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Markets Disappointed After ECB Concludes “Short On Detail” Emergency Meeting

Markets Disappointed After ECB Concludes "Short On Detail" Emergency Meeting

Update (8:40am ET): Some three hours after it started, the ECB…

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Markets Disappointed After ECB Concludes "Short On Detail" Emergency Meeting

Update (8:40am ET): Some three hours after it started, the ECB emergency meeting concluded, and the world's largest hedge fund (although it may drop below the Fed once the EUR hits parity with the USD at which point the ECB's AUM will drop below the Fed's), instructed committees to "create a new tool to combat unwarranted jumps in euro-area bond yields" as markets strain at the prospect of the first interest-rate increases in more than a decade.

Well... there is a tool, and it's called QE, but naturally the panicking ECB can't admit it is forced to revert to square one just days after it solemnly vowed that QE is ending, in the process sending European bond yields soaring (and having to hold today's meeting as a result).

“The pandemic has left lasting vulnerabilities in the euro-area economy which are indeed contributing to the uneven transmission of the normalization of our monetary policy across jurisdictions,” the ECB said in a statement.

Following an emergency meeting Wednesday, convened after Italian yields surged to the highest since Europe’s sovereign-debt crisis, Bloomberg reports that the Governing Council also said it will apply flexibility in reinvesting redemptions coming due in its pandemic portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism.

“Based on this assessment, the Governing Council decided that it will apply flexibility in reinvesting redemptions coming due in the PEPP portfolio, with a view to preserving the functioning of the monetary policy transmission mechanism, a precondition for the ECB to be able to deliver on its price stability mandate. In addition, the Governing Council decided to mandate the relevant Eurosystem Committees together with the ECB services to accelerate the completion of the design of a new anti-fragmentation instrument for consideration by the Governing Council.”

This, as Bloomberg's Ven Ram correctly observed, was overly long on words and short on action and has left markets scratching their heads why the ECB held today's meeting if it failed to deliver anything credible.

Needless to say, the market was disappointed with the meeting which only cemented the collapse in ECB credibility: “I see today’s statement as the bare minimum of what could be expected, but also the most realistic outcome,” said Piet Christiansen, chief strategist at Danske Bank. “With ECB tasking the committees they have sent a signal that they have fully committed to ensure the functioning of the monetary policy transmission. However, they have also bought themselves some time. We will likely only hear from the committees at the July or September meeting.”

Sure enough, Italian yields are already paring back their sharp drop, realizing that nothing the ECB can come up with - short of more QE - will help.

* * *

Earlier:

Last week, shortly after the ECB's latest meeting disappointed markets and concluded without a discussion of Europe's growing bond market fragmentation (which is to be expected since QE - the glue that held the Euro area's bond market together - is ending) and which has since sent Italian bond yields soaring above 4%, we joked that "at this rate the ECB would make an emergency rate cut" just hours after announcing an end to QT and guiding to a July rate hike.

Once again, our "joke" was spot on because on Wednesday morning, just hours before the Fed's first 75bps rate hike sine 1994, and with Italian bonds in freefall, European Central Bank "unexpectedly" announced it would hold an emergency, ad hoc meeting of its rate-setters starting 11am CET in which it would “discuss current market conditions." It wasn't immediately clear if a statement would be published after the confab.

The meeting, which comes less than a week after the rate-setting governing council’s last vote, raised investor expectations that the central bank is preparing to announce a policy instrument to stave-off another debt crisis in the region, which can only come in the form of more QE... which is ironic at a time when the ECB just announced it was phasing out all QE!

Italian government bonds rallied in price following news of the planned meeting, reversing some of the recent sell-off that analysts said brought the country’s borrowing costs towards the “danger zone”. Gilles Moec, chief economist at Axa, an insurer, said the “stakes are high” for the ECB “now that everyone is dusting off their debt sustainability spreadsheets for Italy, they probably need to go up an extra notch”.

Commenting on the move, SocGen's Kit Juckes writes that "the ECB's carefully-communicated strategy was to end asset purchases, then raise rates, starting in small increments and accelerating if needed. That would allow an escape from the current extraordinary policy regime. This strategy is in all sorts of trouble today as the ECB meet to discuss their anti-fragmentation policy and tools."

