Thursday March 31 Daily Market Primer
Happy last day of the first quarter. There’s a lot going on so
lets get to it. The stock market rally continued yesterday as the Dow was
up 83 points, or .5%, the NASDAQ was up 22 points or, .5%, and the S&P was
up 9 points or .4%.
Stocks were up slightly in Japan, and flat in China
and HK, and are trading down in Europe about 1%.
Weekly initial jobless rose last week to a two month high of
276,000, slightly higher than the Bloomberg forecast of 265K. US
stock futures are just slightly negative this morning.
It’s a good thing Standard and Poor’s is not a Chinese company,
since they put China’s debt on negative credit watch today, downgrading the
outlook to negative from stable. China’s sovereign debt rating is AA- http://bit.ly/SPChinaDown. In other
Chinese news, Hong Kong fined Moody’s $1.4 million for a 2011 report
citing concern about Chinese companies. Yes, really. http://bit.ly/HKMoodysFine
New York based Robo advisor Betterment received $100 million in
new funding, valuing the company at over $1 billion dollars and giving it
Unicorn status http://bit.ly/RoboCash.
Asset manager State Street is buying GE Capital for $485 million
dollars to expand as GE exits the business. The deal will add $100
billion in pension AUM to State Street Global Advisors, about half of that
in GE’s own pension plan. Meanwhile, the worlds largest money
manager, Blackrock, is laying off 400 people in response to a 12% drop
in Q1 net income: http://bit.ly/BlkRock-400.
Music streaming leader Spotify raised $1 billion in to
bolster their war chest against Apple music, Soundcloud, and other competitors.
Spotify tapped the convertible bond market instead selling more
private stock. The terms were considered quite onerous and gave
investors right to convert to stock at the 20% discount in the case of an IPO,
and the bond pays an initial interest rate of 5%, with built in increases in
the interest rate. Pretty rich in a zero interest rate environment.
Music streaming is a fast growing but notoriously unprofitable business
model.
The largest US life insurer MetLife won its
court case to break the Systematically Important Financial Institution
(SIFI), AKA “too big to fail” designation imposed by the Financial
Stability Oversight Council, which sprung to life as part of the regulatory
response to the “great recession” of 2008. This case my have
wide ramifications as other large financial institutions try to avoid SIFI,
which imposes higher capital requirements, ongoing regulatory costs, and
restrictions: http://bit.ly/NoSIFI.
Tesla
fans are excited today as they unveil the Model 3, the “mass market”
electric car. If successful, the $35,000 M3 will allow Tesla to reach a
much larger market. People love to joke that Elon Musk is really Iron
Man. When I toured Elon Musk’s other company, SpaceEx, a few years ago, they
really did have a life size Iron Man suit along with a 1970’s Cylon
Centurion on the shop floor.
Here's the news for Thursday:
Markets
Asia stocks scrapped higher in the last trading session of the
quarter, with the MSCI Asia Pacific Index adding 0.1 percent, to close out
its best month since
October. Chinese stocks listed in Hong Kong - the so-called
H-share index - added 0.3 percent
to enter a bull market. European stocks are falling for the first time in three
days with the Stoxx 600 Index down 1.0 percent
at 10:35 a.m. London time. S&P 500 futures are pointing to a lower open, falling 0.2 percent.
In commodities, oil has dropped below $38 a barrel
and gold is ending its best quarter since Reagan was in the
White House.
China
Standard & Poor’s cut the outlook for China’s credit rating to
negative from stable this morning, saying the nation's economic
rebalancing will take longer than the firm had previously expected. The
ratings agency's move is unlikely to do much to dampen the country's ambitions
that have seen Chinese companies announce $113 billion in
overseas deals since the start of the year, a total greater than
the amount for the entire of 2014. This year also is in line to become the
first that sees China overtake the U.S. as
the world's top oil importer.
Euro area inflation
Consumer prices in the euro area fell for a second month
in March, dropping 0.1 percent, in line with the median estimate by
economists surveyed by Bloomberg. Core inflation, which strips out food and
energy prices, rose 1.0 percent according to data released on the eve of the
commencement of the European Central Bank's expanded asset purchase
operation. Euro area sovereign bonds were broadly unchanged
after the release at the end of a quarter that saw rallies across the
region. The euro climbed to $1.1370, its highest intraday
level against the dollar since mid-February.
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U.K. GDP and current account
The final print of U.K. fourth quarter 2015 GDP showed a slight revision higher to 0.6
percent, with growth being led by consumers. Separate figures
showed the current-account deficit widened to 32.7 billion pounds - or 7
percent of GDP - far greater than estimates and the most since records began in
1955. The deficit numbers are likely to be overshadowed today by the problems at Tata Steel
Ltd.'s U.K. operation, which the company has put up for sale.
