Stock futures slip in Asia as US-China trade standoff rages

SYDNEY -- Stock futures turned red in Asia early on Monday as a standoff in Sino-US trade talks blunted risk appetite, underpinning safe harbors including the Japanese yen and sovereign bonds.

Nikkei futures were trading 0.9 percent lower while E-Mini futures for the S&P 500 lost 0.75 percent.

Treasury futures firmed 4 ticks, partly as a safe haven but also on speculation a trade war would cloud global growth and thus keep major central banks accommodative.

The United States and China appeared at a deadlock over trade negotiations on Sunday as Washington demanded promises of concrete changes to Chinese law and Beijing said it would not swallow any "bitter fruit" that harmed its interests.

The trade war between the world's top two economies escalated on Friday, with the United States hiking tariffs on $200 billion worth of Chinese goods after President Donald Trump said Beijing "broke the deal" by reneging on earlier commitments.

"Talks are on-going, but our base case is for limited progress and Chinese retaliation. We see a significant risk for all Chinese imports to be subject to tariffs over the next month or so," said Michael Hanson, head of global macro strategy at TD Securities.

"The market reaction will ultimately depend on whether China and the US continue to negotiate, whether the remaining $325 billion of US imports from China also get tariffed, how China retaliates, and what happens to the 232 auto tariffs."

Under that scenario, the renminbi was likely to fall between 5 percent-6 percent against the US dollar in the coming three months, said Hanson, as a shock absorber to the economic impact of heavier tariffs.

The other major currencies were relatively calm, with the safe-haven yen still supported but not aggressively so. The dollar was holding at 109.73 yen, just above a 14-week trough of 109.46.

The euro was also steady at $1.1235, while the dollar was a fraction softer against a basket of currencies at 97.289 .

In commodity markets, spot gold edged up a touch to $1,287.50 per ounce.

Oil prices were softer in line with the general mood of risk aversion. US crude was last down 24 cents at $61.42 a barrel, while Brent crude futures lost 19 cents to $70.43.

source: news.abs-cbn.com

S&P 500 posts highest close since February

NEW YORK -- The S&P 500 rose on Tuesday to post its highest closing level since Feb. 1, the day before the market began a sharp extended selloff, as strong results from PepsiCo boosted optimism about the earnings season.

The consumer staples index climbed 1.3 percent and provided the biggest lift to the S&P 500, driven by PepsiCo, which gained 4.8 percent, while Procter & Gamble rose 2.5 percent and Coca-Cola was up 1.3 percent.

Recent upbeat news on the economy as well as earnings have helped to offset worries about escalating trade tensions between the United States and China. The two countries slapped tit-for-tat tariffs on $34 billion of each other's goods on Friday.

Concerns over trade resurfaced after Tuesday's close, with S&P futures falling late after a Trump administration official said the White House was likely to announce a list of $200 billion in tariffs on Chinese goods as early as Tuesday night.

"It's not an inconsequential move," said Stephen Massocca, senior vice president at Wedbush Securities in San Francisco, of the decline in futures. "This trade war escalating is not good news, and the market won't see it as good news."

S&P 500 e-mini futures ended the session down 0.1 percent and were off 0.8 percent after trading resumed for the overnight session.

During the regular session, the Dow Jones Industrial Average rose 143.07 points, or 0.58 percent, to end at 24,919.66, while the Nasdaq Composite added 3.00 points, or 0.04 percent, to 7,759.20. The S&P 500 gained 9.67 points, or 0.35 percent, to 2,793.84.

The S&P 500 index has risen about 3 percent in the last four sessions. It is now up 4.5 percent since the end of 2017 and is less than 3 percent from its Jan. 26 record high. Worries over rising bond yields and potentially firming inflation drove the early February selloff, which confirmed a correction for the market.

Earnings are expected to become key for investors in the coming weeks as the US reporting period kicks into high gear. JPMorgan Chase, Wells Fargo and Citigroup are scheduled to report results on Friday. Their shares dipped on Tuesday after leading market gains on Monday.

PepsiCo's shares surged after the company's quarterly results topped estimates on strong sales of snacks. The company also reaffirmed its full-year forecast amid signs of a gradual recovery in its soda business.

Overall, S&P 500 companies are expected to post second-quarter profit growth of around 21 percent, slightly higher than what was forecast in April, according to Thomson Reuters data.

Also boosting the S&P on Tuesday, utilities and telecom indexes rose about 1 percent each, bouncing back from Monday's losses.

Higher oil prices lifted energy shares. The S&P energy index rose 0.7 percent as crude oil prices gained on growing supply disruptions in Norway and Libya, but gains were pared after the United States said it would consider requests for waivers from Iranian oil sanctions.

Shares of Exxon and Chevron were up around 1 percent each.

Advancing issues outnumbered declining ones on the NYSE by a 1.06-to-1 ratio; on Nasdaq, a 1.53-to-1 ratio favored decliners.

The S&P 500 posted 30 new 52-week highs and no new lows; the Nasdaq Composite recorded 104 new highs and 26 new lows.

