CapMarketComment: Tuesday March 29 Daily Market Primer

Market were quite yesterday in what must have been uninspired Spring Break trading. Stocks fell 1.3% in Shanghai and were down slightly in most of the rest of Asia. European markets are open again following a long Easter weekend, and stocks are moving sideways this morning. We are seeing a slightly down US market open as I press “send”.

An old fashioned bidding broke out for Starwood Hotels, as the Chinese Anbang Insurance led group came back to the table with a higher offer of over $14 billion for the hotel chain, demonstrating that they will not be outbid. Marriott made the argument that as a strategic buyer their offer is superior for shareholders, which fell flat. Marriott now must choose between topping the offer or walking away with a $450 million break up fee, which isn’t bad for a few weeks work. Yahoo’s core internet business – i.e. everything but the holdings in Alibaba and Yahoo Japan, is officially up for sale. Janet Yellen speaks today at the Economic Club of New York at 9:00 Pacific, lets hope she stays on message. See the last article for the latest on everyone’s favorite Dot Plot.

Barclay’s put out a scary note on commodities prices (second story), warning of a rush to the exits. Its an interesting read but keep in mind the extreme difficulty of predicting commodities prices.

Someone cracked the San Bernardino shooter’s phone, letting Apple off the hook in the government case, at least this time. The government is not saying who, how, or what information they recovered. Tech reporters everywhere are trying to get this story. The larger of issue of the governments ability to force cooperation from tech giants in these cases is unresolved.

Global Fund Flows

Here is a very cool graphic on fund flows from Reuters Eikon which breaks flows down by geography, asset class, and period. This one month chart shows fund flows out of Brazil, Mexico and Japan and into North America, Australia, and Russia.

Over the weekend Barron’s Penta published Asset Pick From Top Wealth Management Firms and an accompanying table which shows recommended asset allocations from 40 top money managers. The article and table are definitely worth taking a look at, so here are the links:

Competitor allocation matrix

Article: Asset Picks From To Wealth Management Firms

And here’s the news:

Stocks gain

European markets set a positive note on their return from a four-day weekend with the Stoxx 600 Index rising 0.3 percent at 10:30 a.m. in London. Overnight, Asian markets were lower as Japan's stocks went ex-dividend. In China, the Shanghai Composite Index fell 1.3 percent as property developers extended losses on concerns over new price cooling measures in some of the nation's largest cities. S&P 500 futures were little changed ahead of a speech by Fed Chair Janet Yellen. For emerging markets, there is some good news as March is on course to be the best month for EM equities since 2012.

Commodities warning

Barclays Plc is cautioning that commodities including copper and oil are at risk of steep declines, saying that an investor rush for the exits could cause prices to tumble. With signs of investors already becoming wary of the recent rally in copper and data showing that the latest oil rally is not gaining fans, there may be something to the warning. Oil was trading 68 cents lower at $38.71 a barrel on the New York Mercantile Exchange at 10:50 a.m. London time.

Yellen speech

Fed Chair Janet Yellen will address the Economic Club of New York today, with her speech expected to start at 12:20 ET. The dollar was strengthening ahead of Yellen's remarks, but give up those gains to trade broadly flat following comments from Federal Reserve Bank of San Francisco President John Williams at an event in Singapore where he repeated that the central bank will raise interest rates at a gradual pace.

Source: Bloomberg, BI, WSJ

Inflation coming?

The dollar snapped a six-day rally yesterday after data showed personal spending and Core PCE inflation barely increased in February. The latter data point is seen as the Federal Reserve's preferred measure of inflation. In Europe, a similar problem exists ahead of the start of the latest round of quantitative easing this week as expectations point to inflation remaining below zero in March. This has not stopped BlackRock Inc. joining Pacific Investment Management Co. in recommending that now is the time to seek inflation hedges. Stabilizing oil prices and a tightening labor market will contribute to rising inflation, they say.

Apple case dropped

It's happened to us all. You finally crack your iPhone, and there's just no need for that new case anymore. U.S. prosecutors have dropped their legal case after cracking the security on the iPhone belonging to the San Bernardino terrorist. While this may be a victory for Apple inasmuch as they did not cede to the FBI's demands, it does show that the iPhone has some security flaws.

Yahoo bids are due by April 11. The Wall Street Journal reports that bidders for Yahoo's core assets have two weeks to ready their bids. A note sent to potentially interested parties asks them to list which assets they'd like to buy and how much they're willing to pay, in addition to how they plan to finance the deal. The telecom giants Verizon and AT&T, as well as private-equity firms like TPG and KKR, are said to be among the interested buyers.

The SEC is investigating Wall Street's nightmare stock. SunEdison, one of the world's largest renewable-energy companies, is being investigated by the Securities and Exchange Commission, according to The Wall Street Journal. The SEC is looking into how much cash the company had last summer when its stock was in free fall. At the time, SunEdison told investors it had $1 billion cash on hand, but some investors think otherwise. Shares of SunEdison tumbled 23% in after-hours trade and are down 96% over the past eight months.

Warren Buffett upped his Wells Fargo stake. Warren Buffett's Berkshire Hathaway now owns 10% of Wells Fargo, meaning the investment could see more federal scrutiny. The Fed previously said it would review investors' double-digit stakes in banks on a case-by-case basis, while the Treasury has said it will not deem a 10% stake as "controlling" if the investor agreed in writing to limit involvement. Citing Buffett, Reuters reports that Berkshire's stake in Wells Fargo has climbed from 6.5% at the end of 2009 and 9.8% as of December 31.

Eddie Lampert is loaning money to his company. Sears CEO Eddie Lampert has bought a portion of the company's new $750 million loan, which is designed to help the company pay down older debt. Reuters reports that Lampert purchased "a couple of hundred million dollars of the new term loan" through his hedge fund ESL Investments. David Tawil, president at the hedge fund Maglan Capital, told Reuters that Lampert's purchase bought time for a turnaround or allowed for more asset sales.

Lennar beats. The homebuilder announced earnings of $0.63 a share, easily beating the $0.52 that was expected. Revenue rose 19.8% versus last year to $1.99 billion, which was better than the $1.87 billion anticipated by the Bloomberg consensus. Home deliveries jumped 12% to 4,832. "We continue to believe that the housing market is continuing its slow and steady recovery driven by years of under production, tight inventory levels, attractive interest rates, and the lowest unemployment levels since 2008," CEO Stuart Miller said in the earnings release.

Janet Yellen speaks. Fed Chair Janet Yellen will take the mic at the Economic Club of New York on Tuesday afternoon. Traders will be paying close attention to Yellen's comments, which could lay the foundation for further Fed rate hikes. Yellen's speech will begin at 12:20 p.m. ET.

Mysterious Suitor
Chinese insurer Anbang Insurance Group, which just upped the ante with a $14 billion all-cash offer in a bidding war with Marriott for Starwood Hotels & Resorts Worldwide, has a complicated web of investors. The Beijing-based company has exploded onto the international scene in recent years by spending billions to acquire insurers and hotels throughout the world. For all its ambition, Anbang remains opaque to many both inside and outside of China and little verified information exists in the public domain about its chairman, Wu Xiaohui. The company’s ownership is a mash of corporate shareholders, with multiple layers of holding companies registered all around the country. Anbang has gotten financial backing from state lender China Construction Bank for its Starwood bid, yet insurance-industry analysts in China have warned that the company’s aggressive acquisitions could be straining its books.

Brussels Breakdown
Belgian authorities, already beset by counterterrorism missteps, released a man yesterday they wrongly arrested as a suspected attacker in last week’s Brussels bombings, shifting their focus to two explosive-stained gloves found on a bus that left the airport soon after the deadly blasts. Frustrated in their efforts to crack the Islamic State network responsible for the bombings, the Belgians have also turned to the U.S. for help in scouring laptop hard drives and mobile phones seized in raids over the past week for any new break in the investigation. The large quantities of explosive chemicals found at the bomb-making lab of the Brussels terrorists represent a breakdown in an elaborate dragnet erected to prevent such chemicals from being used by terrorists. Meanwhile, Pakistan is still reeling following a bombing in a park in Lahore on Sunday. And in other news, an EgyptAir plane with more than 60 passengers and crew aboard was hijacked and forced to land in Cyprus this morning. Most of the passengers had been released and Cypriot President Nicos Anastasiades told reporters the hijacking was not related to terrorism.

The ECB’s March Announcements: Some Facts and Some Philosophy

On March 10, the European Central Bank announced an eagerly awaited new round of stimulus measures. This fell flat, and it has left some people wondering whether the bazookas of the central banks have become pop guns.

Clinton Digs In as Trump Moves On

Tourists Cut Back on Europe Trips After Bombings

ISIS Fails to Gain Much Traction in Yemen

The Markets Have a Message: Don’t Believe This Rally

Squeeze the Parents: New Student Loan Goes Straight to Mom and Dad

Global stock markets trade mixed. China's Shanghai Composite (-1.3%) lagged in Asia, and France's CAC (+0.6%) leads in Europe. S&P 500 futures are down 3 points at 2,025.

Earnings reporting remains light. Dave & Busters and Restoration Hardware are among the names releasing their quarterly results after markets close.

US economic data flows. The Case-Shiller 20-city Index is due out at 9 a.m. ET, and consumer confidence will cross the wires at 10 a.m. ET. The US Treasury will auction $34 billion worth of five-year notes at 1 p.m. ET. The US five-year yield is lower by 2 basis points at 1.35%.

The credit card loophole that gets around China's capital curbs.

The spectacular 176 percent surge of a debt-laden apparel maker's stock.

Japan's jobs data shows the rise of part-timers.

Rousseff's likely successor has his own legal problems.

“Well, this is hawkward,” Credit Suisse analysts quipped last week, in reference to a sudden deluge of hawkish commentary from Federal Reserve officials just days after the central bank had released an unexpectedly dovish policy statement. The ‘hawkwardness’ could well intensify this Tuesday, as Fed Chair Janet Yellen is due to speak in New York at 12.20 p.m. ET. Up for potential discussion is anything from that inflation outlook (expectations have been picking up though data released yesterday showed some inflation pressure moderating in February), the U.S. dollar (which weakened after the Fed’s March 16 statement but has strengthened since), the efficacy of the central bank’s forward guidance (kill the dot plot!), and the impact of financial markets and foreign economies on Fed policy (has there been a coordinated effort to stabilize the dollar and ease pressure on China?), to say nothing of the pace of future U.S. interest rate hikes. The laundry list of potential talking points is a long one, and it will be up to Yellen to square them all.