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Mounting loan defaults Mid-Corona – XLF a sell?

Mounting loan defaults Mid-Corona – XLF a sell?

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Mounting loan defaults Mid-Corona – XLF a sell?

Earnings season kicked off last week with big banks like Wells Fargo, Bank of America and Goldman Sachs delivering Q3 earnings for Q3/2020 and giving some first insights into their business and revenues Mid-Corona.

While Goldman Sachs delivered some strong numbers, Wells Fargo and Bank of America disappointed.

Trading houses like Goldman outperform "classic" banks like Wells Fargo

Goldman Sachs earnings came in significantly above the expectation of $5.37 Earnings per Share (EPS) at $9.68 and revenue at $10.78 billion against $9.19 billion.

In general, it seems as if chances are high that US banks with a focus on trading continue to profit from the elevated volatility Mid-Coronavirus and before the US election.

But given recent developments around the Coronavirus lockdown, the focus in the US banking and financial sector will likely be more on those banks which are more defined by interest rates, consumer banking and commercial real estate since these will potentially paint a clearer picture on what to expect in terms of the US economic outlook.

That said, a look at Wells Fargo, one of the biggest US banks, seems to make more sense:

  • Wells Fargo's total revenue of $18.86 billion was down 14 year-over-year, but slightly above expectations of $17.98 billion
  • That didn't help in terms of EPS, which came in at $0.42 against an expected $0.45
  • Wells Fargo "only" set aside $769 million for credit losses in Q3, down from a staggering $9.5 billion in Q2/2020 and well below a FactSet estimate of $1.76 billion

CEO Scharf told investors that "[…]The trajectory of the economic recovery remains unclear as the negative impact of COVID continues and further fiscal stimulus is uncertain[…]".

That sceptical outlook can also be seen in presented earnings from Bank of America:

  • EPS was $0.51 against $0.53
  • The bank set aside $1.4 billion for loan loss provisions, against $5.1 billion in Q2/2020
  • Net interest income is down 17%, coming in at $10.1 billion.

With our expectation of mounting defaults Mid-Corona and a further decline in US interest rates, our outlook for the US banking sector is not very positive.

How can you trade #XLF in this environment?

This leaves us with a bearish expectation for the Financial Select Sector SPDR Fund ETF (XLF):

While the ETF is currently trading around its SMA(200), we consider the overall mode on a daily time-frame bearish if bulls can't sustainably recapture 26.00 USD, the region around the August/September highs.

A break below 23.00 USD should be considered bearish and would make a substantial stint lower to a target around the "Corona lows" of 17.50 USD in the months to come an option, with a stop-over at around 20.00 USD:

Admiral Markets MT5 with MT5SE Add-on #XLF Daily chartSource: Admiral Markets MT5 with MT5SE Add-on #XLF Daily chart (from April 01, 2019, to October 19, 2020). Accessed: October 19, 2020, at 09:00 AM GMT. Please note: Past performance is not a reliable indicator of future results, or future performance.

In 2015, the value of #XLF decreased by 1.74%, in 2016, it increased by 22.59%, in 2017, it increased by 22.0%, in 2018, it decreased by 13.04%, and in 2019, it increased by 31.88%, meaning that in five years, it was up by 52.3%.


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Disclaimer: The given data provides additional information regarding all analysis, estimates, prognosis, forecasts or other similar assessments or information (hereinafter "Analysis") published on the website of Admiral Markets. Before making any investment decisions please pay close attention to the following:

