*Brexit vote campaigning suspended for second straight day following murder of MP:
Campaigning over whether Britain should stay or leave EU suspended for second straight day today following yesterday’s tragic shooting death of Labour MP Jo Cox. Both sides have also suspended campaigning for Saturday. Her death fueled some speculation yesterday that next Thursday’s vote could be delayed, though logistics trumped rumor mill. However, also thoughts it could drive sympathy for the “Remain” vote that Ms. Cox strongly supported. Some witnesses claimed that the assailant, believed to be 52-year old Thomas Mair, shouted “Britain First” just before the attack. This is the name of an anti-immigration group in favor of Britain leaving the EU. While Mair is believed to have had mental health problems, family members have said that they did not know him to have any racist or strong political views.
*More talk of central bank liquidity support following Brexit vote:
Heightened Brexit risks making it more difficult for banks to secure dollar funding. Bloomberg noted one measure of bank borrowing costs - the FRA/OIS spread - hit most extreme level since 2012 on Thursday. Also pointed out premium to swap foreign currencies into dollars rose to 44 bp above LIBOR, highest since late last year. All of this has generated alot of speculation about what central banks may do if Britain votes to leave EU next week. Nikkei reported yesterday central banks in US, Japan and Europe discussing an emergency supply of dollars. Likely plan is to use dollar swap lines between Fed and other central banks, letting latter group borrow dollars from Fed and lend them to financial firms within their jurisdictions. Reuters also discussed hints policymakers considering need to do more.
*Brexit fears continue to manifest in flow data:
Latest Flow Show report from BofA Merrill Lynch highlighted the outsized influence of Brexit fears. The $1.1B of outflows from UK equity funds was second-largest in last decade. In addition, European equity funds lost $4.7B, marking 19 th straight week of outflows. Overall, global equities saw $3.6B of outflows, marking ninth straight week of outflows in last ten weeks. However, US equities did see a small $1B of inflows (thanks to ETFs). Bonds saw $1.2B of outflows, marking the first exodus in eleven weeks. However, big driver was the $3.2B of outflows from high yield. Precious metals attracted $1.1B, and have now seen inflows in 21 of past 23 weeks. Report also highlighted rotation from growth value and extended duration of bond holdings (noted investors do not seem to be anticipating a bond shock).
*Morgan Stanley sees FTSE 100 plunging ~16% in event of Brexit:
Sell-side Brexit analysis continues to generate headlines. Morgan Stanley’s latest report (published yesterday), estimated FTSE 100 index could slide to 5000, or down ~16% from current levels in event of Brexit. Firm puts odds of Brexit at 45% following sharp move in the polls to “Leave” camp. Conversely, firm calculated a vote to “Remain” in the EU could see the FTSE 100 bounce as much as ~14%. Sees Remain giving European equity markets a bigger bounce than UK indexes, estimating Euro Stoxx 50 could rally 17% from current levels. Noted that European indexes are further below their 3M and 6M averages than UK indexes, perhaps reflecting concerns over political contagion into Europe or an expectation that a weaker sterling would limit downside for UK indexes. Note, MS study in line with recent sell-side bearish analysis on Brexit fallout.
*KBW says Brexit could hit US banks’ earnings by up to 6%:
More commentary on potential Brexit fallout with focus on US banks. Reuters cited KBW estimates which see US bank F16 earnings taking 1-6% hit if Brexit happens on 23-Jun. Argued Brexit could increase costs and weaken capital market activity, hurting large US banks in particular. Found that BAC-US, JPM-US, C-US, GS-US, MS-US in line of fire. WFCUS least likely to be impact due to low UK exposure. Noted MS and GS expected to be the worst hit due to large exposure to the capital markets. Added that banks with UK exposure may have a two-year transition period after vote and could experience both revenue and expense headwinds during it. Looking to 2017, firm highlighted impact on aforementioned (ex-WFC) banks’ earnings per share would be 2% to 9%. In the longer term, firm said impact of Brexit is expected to be a wash for US universal banks.
*Mixed sector performance:
Energy ledi the market with crude gaining after six consecutive declines. Industrial metals led in materials.Industrials got support from road and rail names andmachinery group. Retailers were stronger in consumer discretionary. Homebuilders also stronger despite slight dip in May housing starts. Financials beat the tape, withbanks better on firmer rates and oil’s bounce. Broad weakness in consumer staples. Cosmetics M&A not much help to HPC segment. Tech underperformed, with several large-cap names in focus. AAPL-US hit by China patent issues, though analysts downplayed impact. GOOGL-US down on comments Citi sees deceleration in search marketing spending. LLTC-US weighed on semisafter some cautious sell-side research. Healthcare trailed, with biotech a drag.
