Big day today? Probably not, even though the FOMC convenes. The chances of anything coming out of the meeting other than some soothing and dovish words are fairly remote.
With markets stable and CPI ex at 2.2%, the basic conditions for a further tightening move are clearly in place but at the same time we know that global trade activity has been slowing and fears of the US economy running onto a sandbank are increasing.
The Street is still more cautious, if not already downright bearish, than the Fed and will be cognisant of the risks of making the same mistakes the BoJ did in the early 1990s when it seemed to think that it could deceive the people into believing things were better than they were by tightening monetary policy while in the jaws of a slowdown. Japan has yet to recover from this error.
Comparing Apples
So with nothing nefarious to be expected from the Federal Reserve, the US can focus on panicking over Apple’s less-than-sparkling numbers. There are thousands of puns to be found from crushed Apple to Apple turnover and I’m sure hundreds of equity analysts will have been keenly preparing the titles of their pieces for today. They’ll have to be good because the overwhelming majority of them still has Apple as a buy, an outperform, or at least a hold.
The number on analysts who have a sell can be added up on the fingers of one hand. The decline in iPhones should come as no surprise although the size of the decline was quite shocking. Something has gone horribly awry in the company’s China strategy where sales have gone nowhere near as well as had been expected. Blame is being placed on all manner of hurdles having been thrown up by the government but those who do not worship Cupertino, Cal. just think that the Chinese can make the same product cheaper and that Apple was on dope when it though that Chinese consumers were gagging to pay US$399.00 for something assembled from the same Chinese-made components that they could buy for a third of the price.
Equity analysts collectively warn not to underestimate the power of the Apple brand and the company’s ability to astonish but the Apple Watch, though not of itself bad, has not swept all before it as some had predicted. I, for one, am happy with an iPhone 6 in my breast pocket. What was notable was that the company beat the lowered sales estimates for both phones and tablets but missed on Macs. The decline in laptops which has already blighted the results of Intel and Microsoft is clear to see.
The response by the market was that of a well-educated but, nevertheless, headless chicken. Having closed in New York at US$104.35, the stock was, at time of writing, trading in the overnight markets the mid US$96s, a decline of around 8%. I suppose all those strong buys should be a lot stronger today than they were yesterday afternoon…or maybe not? Sports event of the day: Tech analysts in competitive backpedaling….
Happy meal
While on the subject of American icons, how about McDonald’s? MackeyDee came to the European bond markets yesterday with a nifty three-tranche deal at four years, seven years and 12 years, indicated at swaps plus 70bp, plus 90bp and plus 120bp, respectively. Sweet. As was to be expected, the pricing tightened as we went along.
For those who do not track swaps on a daily basis, the four-year is at -10bps, the seven-year at 32bps and the 12-year at 1.70%. Thus, no surprise that the main interest was to be found in the longest of the three. In time, revised pricing was offered and the 12s were touted at “100bp-105bp (WPIR)” – Will Price Within Range”. In the event, the 12s were nailed at plus 95bp, the sevens at plus 70bp and the fours at plus 50bp.
I suppose I have to repeat myself when asking what syndicate desks are paid for. Can the combined brainpower of the corporate syndicate groups of Citi, JP Morgan, UniCredit and SocGen not offer guidance on a benchmark corporate deal for one of the world’s most recognisable names within 25bp, or 20%, of final spread for the 12s but by nearly one third for the fours? More to the point, does “Will Price Within Range” have any actual meaning and if so, would somebody please be kind enough to explain to me what that meaning is? Do we have to add “Will Price Within Range” to other famous lines like “The cheque is in the post”, “Of course I’ll still love you in the morning” and “This Mitsubishi will do 420 miles/gallon”?
Before I go, back to Greece where all is still to play for. Jeroen Dijsselbloem, president of the Eurogroup, Dutch Minister of Finance, and one of the most lucid and articulate speakers on matters Greek revealed that a Eurogroup meeting planned for tomorrow has been shelved as no agreement on the €3.6bn in contingent austerity measures has been reached. Meanwhile, Prime Minister Alexis Tsipras is appealing to Donald Tusk to override the Eurogroup as he believes Athens has done everything it should have done to meet the conditions for the next tranche of bail-out money. “Teacher, teacher, it was him, not me…..”
Spain, meanwhile is heading for new elections in June. Has anybody got a view please on whether Europe is gradually becoming ungovernable? How long until the call for a “strong man” goes up again? Perish the thought.