  1. This is a marketing communication. The analysis is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
  2. Any investment decision is made by each client alone whereas Admiral Markets shall not be responsible for any loss or damage arising from any such decision, whether or not based on the Analysis.
  3. Each of the Analysis is prepared by an independent analyst (Jens Klatt, Professional Trader and Analyst, hereinafter "Author") based on the Author's personal estimations.
  4. To ensure that the interests of the clients would be protected and objectivity of the Analysis would not be damaged Admiral Markets has established relevant internal procedures for prevention and management of conflicts of interest.
  5. Whilst every reasonable effort is taken to ensure that all sources of the Analysis are reliable and that all information is presented, as much as possible, in an understandable, timely, precise and complete manner, Admiral Markets does not guarantee the accuracy or completeness of any information contained within the Analysis. The presented figures that refer to any past performance is not a reliable indicator of future results.
  6. The contents of the Analysis should not be construed as an express or implied promise, guarantee or implication by Admiral Markets that the client shall profit from the strategies therein or that losses in connection therewith may or shall be limited.
  7. Any kind of previous or modelled performance of financial instruments indicated within the Publication should not be construed as an express or implied promise, guarantee or implication by Admiral Markets for any future performance. The value of the financial instrument may both increase and decrease and the preservation of the asset value is not guaranteed.
  8. The projections included in the Analysis may be subject to additional fees, taxes or other charges, depending on the subject of the Publication. The price list applicable to the services provided by Admiral Markets is publicly available from the website of Admiral Markets.
  9. Leveraged products (including contracts for difference) are speculative in nature and may result in losses or profit. Before you start trading, you should make sure that you understand all the risks.

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Shadow Inflation: Shipping Costs Are Up Way More Than You Think

Shadow Inflation: Shipping Costs Are Up Way More Than You Think

By Greg Miller of FreightWaves,

Name something that costs far more than it did before the pandemic that simultaneously gives you far less value for your money than it used to.

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Shadow Inflation: Shipping Costs Are Up Way More Than You Think

By Greg Miller of FreightWaves,

Name something that costs far more than it did before the pandemic that simultaneously gives you far less value for your money than it used to.

Of all the goods and services in the world, it’s hard to find a better pick than ocean container shipping. As rates have skyrocketed, delivery reliability has collapsed amid historic port congestion. Ocean cargo shippers are paying more than they ever have before for the worst service they’ve ever experienced.

The true COVID-era inflation rate for ocean shipping, when adjusted upward to account for lower quality, is much higher than the rise in freight rates.

Rates spike, quality plummets

For businesses that rely on imports and exports, ocean shipping is a necessity, not a luxury, so pricing rises if demand exceeds supply regardless of how bad the service is. U.K.-based consultancy Drewry recently upped its forecast and now predicts that global container rates will increase by an average 126% this year versus 2020, including both spot and contract rates across all trade lanes.

Norway-based data provider Xeneta sees most long-term contract rates in the Asia-West Coast route averaging $4,000-$5,000 per forty-foot equivalent unit, double rates of $2,000-$2,500 per FEU at this time last year. Spot rates have risen much more than that, both in dollar and percentage terms. The Freightos Baltic Daily Index currently assesses the Asia-West Coast spot rate (including premium charges) at $17,377 per FEU, 4.5 times the spot rate a year ago.

Daily assessment in $ per FEU. Data: Freightos Baltic Daily Index. Chart: FreightWaves SONAR (To learn more about FreightWaves SONAR, click here.)

Service metrics have sunk as rates have risen. Denmark-based consultancy Sea-Intelligence reported that global carrier schedule reliability fell to 33.6% in August, an all-time low. In August 2019, pre-COVID, reliability was more than double that. Sea-Intelligence calculated that the global delays for late vessels was 7.57 days, almost double the number of days late in August 2019.

Charts: Sea-Intelligence. Data sources: Sea-Intelligence, GLP report issue 121

U.S.-based supply chain visibility platform Project44 highlighted the diverging paths of pricing and quality by contrasting its data on average days delayed with Xeneta’s short-term rate data. Between August 2020 and this August, project44 found that the monthly median of days delayed on voyages from Yantian, China, to Los Angeles increased 425%, from 2.46 days to 12.93. Over the same period, average short-term rates jumped 102%.