Prime Minister David Cameron this morning
said he is opposed to taking the operation, which employs 6,500
people in Wales, into public ownership.
China
could be downgraded at S&P. S&P cut its outlook for China's sovereign
credit rating to negative from stable but kept its rating at AA-. The rating
agency referred to "economic imbalances in China that are unlikely to
diminish at the pace we previously expected." S&P added:
"However, it should be noted that China's rating is a high AA- and even if
this eventually results in a downgrade, China is still likely to be an A+
credit, which is still much better than all emerging market peers and many
middle income and developed countries." China's yuan ended Thursday's
session stronger by 0.1% at 6.459, a 3-1/2-month high.
UK
final GDP improved. The UK's fourth-quarter final gross domestic product printed
0.6%, a slight improvement from the 0.5% gain from the prior reading. The UK's
economy grew 2.1% for 2015, up from its previous look of 1.9%. The UK's economy
has now grown for 12 straight quarters. The British pound is up 0.2% at 1.4410.
The
eurozone is still in deflation. Eurozone prices fell 0.1% year-over-year in
March, matching economists' forecasts. The reading was a bit better than the
0.2% drop in February, according to the latest data released by Eurostat.
Stripping out the volatile food and energy components, prices climbed 1% YoY,
an improvement from February's 0.8% YoY print. The number, however, still
remained well below the European Central Bank's 2% target. The euro is trading
at a five-month high, up 0.4% at 1.1379.
Turkey's
GDP was strong. Turkey's economy expanded at a 5.7% YoY clip in the fourth
quarter, surpassing the 5% growth that was expected by the Bloomberg consensus.
The Financial Times reports that Commerzbank believes the report is unlikely to
have a big impact on Turkey's currency, the lira, because it's already old
data, broader EM movements are more important, and traders are closely watching
the country's central bank. The lira hit a four-month high of 2.8203 per dollar
on the news.
Argentina
is ready to end its 14-year battle with creditors. Argentina's Senate voted 54
to 16 in favor of settling with its bondholders. The Senate approval follows a
similar outcome in the Lower House earlier in March. A settlement will help
recently elected Argentine President Mauricio Macri regain access to the debt
market and get people investing in Argentina again.
Tesla's
Model 3 debuts on Thursday. The Model 3's release is highly anticipated, as the vehicle has
a base price of $35,000, making it Tesla's first vehicle that's cheap enough to
be considered "mass market." The automaker will unveil the car at an
8:30 p.m. PT event at its headquarters in Southern California.
Sharp's
CEO is out. On Wednesday, Foxconn announced it was buying a two-thirds stake
in the struggling electronics maker Sharp. On Thursday, the Yomiuri newspaper
reported, Foxconn is planning to remove Sharp's CEO and a majority of its
board.
Micron
Technology reported a mixed quarter. The chipmaker lost an
adjusted $0.05 a share, which was better than the $0.09 loss than was anticipated
by the Bloomberg consensus. Revenue tumbled 29.6% to $2.93 billion, missing the
$3.05 billion that Wall Street was expecting. "Although we continue to
navigate challenging market conditions, we are on track with deploying our
advanced DRAM and NAND technologies and improving our cost structure," CEO
Mark Durcan said in the earnings release.
Net Loss
The Obama administration and the Dodd-Frank law it implemented as its main response to the financial crisis suffered a major rebuke yesterday. MetLife, the largest U.S. life insurer by assets, won a legal battle over federal regulators seeking to brand the company a threat to the financial system and to ramp up government oversight of it and its operations. The federal judge’s ruling deals a blow to the expansive post-financial-crisis safety net and could embolden other institutions to file similar challenges. MetLife has shaken off potential higher-capital requirements and other restrictions that came with its December 2014 designation as a “systemically important financial institution,” or SIFI. While investors cheered the news, the Obama administration criticized the ruling and could still appeal. Despite the victory, MetLife said it would continue to seek to shed a large piece of its U.S. life-insurance unit.
The Obama administration and the Dodd-Frank law it implemented as its main response to the financial crisis suffered a major rebuke yesterday. MetLife, the largest U.S. life insurer by assets, won a legal battle over federal regulators seeking to brand the company a threat to the financial system and to ramp up government oversight of it and its operations. The federal judge’s ruling deals a blow to the expansive post-financial-crisis safety net and could embolden other institutions to file similar challenges. MetLife has shaken off potential higher-capital requirements and other restrictions that came with its December 2014 designation as a “systemically important financial institution,” or SIFI. While investors cheered the news, the Obama administration criticized the ruling and could still appeal. Despite the victory, MetLife said it would continue to seek to shed a large piece of its U.S. life-insurance unit.
