Buzz on the Street: What Traders Are Saying About Apple, the Bond Market, Mario Draghi, and the ECB
A look back at the happenings on Wall Street this week, as seen by Minyanville's contributors.
Here's a small sampling of the 120+ posts seen on the Buzz & Banter this week:
Monday, June 2, 2014
Right on cue, the bonds turned south for a trade. Now, the question is will this trend hold or will there be a flush to the 50-day moving average of the iShares Barclays 20+ Year Treasury Bond ETF (NYSEARCA:TLT)? I would guess quite a few stops are placed below that trend line. This is where it "should" turn if it is going to turn; however, when I saw articles over the past weekend titled "Unstoppable $100 Trillion Bond Market Renders Models Useless," it made me think its time for Mr. Market to shake things up a bit. This is my TLT bond chart that I have been watching for a good while. I think it speaks for itself.
Click to enlarge
Tuesday, June 3, 2014
Bizzaro Land: Could Apple Dumping Google in iPhone Be Bullish for Everyone?
Google (NASDAQ:GOOG) is the default search option for Apple's (NASDAQ:AAPL) Safari browser, but as I've reported, Microsoft's (NASDAQ:MSFT) Bing is steadily making inroads.
Bing has been the default search behind Apple's Siri. And yesterday at the Apple Worldwide Developer Conference (WWDC), Apple announced Bing would be the default search option for Spotlight, Apple's internal system search function.,
Apple and Google do not obviously get along. Steve Jobs famously threatened to go to war over Android:
I will spend my last dying breath if I need to, and I will spend every penny of Apple's $40 billion in the bank, to right this wrong," Jobs said. "I'm going to destroy Android, because it's a stolen product. I'm willing to go thermonuclear war on this.
And yesterday (June 2), Tim Cook took quite a few shots at Android over security and fragmentation issues.
So what's the emerging big worry for Google shareholders?
That Apple's going to remove Google as the default search option within Safari. After all, Apple is getting cozier with Bing, and Yahoo's (NASDAQ:YHOO) been rumored to want a search deal with Apple, which could mean some kind of bidding war for prime placement in front of Apple users.
This downside potential from such a deal is overblown.
First of all, the terms of Apple's and Google's current agreement is completely unknown. It could end in 2024 for all we know, and it's not even clear that Google is making money from the current arrangement.
From a financial perspective, it's thought that Google pays Apple something on the order of $1 billion per year to be the default search engine in iOS. That's roughly a third of Google's distribution traffic acquisition costs, or about 2.5% of total expenses.
But the thing is, even if Google loses its default status, it's not like its iOS-related search revenues will go to zero. I wouldn't be surprised to see Apple strike a deal with a competitor but many users simply switching right back to Google.
It could technically be a win-win because Google would see slightly reduced revenues with a bigger cost reduction, resulting in a slight bump in operating margin, while Apple comes out ahead because it sells Google's slot to the highest bidder.
Wednesday, June 4, 2014
Trade Idea: WDAY
Workday (NYSE:WDAY) was one of the first crushed glamour stocks to recover and reclaim its 200 DMA, where it left a signal reversal bar on May 28, which perpetuated a pullback to its 20 DMA yesterday.
This morning, Workday pulled the rubber band back testing Tuesday's lows before turning green as shown in a 10-minute, two-day chart below with its 20 DMA.
Click to enlarge
Workday looks like it has room to $78 and its 50 DMA, which will be a good reference point. Above $78 ties to a test of the $80 strike and the low of the high bar reversal day, May 28.
Thursday, June 5, 2014
Now that the 43 knee jerk reactions to the European Central Bank (ECB) announcements are out of the way, let's see what trends are starting to develop.
US and German fixed income curves (the benchmarks in their respective currencies) are steepening significantly; this was expected. The German curve is 3.5 basis points steeper between 5s and 10s. In the US, it's about half that amount. Euribor futures (the European version of LIBOR, or money market rates) out to the end of 2017 are now below 1%, which implies that the market expects the ECB to stay at zero (or below) into 2018.
The takeaway, there, is twofold:
- The market is taking ECB President Mario Draghi's forward guidance of keeping rates at zero for an extended period seriously.
- The move by the ECB to cut rates and not move back suddenly will put pressure on the front end and perhaps add inflationary pressure in the eurozone as banks take on more loans. That would be a positive for European financials.
Watch to see if US financials catch a strong bid today. The read-through is that all of the euro based deposits moving into US dollars would be a positive for US financials, if they can make use of it.
French equities are leading on a risk-adjusted basis, if you can believe it. Although, Italian and Spanish equities are both performing strongly as expected with the ECB making this large of a move. The Italian 5-year bond is down 10.5 basis points today, leading European bonds, with Italy's 10-year bond down seven basis points. Those are eight basis points and four-and-a-half basis points better than the 7:45 a.m. EDT levels. Both have come off their best marks of the day, too.
US equities are trying to rally, but with the S&P 500 (INDEXSP:.INX) above its upper Bollinger band for the seventh straight day, it can only rally so much.
Good luck today. It is very likely whatever trends emerge from this day and tomorrow will continue for the rest of this month.
Friday, June 6, 2014
Instant Reaction: NFP
There is only one thing bad about today's Nonfarm Payrolls number. It was dead-on with expectations, so any hope of creating some good volatility on the back of it seems to be gone.
The number is interesting. It's good enough that the Fed will definitely stay the taper course.
A big enough drop from the last month, that everyone will need to see more data to decide what direction the economy should head.
On the back of this, sell CDS. CDX IG is going to break 60. Sell more CDS. SNR FIN in Europe is good. Money Center banks are good.
Short the Euro here. The ECB opened the door towards some form of QE when it stopped its fine-tuning sterilization. The ECB and Federal Reserve are two ships passing in the night as the ECB gets easier and Fed gets tighter. I really like this trade here.
Stay short bunds, and stay long France. French 10-year bond yields are 13 basis points tighter today.
Treasuries should move to lower yields on these data. The knee-jerk reaction is to push yields higher, but that is failing. The US 10-year yield is at 2.56. France's is at 1.66%. When the bond bears realize the Fed will trim QE but keeps rates stable, rates will start moving lower, and this time, traders will finally get the capitulation. As scary as it seems, there has not been a short squeeze capitulation.
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