“Change is the law of life. And those who look only to the past or present are certain to miss the future.” – John F. Kennedy

1. Prime Minister Shinzo Abe’s Liberal Democratic Party’s Landslide Victory — Prime Minister Shinzo Abe’s Liberal Democratic Party and its Komeito allies won a stronger majority in Japan’s Upper House election, in a development that will make it far easier to push through his economic agenda. “It is likely that a large-scale economic stimulus program, in the magnitude of at least ¥10T (2% of GDP), will be implemented,” Societe Generale said in a research note.
2. BoE Weighs Curbs On Property Funds — the Bank of England is weighing a raft of emergency measures to stem the flood of money out of Britain’s biggest property funds that caused fresh market panic last week, the Sunday Telegraph reports. These could include “enforced notice periods before redemptions, slashing the price for investors who rush to the door, or additional liquidity requirements for funds.”
3. Hague Tribunal Rejects Beijing’s Claims in South China Sea — backing a case brought by the Philippines, an international tribunal has ruled against Chinese claims to rights in the South China Sea, citing a lack of evidence that the country “historically exercised exclusive control over the waters or their resources.”. Although no U.N. peacekeeping forces are expected in the region, it can tarnish Beijing’s image as it will be looked at as a unilateral actor if it goes against the international community. Beijing has reiterated it will ignore an unfavorable court ruling on its South China Sea maritime claims, warning neighbors it would “take all necessary measures” to protect interests there.
4. Germany Sells First Negative Yield 10-year Bunds — Germany has sold 10-year Bunds with a zero percent coupon, issuing benchmark debt with a negative yield for the first time in history. The €4.038B sale came with a yield of -0.05%, meaning that investors who hold the paper until maturity in August 2026 will receive back less money than they paid.
5. Theresa May Elected as New UK Prime Minister, Assembles Her New Cabinet — Theresa May appointed Chancellor of the Exchequer Philip Hammond said the country will move swiftly to set broad goals for its new relationship with the EU. Former London Mayor Boris Johnson has been appointed as foreign secretary, fellow Brexiteer David Davis will be May’s Brexit “Tsar,” while former Defense Secretary Liam Fox has been handed the job of establishing new trade links.
6. AAII Bullish Sentiment Increased As Index Makes New High — AAII bullish sentiment increased this week from 31.1% up to 36.9%. It’s the highest weekly reading since early March. At 36.9%, bullish sentiment is still below its bull market average of 39.95%, and has been below 40% for 37 straight weeks! Also, S&P 500 has made a new all-time high and historical average return over the next 12 months courtesy of BIG.

The week ahead — Economic data from Econoday.com:

“I buy fear and sell greed.” Then he was queried, “How do you determine when there is fear or greed?” He responded, “I wait until prices start gapping in the charts!” –Jim Roger

1. U.K.Chancellor Osborne Floats 15% Corporate Tax Rate — U.K. Chancellor George Osborne has proposed slashing the corporate tax to less than 15% (down from 20% now) in an effort to woo businesses deterred from investing in a post-Brexit Britain. Such a sharp cut in business taxes would also take Britain close to the 12.5% tax rate in Ireland.
2. FBI Won’t Recommend Criminal Charges Against Hillary Clinton — the FBI recommended last week that no criminal charges be filed over Hillary Clinton’s use of private email servers while she was secretary of state, but rebuked the Democratic presidential candidate for “extremely careless” handling of classified information. FBI Director James Comey told reporters that “Although the DOJ makes final decisions on matters like this, we are expressing to Justice our view that no charges are appropriate in this case,”.
3. FOMC May Minutes “Weak May Jobs Report” — according to the the minutes of the FOMC’s June meeting, “Almost all participants judged that the surprisingly weak May employment report increased their uncertainty about the outlook for the labor market,” even before the Brexit vote. The outlook continues what has become a familiar pattern at the Fed: The central bank enters the year predicting stronger growth and a gradual return to higher interest rates, but then pares its forecasts as data disappoints.
4. Seventh U.K. Property Fund Freezes Redemptions — four more U.K. property funds have frozen withdrawals as investors look to dump real estate holdings in the aftermath of the Brexit vote. Columbia Threadneedle, Henderson and Canada Life have suspended trading in the investment vehicles, while Aberdeen Fund Managers cut the value of its U.K. Property Fund by 17% and halted redemptions for 24 hours. The development leaves £18B frozen in the biggest seizing up of funds since the 2008 financial crisis.
5. Gap Sales Higher At Old Navy Pick Up — Gap reported sales in June rose 2% year over year to $1.57B. Comparable store sales were up during the month by the same rate. The company cited improved traffic trends during the month, led by the Old Navy chain which recorded a +5% comp. The strong month from Gap (NYSE:GPS) stood out after several other mall retailers posted weak sales reports.

