Stock markets rise on hopes of Greece deal

Greek Prime Minister Alexis Tsipras

 

Stock markets have risen on the hope that a deal may finally be agreed between Greece and its creditors, after Athens submitted fresh proposals to try and avoid defaulting on its debts.

Paris and Frankfurt markets were up 3.3%, while London’s FTSE 100 was 1.4% higher. Japan’s Nikkei closed up 1.3%.

Greek PM Alexis Tsipras is meeting with his country’s creditors later.

If a deal is not agreed, Greece risks defaulting on a €1.6bn (£1.1bn) loan repayment due at the end of June.

The proposals submitted by Athens have been received positively by its creditors – the International Monetary Fund, the European Central Bank and the European Commission (EC) – and by its eurozone partners.

“I see the work that has been done,” said French Finance Minister Michel Sapin. “It is quality work.”

He added: “A deal requires both sides to evolve. This work is underway and is being undertaken in good conditions.”

Earlier, a representative of the EC said the proposals represented a “good basis for progress”.

‘Last minute’

Investors took heart from such comments, pushing markets higher in early trading, with the Athens Stock Exchange jumping more than 7%.

“The most likely outcome, with a 75% probability, is a deal,” said Credit Suisse analysts in a note.

However, they warned that any deal would probably only be agreed late in the day.

“An unfortunate but predictable feature of European crisis decision-making is that such deals are only ever made at the last minute, ‘at the edge of the abyss’,” they said.

Greece’s creditors are insisting that Athens agrees to implement far-reaching economic reforms before it unlocks €7.2bn of bailout funds.

The country’s Syriza government has so far been unwilling to introduce such reforms. The outcome of Monday’s talks will depend on whether Athens’ latest proposals are deemed as an acceptable compromise.

Fitbit opens 52% higher in market debut

Fitbit signs and traders at the NYSE during their IPO, June 18, 2015.

 

Shares of Fitbit opened 52 percent above their IPO price on Thursday, putting it on track to rank among the top 10 stock market debuts of the year.

The stock opened on the New York Stock Exchange at $30.40.

More than 40 million shares of Fitbit had traded by early afternoon EDT, with shares at $29.93. For comparison, data storage firm Boxtraded 42.6 million shares in its first full day of trading on Jan. 23.

The fitness wearables maker had priced its initial public offering at $20 a share on Wednesday, a day after it raised its IPO price range to $17 to $19.

The company is currently valued at $4.1 billion, and many investors will be eyeing its IPO since it is actually profitable.

Still, Fitbit is competing in an increasingly crowded market, with rivals like Apple, Garmin and Jawbone competing for a piece of the lucrative space.

Fitbit CEO James Park told CNBC’s “Squawk on the Street” ahead of the IPO that he believes his company can stay competitive even as Apple and other electronics makers ramp up marketing for all-purpose wearables like the Apple Watch.

“There’s over $200 billion of consumer spending on health and fitness. This is a massive market. There’s room for more than one dominant player,” he said. “The brand Fitbit is really synonymous with health and fitness tracking, so we feel that we have really significant competitive differentiators in the market.”

Park said Fitbit controls 85 percent of the wearable fitness tracking market, and the brand name is more widely searched on Google thanUnder Armour, Lululemon, Adidas and Garmin.

Investors should not be overly concerned that Fitbit will lose its first mover advantage in the next two years, said JMP Securities analyst Alex Gauna, noting that the Apple Watch had not “come out of the gates blazing.”

“Apple is not in this market with comparable performance in terms of either price point, or integrated GPS, or battery life, so there’s a lot of room for Fitbit to maneuver within the next couple of years,” he said Thursday on CNBC’s “Squawk on the Street.”

Beyond the medium-term, Gauna said Fitbit faces significant challenges competing with the power that Apple can bring to bear in the battle over the Internet of Things, the emergent space for connected devices.

Fitbit is well-positioned because it integrates with both Apple’s iOS and Google’s Android mobile operating systems, but it must continue to innovate beyond its fairly narrow product range, Gauna added.

Park said Fitbit cannot comment on details of its product pipeline, but he noted that research and development investment has doubled year over year, and the company will triple that spending to more than $150 million.

Fitbit has expanded into scales and electronics products that can be clipped to apparel. Park said services hold much potential.

“I think the next step is software, which really makes sense of the data to give you insights, coaching and guidance,” Park said.

Jonathan Roosevelt, chairman of Roosevelt Capital and an early investor in Fitbit, told “Squawk Alley” he thinks of Fitbit not just as a health care company, but as a hardware and software firm in the mold of Apple.

Roosevelt conceded that Fitbit could indeed be disrupted, but he called Park “the best strategic mind I’ve ever met in technology.”

“I’m confident he’ll stay in front and continue to innovate and release new products,” he said.

Fitbit has been held up as one of the rare tech companies to be profitable at the time of its IPO. In the first quarter of 2015, Fitbit generated net income of $48 million, a more than fivefold increase from a year earlier.

However, the company’s marketing costs are also rising. The company spent $112 million on marketing in fiscal year 2014, up from $27 million in the prior year.

