British pound frail after key eurosceptic ministers quit
By Hideyuki Sano and Daniel Leussink
The British pound was frail on Tuesday after the departure of two key eurosceptic ministers raised worries about a “hard Brexit” while the yen retreated against the dollar as investors bid up riskier assets.
Sterling stood at $1.3248 , having fallen to as low as $1.3189 on Monday, after Prime Minister Theresa May’s foreign minister and Brexit negotiator quit in protest at her plans to keep close trade ties with the European Union.
The currency regained some ground after several Conservative lawmakers said May is likely safe from a leadership challenge despite the resignation of Boris Johnson and Brexit minister David Davis.
Still, after two years of wrangling, their departures shatter May’s own proclamation of cabinet unity last Friday in what she believed was an agreement on Britain’s biggest foreign and trading policy shift in almost half a century.
Markets still expect it is likely the Bank of England (BOE) will hike rates at its next policy meeting on Aug. 2, but analysts said a full-blown political crisis could dent those expectations.
“Uncertainty is conquering the market at the moment regarding the possibility of a rate hike in August,” said Masafumi Yamamoto, chief currency strategist at Mizuho Securities in Tokyo.
“If there were some negative comments about a possible rate hike from BOE officials ahead of the August (Monetary Policy Committee meeting), then we will see a big fall in sterling,” he said.
Against the euro, the pound hit a four-month low of 89.025 pence per euro on Monday, and last stood at 88.68 (EURGBP=D3).
Commodities Week Ahead: Oil Will Be Best Bet In Coming Months
By Barani Krishnan
Oil will likely remain the only commodity that “truly matters” to investors and traders in coming months as the Iranian sanctions crisis keeps crude prices on the boil, while metals and agricultural futures get hemmed in by tariff-sparked trade wars, fund managers and investment bank analysts say. Oil prices have jumped around 50% over the past year, trading at their highest since November 2014, largely due to carefully coordinated production cuts by the Organization of the Petroleum Exporting Countries (OPEC), the world’s most powerful commodities cartel.
A rebounding American economy, sharper-than-expected drawdown in US crude inventories, weakening shale oil output in the United States and other global supply disruptions have added to the run-up. While occasional selloffs have made the rally a little uneven, oil’s general upward trend and bullish price forecasts remain solid.
The outlook for most other commodities is cloudy at best. Copper futures are down more than 10% on the year on weakening global demand, aggravated by worries about retaliatory trade tariffs from China, the EU and other nations to US measures. Even gold, an inflation hedge which typically rallies with oil, has suffered as result of a strong dollar.
On the agricultural front, soybean futures have plumbed 2008 lows. While sugar appears to be one of the few crops that have bucked the trend by outperforming, analysts have also fingered oil in that rally, citing the sugar-derived biofuel ethanol for keeping pace with soaring gasoline prices.
Market rally the ‘last hurrah’ – investors should sell now, warns Guggenheim investment chief
By Michelle Fox
The market is underestimating the risk of a trade war and will likely see a correction once it is confronted with “cold water in the face,” Guggenheim Partners’ Scott Minerd warned on Monday.
In other words, he’s concerned tariffs will result in higher inflation, which will push the Federal Reserve to continue its tightening or even pick up the pace of interest rate hikes.
Stocks appeared to shake off trade fears on Monday, closing sharply higher. The Dow Jones Industrial Average rallied more than 300 points, while the S&P 500 gained 0.7 percent.
The latest trade salvos came on Friday, when President Donald Trump’s tariffs on $34 billion worth of Chinese goods took effect. China then fired back with retaliatory tariffs on $34 billion worth of U.S. goods, including soybeans and pork.
Meanwhile, the U.S. has also placed duties on steel and aluminium from Canada, Mexico and the European Union, key allies. They have responded with retaliatory measures. Trump has also threatened to place tariffs on autos imported from the EU.
Autos make up about 6 percent of the consumer price index, Minerd said. And if there were a 25 percent tariff on them, with 100 percent pass through, it would add 1.5 percent to inflation, he said.
“People are being confused by the idea that if you place a tariff on a foreign good that somehow that doesn’t pass through to domestic consumer,” he noted.
However, when duties were imposed on washing machines earlier this year, prices jumped by 17 percent, Minerd added.
That said, he thinks the market tends to react slowly to change, and this is a seasonally strong time for the market, he added.
But in the end, he thinks investors will be “confronted with cold water in the face.”
This isn’t Minerd’s first warning about the stock market. In March, he told clients the market is on a “collision course with disaster.” He expects the worst of the damage to start in 2019 and 2020, predicting a sharp recession and 40 percent decline in stocks.
What to Expect When Netflix Reports Earnings
By Danny Vena
With a massive performance so far this year, the bar will be set pretty high for the streaming giant.
Netflix (NASDAQ:NFLX) has been on fire so far this year, and investors have high hopes that the company can continue its breakout performance. Shares have more than doubled since the beginning of the year, while the broader market, as represented by the S&P 500, has returned a paltry 2%. Netflix has been a beneficiary of a number of analyst upgrades and price target increases in recent weeks, propelling the stock to lofty heights.
For its second quarter, Netflix management anticipates 6.2 million customer additions, up 19% from the prior year quarter. Breaking that down, the company expects to add 5 million new international subscribers and 1.2 million in the U.S., which would represent year-over-year growth of 21% and 12%, respectively.
On the revenue front, Netflix is anticipating revenue of $3.934 billion, an increase of 41.2% year over year.
Many will also be watching Netflix’s guidance for the coming quarter for signs that the company’s impressive growth can continue. Analysts’ consensus estimates for the September quarter are for revenue of $4.14 billion, which would represent year-over-year growth of 38.6%, only slightly lower than Netflix’s guidance for growth in the current quarter.
Historically speaking, Netflix has made a habit of being conservative with its guidance, allowing it to exceed its own forecasts. Expect this to continue as the company has only missed its own projections on a handful of occasions in recent years.
In light of its recent run up, Netflix may have to put up truly stunning numbers to keep its stock price growing. That said, I believe the long-term investing thesis remains intact, regardless of how the stock price reacts after the earnings release.
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