Monday March 28 Daily Market Primer

Happy Easter.  The  Daily Market Primer is back. Global capital markets were resilient last week in the face of Tuesday’s terrorist attacks in Belgium.   Terrorism is spreading, according to the WSJ article Terror’s Expanding Reach, below, and as evidenced the Easter attack in Pakistan which killed 70 people.  Terrorism generally increases uncertainty in the market, but we didn’t really see the effect last week, where the global stock markets were basically flat, with the Dow up .2%, the S&P down .3%, and the NASDAQ down just .03%.  For the year, in spite of everything that has happened, the Dow is up .5%, the S&P is down .5%, and the NASDAQ is down 4.7%, while the CBOE Volatility Index (VIX) is down 20%.  The S&P is up over 13% from its low this year on February 11.

Stocks in Asia are mixed, with the Shanghai index down .7%, Hong Kong, down 1.3%, and Japan, up .8%.  US futures are pointing toward a modestly up opening.  US Q4  GDP was revised up, to 1.4% (from 1%) last week.  Oil prices seems to be settling down lately, and Brent and WTI crude oil are down slightly this morning at near $40/bbl.

US 10 year T-Notes fell by a third of a point at the end of the week to close with the yield at 1.91%, and are trading at the same level this morning.

Here’s the news to get you primed as we close out the first quarter this week:

Markets are mixed

Front-month S&P 500 futures contracts are up 0.4 percent as of 10:52 a.m. in London after a mixed overnight session in Asia. West Texas Intermediate front-month oil futures are up 0.4 to $39.62 per barrel as of 6:40 a.m. New York time, but some investors are wondering whether the massive surge off the mid-February lows was one giant short squeeze. The STOXX Europe 600 Index and the FTSE are closed Monday in observance of the long Easter weekend. The yen is the worst-performing major currency tracked by Bloomberg as of 6:40 a.m. Eastern Daylight Time, while commodity currencies, led by the Aussie dollar, are advancing, as is the British pound. 

China cracks down on red-hot real estate

Chinese stocks slumped amid the announcement of changes that will crimp demand for homes in some of the hottest real estate markets in the country, with property developers leading the way down. Policymakers introduced measures, including higher down payments, to tame high-flying home prices in select cities in an attempt to remedy the nation's bifurcated market. Home values in major cities like Shanghai and Shenzhen have diverged markedly from those of lower-tier cities after a recent round of robust price appreciation.

Abenomics, reloaded

Japanese stocks moved higher amid reports that Prime Minister Shinzo Abe will soon announce a front-loaded stimulus package to buoy economic activity. The island nation's economy contracted in two of the past three quarters. Economists expect that Abe will make a decision on whether or not to delay another sales tax increase shortly before Japan hosts a Group of Seven summit in May.

Loeb warns on Japanese giant's succession plan Third Point LLC's Daniel Loeb is at it again. The billionaire activist investor wrote a letter to Seven & i Holdings Co. CEO Toshifumi Suzuki warning that management succession should be a matter of meritocracy, not nepotism. Loeb joined other investors in speculating that Suzuki's son could become next in line to lead the firm, while Ryuichi Isaka, the current president of Seven-Eleven Japan, could be demoted. Third Point's position in the Japanese grocery and retail holding company first became public in October. The stock ended the session nearly 2 percent higher.

China's Beige Book is out. The latest look into the slowing Chinese economy comes from China Beige Book International, a firm based in New York. According to The Wall Street Journal, the firm's survey of about 2,200 companies and 160 bankers found that Chinese companies were holding off on hiring. Only 23% of firms were expanding their workforce, and hiring at private companies is at a four-year low, the survey found.

The US dollar is looking for a seventh straight day of gains. Back on March 17, the US Dollar Index closed at 94.76, a five-month low. Six straight days of gains, however, ran the index back up to 96.25 on Friday. The dollar Monday morning was little changed amid a quiet trade.

Dell is selling its IT services business. Japan's NTT Data is buying Dell's IT consulting business for about $3.05 billion. The sale will allow Dell to tackle some of the $43 billion of debt it is taking on to help fund its pending acquisition of the data-storage company EMC, Reuters says. For NTT, the deal will allow the company to develop a stronger presence in the US.

VF Corp is exploring strategic alternatives for its sport licensing group. The maker of brands such as Vans and The North Face is looking into options for its division that sells licensed merchandise of collegiate and professional sports teams. VF Corp's Licensed Sports Group accounts for about half of the $1.1 billion of sales from VF's Imagewear portfolio of brands, USA Today says.

Valeant is charging too much for "female Viagra." Bloomberg reports that a letter from investors of Sprout Pharmaceuticals, a company bought by Valeant, to Valeant says the drug company is charging too much for Addyi, the first drug to treat low sexual desire in women. Valeant is charging about $800 a month for the drug, double the $400 price point that was established by Sprout after conducting market research. The investors say the high price of Addyi has caused many insurance companies to not cover the drug's expense.

Shanghai Disneyland is sold out for opening day. Opening day (June 16) tickets for Shanghai Disneyland sold out within hours of going on sale online, according to Bloomberg. Tickets to the park cost 370 yuan ($57) for off-peak times and 499 yuan ($77) for peak times. Hotels on the park's grounds are fully booked for the first two weeks of the season, Bloomberg says.

Markets around much of the world remain closed for Easter. Markets in Australia, France, Germany, Hong Kong, Italy, Spain, the UK, and elsewhere are shuttered Monday in observance of Easter. They will reopen Tuesday.

Markets that opened traded mixed. Japan's Nikkei (+0.8%) gained, and China's Shanghai Composite (-0.7%) lost. S&P 500 futures are higher by 5.75 points at 2,034.25.

Earnings reporting is extremely light. Synnex highlights the names reporting after markets close. The Bloomberg consensus expects adjusted earnings of $1.36 a share on revenue of $3.26 billion.

US economic data flows. PCE prices and personal income and spending will all be released at 8:30 a.m. ET. Pending home sales will be announced at 10 a.m. ET. The US 10-year yield is up 1 basis point at 1.91%.

Terror’s Expanding Reach
The pan-European effort to crack the Islamic State network behind the Paris and Brussels attacks is yielding an unsettling discovery—a web of interlocking terror cells whose dimensions authorities are still trying to grasp. European authorities said they suspect that several men detained in a number of countries over the Easter weekend all had connections to perpetrators of the deadly attacks. The string of arrests suggests a wider Islamic State presence in Europe than previously thought. Meanwhile, as Brussels struggles to regain its balance, a memorial rally in the center of the city yesterday was disrupted by a few hundred far-right protesters. And in another savage demonstration of the global reach of radical Islamist terrorism, at least 72 people were killed and hundreds more injured in an apparent suicide bombing at a park in Lahore yesterday. A Pakistani Taliban faction claimed responsibility for the attack that was aimed at Christians celebrating Easter.

Google Search
An Iranian charged with hacking the computer system that controlled a New York dam used a readily available Google search process to identify the vulnerable system. The process, known as “Google dorking,” isn’t as simple as an ordinary online search. Yet anyone with a computer and Internet access can perform it with a few special techniques. Hamid Firoozi stumbled onto the Bowman Avenue Dam in Rye Brook, N.Y., in 2013 by using the technique to identify an unprotected computer that controlled the dam’s sluice gates and other functions. He allegedly hacked his way in using other methods. The Justice Department last week accused Mr. Firoozi and six other Iranian hackers of attacking the U.S. financial system, in what was the first public indictment against hackers tied to the Iranian government.

No Refills
The world’s biggest oil companies are draining their petroleum reserves faster than they are replacing them—a symptom of how a deep oil-price decline is reshaping the energy industry’s priorities. In 2015, the seven biggest publicly traded Western energy companies replaced just 75% of the oil and natural gas they pumped, the biggest combined drop in inventory that companies have reported in at least a decade. The current oil glut has forced companies to cut spending wherever they can, but the risk is that cutting back on new projects now could lead to shortages and price spikes in the future. Still, big oil companies aren’t about to run out of crude, but their reserve volumes are facing other potential threats beyond low oil prices: Some investors have expressed concern about the implications of legislation to curb global warming.

Out of Touch
Apple marketing chief Phil Schiller claimed last week that the company’s new iPad Pro is aimed at anyone still using an old PC. It is a wonderful notion, writes our columnist Christopher Mims, but it isn’t clear the iPad Pro can deliver on that promise—at least not yet. For one, it is missing some tools essential to PC-like work, most notably a mouse or a trackpad. Moreover, Apple diminishes the tablets’ utility by making it harder than it should be for creators of workplace software to make money through its App Store. As its competitors, including Google and Microsoft, race to create hybrids of tablets and PCs that can function as either, Apple is missing a golden opportunity to dominate the touch-based world it pioneered with the iPhone.

Here's what you should read today

The Federal Reserve's preferred gauge of inflation, the core PCE index, is slated to be released at 8:30 a.m. ET. Analysts anticipate that the annual rate will tick higher to 1.8 percent after January's hotter than expected reading. Fed Chair Janet Yellen suggested that some transitory factors contributed to the recent jump in core inflation. Also on deck: February's advance trade balance and pending home sales, as well as the Dallas Fed's index of manufacturing activity for March.

Leverage, liquidity, and LLCs. It's hedge funds in Treasuries.

2018 could prove to be a perfect regulatory storm for banks.

China's capacity closure issues: "Resettling" laid-off steel workers has become a problem.

It didn't take long for investors to start to sour on copper again.

Things that go badly during daylight savings time: health, life satisfaction... and stocks.

Biden-Clinton Friction Hangs Over Campaign

What Washington Risks by Stalling on Puerto Rico

Syrian Government Regains Control of Palmyra From Islamic State

Turkish President Faces a Cool Reception in U.S. Visit

Cost of Sports TV Raises Stakes in Yankees, Comcast Fight

Avon Nears Deal With Activist Investors to Avoid Proxy Fight

Fear Amid the Market Rally: Investors Raise Bets on Volatility

Want to Bet on Oil Companies? It’s All About the ZIP Code

Wall Street seems to be having trouble getting its greed on. “We think risk/reward has deteriorated,” write Morgan Stanley analysts led by Andrew Sheets. This is a “rally not to fight or chase,” say Deutsche Bank’s David Bianco & Co. There are many reasons for the pessimism looming over sell-side analysts’ heads, but one of the biggest must be the risk of a corporate profits recession. On Friday, when U.S. markets were closed, new data showed U.S. corporate profits plunged 11.5 percent in the fourth quarter, the biggest annual drop since the financial crisis. Analysts are currently debating the meaning of the collapse, with many attributing much of the decline to the struggling energy sector, including a big fine paid by oil giant BP. Others however, see the drop as something more pervasive and troubling. The decline in profits “likely reflects the beginnings of a profit-margin squeeze driven by tighter labor markets, rising wages and weak productivity,” JPMorgan’s Jesse Edgerton told Bloomberg News. (Others have previously warned of this dynamic.) Analysts, economists, and investors seeking clues to back these two competing narratives will get some this week, as a raft of U.S. data points — including Friday's all-important March jobs report — is on the way.

Source: Bloomberg, BI, WSJ