“What Fitbit recognizes is that they have to continue to establish brand leadership, and they see marketing as an opportunity to stay in front,” Roosevelt said.

Worldwide shipments of wearable devices are set to jump 173 percent to 72.1 million units this year, according to global markets intelligence firm IDC. By 2019, IDC forecasts shipments will grow to 155 million units.

As the segment expands, there is still plenty of room for players in the wearables space to pick up market share, said Ramon Llamas, IDC research manager for wearable and mobile phones.

“If you’re Fitbit, your core competency and your goal is to evangelize health and fitness activity … so it’s very much a very core set of value propositions right there,” he told “Squawk Alley.” “Whereas if you’re an Apple or an Android Wear or a Microsoft, you’re looking to be a device for all people.”

Stocks rise, rates decline as Yellen stays the course

A trader watches the markets at the NYSE. (File Photo).

Stocks rallied and Treasury yields declined as Janet Yellen maintained a dovish outlook in her press conference, emphasizing that even if the Fed raises rates it will be “gradual.”

The Fed statement was almost a carbon copy of the April 29 statement. The only change came in the first paragraph on the economic outlook.

The Fed has:

1) modestly upgraded the economic outlook: “has been been expanding moderately after having changed little during the first quarter.”

2) modestly upgraded the assessment of the labor market: “The pace of job gains picked up while the unemployment rate remained steady.”

3) upgraded its view on housing: “Growth in household spending has been moderate and the housing sector has shown some improvement”

4) left in the key inflation line: “The Committee continues to monitor inflation developments closely.”

5) left in the key statement on fed funds rate: “economic conditions may, for some time, warrant keeping the target federal funds rate below levels the Committee views as normal in the longer run.”

6) downgraded their 2015 GDP forecast to 1.8-2 percent from 2.3-2.7 percent in March.

Bank stocks: How much more room to run?

The Fed has influenced one important part of the stock market: bank stocks have been going strong recently. The theory is, buy banks when rates go up because higher rates are good for banks.

That idea has worked….since the last Fed meeting with a press conference on March 18, the SPDR Bank ETF, a basket of bank stocks, has risen nine percent to a seven-year high, as interest rates have inched up.

Many regional banks in particular, such as Suntrust , have hit new highs in the last few days, though not today.

The problem is, a small rise in interest rates does not necessarily translate into more revenues for banks.

First, banks get revenues form a mix of fees and interest income.

For interest income, what’s good for banks is a steepening yield curve. That increases revenues because it enables them to “borrow short, and lend long.”

But rising rates doesn’t always mean the yield curve steepens. They could raise rates and the yield curve could flatten…that is, short term rates could rise significantly and longer term rates rise less so.

A second problem is what the loans are pegged to. For many banks, rates are tied to LIBOR–the London Interbank Offering Rate, which is determined by banks in London based on what the average leading bank would be charged if borrowing from other banks.

What this means is that LIBOR is not directly tied to Treasuries or the Fed Fund rate. Just because Fed raises rates it doesn’t mean LIBOR rates go up.

Most adjustable-rate and subprime mortgage loans, for example, are tied to LIBOR.

My point: there is a natural knee-jerk reaction to buy bank stocks in a rising interest rate environment. But the connection between rates and higher revenues is not iron-clad.

Hedge fund spending $70M for these tech stock ideas

Philippe Laffont, founder and chief investment officer of Coatue Management LLC.

Plans by Coatue Management to spend $70 million on research this year has so far yielded three themes for long-term investing in technology.

Philippe Laffont’s hedge fund firm wrote in a letter to clients of its long-only fund—it does not short, or bet against, stocks—that it sees opportunities in three major areas:

  • Companies with big “TAM.” TAM stands for total addressable market and winners in the category often have innovative technologies that dominate competitors. “Not only is underlying revenue growing rapidly, but these platforms can also generate new revenue streams in the future,” the letter said. Examples given by Coatue include social network Facebook and Chinese media giant Tencent.
  • Companies with smart capital allocation. Even in mature, slower-growth markets, “astute management teams can enhance returns through capital allocation via share buybacks, dividends and acquisitions, offering the investor growth at a reasonable price.”Examples include longstanding Coatue holdings in the cable TV industry such as Charter Communications and Liberty Global and chipmaker Avago Technologies.
  • Companies for the “mobile Internet.” The next generation of great Web-related companies will be outside the traditional technology, media and telecommunications sector. “There is every reason to believe that this disruption will eventually permeate all sectors of the global economy.” Examples cited include Uber and Airbnb.
The May 19 letter, obtained by CNBC.com, said the long-only fund managed $614 million as of March 31 and had gained 7.9 percent net of fees in the first quarter versus 2.4 percent for the MSCI World Index.The fund is up 45 percent since inception in May 2013 versus 21 percent for the same benchmark.

A spokesman for Coatue declined to comment.

Coatue is best known for its tech-focused hedge fund, which bets for and against tech stocks. It also has a fund that focuses on private companies, often fast-growing businesses before they go public. Top holdings by the hedge fund, according to disclosures as of March 31, include Apple, Avago, Netflix, Charter and Facebook.

