Wednesday March 16 Market Primer

Happy Fed Day.  The FOMC (Federal Open Market Committee) concludes its two day March meeting today.  I (and the market) expect the Fed to take a pass on raising rates, but they may set the stage for the next hike later this year.  All eyes will be on Fed chief Janet Yellen’s press conference after the meeting.  US Markets were dull yesterday, with the Dow up 22, the S&P down 4, and the Nas down 21, or .5%.  After January and February we’ll take dull any time.  Equities were mixed in Asia, rising slightly in China an Australia but down about .5% in most other markets.  European stock markets are mostly down, as capital markets around the world move sideways awaiting the Fed’s announcement at 2:00pm Eastern, 1:00pm Texas Time, and 11:00am Pacific.  Oil is moving back up on market talk of trying to get a production cap deal done without Iran’s cooperation.   I’m getting whiplash watching oil prices.  US equity futures are headed down by .4%.

The main German and UK stock exchanges – Deutsche Boerse AG and the London Stock Exchange - are sealing their $30 billion deal to merge, shutting out US based competitor Intercontinental Exchange (ICE).  It’s another sign of globalization and integration of the financial markets.  Last year’s favorite hedge fund trade Valeant Pharma got absolutely crushed yesterday, down 50%, as the bad news for the company rolls on, with disappointing earnings, reduced guidance, confusing investor communications, and a looming bond default triggered by delayed financial reporting.

And I don’t need to tell you that presidential frontrunners Hillary Clinton and Donald Trump increased their lead and picked up delegates in yesterday’s multi-state primaries, as Marco Rubio dropped out of the race.   Presidential politics are an ongoing source of market uncertainty this year, but it does appear to be getting less chaotic as the leaders emerge.

Here’s the news to get primed for Wednesday:

Fed day

At 2:00 p.m. ET the Federal Reserve will release its post-meeting statement, with Chair Janet Yellen holding a press conference 30 minutes later. While the vast majority - but not all - of economists surveyed by Bloomberg expect no rate change to be announced today, the market will be looking for indications of both when the U.S. central bank will hike next, and how many more rate increases it expects to make this year. The dollar is rising against most of its 16 major peers this morning.

Markets

Stock markets are relatively quiet this morning ahead of the Fed decision. Markets in Asia closed lower overnight with the MSCI Asia Pacific Index dropping 0.7 percent. The Japanese yen fell after Governor Haruhiko Kuroda said the Bank of Japan could theoretically lower interest rates to minus 0.5 percent. In Europe, the Stoxx 600 Index was practically unchanged at 9:55 a.m. London time. S&P 500 futures were also unchanged. Investors in the U.S. will be keeping an eye on Valeant to see if there is any sign of a recovery from yesterday's disastrous session.

Primaries

Yesterday's 'Super Tuesday' presidential primary votes in the U.S. saw Donald Trump and Hillary Clinton make further advances for the respective nominations. After losing to Trump in his home state of Florida, Senator Marco Rubio suspended his campaign. Despite neither leading candidate making a clean sweep of the states in play yesterday, both Clinton and Trump are looking increasingly to be the party candidates.

U.K. budget

At 12:30 p.m. in London, the U.K. Chancellor of the Exchequer George Osborne will unveil his annual budget against a backdrop of lower-than-forecast tax revenue and a deteriorating growth outlook. Osborne will also have to be mindful of the coming referendum on European Union membership as he crafts a budget that will be intended to provide maximum impact for minimum cost. The British pound is lower ahead of the announcement.