The week ahead — Economic data from Econoday.com:

“If you can keep your wits about you while all others are losing theirs, and blaming you. . . . The world will be yours and everything in it, what’s more, you’ll be a man, my son.” — Rudyard Kipling

1. IEX Wins Approval to Launch Stock Exchange — the SEC has finally given approval to IEX Group to challenge the NYSE (NYSE:ICE), Nasdaq (NASDAQ:NDAQ), and Bats Global (BATS:BATS) as the nation’s 13th national stock exchange. IEX’s “speed bump” delays orders by 350 millionths-of-a-second, but it’s enough to protect investors from high-frequency trading which can front-run slower orders on other exchanges.
2. Facebook (FB) Shareholders OK Stock Shift That Keeps Zuckerberg In Charge — Facebook (NASDAQ:FB) shareholders approved a proposal to create a new class of non-voting shares, a move aimed at allowing CEO Mark Zuckerberg to give away his wealth without relinquishing control of the company he founded. FB will now move ahead with its plan to issue two Class C shares for each Class A and Class B share held by shareholders, in what effectively is a 3-for-1 stock split; Creation of the Class C shares will allow Zuckerberg to sell the non-voting stock, but keep the voting Class A and Class B shares that would let him retain control of the company.
3. ECB Restores Greece’s Access to Cheap Funding — the ECB will start accepting junk-rated Greek government debt as collateral for its regular bank lending operations. According to economists, the decision to open a funding facility that had been shut for 16 months could lead to the partial lifting of capital controls in the coming days.
4. Britain Voted To Leave The EU — With all 382 U.K. areas reporting, the ‘Leave’ camp won 51.9% of vote vs. ‘Remain’s 48.1%. Voter turnout was 72.2%. David Cameron has resigned as U.K. Prime Minister in an emotional speech outside 10 Downing Street stating “I do not think it would be right for me to be the captain that steers our country to its next destination,”. As a next step, Article 50 of the Lisbon Treaty will be invoked to begin the formal process for leaving the EU. That would start a series of negotiations for how to disentangle the U.K. from its many union structures, and could take up to 2 years (or more if both Britain and the European Council agree to extend the discussion period).

The week ahead — Economic data from Econoday.com:

“Buy Fear, Sell Greed” — unknown

1. German 10-year Sovereign Bond Yields Turn Negative For First Time — the yield on the 10-year benchmark German bund fell into negative territory for the first time ever last week, amid global growth concerns and jitters over the U.K.’s upcoming referendum on its European Union membership. The move comes as the European Central Bank has ramped up its bond buying program in recent months as well as investor uncertainty over whether the U.K. will stay in the European Union.
2. MSCI Rebuffs Chinese Equities for Third Time — China’s domestic equities were denied entry into MSCI Inc.’s benchmark indexes for a third time, a setback for President Xi Jinping’s efforts to raise the profile of mainland markets and turn the yuan into an international currency. China was rejected despite a flurry of measures this year to address MSCI’s concerns, including curbs on arbitrary trading halts and looser restrictions on cross-border capital flows. The decision suggests international investors are still uncomfortable putting their money in the $6 trillion market after a botched government campaign to prop up share prices roiled global equities last year.
3. World Health Organization (WHO) Panel Elevated the Zika Virus To A Public Health Emergency — A WHO panel has elevated the Zika virus to a public health emergency, but spurned calls to postpone or move the 2016 Olympic Games, which are scheduled to begin in Rio de Janeiro in six weeks. Brazil is hosting the Games during its winter, when the concentration of mosquitoes that spread Zika and other viruses is low, the committee noted.
4. FOMC Meeting — the FOMC left its target for the Fed Funds rate unchanged at 0.25-0.5%, while the “dots” took a sizable shift. U.S. Federal Reserve scaled back its outlook for interest-rate increases and Janet Yellen signaled rates may stay lower for longer. Also, the Bank of England is also expected to maintain interest rates – at the 0.5% level it’s been for over seven years.
5. Lumber Liquidators Settles With Regulator — the U.S. Consumer Product Safety Commission has ended its probe of Lumber Liquidators (NYSE:LL) for selling formaldehyde-laden flooring without issuing a product recall, while calling for corrective measures it has already largely undertaken. The stock is still down more than 70% since the devastating 60 Minutes report in March last year that plunged the retailer into losses and led to the exit of top executives.

