Overview: The US dollar is weaker against all the G10 currencies today but the Swiss franc. The backdrop seems fragile even though a few regional bank shares have done better in after-hours trading and Apple's earnings were received well by the markets. Due to seasonal factors and other considerations, many are warning about a US jobs report, even though ADP's estimate surprised to the upside earlier this week. Equities were mixed in the Asia Pacific region, while Europe's Stoxx 600 is edging higher to pare this week's losses. Its bank index is snapping a three-day drop and is up about 1.5%. US equity futures are firmer, will see the jobs report before the opening. Despite a simply dreadful German factory orders report (-10.7%), European bonds are selling off. Yields are 6-8 bp higher and the 10-year Gilt yield is up nearly 10 bp.
The 10-year US Treasury yield is up 1-2 bp near 3.40%. The two-year yield has steadied (up 2 bp to 3.81%) after falling 35 bp over the past three sessions. Although emergency borrowing from the Fed fell last week, it seemed mostly a question of reallocating in light of the First Republic's takeover by JP Morgan. The Fed's balance sheet continued to shrink (QT), falling by nearly $59 bln in the week through Wednesday. The greenback has fallen against all the G10 currencies this week going into the jobs report. The Antipodeans are the strongest (1.75%-1.90%), while the euro is the weakest (~0.10%). The JP Morgan Emerging Market Currency Index is up about 0.4% in what could be the first back-to-back weekly gain since the end of March. After reaching nearly $2063 yesterday, gold is seeing profit-taking that is pushing it below to around $2037. Yesterday's low was near $2030.50. June WTI is snapping a four-day decline after reversing yesterday from a plunging to $63.65. It is up about 2% today and is knocking on $70.
Yesterday the Caixin manufacturing PMI confirmed the slippage back into contraction territory telegraphed by the "official" PMI. Today, Caixin reported growth in services slowed to 56.4 from 57.8. The "official" reading had also moderated to 56.4 from 58.2. The Caixin composite stands at 53.6, down from 55.0. China is restricting access to economic data, which makes it difficult to triangulate the high-frequency economic data for support or not. After China reported stronger than expected Q1 GDP, many economists revised up this year's growth prospects, but the disappointing PMI fanned speculation of a rate cut. The first opportunity may be on May 15, when the one-year medium term lending facility rate is set. It has been at 2.75% since it was shaved by 10 bp last August. We are a bit more skeptical of the urgency for a rate cut. Reports suggest spending over the May Day holiday was strong and the drop sharp drop in oil prices is a net positive for the world's largest importer.
In its monetary policy statement earlier today, the Reserve Bank of Australia lowered its inflation and growth forecasts. It seems to be signaling that the recent hike may be the last as the new forecasts ae based on a 3.75% cash target rate, which now stands at 3.85%. The trimmed mean inflation is now seen at 6.0% in the 12-months through June, down from 6.25% seen in the previous forecast three months ago. It anticipates inflation falling to 4.0% by year-end (vs 4.25% previously). The new forecasts put GDP growth at 1.25% this year, down from 2.7% last year, with consumption slowing to 1.3% by the end of this year from 5.4% in 2022.
Tokyo markets remained closed for the spring holidays and the yen is in a narrow range, consolidating this week's gains (~1.65%). The greenback peaked Tuesday slightly above JPY137.75, and pressured by sharply lower US rates, and fallen to JPY133.50 yesterday before settling near JPY134.50. Today, the dollar is in less than half a yen range (~JPY133.90-JPY134.30). There are options for nearly $1.4 bln at JPY133.50 that expire today. The Australian dollar showed no reaction to the new central bank forecasts that had been hinted at when the RBA hiked rates earlier this week. It approached a two-week high today near $0.6745 and took out the 200-day moving average (~$0.6730). It settled last week near $0.6615 and has risen every day this week, which it last did in the final week of 2022. The upper end of the two-month range is around $0.6800 and the daily momentum indicators are constructive. Initial support is seen in the $0.6700-20 area. The Chinese yuan is little changed today. The greenback is in a narrow range between roughly CNY6.9055 and CNY6.9155, inside yesterday's range. It settled near CNY6.9125 at the end of last week. Mainland markets were closed Monday-Wednesday. The reference rate was set at CNY6.9114 today compared with expectations (median in Bloomberg's survey) or CNY6.9121.
