Tuesday March 15 Market Primer

Happy Super Tuesday the sequel (last story).  Stocks in the US were flat yesterday.  February retail sales fell by .1% vs. the Bloomberg consensus of -.2%, and the January report was revised down to -.4%, which is a surprise:  http://bit.ly/Retailfall. US futures are pointing to a -.5% opening.

The Bank of Japan held policy steady and promised more monetary stimulus if necessary, but its not helping the Japanese stocks, which fell .7%.  The Shanghai index was flat and most other Asian stock markets fell by .5 to 1.5%.  Stocks are red across the screen (green across the screen sounds so much better) in Europe right now.

Russian President Petrov – I mean Putin (J) – is keeping the West guessing by quickly pulling his troops out of Syria, a move which may help with peace talks.  Oil is front and center back in the news as prices fell sharply as investors resumed worrying about a supply glut that never really went away, as Iran said it would not participate in a production cap until it reaches production of 4 million barrels a day.  Russia is saying they can do a deal without Iran but the market doesn’t believe it.  The US shale oil industry may not be able to ramp production back up, even if prices do rebound, as explained here: http://bit.ly/ShaleRamp.  This WSJ story is contrary to others I have read and to the comment in “Commodities Lower” from Bloomberg (4^th story).  After dropping below $40/bbl yesterday, Brent and WTI are both down another 2.5% this morning ($38.51 and $36.24)  The US 10 year yield is down just a bit to 1.93%.

China’s global investment ascendance continues, with Anbang insurance in the headlines for the second day in a row, leading a $13 billion offer for hotel giant Starwood, which also has a merger agreement with Marriott.  This is after announcing a $6.5 billion deal for Strategic Hotels and Resorts, and buying the New York Waldorf Astoria last year for $1.9 billion.  Marriott will get a $400 million breakup fee if Anbang snags the prize.

Danger Will Robinson!  Goldman Sachs is buying robo-advisor Honest Dollar, which helps the self employed set up self directed pension plans managed by Vanguard.  You have to wonder if they will be adding to the Vanguard fund lineup:  http://bit.ly/GoldmanRobo

Here’s the news:

Bank of Japan

The Bank of Japan kicked off a big week for central banks by holding policy unchanged while promising to add more stimulus if needed in its statement this morning. The yen strengthened in the aftermath of the decision, rising 0.6 percent to 113.10 per dollar at 9:50 a.m. London time.

Markets are down

Markets in Asia dropped following the Bank of Japan decision with the MSCI Asia-Pacific Index down 0.8 percent while stocks in Europe fell from a two-month high and were 0.9 percent lower at 9:40 a.m. London time, with miners leading the declines. S&P 500 futures were 0.5 percent lower.

Markets in Asia dropped following the Bank of Japan decision with the MSCI Asia-Pacific Index down 0.8 percent while stocks in Europe fell from a two-month high and were 0.9 percent lower at 9:40 a.m. London time, with miners leading the declines. S&P 500 futures were 0.5 percent lower.

Another Super Tuesday

Donald Trump could take a huge step towards the Republican nomination today as five states including Florida and Ohio vote in primaries. Polling shows Trump is tied with John Kasich in his home state of Ohio and holds a sizeable lead over Senator Marco Rubio in his home state of Florida. On the Democratic side, Hillary Clinton is expected to extend her already sizeable lead over Bernie Sanders.

Commodities lower

Brent crude futures have followed yesterday's 2.1 percent drop with a fall of 2.8 percent by 10:00 a.m. London time this morning, with Iran's promise to expand production the main driver of the weakness. A median estimate of analysts in a Bloomberg survey suggests oil will struggle to get higher than $50 a barrel this year as U.S. shale drillers, which have increased efficiency, are in a position to quickly respond to higher prices with increased production. Industrial metals are also declining with copper down 1.1 percent while lead and aluminum fell. Gold is down.

Coming up...

Ahead of tomorrow's Federal Reserve meeting there is plenty of data coming out in the U.S. At 8.30 a.m. ET the Commerce Department is due to release retail sales data for February with economists expecting a decline from January's numbers. Also at 8:30 a.m. we get the latest U.S. Producer Price Index and Empire State manufacturing for March.

China might tax currency trading. The People's Bank of China has drafted rules for a tax on foreign-exchange trading, sources close to the matter told Bloomberg. "The initial rate of the so-called Tobin tax may be kept at zero to allow authorities time to refine the rules," Bloomberg said, citing the sources. "The tax is not designed to disrupt hedging and other foreign-exchange transactions undertaken by companies." The tax, which still must be approved by Beijing, would be implemented in an attempt to discourage some forms of speculative trading.

Valeant cut its guidance. The embattled pharmaceutical company announced an adjusted loss of $0.11 a share, missing the Bloomberg consensus of earnings of $2.62 a share. Revenue of $2.79 billion edged out the $2.77 billion that was expected. Valeant cut its revenue guidance to $11 billion to $11.2 billion from its previous estimate of $12.5 billion to $12.7 billion. The stock is down about 10% in premarket trade

Italy's government wants someone to buy the world's oldest bank. Banca Monte dei Paschi di Siena, the world's oldest bank and the third-largest lender in Italy, is spiking on reports that Italian Prime Minister Matteo Renzi is urging other banks to bid for the company. Founded in 1472, the bank has lost 99% of its value as fears over the quality of its loans mount. Shares are up about 7% at €0.61 ($0.68) a share.

Institutional investors are suing Volkswagen. A group of nearly 300 institutional investors is suing the automaker for €3.256 billion ($3.61 billion). Reuters reports that the investors say Volkswagen breached its capital-markets duty amid its emissions scandal from June 2008 to September 18, 2015. Shares of Volkswagen are down about 22% since news of the scandal broke in September.

Avon is moving to the UK. The cosmetics giant is moving its headquarters to the UK from Manhattan as part of its turnaround plan, according to Reuters. In addition, Avon will cut 2,500 jobs worldwide and take a $60 million pretax charge in the first quarter. In January, the firm said it would cut $350 million worth of costs over three years. Shares were up 4% in after-hours trade following the news.

Syria Surprise

Russian President Vladimir Putin unexpectedly ordered his country’s armed forces to start withdrawing from Syria as peace talks got under way yesterday, saying that their principal mission had been accomplished. The Kremlin said Mr. Putin had ordered the withdrawal of the “main part” of the Russian contingent. Russia’s Ministry of Defense said its warplanes began redeploying from Syria this morning. U.S. officials and Washington said they hadn’t expected Moscow to announce such a move, but said there was evidence that appeared to suggest Moscow hadn’t had plans for a long-term stay. Russia’s intervention has helped Syrian government forces and allied Shiite militias push back rebels in key areas. President Barack Obama spoke by phone with Mr. Putin yesterday and reiterated the U.S. position that only a negotiated solution could end the conflict.

Dealbreak Hotel

Chinese companies’ appetite for overseas acquisitions is getting larger. On Monday, Anbang Insurance Group offered to buy Starwood Hotels & Resorts Worldwide for roughly $13 billion, in an effort to break up the hotelier’s pending sale to Marriott. The deal would represent China’s biggest purchase of a U.S. company and underscore its ferocious international ambitions. The unsolicited, all-cash bid by the once-obscure conglomerate comes just days after Anbang agreed to buy U.S. luxury hotel owner Strategic Hotels & Resorts and less than two years after it struck a deal to purchase the historic Waldorf Astoria in Manhattan for nearly $2 billion. There is no guarantee a Chinese deal for Starwood will materialize or that regulators would bless it, but Marriott shareholders could emerge as winners either way.

Going Mad
Anyone who picks a No. 16 seed to beat a No. 1 seed in the NCAA college basketball tournament is insane. But this is the year you should do it anyway, writes our sports columnist Ben Cohen. The top seeds in the tournament—Kansas, North Carolina, Virginia and Oregon—are as ripe as any this decade to be upset. In the history of the NCAA tournament, there have been 124 games between No. 1 and No. 16 seeds, and the No. 16 seeds are 0-124. The most likely scenario is that they will be 0-128 by the end of the week. But here’s the thing: mathematically, the 16-over-1 upset should have happened by now. Choose your priorities and our Madness Machine will create a tournament bracket for you using a statistical model that simulates each game.

Block chain not ready for financial industry, experts say
Block chain technology faces several barriers before it can be reasonably considered for use in the financial industry, experts say. The technology would need faster transaction speeds, greater security and a central structure managed by a single entity, likely a regulator with no vested interest. SNL Financial (free content) (14 Mar.)

UBS CoCo bonds in high demand
Investors flocked on Monday to UBS Group's offering of contingent convertible bonds, or CoCos, with $8 billion of orders sent for the $1.5 billion in bonds issued. The bonds will pay 6.875% in interest, lower than the 7% to 7.125% originally suggested, reflecting the high demand. The Wall Street Journal (tiered subscription model) (14 Mar.)

Oracle reports after the closing bell. The company is expected to earn an adjusted $0.62 a share on revenue of $9.13 billion, according to the Bloomberg consensus. Oracle's report is expected shortly after the closing bell, with the conference call set for 5 p.m. ET.

Global stock markets are mostly lower. Australia's ASX (-1.4%) lagged in overnight trade, and Spain's IBEX (-1.3%) underperforms in Europe. S&P 500 futures are lower by 10.25 points at 1,999.00.

US economic data is heavy. Retail sales, PPI, and Empire Manufacturing will all be released at 8:30 a.m. ET. Then, at 10 a.m. ET, business inventories and the NAHB Housing Market Index are due out. Net Long-Term TIC Flows will cross the wires at 4 p.m. ET. The US 10-year yield is down 3 basis points at 1.93%.

Emerging-Market Currency Rally Is Too Good to Last

Why this wheat cargo symbolizes weakening U.S. market dominance.

It's a little too quiet: Traders wary of calm as volatility bets jump.

Our broken environment kills a quarter of us.

Welcome to 'Super Tuesday,' the sequel, as voters in the U.S. Democratic and Republican primaries will head to the polls tonight in five states. But this Tuesday may prove to be more 'super' than its predecessors as it could see Donald Trump come away with enough delegates to take the Republican nomination. The rise of extreme candidates in the U.S. and elsewhere in the world has been well-documented; this week also saw significant wins for the far-right 'Alternative for Germany' party in Germany's state elections. Less clear is the impact of such politics on the world economy at a time when the idea of central banks "running out of ammunition" has been gaining steam, and more economists are pressing for politicians to step up with fiscal measures to boost economic growth. As Paul Donovan, UBS AG economist, parses it today: "One concern is the rise of politics that defines itself as being 'against' issues/groups rather than 'for' ideas/policies. This can undermine productivity and trend growth."

Source: Bloomberg, BI, WSJ, FT, CFAI Financial Newsbrief