Trading volume was among the lightest of the year, with about 5.8 billion shares changing hands on US exchanges. That compares with the 7 billion daily average for the past 20 trading days, according to Thomson Reuters data.

source: news.abs-cbn.com

S&P affirms US debt rating at second highest

WASHINGTON - The Standard & Poor's rating agency has affirmed the United States' long-term debt rating at AA+, but noted the world's largest economy faced uncertain fiscal policy.

The rating, one notch below the top grade, is justified by the "resilient" US economy, flexible monetary policy and America's unique position as the issuer of the global currency of reserve, S&P said in a statement.

The US lost its AAA rating in 2011, following battles among lawmakers in Washington over whether to lift caps on US sovereign borrowing, raising the likelihood of a US default.

S&P noted that another deadline for raising the debt ceiling loomed.

While Congress is expected to raise or suspend the debt limit albeit "potentially with heated discussion," S&P said the debate "weighs on the economy."

S&P noted the high level of US government debt, and said uncertainty about the future of economic policy constrains the US rating, even while it also affirmed a stable outlook.

source: news.abs-cbn.com

Asia shares, euro numbed by Greek drama

SYDNEY - Asian shares had a muted session Friday as Greek debt talks took yet another confusing turn, while the dollar held firm in the wake of reassuringly upbeat U.S. retail data.

Activity was sparse with MSCI's index of Asia-Pacific shares outside Japan up 0.2 percent, but only just above three-month lows. Japan's Nikkei barely budged, though it found some support in a dollar bounce against the yen.

China's market built on its long bull run as the Shanghai index rose 0.8 percent to its loftiest level since early 2008, with property shares firmer on signs of a revival in real estate demand.

Wall Street had been tentative on Thursday with the Dow ending up 0.22 percent, while the S&P 500 added 0.17 percent and the Nasdaq 0.11 percent.

Sentiment was bolstered by a solid rise in U.S. retail sales which, combined with upward revisions, suggested the economy was warming nicely after a chilly start to the year.

If the momentum is sustained, the Federal Reserve could begin to hike interest rates later in the year, with September increasingly seen by markets as the lift-off date.

All of which sets the scene for the Fed's meeting on June 16 and 17 which will include a news conference from Chair Janet Yellen.

"We don't think the Fed will explicitly reference September, but we do think they will harp on their data dependence and give a nod that a hike this year is likely if the data remain constructive," said Tom Porcelli, chief economist at RBC Capital Markets.

"And so far both the data and the market are on the right track."

The improving U.S. data helped the dollar index up to 95.173, and away from a near one-month low of 94.322 set on Wednesday. Against the yen, the greenback bought 123.46 yen, well off this week's trough of 122.46.

The euro had less luck as talks on Greece showed no sign of reaching a deal. The single currency was off at $1.1232, from a high of $1.1387 set on Wednesday.

The dip followed the International Monetary Fund's surprise decision to leave negotiations in Brussels and fly home because of major differences with Athens.

The move came as the European Union told Greek Prime Minister Alexis Tsipras to stop gambling with his country's future and take crucial decisions needed to avert default.

Adding to the air of caution, German newspaper Bild reported Berlin was holding "concrete consultations" on what to do in the case of a bankruptcy of the Greek state, citing several people familiar with the matter.

This includes discussions about introducing capital controls in Greece if the crisis-stricken country goes bankrupt.

In commodity markets, oil prices dipped after Saudi Arabia said it was ready to raise output further to meet strong demand.

Brent crude oil for July fell 38 cents to $64.73 a barrel, while U.S. crude lost 45 cents to $60.32.

source: www.abs-cbnnews.com

S&P: LGU bonds becoming more acceptable to investors

MANILA – Asian local government bonds will get more popular with investors in the next five years.

Debt rating firm Standard & Poor’s (S&P) said more investors will buy more of the debt as local government's improve financial management, transparency, and governance.

“As governments loosen restrictions—or prohibitions in some cases—on local and regional governments borrowing, we believe a sound borrowing and monitoring framework would boost the sustainability of local finances,” the debt watcher said.

S&P credit analyst YeeFarn Phua said that for national governments and investors alike, “improvements to local financial management practices, transparency, and governance will be key components of support for greater [LGU] debt issuance.

Local governments in Japan, South Korea, and India already sell bonds.

“Applying the above factors more broadly to other countries in Asia, in our view, those with a high likelihood of increased subnational borrowing in the next three to five years would also include China, Indonesia, Philippines, Taiwan, Malaysia, Thailand, and Vietnam,” Phua said.

The Philippine government has already tightened financial management of LGUs.

Last year, the finance department started requiring LGU's to submit statements on their revenues, expenses, and borrowing capacity. -- With ANC

source: www.abs-cbnnews.com

Why betting on 'boring' stocks can pay off

NEW YORK - Largely ignored during much of last year's 30 percent rally in the Standard & Poor's 500 Index, the stocks leading the U.S. market this year rank among its usually sleepiest components.