He added that while "the euro likes the news, because BTPs like it and as peripheral spreads narrow, the euro can bounce." But the need to prepare the ground to defend the Eurozone bond market highlights the ECB's dilemma: "How can you use monetary policy both to target inflation and to target bond market stability? And how can you stave off fragmentation without easing monetary conditions through additional bond purchases? If the stability of the bond market is more important than the ECB's inflation mandate, it can stymie monetary policy normalisation, until there's a fiscal, as opposed to a monetary solution to the euro's Achilles Heel."

Indeed, as we have been joking for months, for the ECB this boils down to a choice between fighting inflation and keeping the Eurozone from disintegrating.

The 10-year yield on Italian government bonds fell about 0.2 percentage points in choppy early trading on Wednesday to about 3.87 per cent, according to Tradeweb data. It had risen to almost 4.2% in the previous session from just over 1 per cent at the end of 2021.

'Italeave' risks remain extremely elevated relative to post-crisis history...

Breathing a sigh of relief that the ECB won't let the eurozone implode, the euro reversed some of its losses, rising 0.6% against the dollar to $1.047 early on Wednesday after the ECB statement was reported by newswires. European bank shares also rose on Wednesday. The Euro Stoxx Banks index gained 3.7 per cent with big Italian lenders UniCredit and Intesa Sanpaolo jumping more than 6 per cent.

ECB executive board member Isabel Schnabel indicated in a speech on Tuesday evening that the central bank was getting closer to the point where it would intervene in bond markets, saying “some borrowers have seen significantly larger changes in financing conditions than others since the start of the year”.

She added: “Such changes in financing conditions may constitute an impairment in the transmission of monetary policy that requires close monitoring.”

Schnabel, the ECB executive who oversees its market operations and one of the most influential voices on its board, said the central bank’s commitment to the euro had no limits. “And our track record of stepping in when needed backs up this commitment,” she added.

But wait, this means... more QE at a time when the ECB just vowed... less QE!!??

And while we wait for the dazed and confused ECB to announce its decision which is due any minute, we can't help but agree with Bloomberg which notes that "the risk for markets is that the central bank over-delivers.  The sources stories we have seen this morning, plus the comments from Wunsch, suggest that this may end up being something of a damp squib. Italy’s 10-year yield is currently trading just below 4%, and is still 60 bps above Thursday’s pre-decision level.  If markets have this right and there’s not much new coming today, then there has to be questions asked about why the meeting is being held at all. An emergency meeting that amounts to little more than re-reading from last week’s press conference would only further damage the central bank’s already creaking credibility.  Presuming that the governing council members know this, they also know that they are in a position where over-delivering is the only way to maintain credibility."

We don't know about any of that, we just know that the central bank is trapped, and that any further push to contain inflation will mean the continent's bonds will only accelerate their free fall; alternatively if the ECB - like the BOJ - picks bond market stability, it can kiss its inflation mandate goodbye, as the world reverts to a reality where much higher structural inflation is the norm.

Tyler Durden Wed, 06/15/2022 - 07:10

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FTSE 100 gains as commodity-linked stocks bounce back

The commodity-heavy FTSE 100 gained 0.4%, while mid-cap FTSE 250 index inched up 0.3% UK’s FTSE 100 gained on Monday, as an easing of COVID-19 restrictions…

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The commodity-heavy FTSE 100 gained 0.4%, while mid-cap FTSE 250 index inched up 0.3%

UK’s FTSE 100 gained on Monday, as an easing of COVID-19 restrictions in China brought relief to commodity prices, lifting shares of major oil and mining companies.

As of 0704 GMT, the commodity-heavy FTSE 100 gained 0.4%, while mid-cap FTSE 250 index inched up 0.3%.

The risk sentiment improved after a Wall Street rally late last week and a rebound in copper and iron ore prices on Monday, boosted by an easing COVID-19 restrictions in Shanghai and relaxed testing mandates in several Chinese cities.

The burst of global enthusiasm for equities has put a spring in the step of the FTSE 100 at the start of the week, Hargreaves Lansdown analyst Susannah Streeter said.

Mining stocks led gains on the FTSE 100 index, with Anglo American, Rio Tinto and Glencore rising more than 3%, after Group of Seven leaders pledged to raise $600 billion private and public funds in five years to finance needed infrastructure in developing countries.