Badger State Showdown
Wisconsin’s presidential primary next Tuesday represents the biggest test yet of Donald Trump’s ability to triumph over Republican state leaders united against him. Top Wisconsin GOP players, from Gov. Scott Walker to state legislators to the powerful conservative talk-radio voices on Milwaukee radio, are united against Mr. Trump in a way he hasn’t seen before, even in states where he faced millions of dollars in attack ads. The anti-Trump forces have largely aligned with Texas Sen. Ted Cruz, who vaulted to the lead in a statewide poll released yesterday. In the Democratic race, Hillary Clinton is stepping up her outreach to African-American voters and unveiled a new TV ad targeting Mr. Trump. Sen. Bernie Sanders’s campaign, meanwhile, is working to spread doubt among superdelegates about Mrs. Clinton’s electability.
Wisconsin’s presidential primary next Tuesday represents the biggest test yet of Donald Trump’s ability to triumph over Republican state leaders united against him. Top Wisconsin GOP players, from Gov. Scott Walker to state legislators to the powerful conservative talk-radio voices on Milwaukee radio, are united against Mr. Trump in a way he hasn’t seen before, even in states where he faced millions of dollars in attack ads. The anti-Trump forces have largely aligned with Texas Sen. Ted Cruz, who vaulted to the lead in a statewide poll released yesterday. In the Democratic race, Hillary Clinton is stepping up her outreach to African-American voters and unveiled a new TV ad targeting Mr. Trump. Sen. Bernie Sanders’s campaign, meanwhile, is working to spread doubt among superdelegates about Mrs. Clinton’s electability.
Suspicious Activity
U.S. terror-finance rules are driving money underground as banks evict from the financial system those customers the government most wants to watch. Fearing steep financial penalties for failing to spot a wayward customer, many banks now shun anyone who looks risky. U.S. banks have closed thousands of accounts held by people and organizations considered suspicious, high-risk or difficult to monitor—including money-transfer firms, foreign banks and nonprofits working abroad. That leaves ostracized companies to seek alternatives—such as toting bags of cash overseas—a practice that allows hundreds of millions of dollars to leave the global banking system. U.S. officials said they didn’t intend banks to close whole categories of customer accounts. “It’s what you don’t know that’s the frightening thing,” said the head of the FBI’s financial-crimes unit.
U.S. terror-finance rules are driving money underground as banks evict from the financial system those customers the government most wants to watch. Fearing steep financial penalties for failing to spot a wayward customer, many banks now shun anyone who looks risky. U.S. banks have closed thousands of accounts held by people and organizations considered suspicious, high-risk or difficult to monitor—including money-transfer firms, foreign banks and nonprofits working abroad. That leaves ostracized companies to seek alternatives—such as toting bags of cash overseas—a practice that allows hundreds of millions of dollars to leave the global banking system. U.S. officials said they didn’t intend banks to close whole categories of customer accounts. “It’s what you don’t know that’s the frightening thing,” said the head of the FBI’s financial-crimes unit.
Investors Pull Cash From Hedge Funds as Returns Lag
Market (Northern is Mentioned)
Ahead of the jobs report, here are two metrics to watch
Bond bears miss out on a $2 trillion windfall.
How the price of east German
butter moves the euro.
How Wall Street's favorite solar company spent itself to the brink.
The economics of radical uncertainty.
Ireland has sold 100-year bonds
for less than the yield on U.S. 30-year debt.
Largest blue diamond ever goes to auction
for $45 million.
US economic data picks up a bit. Challenger Job Cuts will
cross the wires at 7:30 a.m. ET before initial and continuing claims are
released at 8:30 a.m. ET and Chicago PMI is announced at 9:45 a.m. ET.
Natural-gas inventories are set for a 10:30 a.m. release. The US 10-year yield
is down 1 basis point at 1.81%.
The interest rate traders pay to borrow yuan overnight in
Hong Kong – known as Hibor - dipped below zero for the first time ever.
The move has left analysts scratching their collective heads, with some
attributing it to recent moves by Chinese authorities to curb speculation on
the yuan and others positing “end-of-quarter window
dressing with Chinese characteristics.” Still, not-so-Hibor may prove to be
the least dramatic news item of the day when it comes to China’s
offshore/onshore oddness, following reports that a Hong Kong unit of
Chinese state-owned brokerage Guosen Securities Co. was defaulting on its
offshore bonds. The unit was said to have issued an ‘event of default notice’
on its so-called dim sum debt, news of which rattled the Asia investment
community and wider markets worried about the after-effects of China’s
corporate debt binge. For years, sales of dim sum bonds allowed companies to
take advantage of offshore borrowing costs that were cheaper than onshore
ones, though sales of the debt have dried up recently thanks to volatility in
the yuan and China's efforts to curb offshore investment. Guosen has since
issued a statement clarifying its position and
saying no event of default has occurred. Odd indeed.
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Source:
Bloomberg, BI, WSJ, NYT
Labels: DailyMarketPrimer, Investments, Markets, News
posted by Rich Barnett @ 6:41 AM
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