France’s Economy Matters: France by the Numbers

Western financial markets got a major boost on Monday morning. Dow Jones Industrial Average futures were up over 1% (200+ points), the CAC 40 in France was up 4.5% (230 points), the DAX in Germany was up 3.1% (375 points) and the U.K.’s FTSE 100 was even up 1.9% (134 points). What investors are cheering is that Macron topped Le Pen in the French elections, with a coalition expected to give Macron a formal victory next month.

The first thing to consider is that the financial markets are still global, facilitated by international trade, multinational corporations, tourism and multinational banking — oh, and of course more than a few international alliances. The first thing that U.S. investors will want to consider is that if Le Pen really has no chance of victory then there is very little threat to France’s government staying in the European Union. Macron was also deemed by the international media pundits as more friendly to economics and the markets.

Many U.S. investors might think that they do not have to care about France. For better or worse, that just isn’t the case. 24/7 Wall St. has decided to show why France’s economy matters, by the numbers. Some outside market data was used, but the primary economic source used here has been the CIA World Factbook.

First and foremost, France is the second most important nation to the EU (behind only Germany) and to the formal euro currency. After the U.K. Brexit, any threat to France’s future in the euro would have been a potential killer for the united euro currency, as Germany might not be able (nor want to) be the only economic lynchpin for the euro.

The CIA World Factbook shows France’s gross domestic product (GDP) on a purchasing power parity basis (and in 2016 dollars) as $2.737 trillion in 2016. When compared to the EU as a whole, that is estimated as 14.3% of $19.18 trillion. Germany, the cornerstone of the EU, was projected to have a 2016 GDP of $3.979 trillion.

France’s estimated $2.737 trillion GDP in 2016 is up from $2.701 trillion in 2015 and up from $2.667 trillion in 2014. France is ranked at the 11th largest economy in the world by GDP, but that would be the 10th largest if you do not count the EU as a whole. That $2.737 trillion GDP in 2016 was only marginally behind the United Kingdom’s $2.788 trillion (just 1.8% less). France’s GDP in 2016 was also projected to be one place above Mexico’s $2.307 trillion (18.6% higher) and two places above Italy’s $2.221 trillion (23.2% higher).

On a population basis, France’s 66.8 million people ranks as being the 22nd highest. The EU’s total population is roughly 514 million. Germany’s population is 80.7 million and the United Kingdom has 64.4 million people.

France’s total labor force in 2016 was projected to be 30.48 million. That ranks 22nd in the world. The EU as a whole had a projected total labor force of 232.9 million people, and France’s 30.48 million people in the labor force compared to Germany’s 45.3 million people and the U.K.’s 33.17 million people.

France’s economy is diverse and not dependent on just one sector, although its services sectors as a whole accounts for more than 78% of total GDP. Still, with over 84 million foreign tourists each year, France is considered to be the most visited country in the world. France also was shown to derive the third largest income in the world from tourism.

Other aspects of France’s economy are around unemployment, public finances, taxes and more, according to the CIA World Factbook:

The unemployment rate (including overseas territories) increased from 7.8% in 2008 to 9.9% in the fourth quarter of 2014. Youth unemployment in metropolitan France decreased from a high of 25.4% in the fourth quarter of 2012 to 24.3% in the fourth quarter of 2014.

Lower-than-expected growth and high spending have strained France’s public finances. The budget deficit rose sharply from 3.3% of GDP in 2008 to 7.5% of GDP in 2009 before improving to 4% of GDP in 2014 and 2015, while France’s public debt rose from 68% of GDP to more than 98% in 2015, and may hit 100% in 2016.

France’s tax burden remains well above the EU average and income tax cuts over the past decade are being partly reversed, particularly for higher earners. The top rate of income tax is 41%.

New York Manufacturing Shows Much More Modest Growth Under Expectations

The Federal Reserve Bank of New York has released its Empire State Manufacturing Survey for April, and the results were far less robust than had been expected. The General Business Conditions Index was up at just 5.2 in April. Bloomberg had called for a gain of 15.0, and this is far less robust than the 16.4 reading seen in March and 18.7 seen in February.

Monday’s report from the New York Fed was one of more subdued growth. Among New York State manufacturers, 35% of respondents said that general business conditions had improved over the month, but 30% reported that they had worsened.

While weak, this cooling in the manufacturing area of the New York region showed that delivery times were slower with a bottlenecking in the supply chain. New orders growth also was shown to have eased in April, down 14 points to 7.0. Unfilled orders were up at 12.4, but that was down marginally from the prior month.

What did grow was the employment index, up at 13.9 in April. That is a two-year high.

The New York Fed’s overview noted about labor and prices:

Labor market indicators pointed to further sturdy increases in both employment and hours worked. Input prices and selling prices rose at a modest pace again this month. Indexes assessing the six-month outlook continued to convey a fairly high degree of optimism about future conditions.

Monday’s report may have been weaker than expected, but expectations were mixed to higher. The New York Fed said:

Forward-looking indexes were mixed but generally at high levels, suggesting fairly widespread optimism about future conditions. The index for future business conditions rose three points to 39.9, while the future new orders and shipments indexes declined modestly. Employment and hours worked were expected to increase fairly briskly in the months ahead. The index for planned capital expenditures climbed four points to 27.7—its highest level in more than two years—and the technology spending index jumped seven points to 15.3.

Top Analyst Upgrades and Downgrades: Accenture, Ecolab, Huntington Bancshares, Oasis Petroleum, Snap, Under Armour

Stocks have posted six consecutive quarterly gains now that the first quarter came to an end. Markets were looking for direction on Monday, April 3, 2017, but here is how the indexes performed in the first quarter: Dow up 5.0%, S&P 500 up 5.9% and Nasdaq 100 up almost 12%.

Even if the bull market is more than eight years old, investors have proven time after time that they want to buy market pullbacks. Those same investors are also still looking for new trading and investing ideas.

24/7 Wall St. reviews dozens of analyst research reports each day of the week in an effort to find new ideas for our readers. Some analyst reports cover stocks to buy, and some reports cover stocks to sell or to avoid.

Color has been added on many of the following calls, and the consensus analyst price targets referenced are from Thomson Reuters. These are the top analyst upgrades, downgrades and initiations seen on Monday, April 3, 2017:

Accenture PLC (NYSE: ACN) was downgraded to Sell from Neutral with a $110 price target (versus a $119.88 prior close) at Goldman Sachs. Accenture has a 52-week trading range of $108.66 to $126.53 and a consensus analyst price target of $131.28.

Ecolab Inc. (NYSE: ECL) was raised to Neutral from Sell and the price target was raised to $118 from $99 at Instinet. Ecolab has a 52-week range of $110.45 to $126.17 and a consensus target price of $128.35.

Huntington Bancshares Inc. (NASDAQ: HBAN) was raised to Buy from Hold and the price target was raised to $16 from $14 at Jefferies. Huntington Bancshares has a 52-week range of $8.05 to $14.74, and the consensus price target is $15.01.

Huntsman Corp. (NYSE: HUN) was raised to Buy from Hold with a $28 price target (versus a $24.54 close) at Citigroup. The 52-week range is $14.16 to $25.22 and the consensus analyst target is $24.60.

Oasis Petroleum Inc. (NYSE: OAS) was raised to Outperform from Market Perform with an $18 price target (versus a $14.26 close) at BMO Capital Markets. It has a consensus target price of $18.09 and a 52-week range of $6.56 to $17.08.

Snap Inc. (NYSE: SNAP) was started with a Hold rating at Argus, with the firm citing strong growth that is fully reflected in the price of the stock. Snap’s post-IPO range is $18.90 to $29.44, and it closed at $22.53 on Friday.

Under Armour Inc. (NYSE: UAA) was indicated marginally higher after Barron’s reported this past weekend that its shares are ready to recover. Unfortunately, Under Armour was downgraded to Underperform from Market Perform and the price target was cut to $14 from $20 at FBR Capital Markets. Under Armour has a 52-week range of $17.05 to $46.53, and its consensus target price is $23.00.

Inflation in US Means Higher Interest Rates

Inflation in US Means Higher Interest Rates

Speakers from the Fed are talking of up to 3 more Fed rate hikes this year.

It is clear that Fed tightening is warranted by the steady rise in US inflation and the debate is more about the degree of tightening and the mechanism of tightening that is required to prevent the central bank from slipping behind the curve.

Keep in mind that Key indicators suggest that the Fed’s announced tightening pace should be accelerated.

A central bank gets behind the curve when it is not raising rates at a pace fast enough to keep up with inflation.

Note: there is no growth without inflation.

Meanwhile, President Donald Trump’s healthcare reform may be not quite as dead as had been thought.

President Trump  told senators attending a White House reception that he expected lawmakers to reach a deal “very quickly” on healthcare, he did not offer specifics, but he always means what he says.

This is worth watching.

The “long goodbye” from the UK from the EU is now underway with US Prime Minister May declaring that there is no turning back.

Prime Minister Theresa May’s letter to the European Council President Donald Tusk reads the following important words: “The United Kingdom wants to agree with the European Union a deep and special partnership that takes in both economic and security cooperation … If, however, we leave the European Union without an agreement the default position is that we would have to trade on World Trade Organisation terms. In security terms a failure to reach agreement would mean our cooperation in the fight against crime and terrorism would be weakened.”

Considering that the UK ranks 5th in the world on nominal GDP, this mean the EU it is on its way to losing the following:

  1. 12% of its population,
  2. 16.67% of its nominal GDP (Eurostat: UK represented 16.67% of Y 2016 EU nominal GDP)
  3. 50% of its nuclear weapons and
  4. 1 of its 2 permanent seats at the United Nations Security Council Security Council. The other seats remain with France alongside the United States, China and Russia.

The Brexit affair now descends into normal EU negotiations. The 1st major discussion will be about how discussions are to take place.

Why Credit Suisse Now Calls for March Fed Rate Hike

Things are looking up for the markets. Even with a political divide, the ambitions of higher growth, lower taxes and less regulation keep sending the stock market to new higher and higher highs each week. When 24/7 Wall St. projected a Dow Jones Industrial Average target of 21,422 for 2017, it was not expected that the Dow would hit 21,000 before the end of February.

While enthusiasm and animal spirits remain in the air, it may be important to not forget about the rising interest rates. Now it seems that the Federal Reserve’s chances of a federal funds rate hike may be sooner and faster than what the markets were expecting. In fact, Credit Suisse has warned its clients that they should expect a rate hike by Fed Chair Yellen at the March 2017 FOMC meeting. The firm sees three rate hikes between now and February 2018.

Credit Suisse’s call for an interest rate hike in March is based on higher core U.S. inflation and economic data pointing to strong global growth momentum. Other driving forces are the Fed’s rhetoric becoming increasingly hawkish and some Fed presidents even signaling a hint of urgency.

Credit Suisse’s note from James Sweeney and his economics team said:

In response to these developments the market implied probability of a March hike has risen from 25% on February 1st to over 75% now. This market action could be self-fulfilling, because it undercuts claims that the Fed needs to use a meeting to “prepare the market” for an upcoming hike.

Janet Yellen and Stanley Fischer will both make public remarks tomorrow, but we do not expect them to disavow the recent hawkishness of Fed Presidents. We now expect a March hike, and we maintain our view of three hikes between now and February 2018, when a new Fed chair will likely replace Yellen.

Credit Suisse did leave an out that could keep the Fed rate hike from coming so soon. The report said:

Still, a March hike is hardly assured: hard (non-survey) data have not surged since the election. In fact, labor income growth has been somewhat sluggish, real retail sales have been on trend, industrial production has been good, not great, and core PCE inflation remains (slightly) below target.

The current rate on fed funds is a target range of 0.50% to 0.75%, hardly any cause for concern. Fed funds futures at the CME were last seen trading at 99.2375 for the March contract, which implies that they will be above 0.75% after the FOMC meeting.

One problem in evaluating fed funds today is that it implies a rate of 0.7625%, and that does not signal a fully priced-in target range of 0.75% to 1.00%. Fed fund futures for April were last trading at 99.15 and 99.12 for May, and 99.05 for June. If a March rate hike isn’t coming, it has to be coming within the next 30 to 60 days.

After the March 14 to March 15 FOMC meeting, the next meeting is May 2 to May 3, and then again on June 13 to June 14.

Top Analyst Upgrades and Downgrades: Home Depot, IBM, Mobileye, Monsanto, NVIDIA, ONEOK

Stocks were indicated higher on Thursday after Treasury Secretary Mnuchin talked up more tax reform plans in an interview on Thursday morning. The Dow Jones Industrial Average is now close enough to 21,000 that investors have been unable to ignore how much interest there has been in stocks. Even though the bull market is almost eight years old, it has not deterred investors from wanting to buy stocks. Investors have literally bought into every sell-off, and those same investors continue to look for new and overlooked opportunities.

24/7 Wall St. reviews dozens of analyst reports each day of the week to find new investing and trading ideas for our readers. Some analyst reports cover stocks to buy, while others cover stocks to sell or avoid. Many of the following analyst calls have been given some added color, and the consensus analyst price targets are from Thomson Reuters.

These are the top analyst upgrades, downgrades and initiations seen on Thursday, February 23, 2017:

Home Depot Inc. (NYSE: HD) was raised to Overweight from Equal Weight and the price target was raised to $165 from $150 (versus a $145.25 prior close) at Morgan Stanley. Home Depot raised its dividend and increased its buyback plan after earnings. The 52-week trading range is $119.20 to $145.65.

International Business Machines Corp. (NYSE: IBM) was reiterated as Buy and the price objective was raised to $200 from $185 (versus a $181.15 close) at Merrill Lynch. The call noted that IBM is not AWS, but the public cloud remains an incremental opportunity that can add another $7 to $15 worth of value per share.

Mobileye N.V. (NYSE: MBLY) was reiterated as Buy and the price target was raised to $52 from $50 at Goldman Sachs. It has a 52-week range of $28.15 to $51.15 and a consensus analyst price target of $56.38.

Monsanto Co. (NYSE: MON) was started as Sector Perform with a $118 price target (versus a $111.38 close) at RBC Capital Markets. Monsanto has a 52-week range of $83.74 to $114.26, and the consensus price target is $120.35.

NVIDIA Corp. (NASDAQ: NVDA) was downgraded to Underperform from Hold and the price target was cut to $85 from $100 (versus a $110.76 close) at BMO Capital Markets. NVIDIA has a 52-week range of $31.04 to $120.92 and a consensus price target of $114.10.

ONEOK Inc. (NYSE: OKE) was raised to Hold from Underperform with a $51 price target at Jefferies. The firm updated its model on ONEOK to reflect the pending OKS acquisition. They view the deal as creating an approximate $14 billion basis step-up, shielding it from Fed cash taxes through about 2021 while permitting accelerated dividend growth.

Square Inc. (NYSE: SQ) closed up 2.8% at $15.04 ahead of earnings and was indicated up almost 10% at $16.50 after earnings. It was raised to Buy from Neutral with a $20 price target at BTIG. Mizuho reiterated its Buy rating and raised its target to $19 from $16, while Goldman Sachs reiterated its Buy rating and raised its target to $17 from $15. Square was maintained as Equal Weight and the price target was raised to $14 at Morgan Stanley.

Unilever PLC (NYSE: UL) may not be in talks with Kraft Heinz now, but the company’s American depositary shares rose 4.6% to $46.93 after it announced a strategic review to maximize shareholder value. Unilever was raised to Buy from Hold by Societe Generale, and the 52-week range is $38.58 to $48.97.

Other key analyst calls were seen in the following:

  • Albemarle Corp. (NYSE: ALB) was started as Outperform at RBC Capital Markets.
  • AVANGRID Inc. (NYSE: AGR) was downgraded to Hold from Buy with a $44 price target (versus a $43.11 close) at Evercore ISI.
  • Bloomin’ Brands Inc. (NASDAQ: BLMN) was downgraded to Neutral from Outperform at Credit Suisse.
  • Flir Systems Inc. (NASDAQ: FLIR) was downgraded to Neutral from Outperform at Imperial Capital.
  • La-Z-Boy Inc. (NYSE: LZB) was downgraded to Hold from Buy with a $30 price target (versus a $28.40 close) at Stifel.
  • Reynolds American Inc. (NYSE: RAI) was downgraded to Market Perform from Outperform at Wells Fargo.
  • Steven Madden Ltd. (NASDAQ: SHOO) was raised to Overweight from Neutral with a $41 price target (versus a $37.25 close) at Piper Jaffray.

Top Analyst Upgrades and Downgrades: Best Buy, Dollar General, Intuit, McDonald’s, P&G, Symantec, China Telecom

Stocks managed to hit a new high in the week of August 12, and the markets were indicated up on Monday morning. Despite the S&P 500 being valued at 18.1 times forward earnings, low interest rates and a lack of choices for return keep driving investors toward stocks.

24/7 Wall St. reviews dozens of analyst research reports each morning of the week. The goal is to find new investing and trading ideas. Some of these analyst reports cover stocks to buy. Other reports feature stocks to sell or avoid.

One interesting issue to consider now is that it would really only require the upside from seven of the 30 Dow stocks to get to DJIA 20,000 in 2017.

These are the top analyst upgrades, downgrades and initiations seen on Monday morning:

Best Buy Co. Inc. (NYSE: BBY) was downgraded to Hold from Buy and the price target was cut to $36 from $39 (versus a $34.87 prior close) at Jefferies. The stock has a 52-week trading range of $25.31 to $39.10 and a consensus analyst price target of $33.14.

Dollar General Corp. (NYSE: DG) was downgraded to Hold from Buy and the price target was cut to $96 from $101 (versus a $92.91 close) at Jefferies. The 52-week range is $59.75 to $96.88, and the consensus price target is $99.80.

Intuit Inc. (NASDAQ: INTU) was maintained as Sector Perform but the price target was raised to $113 from $93 at RBC Capital Markets. The stock has a 52-week range of $79.63 to $116.97 and a consensus price target of $110.47.

McDonald’s Corp. (NYSE: MCD) was downgraded to Hold from Buy at Argus. The shares have a 52-week range of $87.50 to $131.96 and a consensus price target of $130.29.

Procter & Gamble Co. (NYSE: PG) was raised to Buy from Neutral with a $105 price target (versus an $87.04 close) at B. Riley. The 52-week range is $65.02 to $87.45. The consensus price target is $90.56.

Symantec Corp. (NASDAQ: SYMC) was started with a Buy rating and was given a $26 price target (versus a $22.54 close) at Goldman Sachs. The consensus price target is $23.28, and the 52-week range is $16.14 to $22.58.

Merrill Lynch is out with Buy ratings on the three major Chinese wireless and telecom stocks. China Telecom Corp. Ltd. (NYSE: CHA), China Mobile Ltd. (NYSE: CHL) and China Unicom (NYSE: CHU) were all reinstated with Buy ratings. China Telecom is actually the firm’s top pick of the three, as its free cash flow yield will double to 9% with an attractive valuation with 32% implied upside. The firm believes that China Unicom’s sharp free cash flow yield turnaround will drive a rerating.  China Mobile was given 24% implied upside with rapid 4G migration and a mobile data traffic boost.

Company Upgrades & Downgrades

This section highlights some significant changes in ESG/Corporate Governance scores, controversy ratings and outlook assessments, both positive and negative, for select companies in Sustainalytics’ research universe.

The table below features recent controversy upgrades and downgrades. Follow the link to learn more about the sizable changes in the controvery assessments at Valeant Pharmaceuticals, Takata Corporation and GSK. Read more >

Select Controversy Downgrades and Upgrades as of June 16, 2016

Upgrades-Downgrades-June

How and Why Janet Yellen Is Driving the Gold Train Much Higher

If you ever wanted to know if lower and lower interest rates for longer and longer helps to prop up the value of gold, look no further than Federal Reserve Chair Janet Yellen’s speech on Tuesday, March 29, 2016. Many Fed presidents have spoken more hawkishly of late. The mood was building that the Fed is gearing up for rate hikes again. It was assumed that Yellen might sound at least a tad more hawkish.

Yellen’s references were that the FOMC has few tools to be more accommodative, rate hikes would be more gradual, that inflation was less present than hoped and that economic uncertainties remained. It honestly sounded like she was telegraphing that interest rates will never be high again.

So, back to gold. The reality is that gold loves a zero-rate or very low-rate interest rate environment. It creates an environment in which gold acts like a savings bank — because neither one will pay you anything for holding it, but there is no recessionary risk of what happens to gold (the metal, not the price). If investors can earn money leaving money in a bank account, then they may be less inclined to hold gold.

24/7 Wall St. could not ignore the move seen in the key gold miners and gold producing stocks. Yellen’s speech caused a rally, but now some gold stocks are within striking distance of their 52-week highs. What stands out even more is that many of the top gold stocks are now at or above their consensus analyst price targets. Gold was last seen up over $18.00 (1.5%) at $1,240 per ounce.

Barrick Gold Corp. (NYSE: ABX) was last seen up 3.1% at $14.03, with a $16.3 billion market cap. Barrick’s consensus analyst price target is $13.52 and it has a 52-week trading range of $5.91 to $15.52.

Goldcorp Inc. (NYSE: GG) was last seen up 3.8% at $16.34 with a market cap of $13.6 billion. It has a consensus price target of $16.63 and a 52-week range of $9.46 to $20.30.

Newmont Mining Corp. (NYSE: NEM) was up 3.8% at $26.67 with a market cap of $14 billion. The consensus price target is $26.97, and the 52-week range is $15.39 to $28.39.

Yamana Gold Inc. (NYSE: AUY) was last seen up 6.7% at $3.09, with a market cap of $2.9 billion. Yamana’s consensus price target is $3.37 and it has a 52-week range of $1.38 to $4.12.

Silver Wheaton Corp. (NYSE: SLW), which was trying to move more into gold before the gold drop of recent years, ran with the gold sector. Silver Wheaton has a consensus price target of $20.62 and a 52-week range of $10.04 to $21.12.

Yellen discussed additional economic uncertainty stemming from China and the slowdown in oil spending hurting business.