It is hoped this scheme, seen as a counter to China’s Belt and Road Initiative, will set off a spurt of spending and demand for commodities around the world, Streeter added.

Among individual stocks, CareTech surged 20.8% after the UK-based provider of care and residential services agreed to be acquired by a consortium led by Sheikh Hoidings in an 870.3 million pounds ($1.07 billion) deal.

Carnival Corp jumped 5.6%, extending its Friday gains after the leisure travel company forecast a positive core profit for the current quarter despite surging costs.

London-listed shares of Rio Tinto added 2% after a U.S appeals court ruled that the federal government may give the UK copper miner a right to lands in Arizona.

BAE Systems inched up 0.4% after the defence company received a $12 billion contract from the U.S Department of Defence.

The post FTSE 100 gains as commodity-linked stocks bounce back first appeared on Trading and Investment News.

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Structural racism drives higher COVID-19 death rates in Louisiana, study finds

COLLEGE PARK, MARYLAND–Disproportionately high COVID-19 mortality rates among Black populations in Louisiana parishes are the result of longstanding…

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COLLEGE PARK, MARYLAND–Disproportionately high COVID-19 mortality rates among Black populations in Louisiana parishes are the result of longstanding health vulnerabilities associated with institutional and societal discrimination, according to research conducted by an interdisciplinary team under the mentorship of University of Maryland (UMD) Clark Distinguished Chair Deb Niemeier and UMD Associate Professor of Kinesiology Jennifer D. Roberts in the School of Public Health. 

Credit: Guangxiao Hu, Nora Hamovit, Kristen Croft, Jennifer D. Roberts, and Deb Niemeier, University of Maryland.

COLLEGE PARK, MARYLAND–Disproportionately high COVID-19 mortality rates among Black populations in Louisiana parishes are the result of longstanding health vulnerabilities associated with institutional and societal discrimination, according to research conducted by an interdisciplinary team under the mentorship of University of Maryland (UMD) Clark Distinguished Chair Deb Niemeier and UMD Associate Professor of Kinesiology Jennifer D. Roberts in the School of Public Health. 

The team included doctoral students from three different programs at UMD, working together as part of an interdisciplinary fellowship program known as UMD Global STEWARDS, directed by Professor Amy R. Sapkota of the School of Public Health.

“Our results suggest that structural racism and inequities led to severe disparities in initial COVID-19 effects among highly populated Black Louisiana communities, and that as the virus moved into less densely populated Black communities, similar trends emerged,” the researchers concluded in a study published in the Proceedings of the National Academy of Sciences on Monday, June 27. 

Over the course of generations, discrimination in employment, education, housing, and access to medical care has led to higher risks of chronic illnesss (including asthma, diabetes, and obesity) among Black communities, as well as a higher likelihood of suffering a stroke, the authors noted. The Centers for Disease Control and Prevention (CDC) have linked these factors to the likelihood of becoming severely ill from COVID-19.

Both nationally and in Louisiana, Black communities encounter inadequate housing and lower rates of home ownership, reduced access to health care, and lower rates of employment. As exemplified by Cancer Alley, Black families are more likely to live in so-called “fence-line” neighborhoods, located near industrial facilities that expose them to pollutants, and typically encounter reduced air and water quality compared to white Americans. Black families are also more likely to be uninsured and face higher rates of unemployment. These and multiple other factors, all reflecting decades of institutional and societal bias, add up to a combination of stressors that undermine health and, in the case of COVID-19, have made Black communities particularly vulnerable.

To obtain their findings, the team members identified the spatial distribution of social and environmental stressors across Louisiana parishes, and used hotspot analyses to develop aggregate stressors. They then tracked the correlations among stressors, cumulative health risks, COVID-19 mortality rates, and the size of Black populations across Louisiana. The results suggest that COVID-19 mortality rates initially spiked in Black communities with high population densities and moderate levels of aggregate stress. Over time, the rates also increased in less densely populated Black communities with higher levels of aggregate stress.