Chart: p44. Data sources: p44 and Xeneta

Shadow inflation

Neil Irwin of The New York Times recently wrote about “shadow inflation”when you pay the same as before for something that’s not as good as it used to be, so you’re effectively paying more. A pre-COVID example of shadow inflation: the infamous Lay’s potato chip incident of 2014. Lay’s intentionally included about five chips less per bag, lowering content from 10 ounces to 9.5, yet still charged $4.29 per bag, meaning customers were paying (and Frito-Lay was making) 5.3% more per ounce of chips.

The opposite — and until COVID, far more common — scenario is when product quality rises faster than pricing, decreasing effective inflation, as in the case of computers and other tech products. This downward effect on inflation is incorporated into the Consumer Price Index (CPI) via so-called hedonic adjustments.

As recounted by Irwin and Full Stack Economics author Alan Cole, COVID flipped hedonic adjustments in the other direction, toward lower quality per dollar paid, the equivalent of inflation. Pointing to restaurants and hotels, Irwin wrote, “Many types of businesses facing supply disruptions and labor shortages have dealt with those problems not by raising prices (or not only by raising prices), but by taking steps that could give their customers a lesser experience.”

According to Cole, “Over the last 18 months … goods and services are getting worse faster than the official statistics acknowledge,” implying that “our inflation problem has actually been bigger than the official statistics suggest.”

Shadow inflation and container shipping

Ocean container shipping is an extreme example of the “services are getting worse” trend, despite enormous freight-rate inflation.

Measuring quality adjustments to inflation is inherently difficult, which is why very few CPI categories have hedonic adjustments. One way to do a back-of-the-envelope estimate of ocean shipping shadow inflation is to focus on time: the longer the delays, the less quality, the higher the cost fallout, the higher the effective inflation above and beyond the rise in freight rates.

Jason Miller, associate professor of supply chain management at Michigan State University’s Eli Broad College of Business, suggested using accounting of inventory carrying costs to measure the time effect.

“If I already own a product and I took possession of it overseas at the port of departure, and it’s on my balance sheet and it’s just sitting on the water, then in inventory management, there is a charge incurred every day it’s not sold,” he explained.

Miller explained, “There is the cost of capital. Every $100 in inventory is $100 that can’t be allocated elsewhere for a more value-producing purpose. There is also the cost due to obsolescence. It’s essentially opportunity costs. The longer the delay, the more additional costs from stockouts [as shelves empty] or the need to buy more safety stock.”

Rate rises affect different shippers differently

Whether it’s price inflation from rate hikes or indirect shadow inflation from slow service, different shippers are affected very differently.

On the rate side of the equation, Xeneta data shows a massive $20,000-per-FEU spread between the lowest price paid by large contract shippers in the trans-Pacific trade and highest price paid by small spot shippers.

Erik Devetak, chief data officer of Xeneta, told American Shipper, “We see the very bottom of the bottom of the long-term market at approximately $3,300 per FEU, although there are very few contracts at this price. On the other hand, we see the short-term market high up to $23,000 per FEU, again, in rare situations.”

In the latest edition of its Sunday Spotlight report, Sea-Intelligence analyzed how rate hikes affect different shippers and found a huge competitive advantage for larger shippers given this gaping freight spread.

Sea-Intelligence, using Xeneta data, estimated that a large importer on contract (in this case, in the Asia-Europe trade) shipping a 40-foot box with $250,000 of high-value cargo would see freight costs rise from 0.5% of the cargo value a year ago to 1.8% currently — an easily digestible increase. A small shipper in the spot market moving the same load would see freight costs jump from 0.7% of cargo value to 6.2%.

Sea-Intelligence then ran the same exercise with a low-value cargo worth $25,000. It said that in this case, the large contract shipper’s freight-to-cargo-value ratio rose from 5% last year to 18% currently, while the small spot shipper’s freight-to-cargo-value “exploded” from 7% to 62%.

Service delays affect different shippers differently

Rising rates affect high-value cargo the least because the freight rise equates to a small proportion of the cargo value. But with shadow inflation from voyage delays, it’s the opposite, according to Miller. Shipments of high-value goods get hit much harder than low-value goods.