*Japan steps up warning on yen strength, but high hurdle still seen for intervention:
Another flurry of verbal intervention from Japan overnight following yen surge on Thursday. Japanese Finance Minister Aso reiterated recent yen moves have been one-sided, extreme and speculative. Added that he was deeply concerned about the price action and said Japan would respond urgently (and “more than before”) if necessary. Also reiterated Japan’s position that an aggressive response would be in line with G7 and G20 agreements. However, Japanese officials have still refrained from explicit language about yen strength being out of line with current fundamentals. In addition, market continues to focus on high hurdle for intervention. Nikkei discussed this dynamic, noting US Secretary Lew has repeatedly described the market as “orderly”. Also touched on complications from US presidential election.
*St Louis Fed's Bullard sees only one hike over next few years:
St Louis Fed President Bullard (voter) said this morning that low growth and inflation warrants only one interest rate hike (to 63 bps) over the next few years. Over the next 2.5 years, he forecasts real output growth of 2%, an unemployment rate of 4.7%, and trimmed-mean PCE inflation of 2%. This was a significant change in his outlook, as he said in March that the next rate hike wasn’t far off provided the economy evolved as expected. It also helped explain the outlier in the “dot plot” released with the FOMC statement on Wednesday, which showed one official saw the fed funds rate at only 0.6% by 2018. By comparison, the median fed funds rate projection for 2018 is 2.1%-2.9% (which was down from 2.5%- 3.3% in March).
*Accelerating cloud revenue the bright spot for Oracle:
ORCL-US the highlight on the earnings calendar after the close on Thursday. Fiscal Q4 results mixed with revenue better, but EPS slightly worse. Opex mentioned as a drag on earnings. Focus largely on the cloud, where SaaS/PaaS came in at $691M, representing a 67% y/y increase, above the high end of the company’s 57-61% guidance and marking an acceleration from the 60% growth in the prior quarter. Cloud guidance another bright, with company looking for 75- 80% y/y growth in SaaS/PaaS in Q1. Company also looking for SaaS/PaaS gross margins to improve in Q1. More positive analyst commentary talked up inflection point in company’s model transition. Some areas of concern however, as company missed its own Annualized Recurring Revenue (ARR) bookings target for the fiscal year of $1.5B (came in at $1.4B).
*A2 Milk Company Ltd (A2M):
The booming a2 Milk company has launched legal action against Japanese-owned food and beverage multinational Lion Group over the labelling of its Australian milk brands. Lion, which markets the Pura and Dairy Farmers brands and is owned by the Japanese brewing conglomerate Kirin, is being sued by a2 over moves to market its milk products with the tag “Contains A2 protein” which a2 alleges is misleading and deceptive under the Australian Consumer Law. A2 has long marketed its milk on the basis that it comes from cows hand-picked to naturally produce only A2 protein, which makes it easier to digest. In its latest claim a2 alleges Lion’s marketing was misleading and deceptive for consumers because, unlike a2, it did not change the protein composition of its milk.
*Australia and New Zealand Banking Group (ANZ):
ANZ Banking Group’s online broking arm, the former E*TRADE Australia, is set to be first cab off the rank in its local divestment. Street Talk understands the newly named ANZ Share Investing will be the first unit cut loose as part of the broader review of the wealth unit. Advisers on the auction could be appointed in coming weeks. That comes as ANZ reviews its entire wealth portfolio, in a process that is due to come to a head in August. Industry players are expecting the review will lead to some divestments and partial sales as the bank and new chief Shayne Elliott seek to get the house in order.
*BHP Billiton Limited (BHP):
The once mighty Bass Strait oilfields that ExxonMobil and BHP Billiton are trying to sell have just five years of proven reserves left at present combined production rates, meaning whoever buys them could soon face hundreds of million of dollars of closure costs on some fields if they can’t find more oil. During the week, Exxon and BHP Billiton made the surprise announcement that they were trying to sell the once world-class Bass Strait oilfields, which their joint venture has operated since the late 1960s, to focus on the region’s gas reserves. Up for sale is 19,000 barrels of production a day from 11 fields, including the giant Kingfish, Australia’s first and still biggest offshore oil discovery.
Campaigning over whether Britain should stay or leave EU suspended for second straight day today following yesterday’s tragic shooting death of Labour MP Jo Cox. Both sides have also suspended campaigning for Saturday. Her death fueled some speculation yesterday that next Thursday’s vote could be delayed, though logistics trumped rumor mill. However, also thoughts it could drive sympathy for the “Remain” vote that Ms. Cox strongly supported. Some witnesses claimed that the assailant, believed to be 52-year old Thomas Mair, shouted “Britain First” just before the attack. This is the name of an anti-immigration group in favor of Britain leaving the EU. While Mair is believed to have had mental health problems, family members have said that they did not know him to have any racist or strong political views.
*More talk of central bank liquidity support following Brexit vote:
Heightened Brexit risks making it more difficult for banks to secure dollar funding. Bloomberg noted one measure of bank borrowing costs - the FRA/OIS spread - hit most extreme level since 2012 on Thursday. Also pointed out premium to swap foreign currencies into dollars rose to 44 bp above LIBOR, highest since late last year. All of this has generated alot of speculation about what central banks may do if Britain votes to leave EU next week. Nikkei reported yesterday central banks in US, Japan and Europe discussing an emergency supply of dollars. Likely plan is to use dollar swap lines between Fed and other central banks, letting latter group borrow dollars from Fed and lend them to financial firms within their jurisdictions. Reuters also discussed hints policymakers considering need to do more.
*Brexit fears continue to manifest in flow data:
Latest Flow Show report from BofA Merrill Lynch highlighted the outsized influence of Brexit fears. The $1.1B of outflows from UK equity funds was second-largest in last decade. In addition, European equity funds lost $4.7B, marking 19 th straight week of outflows. Overall, global equities saw $3.6B of outflows, marking ninth straight week of outflows in last ten weeks. However, US equities did see a small $1B of inflows (thanks to ETFs). Bonds saw $1.2B of outflows, marking the first exodus in eleven weeks. However, big driver was the $3.2B of outflows from high yield. Precious metals attracted $1.1B, and have now seen inflows in 21 of past 23 weeks. Report also highlighted rotation from growth value and extended duration of bond holdings (noted investors do not seem to be anticipating a bond shock).
*Morgan Stanley sees FTSE 100 plunging ~16% in event of Brexit:
Sell-side Brexit analysis continues to generate headlines. Morgan Stanley’s latest report (published yesterday), estimated FTSE 100 index could slide to 5000, or down ~16% from current levels in event of Brexit. Firm puts odds of Brexit at 45% following sharp move in the polls to “Leave” camp. Conversely, firm calculated a vote to “Remain” in the EU could see the FTSE 100 bounce as much as ~14%. Sees Remain giving European equity markets a bigger bounce than UK indexes, estimating Euro Stoxx 50 could rally 17% from current levels. Noted that European indexes are further below their 3M and 6M averages than UK indexes, perhaps reflecting concerns over political contagion into Europe or an expectation that a weaker sterling would limit downside for UK indexes. Note, MS study in line with recent sell-side bearish analysis on Brexit fallout.
*KBW says Brexit could hit US banks’ earnings by up to 6%:
More commentary on potential Brexit fallout with focus on US banks. Reuters cited KBW estimates which see US bank F16 earnings taking 1-6% hit if Brexit happens on 23-Jun. Argued Brexit could increase costs and weaken capital market activity, hurting large US banks in particular. Found that BAC-US, JPM-US, C-US, GS-US, MS-US in line of fire. WFCUS least likely to be impact due to low UK exposure. Noted MS and GS expected to be the worst hit due to large exposure to the capital markets. Added that banks with UK exposure may have a two-year transition period after vote and could experience both revenue and expense headwinds during it. Looking to 2017, firm highlighted impact on aforementioned (ex-WFC) banks’ earnings per share would be 2% to 9%. In the longer term, firm said impact of Brexit is expected to be a wash for US universal banks.
*Mixed sector performance:
Energy ledi the market with crude gaining after six consecutive declines. Industrial metals led in materials.Industrials got support from road and rail names andmachinery group. Retailers were stronger in consumer discretionary. Homebuilders also stronger despite slight dip in May housing starts. Financials beat the tape, withbanks better on firmer rates and oil’s bounce. Broad weakness in consumer staples. Cosmetics M&A not much help to HPC segment. Tech underperformed, with several large-cap names in focus. AAPL-US hit by China patent issues, though analysts downplayed impact. GOOGL-US down on comments Citi sees deceleration in search marketing spending. LLTC-US weighed on semisafter some cautious sell-side research. Healthcare trailed, with biotech a drag.
*Japan steps up warning on yen strength, but high hurdle still seen for intervention:
Another flurry of verbal intervention from Japan overnight following yen surge on Thursday. Japanese Finance Minister Aso reiterated recent yen moves have been one-sided, extreme and speculative. Added that he was deeply concerned about the price action and said Japan would respond urgently (and “more than before”) if necessary. Also reiterated Japan’s position that an aggressive response would be in line with G7 and G20 agreements. However, Japanese officials have still refrained from explicit language about yen strength being out of line with current fundamentals. In addition, market continues to focus on high hurdle for intervention. Nikkei discussed this dynamic, noting US Secretary Lew has repeatedly described the market as “orderly”. Also touched on complications from US presidential election.
*St Louis Fed's Bullard sees only one hike over next few years:
St Louis Fed President Bullard (voter) said this morning that low growth and inflation warrants only one interest rate hike (to 63 bps) over the next few years. Over the next 2.5 years, he forecasts real output growth of 2%, an unemployment rate of 4.7%, and trimmed-mean PCE inflation of 2%. This was a significant change in his outlook, as he said in March that the next rate hike wasn’t far off provided the economy evolved as expected. It also helped explain the outlier in the “dot plot” released with the FOMC statement on Wednesday, which showed one official saw the fed funds rate at only 0.6% by 2018. By comparison, the median fed funds rate projection for 2018 is 2.1%-2.9% (which was down from 2.5%- 3.3% in March).
*Accelerating cloud revenue the bright spot for Oracle:
ORCL-US the highlight on the earnings calendar after the close on Thursday. Fiscal Q4 results mixed with revenue better, but EPS slightly worse. Opex mentioned as a drag on earnings. Focus largely on the cloud, where SaaS/PaaS came in at $691M, representing a 67% y/y increase, above the high end of the company’s 57-61% guidance and marking an acceleration from the 60% growth in the prior quarter. Cloud guidance another bright, with company looking for 75- 80% y/y growth in SaaS/PaaS in Q1. Company also looking for SaaS/PaaS gross margins to improve in Q1. More positive analyst commentary talked up inflection point in company’s model transition. Some areas of concern however, as company missed its own Annualized Recurring Revenue (ARR) bookings target for the fiscal year of $1.5B (came in at $1.4B).
*A2 Milk Company Ltd (A2M):
The booming a2 Milk company has launched legal action against Japanese-owned food and beverage multinational Lion Group over the labelling of its Australian milk brands. Lion, which markets the Pura and Dairy Farmers brands and is owned by the Japanese brewing conglomerate Kirin, is being sued by a2 over moves to market its milk products with the tag “Contains A2 protein” which a2 alleges is misleading and deceptive under the Australian Consumer Law. A2 has long marketed its milk on the basis that it comes from cows hand-picked to naturally produce only A2 protein, which makes it easier to digest. In its latest claim a2 alleges Lion’s marketing was misleading and deceptive for consumers because, unlike a2, it did not change the protein composition of its milk.
*Australia and New Zealand Banking Group (ANZ):
ANZ Banking Group’s online broking arm, the former E*TRADE Australia, is set to be first cab off the rank in its local divestment. Street Talk understands the newly named ANZ Share Investing will be the first unit cut loose as part of the broader review of the wealth unit. Advisers on the auction could be appointed in coming weeks. That comes as ANZ reviews its entire wealth portfolio, in a process that is due to come to a head in August. Industry players are expecting the review will lead to some divestments and partial sales as the bank and new chief Shayne Elliott seek to get the house in order.
*BHP Billiton Limited (BHP):
The once mighty Bass Strait oilfields that ExxonMobil and BHP Billiton are trying to sell have just five years of proven reserves left at present combined production rates, meaning whoever buys them could soon face hundreds of million of dollars of closure costs on some fields if they can’t find more oil. During the week, Exxon and BHP Billiton made the surprise announcement that they were trying to sell the once world-class Bass Strait oilfields, which their joint venture has operated since the late 1960s, to focus on the region’s gas reserves. Up for sale is 19,000 barrels of production a day from 11 fields, including the giant Kingfish, Australia’s first and still biggest offshore oil discovery.
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