“We find that Black communities in Louisiana parishes with both higher and lower population densities experience higher levels of stressors leading to greater COVID-19 mortality rates,” the researchers wrote. “Our work using the COVID-19 pandemic, particularly as observed in Louisiana, makes clear that communities with high levels of social, economic, and environmental racism are significantly more vulnerable to a public health crisis.”

The study lead authors include UMD graduate students Kristen Croft (Department of Civil and Environmental Engineering). Nora Hamovit (Department of Biology), and Guangxiao Hu (Department of Geographical Sciences), who worked together on the study as part of the UMD Global STEWARDS (STEM Training at the Nexus of Energy, WAter Reuse and FooD Systems) training fellowship program, which is funded by the National Science Foundation (NSF).

Allen P. Davis, Professor of Civil and Environmental Engineering, is a co-PI for the UMD STEWARDS program, which aims to bring together graduate students from a wide variety of backgrounds to work on collaborative projects. “Each student brings their own area of expertise to the table, resulting in synergy,” Davis said. “That kind of synergy is something you might not get in other disciplinary studies.”

The value of such an approach was evident in the collaboration among the three students.  “As a human geographer, my main focus was on the spatial disparities of structural racism and inequities and their effects on COVID-19 mortalities,” Hu said. “Using hotspot analysis, we identified two groups of parishes with high or low population densities located at different regions of Louisiana. Our research provides policy makers with very useful insights about the disproportionate burden of Black communities and the nonstationary distribution of this disproportion across Louisiana.”

Hamovit performed the initial data analysis that yielded stressor index calculations, which Hu then utilized for hotspot analysis. “Because my PhD research involves large and complex data sets I brought a strength of data organization and analysis to our team,” Hamovit said. Croft played a key role in defining the research topic and utilized her background in stormwater research to pinpoint specific variables that could have a bearing on health. 

Faculty mentors included Niemeier and Roberts. Niemeier, who joined the UMD civil and environmental engineering faculty in 2019 as the inaugural Clark Distinguished Chair, is an internationally-recognized expert on the equity impacts of infrastructure and engineering decisions. She is a member of the National Academy of Engineering and, in 2021, was elected to the American Philosophical Society. Her work, which details how marginalized communities are affected by vehicle emissions, development patterns, climate change, and approaches to disaster preparation and recovery, has helped spur policy and regulatory reforms.

Roberts is founder and director of the  Public Health Outcomes and Effects of the Built Environment Laboratory at UMD. She is also co-founder and co-director of NatureRx@UMD. Her scholarship focuses on the impact of built, social and natural environments, including the institutional and structural inequities of these environments, on physical activity and public health outcomes of marginalized communities. Roberts was recently named to the National Academy of Science’s Response and Resilient Recovery Strategic Science Initiative Strategy Group on COVID-19 and Ecosystem Service in the Built Environment.

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Consumer Spending Is Shifting: Should You Still Buy Lowe’s Stock?

Is this is good opportunity to buy the dip in Lowes stock that owns a duopoly in the home improvement industry?
The post Consumer Spending Is Shifting:…

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Lowe’s stock was one of the biggest winners during the pandemic. This is because the pandemic gave Americans two things: stimulus checks and lots of free time. With a little spare cash and nothing to do, people were inspired to tackle projects around the house. But, of course, no project can be completed without a trip to Lowe’s. Two years later, the pandemic quarantines are finally all but over and Lowe’s stock is down 30% YTD. Is this is good opportunity to buy the dip in a company that owns a duopoly in the home improvement industry? Let’s take a look.

Lowe’s (NYSE: $LOW) Most Recent Earnings

If you’re not familiar, Lowe’s is one of the largest home improvement retail chains in the world. In 2021, Lowe’s operated 2,197 stores across the United States and Canada. It is the second-largest hardware chain in the world behind The Home Depot. Together, The Home Depot and Lowe’s own the majority of the home improvement market. When just two companies control the market, it’s known as a duopoly.

In April, Lowe’s reported quarterly revenue of $23.66 billion for FY Q2 2022. This was down 3% from last year. Lowes also reported a net income of $2.33 billion which was up just 0.5%. Lowe’s also pays a dividend yield of 2.27%.

The last three quarters haven’t been particularly impressive for Lowe’s. Here’s one reason why.