Accounting carrying costs are derived from cargo value. The higher the cargo value, the higher the carrying costs. “Where these delays especially matter is for high-value imports,” said Miller. “It’s ironic. The importers that are least affected by high spot prices are the ones who are getting really hurt most by the delays.”

One example: A large importer pays $4,000 in freight under a contract to ship a high-value cargo of $250,000 worth of electronics in a 40-foot box. There is a 30% annual carrying cost, in part due to high obsolescence risk, thus a carrying cost of $205 per day, so a 10-day delay would equate to an accounting cost of $2,050, adding 51% on top of the freight cost.

A contrasting example: A small importer pays $15,000 in the spot market to ship a low-value cargo of $25,000 worth of retail products in a 40-footer, with a 20% annual carrying cost. A 10-day delay would equate to an accounting carrying cost of $137, just 1% more on top of the freight rate.

It’s not just high-value cargoes that suffer from delays, Miller continued. Obsolescence risk is key. On the high end of the value spectrum, that relates to goods like electronics; on the low end, to things like holiday items and seasonal fashion.

Another major factor: whether the delayed import item is a component in a manufacturing process. In that case, the cost of ocean shipping delays can be enormous, dwarfing the increase in freight rates.

American Shipper was recently contacted by a manufacturer that has a vital component of its production process trapped in containers aboard a Chinese container ship that has been at anchor waiting for a berth in Los Angeles/Long Beach since Sept. 13.

“When imports are actually inputs into a production process, and if a stockout is going to shut down a plant, you are now facing a huge opportunity cost,” warned Miller.

Tyler Durden Sun, 10/24/2021 - 15:30

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“Emergency Mode” – China Warns Covid Outbreak To Worsen In Coming Days

"Emergency Mode" – China Warns Covid Outbreak To Worsen In Coming Days

Any hopes that covid is finally on its way out and won’t be used by the establishment to ram through trillions more in stimulus, are about to die a slow, painful death….

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"Emergency Mode" - China Warns Covid Outbreak To Worsen In Coming Days

Any hopes that covid is finally on its way out and won't be used by the establishment to ram through trillions more in stimulus, are about to die a slow, painful death. To be sure, there has been much to the optimistic about: covid cases in the US have plunged in the past month, with hospitalization numbers sliding and daily covid deaths now sharply lower.

This hopeful backdrop prompted Bank of America last week to write that "with the much more transmissible Delta variant now dominant, are we in for another difficult winter? Probably not." It also led JPMorgan's Marko Kolanovic to declare on Oct 6 the de facto end of the pandemic:

Our core view remains that the COVID situation will continue improving driving a cyclical recovery. This will be the case for at least the next  3-4 months given COVID wave dynamics, but most likely also beyond that. We believe that this was the last significant wave, and an effective end to the pandemic.

Alas, not so fast.

Last Friday, Bloomberg issued the first "new wave" covid alert, targeting the UK, and writing that "after 19 months spent attempting to ward off Covid-19 while safeguarding jobs and businesses, the U.K. is heading into winter with a growing problem: The coronavirus is spreading rapidly, just as the economy starts going in the opposite direction."

According to the report, "U.K. cases are accelerating faster than in other western European nations, while deaths have jumped to their highest since March." And while UK government ministers are having to deny they are planning for a new lockdown, "at the same time, economic growth is slowing, inflation is running high, the Bank of England is expected to hike rates soon and households are facing a cost-of-living crisis."

In short, a new wave of covid - whether real or imagined - is about to be unleashed on the UK at the worst possible time, just as the BOE may be about to hike rates in a matter of weeks to offset the UK's soaring inflation with 5Y breakevens hitting the highest level this century.

But it's not just the UK: with China's economy rapidly contracting even as its energy crisis has sent commodity prices soaring and threatens to unleash record PPI prints in coming months...

... the world's second largest economy is about to face a far greater threat. According to Bloomberg, a Chinese health official said that the country's new Covid-19 infections will increase in coming days and the areas affected by the epidemic may continue to expand.