The week ahead — Economic data from Econoday.com:

“I have learned through the years that after a good run of profits in the markets, it`s very important to take a few days off as a reward. The natural tendency is to keep pushing until the streak ends. But experience has taught me that a rest in the middle of the streak can often extend it.”– Martin Schwartz

1. International Tankers Help Ship Iranian Fuel — more than 25 European and Asian-owned supertankers are now shipping Iranian crude, allowing the Islamic Republic to ramp up exports much faster than expected following the lifting of sanctions in January. Tehran was struggling as recently as April to find partners to ship its oil, but after an agreement on a temporary insurance fix, more than a third of Iran’s crude shipments are now being handled by foreign vessels.
2. Eurozone GDP Growth Revised Back Up — the first estimate was 0.6%, which was revised down to 0.5% in the second round, and now in the third report – which includes details on GDP components – the figure has been revised back to its original estimate. Annual growth was 1.7%, unchanged from the fourth quarter, driven by a jump in consumer spending and investment.
3. Hillary Clinton Wins California, Bolstering Claim to Nomination — Hillary Clinton claimed the Democratic presidential nomination last Tuesday night after decisive victories in the California, New Jersey and New Mexico primaries. However, Senator Bernie Sanders refused to yield, insisting that he would continue his campaign.
4. ECB Kicks Off Corporate Bond Buying — the European Central Bank has formally started its corporate sector purchase program, with the official buying list to be released on July 18. The criteria for the plan are as follows: Bonds have to be active, euro denominated, have an investment grade rating and be issued within the eurozone. Along with other measures such as ultra-cheap long term loans and government bond-buying, the program aims to kickstart the region’s economy and lift inflation back to the bank’s 2% target.
5. Soros Is Back to Trading & He’s Bearish — George Soros has returned to trading, lured by opportunities to profit from what he sees as coming economic troubles. Soros Fund Management, which manages $30B for the billionaire and his family, sold stocks and bought gold and shares of gold miners, anticipating weakness in various markets. The last time George Soros got closely involved in his firm’s trading was just prior to the financial crisis in 2008. Per WSJ, Soros noted particular concerns over China, Greek challenges and a potential Brexit that could lead to the EU’s collapse.\
6. Crude Oil Broke Above $50 Per Barrell — crude oil has taken the price of WTI above $50 per barrel to $51.10. At this level, crude oil has now taken out its highs from last October and is trading at its best levels since 7/15/15. It has certainly been an amazing rally for oil prices over the last four months, with prices rising 96% off their lows in February.

The week ahead — Economic data from Econoday.com:

“The easiest thing to do is prepare. If you don’t, on behalf of the other market participants, we thank you.” – unknown

