened session Wednesday and U.S. financial markets will be closed for Independence Day on Thursday.
In corporate news, alcoholic beverage company Constellation Brands Inc (STZ) fell 0.8 percent to $52.67 after its first-quarter earnings and revenue missed expectations.
Sources said Pfizer Inc (PFE) and Novartis AG (NOVN.VX) may make preliminary bids for Onyx Pharmaceuticals Inc (ONXX). On Sunday, Onyx turned down a roughly $10 billion offer from Amgen Inc (AMGN).
Onyx jumped 1.6 percent to $133.40, extending its rally of more than 50 percent in Monday’s session.
Zynga Inc (ZNGA.O) rose 10 percent to $3.38 after naming Don Mattrick, the head of Microsoft’s (MSFT) Xbox business, its chief executive.
(Editing by Bernadette Baum)

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Daily Zones Analysis Blue Print 07 02 2013

Apple’s Next Big Leap Forward

Apple’s Next Big Leap Forward

Apple is yet to tap the world’s biggest pool of potential iPhone buyers: China Mobile’s customers. That is set to change. When and how will help determine whether the U.S. technology company’s flagging stock can regain momentum.
At about $395, Apple’s shares have fallen 44% from an all-time high hit last September. Once the most valuable company in the world by market capitalization, it recently ceded that crown back to Exxon Mobil. Adjusted for net cash, its market cap also has just been surpassed by archrival Google.
AP A man leaves an Apple store with an iPhone and an iPad in his hands in central Beijing.
A big concern weighing on Apple is that the tailwind from increasing distribution for its most lucrative product has dissipated. When the iPhone first launched in 2007, it was sold by just one carrier, AT&T, in just one country, the U.S. That is now up to 275 carriers in 114 countries, says Strategy Analytics.
The most glaring omission is China Mobile, the world’s largest wireless carrier with more than 700 million subscribers. Among them are about 80 million wealthier ones that can afford Apple’s pricey smartphone, estimates HSBC analyst Tucker Grinnan. And of that elite group, more than half may be likely buyers of the iPhone, considering that Apple’s market share of high-end smartphone sales in China is 55%, according to HSBC. Indeed, more than 20 million of China Mobile’s customers already use “unlocked” versions of the iPhone on the carrier’s aging 2G network.
For Apple, which sold 261 million iPhones in 2012, those extra tens of millions of potential unit sales represent a big opportunity. Pressure is increasing, too, as Apple’s market share for all smartphones in China, high- and low-end, dropped to 9% in the first quarter from 13% in the same period a year before, according to Strategy Analytics.
So Apple investors have anxiously awaited some sort of deal, especially since the fall 2012 launch of iPhone 5, which is the first model that is compatible with China Mobile’s 3G network technology.
One reason a deal hasn’t been struck may be that China Mobile’s controlling shareholder, the Chinese government, doesn’t want the company to offer the iPhone yet. Allowing the biggest fish in China’s telecom sector to carry Apple’s popular device might lead to further market concentration that Beijing would rather avoid.
A problem on Apple’s side, meanwhile, may be that it doesn’t want users subjected to a relatively poor experience. China Mobile’s version of 3G technology, called TD-SCDMA, is less reliable than those supported by smaller rivals China Telecom and China Unicom.
Still, several factors suggest the companies will strike a deal eventually.
First, China Mobile is planning to rapidly roll out its next generation “TD-LTE” network. The iPhone is compatible with that technology as well, which will offer much faster data speeds for users. And Beijing wants to promote the technology world-wide because Chinese companies like Huawei sell supporting equipment. With a $31 billion capital-expenditure budget for 2013, nearly as much as AT&T’s and Verizon Communications’ combined, China Mobile already is a big buyer of TD-LTE equipment. Getting the iPhone onto that standard would give it additional momentum.
Meanwhile, the risk of fostering additional market concentration may be mitigated later this year if, as some expect, Beijing allows consumers to keep their numbers when they switch networks, as happens in the U.S. That will make it easier for China Mobile customers who have wanted to jump to rival carriers to do so.
One potential sticking point in formulating a deal is high smartphone subsidies. To date, Apple’s significant market power has enabled it to extract sweet deals whereby carriers subsidize much of the iPhone’s cost. They do so because they can get subscribers locked into expensive wireless plans.
But the big financial hit that Apple’s terms appear to have inflicted on rivals won’t have been lost on China Mobile. China Unicom was the first Chinese carrier to get the iPhone, in late 2009. But its accounts show that from that year through 2011, while absolute operating profit in its mobile business increased, the margin fell to 27% from 37%. And China Mobile likely has a strong negotiating position due to its size and Apple’s need to reignite momentum.
A wild card is the lower-end iPhone that Apple is working on. This could actually help the two companies reach a deal because it would enable China Mobile to attract customers in the fast-expanding lower end of the market while likely not breaking the bank in terms of subsidies. For Apple, the profit impact from widening the potential market for its smartphones is less clear. That is because it also may eat into sales of more lucrative high-end devices, eroding margins.
So how important is China Mobile to Apple? It has historically made percentage gross margins on the iPhone in the mid-50s, according to Sanford C. Bernstein analyst Toni Sacconaghi. Even assuming Apple makes only a 40% gross margin on iPhones sold through China Mobile, taking into account the latter’s potential negotiating leverage, selling 25 million more iPhones in the first year could mean an extra $6 billion of gross profit.
That would be a welcome boost: Analysts forecast Apple’s gross profit at $69 billion for the fiscal year ending in September 2014.
With technology and strategic aims increasingly aligned, for the iPhone and China Mobile, it still is a question of when, not if. A revolutionary new product could always be in the works when it comes to Apple. But a deal in China represents one of the company’s biggest potential profit bumps on the immediate horizon.
Write to Rolfe Winkler at rolfe.winkler@wsj.com