Of course, this being China not one statement about anything can be made without lies, and this one was not exception: speaking at a briefing in Beijing on Sunday, Wu Liangyou, an official at the National Health Commission, said that the current outbreak in China is caused by the delta variant from overseas. Right, it's all the foreigners fault. 

Origins aside, the wave of infections spread to 11 provinces in the week from Oct. 17, Mi Feng, spokesman for the commission, said at the briefing. Most of the people infected have cross-region travel histories, Mi said. He urged areas that have been affected by the pandemic to adopt “emergency mode.”

In preparation for the new wave, already some cities in the provinces of Gansu, including its capital Lanzhou, and Inner Mongolia have halted bus and taxi services because of the virus, according to Zhou Min, an official at the transport ministry.

China reported 26 new local confirmed Covid-19 infections on Saturday, including seven in Inner Mongolia, six in Gansu, six in Ningxia, four in Beijing, one in Hebei, one in Hunan and one in Shaanxi, according to the National Health Commission. Another four local asymptomatic cases were reported in Hunan and Yunnan.

And while the latest wave is still modest, with Goldman counting just 70 local Covid cases reported in the Oct 22 week, for Beijing to take the surprising step of making a public announcement that it's about to get worse, suggests just that: that the "data" is about to show a major spike in local cases.

It also means that China's effective lockdown index is about to take a sharp turn higher.

Meanwhile, the epidemic is also spreading in the capital Beijing, where it has expanded to three districts including Haidian, a scientific hub, Pang Xinghuo, vice head of the Beijing Center for Disease Prevention and Control, said at a briefing Sunday; he added that five new confirmed local Covid cases and an asymptomatic one were reported between Saturday midday to Sunday 3 p.m.

As part of the coming round of lockdowns, Beijing will cancel a marathon originally scheduled for Oct. 31 due to the virus, the Beijing Daily reported. People in cities where infections have been found are banned from visiting or returning to the capital at present, the newspaper said.

Bottom line: while power blackouts lead to a sharp swoon in Chinese output in the early part of the month, it now appears that covid will be blamed for the next round of factory lockdowns, and the result will be even more snarled supply chains only this time the Biden administration will not blame "too much demand" but not enough Chinese supply. The end result, however, will be the same: even fewer goods and even higher prices for virtually everything this holiday season.

Tyler Durden Sun, 10/24/2021 - 11:00

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Best Stocks To Invest In Right Now? 3 Health Care Stocks To Watch

Check out these top health care industry names making plays now.
The post Best Stocks To Invest In Right Now? 3 Health Care Stocks To Watch appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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Are These The Best Health Care Stocks To Buy This Week?

The broader stock market today continues to be heavily swayed by the latest set of earnings rolling in. Amidst all of this action, health care stocks remain hard at work, nonetheless. For the most part, this has and been and still is the case as the pandemic rages on. Namely, the focus is mostly shifting towards additional booster shots on top of the initial dose regimens. This move would be in response to the fact that initial immunity to the current persistent coronavirus strains begins to wane after several months.

At the same time, parts of the globe are seeing a resurgence in new cases as well. For instance, we could look at the current situation in the U.K. where the pressure is ramping on the local health care system. Not to mention, there are also concerns over a possible mutation of the Delta variant of the virus, making it even more contagious. With all that said, the health care industry could arguably see continued heightened demand for its services in general.

Notably, the U.S. Centers for Disease Control and Prevention now approves booster doses from Moderna (NASDAQ: MRNA) and Johnson & Johnson (NYSE: JNJ). On top of that, it also endorses the mixing and matching of the three approved vaccines for these additional shots. It’s worth pointing out that the Delta variant is still heavily in circulation. Meanwhile, even tech giants like Alphabet’s(NASDAQ: GOOGL) Google seem to be eyeing the health care industry now. This is evident as it is now partnering with a variety of health care associations to optimize health care-related searches on its platform. With all that said, here are three top health care stocks to know in the stock market now.