Tough YoY Comparisons

The pandemic created a nightmare scenario for many businesses. But, as mentioned, home improvement retailers actually faired quite well. In particular, Lowe’s experienced a 24% spike in revenue, from $72.15 billion to $89.6 billion. This is impressive for a massive company like Lowe’s which already operates over 2,000 stores. Consequently, Lowe’s stock rose nearly 120% from 2020 to its all-time high in 2022.

Now, the quarantine pandemics are mainly over. Consumer spending is shifting away from home improvement towards other categories such as travel and dining out. This transition isn’t necessarily hurting Lowe’s sales, but it’s not helping either. The toughest thing for Lowe’s stock right now is the tough year-over-year comparisons. Since Lowe’s had such a stellar 2021, 2022 looks very average by comparison. This trend could continue through the rest of the year.

Lowe’s essentially had a 4.0 GPA in 2021. In 2022, it’s earning a 3.75 GPA. Still good, but not when you compare it to a 4.0.

Fortunately for shareholders, Lowe’s has a plan in place to start growing again.

Lowe’s 2022 Strategy

In 2022, Lowe’s strategy is to go after the professional market. This means that it wants to focus on serving customers that own construction businesses, as opposed to do-it-yourselfers.

Lowe’s estimates that the professional market is worth approximately $450 billion. If it can expand this segment of its business then it should be able to start growing revenue again. Part of its plan to grow this segment is to institute professional services in its stores including loaders, drop zones, and an entirely separate customer relationship management (CRM) software.

On top of that, here are three other factors that Lowe’s thinks will accelerate its business:

  • Increased wear and tear on homes due to remote work
  • Baby Boomers deciding to age in their home
  • Strong home price appreciation

Additionally, Lowe’s is in the process of transitioning to an omnichannel strategy. This type of strategy means that Lowe’s customers will be able to buy products online, pick them up curbside, as well as buy them in a store. Lowe’s enhanced digital experience will even allow customers to enjoy next-day (or even same-day) order fulfillment.

Omnichannel strategies have been particularly effective for other major retailers. In particular, Dick’s Sporting Goods has had a lot of success with an omnichannel strategy. Offering customers more ways to shop helps improve the customer experience, which typically leads to more sales.

Final Thought: Should You Buy Lowe’s Stock?

Lowe’s has an incredibly strong business and is a runner-up in a large market. The DIY home improvement market has been growing for years and is proven to be pandemic-resistant. These are both strong reasons to consider buying Lowe’s stock.

Additionally, since Lowe’s stock has had a dismal start to 2022, its valuation has improved. Lowe’s now has a price-to-earnings ratio (14.5) that is lower than its rival The Home Depot (17.9). This metric could be a sign that Lowe’s is valued more cheaply relative to The Home Depot. However, P/E ratios often don’t tell the full story.

Another reason to consider buying Lowe’s stock is that its management team is committed to  providing value to shareholders over the long run. This is evident through Lowe’s stock repurchase plan and strong dividend payments. Lowe’s plans to repurchase $12 billion in stock during 2022 and pays a 2.30% dividend yield. In general, companies don’t repurchase shares of stock unless the business is performing incredibly well. This is a sign that Lowe’s stock is a relatively safe bet for investors.

The biggest thing to be aware of before buying Lowe’s stock is the risk of inflation damaging its business.

What’s inflation risk?

Lowe’s sells lots of products that rely directly on raw materials. For example, it sells plywood and a number of other lumber products, plenty of steel products, fertilizers, etc. Right now, the prices of most raw materials are skyrocketing. If this doesn’t let up, it could squeeze Lowe’s profit margins and reduce its profitability. Or, it could force Lowe’s to increase its prices which could potentially hurt Lowe’s sales.

A few major retailers have already been hurt by inflation. Notably, Target. Target’s costs have increased but it has so far refrained from raising prices, so as to not alienate customers. This is one of the main reasons that Target’s stock slumped 30% in May. If you are considering buying Lowe’s stock, be sure to keep this inflation risk in mind.

I hope that you’ve enjoyed this Lowest stock forecast! Please remember that I’m not a financial advisor and just offer my own research and commentary. As usual, please base all investment decisions on your own due diligence.

The post Consumer Spending Is Shifting: Should You Still Buy Lowe’s Stock? appeared first on Investment U.

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