The ECB delivered the quarter-point hike that was widely expected, and by characterizing inflation "too high for too long", it was understood to confirm market expectations for another hike at the mid-June meeting. Lagarde was clear that the ECB was not pausing. The swaps market leans toward another hike in Q3. The managed reinvestment of the Asset Purchase Program (APP) is helping reduce the ECB's balance sheet by 15 bln euro a month, but starting in July it will stop the reinvestment of maturing proceeds entirely. This means a 25 bln euro reduction in bond buying a month. The maturing issues from the Pandemic Emergency Purchase Program (PEPP) will continue to be reinvested through the end of next year.
Separately, after Germany reported that March retail sales plunged 2.4% (median forecast in Bloomberg's survey was for a 0.4% gain), it was clear that there were downside risks to today's aggregate retail sales data. Eurozone retail sales fell by 1.2%, and small compensation was that the February decline of 0.8% was revised to -0.23%. Recall that consumer spending slid by 1.3% in France (the median in Bloomberg's survey was for a 0.5% increase). As we have seen with other recent data, the periphery is doing better than the core. Spanish retail sales rose 0.5% in March. Italy's was reported today, and it fell by 0.5%. Also, Germany shocked today with a whopping 10.7% collapse of factory orders. This is five-times the decline expected. The auto sector was particularly hard. Auto and part orders slumped 12.2%, which reflects a 7.3% decline in domestic orders and a 14.5% drop in foreign orders. Sharp declines were also report for computers/electronics (-7.9%) and engineering (-5.9%). Germany reports industrial production figures on Monday, and after today's dismal news, there is downside risk to the 1.6% decline economists project.
The UK economy continues to show resilience. As we noted yesterday, the final reading of the April PMI (54.9) was unexpectedly revised higher from the preliminary estimate (53.9) and is the highest since last April. Separately, mortgage approvals rose to a five-month high in March and consumer credit rose more than expected. Split roughly evenly between households and businesses, nearly GBP11 bln was withdrawn from banks in March amid US and Swiss banking woes. Still, in local elections, the Tory Party was not rewarded for the economic improvement. All the results have not been tabulated, but among the first 1600 results, the Tories lost 200 seats, which seems be on pace with worst-case scenarios. Labour won more than half of those seats, and the Liberal Democrats made inroads into Tory territory in the south.
The poor eurozone data hardly impacted the euro, which is holding above $1.1000 and trading well within yesterday's range (~$1.0985-$1.1090). It settled near $1.1020 last week. The 20-day moving average is near $1.0990 today, and although it had been penetrated on an intraday basis earlier this week, it has not closed below it since March 16. There are options for 1.7 bln euros at $1.10 that expire today. Sterling is trading firmly and reached almost $1.2635, its highest level since early last June, when it peaked near $1.2665. It finished last week slightly above $1.2565. After falling for the first two days of the week, it is advancing today for the third consecutive session. The BOE meets next week, and the resilience of both the economy and inflation will likely see a hawkish hike.
The Federal Reserve's June decision looks to be a function of three variable: inflation, labor market, and the extent that credit tightens. Today's data speaks the labor market and next week inflation. Bloomberg's survey found a median expectation for nonfarm payrolls to rise 182k after a 236k increase in March. The ADP estimate of private sector employment does not do a good job tracking the BLS estimate on a monthly basis, and after the methodological change recent announced, its tracking ability on a medium-term basis is an open question. Still, the ADP estimate of 296k was nearly twice the expectation, and some observers will say the whisper number (which seems like intuitive guesses) will be higher than the Bloomberg median of 156k for the private sector job growth. The unemployment rate is seen rising to 3.6% from 3.5% while hourly earnings are seen steady at 4.2% year-over-year. The participation rate is also seen unchanged at 62.6%. Federal Reserve Chair Powell was clear that from the Fed's point of view the labor market remains strong, and citing various measures, labor costs are in excess of what is consistent with the Fed's inflation target. We note that nonfarm payrolls increased by more than one million in Q1. That compares with 852k in Q4 22.
Canada also reports April jobs data. The median forecast in Bloomberg's survey is for an increase of 20k jobs. In Q1, Canada filled 206k posts, or which a little more than 170k were full-time positions. This is compares with 165k jobs (~183k full-time) in Q4 22. This is pretty impressive given that Canada's population is about an eighth of the US population. That said, the bar to get the Bank of Canada to renew is tightening cycle after announcing a "conditional pause" in January seems high and too high to be met by today's jobs report, even though it will not see another jobs report before it meets on June 7. The next report with the heft to impact expectations is the April CPI due May 16.