Top Health Care Stocks To Buy [Or Sell] Ahead Of November 2021

Novavax Inc.

First up, we have Novavax, a biotechnology company that strives to improve health globally. It does this by developing and commercializing innovative vaccines to prevent serious infectious diseases. With over a decade of experience, the company contends with some of the world’s most devastating diseases, including the coronavirus, seasonal influenza, and Ebola.

On Wednesday, the company reconfirmed confidence in regulatory filing timelines and manufacturing quality. This is in response to a recent news article citing anonymous sources that there were quality issues in the company’s manufacturing site. In fact, it has made significant progress in mobilizing a global manufacturing network over the past 18 months with sites that are now routinely producing high-quality products at a commercial scale at multiple sites across the world. Its global supply chain now expects to achieve a capacity of 150 million doses per month by the end of the fourth quarter.

Furthermore, the company also expects to complete multiple regulatory submissions within the next couple of weeks in key markets like the U.K., Europe, Canada, Australia, and New Zealand. Also, together with Serum Institute of India (SII), it has already filed for authorization in India, Indonesia, and the Philippines. All things considered, will you add NVAX stock into your portfolio of health care stocks?

NASDAQ NVAX
Source: TD Ameritrade TOS

[Read More] Top Reddit Stocks To Buy Right Now? 5 For Your Late 2021 Watchlist

Pfizer Inc.

Pfizer is a multinational pharmaceutical and biotechnology corporation that saved millions of lives through its pipeline of products. Notably, this would include being the first company in the world to receive FDA approval for its coronavirus vaccine and the company is well on track to deliver over 2 billion doses of its life-saving vaccine. This past week, the company reported an exciting piece of news.

Diving in, the company says that its kid-sized doses of its coronavirus vaccine appear safe and is 91% effective at preventing symptomatic infections in 5- to 11-year olds according to study details released Friday as the U.S. considers opening vaccinations to the age group. If all goes accordingly, the shots could begin early next month and children could be fully protected by Christmas if the regulators give the go-ahead. Accordingly, the FDA expects to post its independent review of the company’s safety and effectiveness data later Friday.

It also announced on Thursday that its Phase 3 trial data shows high efficacy on its booster dose of its coronavirus vaccine. First results from its trial demonstrated a relative vaccine efficacy of 95.6% against disease during a period when Delta was the prevalent strain. Pfizer now plans to submit these data to FDA, EMA, and other regulatory agencies to further support licensure in these countries. With that being said, will you add PFE stock to your portfolio right now?

NYSE PFE
Source: TD Ameritrade TOS

[Read More] 5 Financial Stocks To Watch In A Rising Interest Rate Environment

UnitedHealth Group Inc.

Another name to consider among the top health care stocks now would be the UnitedHealth Group (UNH). In brief, it is a multinational health care and insurance company. Accordingly, UNH offers the general public access to a wide array of health care products and insurance services. The likes of which could be in demand given amidst the current pandemic conditions. In the U.S., UNH works with over 1.3 million health care providers and professionals alongside 6,500 hospitals and care facilities.

Well, for one thing, UNH appears to be kicking into high gear on the operational front this week. This is evident given the launch of its virtual-first health plan service, NavigateNOW. Through the program, UNH clients have comprehensive access to both virtual and in-person care. This includes but is not limited to wellness, routine, chronic condition management, urgent, and behavioral health services. Additionally, UNH also claims that NavigateNOW provides all of this at “approximately 15% less premium cost than traditional benefit plans.”

If all that wasn’t enough, the company is also actively partnering with Optum, a pharmacy benefit manager. With this partnership, UNH customers will receive access to round-the-clock access to a personalized Optum care team. By and large, UNH seems to be providing a comprehensive yet more affordable program for consumers. Could all this make UNH stock a top buy for you?

NYSE UNH
Source: TD Ameritrade TOS

The post Best Stocks To Invest In Right Now? 3 Health Care Stocks To Watch appeared first on Stock Market News, Quotes, Charts and Financial Information | StockMarket.com.

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