Commodities

Crude is rising this morning after Qatar’s oil minister said there would be a meeting in Doha on April 17 between OPEC and non-OPEC members to resume talks on capping production. Oil futures advanced 2 percent in New York by 10:25 a.m. London time. Peabody Energy Corp., the largest U.S. coal miner, seems to be falling victim to the long coal-price slump, saying this morning that it may not have enough liquidity to continue operating as a going concern. Here is what you need to know. Wednesday's a Fed day. The Federal Reserve will announce its latest policy decision at 2 p.m. ET. The Fed's statement will be accompanied by its latest "dot plot" and an updated summary of Fed staffers' latest economic projections. Fed fund futures are pricing in just a 4% chance of a rate hike at Wednesday's meeting, but traders will be parsing the words of Fed Chair Janet Yellen closely, as she could lay the groundwork for rate hikes later this year. Yellen's news conference will take place at 2:30 p.m. ET. We're closer to Donald Trump versus Hillary Clinton. Republican presidential frontrunner Donald Trump won primaries in Florida, Illinois, and North Carolina, while Gov. John Kasich took his home state of Ohio to keep his campaign on life support. Missouri results were not yet official, though Trump held a small lead over Sen. Ted Cruz of Texas. Sen. Marco Rubio exited the race after losing his home state of Florida. On the Democratic side, former Secretary of State Hillary Clinton seemed poised to sweep all five voting states to extend her lead over Sen. Bernie Sanders of Vermont. Oil producers are meeting in April to discuss a production freeze. Both OPEC and non-OPEC nations will meet on April 17 in Doha, Qatar, to discuss freezing their oil production. Reuters reports that a statement released by Qatari oil minister Mohammed Bin Saleh Al-Sada said oil ministers from 15 OPEC and non-OPEC countries, which control 73% of global production, will take part in the talks. Crude oil is up 2.1% at $37.09 a barrel. The number of people in the UK claiming jobless benefits hit a record low. The number of people claiming jobless benefits in the UK fell by 18,000 in January to 716,000, the lowest reading in more than 40 years of data, according to the Office for National Statistics. The drop was nearly twice as big as the 9,100-person decline that was expected. Additionally, average earnings rose 2.2% year-over-year, edging out the 2.1% gain that economists were forecasting. The British pound is weaker by 0.3% at 1.4114. Deutsche Boerse and the London Stock Exchange are merging. The two sides "have reached agreement on the terms of a recommended all-share merger of equals." Under the terms of the agreement, LSE shareholders will receive 45.6% of the newly formed entity, while the rest goes to Deutsche Boerse shareholders. Once the merger is completed, the combined company will have a market cap of at least £20 billion ($28 billion), making this one of the biggest European markets deals in decades. LSE CEO Xavier Rolet, who will step down once the merger is completed, said in a statement, "We are creating an industry-defining combination which will be a leading global market infrastructure business, very well positioned to create new benefits and efficiencies for our customers and increase value for our shareholders." Chipotle anticipates a huge Q1 loss. A regulatory filing released Tuesday showed the burrito chain Chipotle expects a loss of $1 a share "or worse" in the first quarter as it continues to deal with the fallout from its norovirus and E. coli outbreaks. A loss of that size would be far worse than the $0.03 loss that was expected by the Bloomberg consensus. Chipotle blames its terrible forecast on "higher expenses driven by increased marketing and promotions spend in other operating costs." While same-store sales tumbled 26.1% in February, it was an improvement from the 36.4% drop witnessed in January. Shares of Chipotle fell 5% in after-hours trade following the release. Oracle is buying back more stock. The company announced earnings of $0.64 a share, topping the Bloomberg consensus of $0.62. Revenue fell 3.4% to $9.0 billion, a bit shy of the $9.13 billion that was anticipated. Oracle's total cloud revenues were $583 million, up 57% in US dollars and up 61% in constant currency, according to the release. The company said it would buy back an additional $10 billion worth of stock. Oracle shares were higher by 4% in after-hours trade. Another Giant Step The front-runners in their respective parties moved closer to securing their presidential nominations Tuesday. Donald Trump won the Republican primaries in Florida, North Carolina and Illinois, scoring his biggest prize so far and driving Florida Sen. Marco Rubio out of the race. Texas Sen. Ted Cruz battled Mr. Trump in a tight race in Missouri, while Ohio Gov. John Kasich prevailed in his home state and notched his first victory of the campaign. The results make it a little harder for Mr. Trump to earn the 1,237 delegates he needs to claim the nomination but he retains a commanding lead over his nearest rival. In the Democratic race, Hillary Clinton took full command of a contest that has been far more competitive than expected, winning critical primaries in the industrial Midwest and completing her sweep of the South. Mrs. Clinton’s path to the nomination now is clearer than Mr. Trump’s and will probably be less bruising, writes our Washington bureau chief Gerald F. Seib. Bitter Pill Valeant’s woes have evolved into a full-fledged Wall Street identity crisis. Investors punished the drugmaker yesterday after it said that it won’t meet its earnings goals, may default on its debt and is reviewing its strategy. Shares dropped 51%, deepening a downward spiral that began last fall when investors began questioning the company’s accounting. On a much anticipated conference call, Chief Executive Michael Pearson, back from a two-month medical leave, shocked shareholders with news that the company can’t say for sure when audited financials for 2015 will be ready to file with the SEC. Failure to file the already delayed results could set off a chain of events that could leave Valeant in breach of bank-loan and debt covenants, which could spark a default and raise the prospect of a bankruptcy filing. Slippery Slope A Brazilian senator has accused the country’s president of playing a role in a graft ring centered on the state oil company, the first time Dilma Rousseff has been directly linked to a vast corruption scandal threatening to topple her government. In plea-bargain testimony, the senator, a prominent member of Ms. Rousseff’s Workers’ Party, said that the president not only had knowledge of bid rigging and bribery at state-run Petrobras, but also worked with her inner circle to suppress a sprawling criminal investigation into the scheme that has rocked the highest levels of the nation’s business and government. Meanwhile, Brazil’s polarizing and powerful former president, Luiz Inácio Lula da Silva, is negotiating a return to government, in a pact that could give him legal protection against prosecution on corruption charges and lend support to his embattled successor. #MakeTwitterGreatAgain Are you a Twitter quitter? Not only is the company failing to attract new users, but it reported a decline in monthly active users last quarter. Still, Twitter deserves a second chance, writes our Personal Technology columnist Joanna Stern. Her tips for improving your experience include thinking of it as more of a news network than a social one, and using “Twitter Moments,” which surface the most current and popular news stories. Turning on the “Best Tweets” setting will help customize your experience. Faced with its recent challenges, Twitter has been desperately releasing these features to address users’ issues. But the company has a long way to go in fixing its biggest problem: explaining why you’d add it to your already packed social media repertoire of Facebook, Instagram and LinkedIn. Taking Stock Developing on WSJ.com: London Stock Exchange Group and Deutsche Börse have agreed this morning to an all-share merger, creating Europe’s biggest securities-markets operator worth more than $30 billion. The announcement puts pressure on U.S. rival Intercontinental Exchange, the New York Stock Exchange operator that has said it was considering making an offer for LSE. First Trust readies 7 multifactor ETFs First Trust has filed with the Securities and Exchange Commission for seven exchange-traded funds applying multifactor strategies to equity investments. The ETFs will track Nasdaq indexes.  ETF.com (15 Mar.) U.S. Obama Administration Withdraws Atlantic Oil and Gas Drilling Proposal Pennsylvania Attorney General Files Charges Against Three Retired Priests WORLD Kerry, Putin to Discuss Syria as Russia Seeks to Bolster Influence Turkey Says Syrian Kurdish Militants Trained Ankara Bomber BUSINESS In Beefing Up iCloud Security, Apple Weighs Privacy Against Convenience Chipotle Weighs Stepping Back From Some Food-Safety Changes MARKETS Trading at Banks Turns Grim Venture Capital’s Answer to High-Priced Housing: Dorms for Grown Ups Stock markets around the world are mixed. A mixed session in Asia saw China's Shanghai Composite (+0.2%) lead and Japan's Nikkei (-0.8%) lag. In Europe, Germany's DAX (+0.5%) is out in front. S&P 500 futures are unchanged at 2,006.50. Earnings reporting is light. FedEx, Jabil Circuit, and Williams-Sonoma are among the names reporting after markets close. US economic data remains heavy. CPI, housing starts, and building permits will all be released at 8:30 a.m. ET before industrial production and capacity utilization cross the wires at 9:15 a.m. ET. Crude-oil inventories will be announced at 10:30 a.m. ET. The US 1o-year yield is lower by 2 basis points at 1.95%.

Valeant's problems mount. The business model is just one of them.

Meanwhile, lots of people want to press the reset button on this whole thing.

Meet the DIY quants who ditched Wall Street for the desert.

London Stock Exchange and Deutsche Borse agree on a merger.

Apple takes a swing at the U.S. over demand to help FBI unlock iPhone.

Turkey's Erdogan said to start campaign to strengthen presidential powers.

Are you happier now than you used to be?

Amid the deluge of U.S. data ahead of today's Federal Reserve meeting, one thing stands out: the Consumer Price Index due today at 8.30 a.m. Last month’s unexpected 0.3 percent increase in core CPI in January caused the year-on-year rate of change to jump to 2.2. percent – the highest in about four years and a potential problem for a “data dependent” Fed looking at a 2 percent inflation target. For February, economists expect a 0.2 percent decline in headline prices thanks to ultra-low oil prices, which should theoretically take some of the pressure off the central bank. CPI excluding food and energy prices, however, could prove to be more of a headache. Core CPI is expected to rise from 0.2 to 0.3 percent, strengthening the recent trend of price increases. To complicate matters further there is the lingering question of inflation expectations, which have so far remained stubbornly low. But that may be beginning to change as the one-year break-even rate, often interpreted as the bond market's projection of inflation in 12 months, has climbed to 1.67 percent after falling to 0.59 percent in the middle of February. While one could easily argue the usefulness of this particular market-based indicator of inflation expectations, it seems fair to say that, at the very least, things are getting interesting on the inflation front.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, ETF.com