Laffont is a veteran of Julian Robertson’s Tiger Management, the hedge fund firm that spawned other prominent tech investors including Chase Coleman’s Tiger Global and Lee Ainslie’s Maverick Capital, a group often dubbed “Tiger Cubs.”

New York-based Coatue managed approximately $9.4 billion overall as of Dec. 31, 2014, according to its most recent regulatory filing. The firm said in the letter that it intends to spend $70 million on investment research across all its strategies.

The love affair with restaurant stocks continues

People line up for free Shake Shack hamburgers outside of the New York Stock Exchange (NYSE) during the burger company's IPO on January 30, 2015 in New York City.

The love affair with restaurants continues.

Fast casual chicken restaurant Wingstop priced 5.8 million shares at $19 in its initial public offering (IPO), a significant rise over the initial price talk of $12 to $14, which was then raised to $16 to $18. It’s only the latest in a long string of IPO successes for restaurants, mostly in the fast casual space.

Since 2014, restaurant IPOs have been on a tear (source: IPO ETF Manager Renaissance Capital):

  • Shake Shack: up 264 percent
  • Zoe’s Kitchen: up 156 percent
  • Dave & Buster’s: up 116 percent
  • Papa Murphy’s: 58 percent
  • El Pollo Loco: up 37 percent
  • Bojangles: up 31 percent

One important point: Much of the gains noted above occurred on the first day of trading, so the initial “pop” is very important.

The CEO of Bojangles, Clifton Rutledge, will be on CNBC’s “Closing Bell” today.

Read MoreBojangles’ marks first earnings report with a beat

Next week will be a big one for the IPO market, with yet another restaurant IPO and the long-awaited debut of Fitbit.

IPOs coming next week include:

  • Fitbit: health and fitness devices
  • MINDBODY: wellness ecommerce platform
  • Fogo de Chao: Brazilian steakhouse
  • Univar: chemical distributor

Retail stock investors having a tough year

A customer browses vehicles at the Mercedes-Benz of San Francisco in San Francisco.

 

May retail sales rose 1.2 percent, roughly in line with expectations. Auto sales were especially strong, up 2 percent. But the rebound was bigger than that.

May retail sales

  • Building/garden: up 2.1%
  • Clothing stores: up 1.5%
  • Online stores: up 1.4%
  • Dept. stores: up 0.8%
  • Furniture: up 0.8%

It looks like the consumer is a bit stronger, certainly stronger than in April.

“Core” retail sales (excluding autos, gas, building materials and food services) were up 0.7 percent, better than an expected increase of 0.5 percent. The prior month was revised upward as well, to 0.1 percent.

This suggests second quarter GDP numbers will be revised upward.

While this is good news, retail sales year-over-year are up only 2.7 percent. That’s a respectable but not great improvement.

Despite the concern about the poor first quarter, retail stocks have outperformed the overall market. TheSPDR S&P Retail ETF, a basket of retailers, up 3.3 percent year-to-date, is handily outperforming the S&P 500, which is up 2.2 percent.

But the gains are selective. This has been a very uneven year for retail. Macy’s has done okay, but many big department stores, apparel companies and luxury retailers have had a terrible year and are well into correction territory:

Department stores YTD

  • Macy’s: up 4.2%
  • Nordstrom: down 7.3%
  • Sears: down 10.5%
  • Dillard’s: down 13.2%

Luxury retailers YTD

  • Michael Kors: down 35.8%
  • Fossil: down 35.5%
  • Tiffany: down 12.9%
  • Tumi: down 12.5%

Apparel YTD

  • Abercrombie & Fitch: down 20.2%
  • Aeropostale: down 18.5%
  • Gap: down 10.5%
  • TJX: down 4.5%

What has done well in 2015? Shoe companies like Steve Madden,Skechers and Foot Locker and auto parts like AutoZone, O’Reilly andPep Boys. And anything related to home improvement is doing well.

Home improvement YTD

  • Mohawk: up 23.8%
  • Stanley Black & Decker: up 10.7%
  • Masco: up 10.6%
  • Sherwin Williams: up 7.4%

RBI, Sebi better than peers in China, US, reveals study

RBI, Sebi better than peers in China, US, reveals study

 

India’s financial market regulatory framework on Thursday got the top-most ratings from the global bodies of banking and capital market regulators, with RBI andSebi being rated better than their peers in China and the US.

In the latest global ‘assessment study’ of the regulatory framework for financial mar ket infrastructures across the world, only six countries, including India, have got the highest score of 4 for all eight parameters on a scale of one to four. The other five countries are Australia, Brazil, Hong Kong, Japan and Singapore.The ‘Rating Level 4’ means that RBI and Sebi have all regulatory measures “fully in force”.

The annual assessment studies the implementation status of the international Principles for Financial Mar ket Infrastructure (PFMIs) in various countries These PFMIs work as global standards for the financial sector entities across the world and have been finalised by the International Organisation of Securities Commissions (IOSCO) and the Bank for Interna tional Settlements (BIS).