1. Bank Shares See More Brexit Fallout — global banks across the globe are taking another serious beating post-Brexit. The sector is getting battered on fears that fragile recoveries at many financial institutions will be delayed and that volatile markets could claim scalps. Sources have also revealed that Italy is considering a €40B capital infusion into its banks.
2. Panama Set For Opening of Canal Expansion — Panama officially opened an addition to its legendary sea canal last week, capping a nine-year, $5.4B expansion project that will double shipping capacity and affect global trade routes. A third lane has been added to the waterway that can accommodate a new generation of super cargo ships large enough to carry up to 14K containers, compared with around 5K currently.
3. S&P Strips U.K.’s AAA Credit Rating On Brexit Vote — the U.K. was stripped of its AAA credit rating by S&P Global Ratings last Monday after British voters last week voted to pull the country out of the European Union. S&P lowered the rating to AA. The downgrade also reflects worries about the risks of a “marked deterioration” in the U.K.’s external financing conditions given the country’s already elevated gross external financing requirements, S&P said. Competing ratings firms Moody’s and Fitch had lowered the U.K. credit rating ahead of last week’s referendum.
4. Oil Set For Best Quarter Since 2009 — oil is headed for its biggest quarterly advance since 2009, rising 29% in the last three months as falling American supply adds to speculation that the global surplus is easing. The latest data from the EIA showed U.S. crude stockpiles dropping to the lowest since March and output falling for a third week. Furthermore, supply disruptions in Nigeria and Canada, as well as fears over strike outages in Norway, have also given the commodity a big lift.
5. Driverless Car Collaboration Between BMW, Intel & Mobileye (MBLY) — BMW AG, Intel Corp.(INTC) and Mobileye NV (MBLY) are working to develop autonomous-car technology. BMW has been a client of Mobileye, along with General Motors Co. and Tesla Motors Inc. As automakers and their suppliers race to create systems to replace human drivers, most companies are betting on some form of artificial intelligence, which requires powerful processing. Senior executives from each company will hold an event on Friday to discuss the driverless-vehicle initiative.
6. Puerto Rico Set For Its Largest Default to Date as Obama Signs Rescue Bill — Puerto Rico is set for its largest default to date as $1.9B in debt payments come last friday, including more than $1B in general obligation bonds, the island’s highest tiered credit that carries a constitutional lien on revenues. Governor Alejandro Garcia Padilla declared the moratorium on GO debt payments just minutes after President Obama signed a law giving the territory access to a restructuring process that will put its finances under a federal oversight board.

The week ahead — Economic data from Econoday.com:

There will not be any Weekly Re-Cap for the week of May 23 to June 2 2016. We are away for some needed R&R.

The staffs at EGS.

“Only when the tide goes out do you discover who’s been swimming naked.” — Warren Buffett

1. German Industrial Output Falls For a Second Month — German industrial production declined more than expected in March, a second consecutive drop that could signal slackening demand in Europe’s largest economy. Production, adjusted for seasonal swings, fell 1.3% from the prior month, when it dipped a revised 0.7%, according to data from the Economy Ministry in Berlin. Slowing global growth has led the German economy to rely increasingly on domestic demand, bolstered by record-low unemployment.
2. Brazil Senate (EWZ) Majority Backs Rousseff Impeachment — Brazil’s Senate voted 55-22 to suspend President Dilma Rousseff from office and begin an impeachment trial. During the trial – which could last for up to six months – Vice President Michel Temer will assume the office. He’s expected to begin naming his cabinet soon, and former central bank chief Henrique Meirelles – a favorite of investors – is in line to be named finance minister.
3. IEA: Oil Supply Glut to Shrink “Dramatically” — Global oil stocks will fall by 200K barrels per day in the second half of the year after rising by 1.3M barrels per day in H1, according to the IEA. Behind the quick rise in the first half was a faster-than-expected gain in Iranian oil production and exports. Behind what’s expected to be a dramatic reduction in the second half of the year is a continuing slowdown in non-OPEC production, and stronger demand.
4. Consumer Sentiment Hits 95.8 in May vs. 90 Estimate — the Index of Consumer Sentiment hit 95.8 in May, the University of Michigan said Friday, its highest level since June 2015. The number indicates consumers were feeling more optimistic this month, as expectations for future growth hit highs for the year, according to preliminary data released Friday.
5. Hospitals Slump on Federal Court Ruling Backing Republicans On Unconstitutionality of ACA Subsidies Without OK From Congress — Hospital stocks took a big hit late last week after bearish investors anticipated a potential softening of revenues following a legal challenge to the Affordable Care Act. A federal judge ruled that the Obama administration is unconstitutionally spending money to reimburse health insurers for the extra cost of providing coverage to low-income Americans without obtaining an appropriation from Congress. The decision adds to the uncertainty over Obamacare ahead of the Nov. 8 general election.