Some observers are attributing the recovery of the Canadian dollar to comments from Bank of Canada Governor Macklem who warned that inflation too high. However, he also noted that price pressures were easing in line with the central bank's forecasts. He said that its focus was on employment growth, wages, corporate pricing behavior and short-term inflation expectations. There was no adjustment in rate expectations in response but the 0.55% gain in the Canadian dollar was the most since late March. Follow-through CAD buying today has pushed the US dollar through CAD1.3500 for the first time in two weeks. The CAD1.3485 area corresponds to the halfway point of the US dollar's rally from the mid-April low near CAD1.3300. Some of the USD selling may be related to expiring options. The next important chart area is around CAD1.3450 and is also where the 200-day moving average is found. For its part, the Mexican peso is trading quietly, a little above six-year high set earlier this week. The greenback has steadied after being sold to MXN17.8315 in the middle of the week. To be anything of note, the US dollar needs to resurface above MXN18.0350, and ideally MXN18.08.
Turley: Four Biden Impeachment Articles & What The House Will Need To Prove
Turley: Four Biden Impeachment Articles & What The House Will Need To Prove
Authored by Jonathan Turley,
With the commencement of the…
With the commencement of the impeachment inquiry into the conduct of President Joe Biden, three House committees will now pursue key linkages between the president and the massive influence peddling operation run by his son Hunter and brother James.
The impeachment inquiry should allow the House to finally acquire long-sought records of Hunter, James, and Joe Biden, as well as to pursue witnesses involved in their dealings.
I testified this week at the first hearing of the impeachment inquiry on the constitutional standards and practices in moving forward in the investigation. In my view, there is ample justification for an impeachment inquiry. If these allegations are established, they would clearly constitute impeachable offenses. I listed ten of those facts in my testimony that alone were sufficient to move forward with this inquiry.
I was criticized by both the left and the right for the testimony.
Steven Bannon and others were upset that I did not believe that the basis for impeachment had already been established in the first hearing of the inquiry.
Others were angry that I supported the House efforts to resolve these questions of public corruption.
Without prejudging that evidence, there are four obvious potential articles of impeachment that have been raised in recent disclosures and sworn statements:
abuse of power.
Bribery is the second impeachable act listed under Article II. The allegation that the President received a bribe worth millions was documented on a FD-1023 form by a trusted FBI source who was paid a significant amount of money by the government. There remain many details that would have to be confirmed in order to turn such an allegation into an article of impeachment.
Yet three facts are now unassailable.
First, Biden has lied about key facts related to these foreign dealings, including false statements flagged by the Washington Post.
Second, the president was indeed the focus of a corrupt multimillion-dollar influence peddling scheme.
Third, Biden may have benefitted from this corruption through millions of dollars sent to his family as well as more direct benefit to Joe and Jill Biden.
What must be established is the President’s knowledge of or participation in this corrupt scheme. The House now has confirmed over 20 calls made to meetings and dinners with these foreign clients. It has confirmation of visits to the White House and dinners and events attended by Joe Biden. It also has confirmation of trips on Air Force II by Hunter to facilitate these deals, as well as payments where the President’s Delaware home address was used as late as 2019 for transfers from China.
The most serious allegations concern reported Washington calls or meetings by Hunter at the behest of these foreign figures. At least one of those calls concerned the removal or isolation of a Ukrainian prosecutor investigating Burisma, an energy company paying Hunter as a board member. A few days later, Biden withheld a billion dollars in an approved loan to Ukrainian in order to force the firing of the prosecutor.
The House will need to strengthen the nexus with the president in seeking firsthand accounts of these meetings, calls, and transfers.
However, there is one thing that the House does not have to do. While there are references to Joe Biden receiving money from Hunter and other benefits (including a proposed ten percent from one of these foreign deals), he has already been shown to have benefited from these transfers.
There is a false narrative being pushed by both politicians and pundits that there is no basis for an inquiry, let alone an impeachment, unless a direct payment or gift can be shown to Joe Biden. That would certainly strengthen the case politically, but it is not essential legally. Even in criminal cases subject to the highest standard, payments to family members can be treated as benefits to a principal actor. Direct benefits can further strengthen articles of impeachment, but they would not be a prerequisite for such an action.
For example, in Ryan v. United States, the Seventh Circuit U.S. Court of Appeals upheld the conviction of George Ryan, formerly Secretary of State and then governor of Illinois, partly on account of benefits paid to his family, including the hiring of a band at his daughter’s wedding and other “undisclosed financial benefits to him and his family and to his friends.” Criminal cases can indeed be built on a “stream of benefits” running to the politician in question, his family, or his friends.
That is also true of past impeachments. I served as lead counsel in the last judicial impeachment tried before the Senate. My client, Judge G. Thomas Porteous, had been impeached by the House for, among other things, benefits received by his children, including gifts related to a wedding.
One of the jurors in the trial was Sen. Robert Menendez (D-N.J.), who voted to convict and remove Porteous. Menendez is now charged with accepting gifts of vastly greater value in the recent corruption indictment.
The similarities between the Menendez and Biden controversies are noteworthy, in everything from the types of gifts to the counsel representing the accused. The Menendez indictment includes conspiracy charges for honest services fraud, the use of office to serve personal rather the public interests. It also includes extortion under color of official right under 18 U.S.C. 1951. (The Hobbs Act allows for a charge of extortion without a threat of violence but rather the use of official authority.)
Courts have held that conspiracy charges do not require the defendant to be involved in all (or even most) aspects of the planning for a bribe or denial of honest services. Thus, a conspirator does not have to participate “in every overt act or know all the details to be charged as a member of the conspiracy.”
Menendez’s case shows that the Biden Administration is prosecuting individuals under the same type of public corruption that this impeachment inquiry is supposed to prove. The U.S. has long declared influence peddling to be a form of public corruption and signed international conventions to combat precisely this type of corruption around the world.
This impeachment inquiry is going forward. The House just issued subpoenas on Friday for the financial records of both Hunter and James Biden. The public could soon have answers to some of these questions. Madison called impeachment “indispensable…for defending the community” against such corruption. The inquiry itself is an assurance that, wherever this evidence may lead, the House can now follow.
How the Polen Capital Global Small and Mid Cap Fund finds under-explored high quality companies
In this video insight, I am joined by Rob Forker, the portfolio manager of the Polen Capital Global Small and Mid Cap Fund. We discuss Polen Capital’s…
In this video insight, I am joined by Rob Forker, the portfolio manager of the Polen Capital Global Small and Mid Cap Fund. We discuss Polen Capital’s strategy of selecting elite companies from a pool of 8000 global stocks based on their five guide rails. Rob also highlights Polen’s approach to investing across the growth spectrum, balancing slower-growing, stable companies like Cochlear with high-growth firms like Globant. Despite the challenging market conditions, Rob remains confident in their strategy, believing that earnings growth will ultimately drive long-term stock price appreciation.
Hi I’m David Buckland, and welcome to this week’s video insight. Today, I’m being accompanied by Rob Forker. For those who don’t know, Rob is the portfolio manager of Polen Capital’s global small and mid-cap fund.
Rob, you have about 8000 stocks to choose from in the global space in the small to mid-cap area, and you have to go all the way down to try and get the best 35 stocks or approximately 35 stocks in the world. How do you do it?
It’s a hard task, but one we enjoy doing. So, finding the best of the best is what we’re all about. We want to find the most elite companies we can find globally wherever they reside, Australia, continental Europe, America, Japan, wherever. The way we do it is we apply our proven five guardrails that we’ve been executing at Polen Capital for almost 35 years. Those are:
- Real organic revenue growth,
- High end or improving margins,
- High returns,
- Abundant cash flow,
- And a strong balance sheet.
And at the end of the day, what we’re looking for is companies that have strong earnings, have strong cash flow, and a fortress like balance sheet because those are quality companies that can be durable over the long term.
And it’s interesting that out of your portfolio of, I think it’s 33 stocks at the moment, the average market capitalization is about 8.5 billion Australian dollars, which actually would put it in the top 60 on the ASX and be similar sized to something like Qantas (ASX: QAN) or Mirvac (ASX: MGR) so it’s interesting that, for Australians, that seems quite big, but by global standards, they’re still categorized as a small or medium sized type businesses.
Yeah, no question, so we find companies of course globally, and small cap, mid cap is a bit of an art as to how you define it but what we believe is that the inefficiency of the asset class is clear. So, a typical company that we’re looking at in our class has 7 to 8 analysts. For reference, Apple has 55. And so, the beauty of what we do is that we’re looking at under explored companies that we believe have a secret sauce. Now it’s our job to figure out what that secret sauce is, but what we do, as an example, is look at the companies that have no self-side coverage. So, this is an opportunity and one that we relish in.
That’s good. Now, one of the interesting graphs we get from Polen Capital is investing across the growth spectrum. On one side of the spectrum. You’ve got these very sexy, very high growth companies, but are earning money. And on the other side of the spectrum, a little bit more ballast in the portfolio. Can you just explain for the small mid cap global audience? Investing across the growth spectrum and how you think about it.
Yeah, so on the safety side, these are to consumer staples companies or healthcare companies where they’re a lit little bit slower growing, low double digit earning. So, it’s still great, but slower going. Cochlear (ASX: COH) would be a great example, a fortress in market share and their constant research and development (R&D), typically grows earnings at 12-14 per cent.
On the far end, we call these growth companies, they typically grow earnings 30 – 40 per cent. An example would be Globant, which is an IT consulting firm at the forefront, of what they do. They’re basically a mini-Accenture. And so those type of companies are growing faster.
We want both because we appreciate the safety and the growth elements that can help you in bad times and give you outsized returns in good times.
So, if we look at the fundamentals of the total portfolio let’s just sort of spend a minute or two on that.
Absolutely so, when you put it all together, this is a portfolio that trades at roughly 25 times earnings on a 12-month basis.
We believe earnings growth is nearly 20 per cent per annum.
For some years?
Yeah, where we forecast out 5 years in our investment time horizon. We want to think and act like owners when looking at these great companies, and what they can do over the long term.
The balance sheet is nearly net cash, so no balance sheet risk to speak of. As I mentioned, strong cash flows. We want companies that self-fund, which is quite unique in this space. Many small cap managers own unprofitable companies where they’re betting that things will get great.
Have to go back to the market for equity, on a regular basis.
We don’t want to do that. We don’t want to buy what will be quality. We buy what’s proven to be quality today. And this is the beauty of the menu that we have of nearly 8000 companies. We can be choosy. We want to own elite companies.
And I guess the elephant in the room Rob, we launched this in Australia although the fund out of America is actually, well, Boston where Rob’s based is actually a bit older than that, but we actually pick the timing to perfection in terms of the bigger the market, so October 2021. So, it’s coming around for its, it’s two year anniversary. It’s been a very, very rough ride for the early investors.
Yours truly as one of them.
Let’s just give it give it some context. It’s obviously been a very rough 24 months. Do you want to sort of just spend a few minutes on that?
Yeah, and yours truly as well. So, I eat my own pudding, I’m an investor and my children are investors you know, I am betting on the success of this strategy as many of you are. The elephant in the room is that 2022 was bruising, just literally awful.
We weren’t certainly the only ones that had the bruising. This was a global phenomenon, particularly in small to mid caps. This year, what’s been surprising is the bounce back has not been there. The strategy is certainly not doing poorly, but it hasn’t had the type of returns that that many of the large cap strategies have had, small cap in general has been toward left behind. What we focus on is the fundamentals of the business.
We believe that earnings growth for our companies was 12 per cent last year. We believe that earnings growth will also be very strong closer to that 15 to 20 per cent level that I was talking about. And that’s what we are focused on. Price to earnings (P/E) multiples as Roger and many astute investors talk about, P/E multiples are confidence, they go up and down. But we believe over the long term that stock prices follow earnings growth, and that’s what we think will happen over the long term. But certainly, are, we didn’t want to start this way. And it would have been better had we not, but this is where we are in there in lies the opportunity.
Alright. Ladies and gentlemen, that’s all we have time for this week. As many of you know, we’ve had a very, very good relationship with Polen Capital for about 2 and a half years now. Rob, Damon, and many members of the team come out pretty much on a 6 monthly basis. And, we have been blessed to partner with an organization of such great quality.
The Polen Capital Global Small and Mid-Cap Fund owns shares in Globant. This article was prepared 25 September 2023 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Globant, you should seek financial advice.stocks japan europe
EUR/CHF: Swiss franc looking like a key safe-haven trade for Europe
European stocks drop to their lowest level in more than six months Swiss franc stronger against most European counterparts (NOK and SEK firmer) Overnight…
- European stocks drop to their lowest level in more than six months
- Swiss franc stronger against most European counterparts (NOK and SEK firmer)
- Overnight index swaps still not
A global bond market selloff European equities sharply lower and triggered some safe-haven flows towards the Swiss franc. The EUR/CHF daily chart shows prices have tentatively fallen towards the lowest levels since September 21st. Risk aversion is clearly in place given US lawmakers were able to tentatively avoid a shutdown but stocks are still selling off.
Earlier in London, the final PMI readings showed Germany and France heavily remain in contraction territory. German manufacturing activity posted its 15 straight contraction, but did deliver a 3-month high. France manufacturing PMI posted its 8th straight contraction and worst reading since May 2020.
The global growth outlook seems poised to deteriorate and that should lead to gloomier prospects for Europe. As soft landing hopes disappear in the US, the chances of a de-risking moment grow. If European bond yields continue to rise, the Swiss franc should outperform in the short-term.
EUR/CHF Daily Chart
As financial conditions continue to get uglier across Europe and that is starting to lead to more safe-haven flows towards the franc. Short-term downside seems like it could target the 0.9500 region. If bearish momentum remains in place, price action could fall towards the 0.9265 level which is the 78.6% Fibonacci retracement of the 2015 low to 2018 high move.global growth equities stocks european europe france germany
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