The best sector in 2014 is utilities, including Consolidated Edison, about as staid a group as one can get. They're up 14.5 percent on a total return basis this year, compared with 6.4 percent for the S&P 500 as a whole.

What's happening is the opposite of what ordinarily happens in a moving market. It relates to an investing concept known as "beta," which refers to the amount of risk a particular stock adds to a portfolio. Stocks that tend to rise or fall with the market - but in a more pronounced way - are called "high beta." They generally outperform in up markets and fall the most in down markets.

Best Buy and Priceline, two discretionary stocks that were among the S&P's strongest in 2013, are good examples because their sales and profits rise along with the economy, and they led the way last year.

This year, those stocks are lagging the more boring "low beta" stocks - those that tend to move less dramatically than the market. It's a signal that investors are worried about earnings growth and U.S. economic demand, and don't want to bet as heavily on the types of stocks that generally qualify as high beta - often cyclical names in the technology, discretionary and energy sectors.

To be sure, this may change if growth picks up, but after U.S. gross domestic product contracted in the first quarter for the first time in three years, investors are cautious.

"You see this all over the place -- people are still scared," said Richard Bernstein, CEO of Richard Bernstein Advisors in New York. "They're still more worried about protecting to the downside than accentuating the upside."

That's helped drive equities' rotation into the more defensive, high-dividend paying names, also typically part of the low-beta camp.

So far this year, the 50 stocks in the S&P 500 with the lowest beta scores - a group that includes ConEd and McDonald's - are up on average by 12 percent. Meanwhile, the 50 highest beta stocks, which include Citigroup and Best Buy, are up an average of 7 percent.

In 2013, the 50 highest-beta S&P 500 stocks rose an average of 51.4 percent, compared with 21.3 percent for the 50 lowest-beta stocks.

Investors who have pursued the high-beta contingent have suffered. Among them are hedge funds, which kept a heavy exposure to momentum-type names and the "beta" strategy.

Hedge funds now have 3.8 times more net cyclical exposure to defensive stocks, said Jon Kinderlerer, a managing director at Credit Suisse. In January, that measure was 4.7 times - bets that went sour as the market corrected through the first quarter.

"Once that trade began to break, that also accelerated a rotation back into more value-oriented names and sectors," said Mark Luschini, chief investment strategist at Janney Montgomery Scott in Philadelphia.

BIGGER DIVIDENDS, HIGHER VALUATIONS

This year's winners deliver nearly twice the dividend yield than their high-beta counterparts. Stocks with the lowest betas have an average dividend yield of 3.1 percent compared with 1.7 percent for high-beta stocks, Thomson Reuters data shows.

What's unusual is that S&P's high-beta stocks are at some of their cheapest valuations ever relative to the S&P 500, said Bernstein, whose data goes back to 1986.

To Bernstein, that's a positive sign for the market's long-term health as it shows investors aren't overpaying for growth. "Find me a market peak where investors have been scared of beta," he said.

He noted, however, that there are plenty of high-beta names among the broader stock universe like the Russell 2000 with rich valuations - companies like Monster Worldwide - which aren't in the S&P 500.

Among stocks with the highest betas in the S&P 500, Seagate Technology has a P/E of just 10.6, while Hartford Financial Services Group has a P/E of 10.9.

The high beta stocks currently have a median P/E of 15.2 versus a median P/E of 16.4 for all of the S&P 500 stocks with beta scores. The low beta names have a median P/E of 16.1.

Growth sectors have rebounded in recent sessions as the earnings outlook has improved, with calendar year 2014 estimates rising to 9.1 percent as of June 6 from 8.7 percent on April 1, according to Thomson Reuters data.

"Everything is hanging on the estimates for growth in the second half. How that plays out will determine whether higher beta or low beta outperform for the year," said Bucky Hellwig, senior vice president at BB&T Wealth Management in Birmingham, Alabama.

source: www.abs-cbnnews.com

S&P upgrades PH growth forecast

MANILA, Philippines - Standard & Poor's raised its growth forecast for the Philippine economy this year to 7.1%, after a strong first half.

In its report "After The Financial Crisis, Is Asia-Pacific An Export-Lighter, Credit-Heavier Model?", S&P said Philippines' GDP will hit 7.1% this year, an upward revision of its 6.9% forecast in July.

In the first half of the year, the Philippine economy grew by 7.6%. The government is targeting 6 to 7% growth this year.

"Although Asia-Pacific's pace of expansion has declined over the past few years or so, the region's growth continues to be the highest in the world after the global financial crisis," S&P said.

S&P also noted that Asia-Pacific is unlikely to return to pre-crisis growth levels.

"With ultra-low interest rates generated by major central banks, lending has surged in some Asian economies, providing--at least for now--an offset to weaker external demand. Add to this mix slower growth in the two Asian giants, China and India, and we believe the region is unlikely to return to pre-crisis growth even if the advanced economies--particularly the United States--recover smartly," it said.

Asia-Pacific's growth is seen at 5.2% this year.

On Wednesday, the Asian Development Bank said it raised its growth forecast for the Philippines this year, as it cut projections for most Asian economies.

source: www.abs-cbnnews.com