The week ahead — Economic data from Econoday.com:

“Trade within your ability and risk tolerance. Increase size and frequency when ability and tolerance permits it.” — unknown

1. Dow 30 Trading Range Screen — courtesy of BIG, exactly half of the stocks in the Dow are trading in overbought territory, while just two are oversold — Apple (AAPL) and Microsoft (MSFT). Apple is the most oversold stock in the index at more than two standard deviations below its 50-day moving average.

2. Cruz Suspends Campaign After Trump Wins Indiana — Texas Senator Ted Cruz has cleared the path for Donald Trump to claim the Republican presidential nomination by suspending his campaign following a crushing defeat in the Indiana primary. “From the beginning I’ve said that I would continue on as long as there was a viable path to victory,” Cruz declared. “Tonight I’m sorry to say it appears that path has been foreclosed.” On the Democratic side, Bernie Sanders was declared the Indiana winner, further frustrating rival Hillary Clinton who had hoped to wrap up the nomination at this point.
3. Aeropostale Files For Bankruptcy — struggling teen apparel retailer Aeropostale has filed for Chapter 11, marking the latest high-profile bankruptcy that follows meltdowns at American Apparel, Quiksilver and Sports Authority. According to a court filing, the company listed assets and liabilities in the range of $100M-$500M, and plans to emerge from the Chapter 11 process within the next six months as a standalone enterprise with a smaller store base. The NYSE suspended trading and delisted Aeropostale (NYSE:ARO) shares on April 21.
4. SandRidge Energy In Debt Restructuring Talks With Creditors — SandRidge Energy (NYSE:SD) is in discussions with creditors about reaching a restructuring deal ahead of a possible bankruptcy filing, Reuters reports. The company wants creditors to agree on how the debt would be reduced in the hope that it could limit the amount of time it stays in court if it files for Chapter 11.
5. U.S. Jobs Growth Slows Down in April — companies scaled back hiring in April, adding just 160,000 new jobs versus Wall Street had expected a 203,000 gain. The disappointing employment report is likely to keep the Federal Reserve from raising interest rates anytime soon. The unemployment rate remained flat at 5%, but more people dropped out of the labor force and the so-called participation rate fell for the first time in seven months. That could mean people find it a bit harder to get a job.

The week ahead — Economic data from Econoday.com:

“Wait until you get a pitch right where you want it!” — Warren Buffett

1. Chinese Debt Balloons To Record High — the FT calculates China’s total debt grew to a record 237% of GDP in Q1 or 163T yuan ($25T). The surge in borrowing comes as the Chinese government yet again turns on the spigots in order to boost stuttering growth. What worries economists is not the size of the debt, which is comparable to the U.S. and the eurozone, but the speed with which it has accumulated. The Chinese figure was 148% at the end of 2007.
2. S&P Strips Exxon of AAA Credit Rating — Standard & Poor’s Ratings Services downgraded Exxon Mobil, the world’s largest publicly traded oil company, stripping it of its triple-A rating after decades with the pristine mark. S&P questioned Exxon’s decision to spend $54 billion on stock buybacks since 2012 even as its debt load swelled. Exxon’s preference for returning cash to shareholders may be hurting its ability to stockpile cash and pay down debt, the credit rating company said.
3. Fed Holds On Rates, Warns Economy Has Slowed — the Federal Open Market Committee said in a statement released after its two-day meeting this past week that the economy has slowed and reduced levels of consumer spending. The Fed again opted not to raise interest rates. The statement highlighted the many conflicting signs in the U.S. economy – consistent job growth and an improving housing market against slowdowns in business investment and exports.
4. BOJ Surprises Markets By Not Expanding Stimulus — the Bank of Japan (BOJ) surprisingly held off from increasing its monetary stimulus as it looks to take more time to understand the effect of its negative interest rates. Specifically, the BOJ let three key easing tools unchanged: its ¥80T ($732) target for expanding the monetary base, mostly through buying government bonds; the 0.1% negative interest rate; and a program to purchasing riskier assets such as stocks. The BOJ also put back to 2017 its timeframe for achieving its target of 2% inflation, the fourth delay in about a year.

The week ahead — Economic data from Econoday.com: