New York Times
“Trump Settles on Afghan Strategy Expected to Raise Troop Levels”
President Trump, who has been accused by lawmakers of dragging his feet on Afghanistan, has settled on a new strategy to carry on the nearly 16-year-old conflict there, administration officials said Sunday. The move, following a detailed review, is likely to open the door to the deployment of several thousand troops.
The defense secretary received the authority in June to send as many as 3,900 troops to Afghanistan so that the United States military could expand its efforts to advise Afghan forces and support them with American artillery and airpower. But Defense Secretary Jim Mattis has refrained from building up the American force there until the Trump administration agreed on a broader strategy. According to a report to Congress by the Special Inspector General for Afghanistan Reconstruction, 57 percent of the districts in the country were under the Afghan government’s control as of November 2016, a 15 percent decrease from the previous year.
Moreover, many officials believe they need to do so without setting firm deadlines for reducing or withdrawing American troops, a practice President Obama embraced but which Trump officials assert denied the military needed flexibility and played into the hands of the United States’ adversaries. One way to address that concern, administration officials have said in recent weeks, might be to stipulate that the Afghans would need to satisfy certain conditions, like fighting corruption or improving governance, to continue to receive American economic and military support.
Bloomberg
“Fed’s Big Bond Unwind May Clobber U.S. Stocks, Corporate Debt”
Stocks and corporate bonds may be the surprise big losers once the Federal Reserve starts reducing its $4.5 trillion balance sheet. The threat to the stock and corporate bond markets underscores the bind that the Fed is in as it tries to scale down the extraordinary stimulus it gave the economy during and after the financial crisis. Its quantitative easing program has more than quadrupled its debt holdings, and Fed policy makers plan to start slimming down those investments soon now that the economy is on more solid ground. But cutting back could hurt markets and perhaps the broader economy in ways that are hard to forecast.
Companies’ borrowing costs, for example, might rise by 1.35 percentage points relative to Treasuries, according to the committee’s presentation to the Treasury, and those higher funding expenses could weigh on stocks. The European Central Bank is considering further dialing down its quantitative easing, which could add to the pressure.
After years of the central bank stimulus, signs of froth are everywhere. On the debt side, U.S. high-grade companies have already sold about $1 trillion of bonds this year, and are on track to break last year’s issuance record. Junk bond yields, at just 5.8 percent, are near all-time lows. In stocks, U.S. markets are close to record highs. The growth of exchange-traded funds and mutual funds tied to corporate bonds could amplify pain in the market for company debt, Stein said. When trouble comes, retail investors are more likely to bail out, sending prices even lower. The Bank of England highlighted that same concern in a paper last month.
Reuters
“Shift from non-GAAP bottom lines could be good for stock prices”
Investors worried about lofty stock-market valuations may take comfort in signs that companies in the benchmark S&P 500 index are padding their bottomlines less than they have in previous years. Recent changes to accounting standards and a crackdown last year by the Securities Exchange Commission are encouraging many companies to be more cautious about reporting metrics that do not adhere to Generally Accepted Accounting Principles (GAAP).
The difference between S&P 500 companies’ GAAP net incomes and the adjusted versions of net income that they play up to Wall Street is expected to significantly shrink in 2017. Such a decline may be good news for investors worried that stock prices have risen too far.
On their income statements, companies often exclude «extraordinary» items, like charges associated with layoffs that they believe give investors an unclear picture of their performance. Those adjustments tend to make their profits appear stronger. Adding to pressure on U.S. chief financial officers, the SEC last year sent comment letters to corporations questioning their accounting methods. It warned companies not to produce misleading quarterly reports using larger fonts and bolded type to emphasize non-GAAP metrics.
Bloomberg
“U.S. Stocks Fall With Dollar as Treasuries Gain: Markets Wrap.”
U.S. stocks fell to the lowest level in six weeks amid growing unease about persistent low inflation. Treasuries gained, while the dollar edged lower as investors await central bank speeches at Jackson Hole.
Federal Reserve Chair Janet Yellen and European Central Bank President Mario Draghi will be among the officials addressing this year’s installment of the annual conference hosted by the Kansas City Fed. The summit, held at a Wyoming mountain retreat, comes as central banks in advanced economies grapple with ending years of unprecedented monetary easing, even as stubbornly tepid inflation clouds the outlook.
Between the main moves in the markets the S&P 500 fell 0.2 percent at 10:12 a.m. in New York, the Japanese yen increased 0.2 percent to 109.01 per dollar, the strongest in almost four months on a closing basis and The yield on 10-year Treasuries declined one basis point to 2.18 percent, the lowest in seven weeks.