CapMarketComment: Monday April 25 Daily Market Primer

Stocks were flat in the US on Friday, but up for the week, with the S&P rising about .5% and the Dow .6% as earnings season got under way. We’ve seen improvement in Chinese growth prospects over the last few weeks, which is helped rally commodities prices. The big things to watch for the week include the Fed meeting on Tuesday and Wednesday and Bank of Japan meeting on Thursday, and continued earnings reports, including Apple, out tomorrow. The market does not expect the Fed to raise rates, and we agree. If you ever want to check the Fed’s meeting schedule for yourself, bookmark this link: http://bit.ly/FedMeetings. In a measure of how much the market has stabilized since the rocky start to the year, the CBOE Volatility Index (aka the VIX) , which everyone including me likes to keep an eye on, is down 21% year to date. Stock futures are pointing to a slightly down open.

Friday
US

S&P	Dow	Nasdaq
0.01%	0.12%	-0.80%
VIX:	Futures:	0.18%
0.95%	US 10 Yr:	1.890%

Monday
Asia			Japan	Europe				Oil
China		Australia		Eurozone	UK	Germany	France	WTI	Brent
Shanghai	HK	ASX200		Stoxx 600	FTSE	DAX	CAC	$ 43.56	$ 44.83
-0.42%	-0.0076	-0.69%	-0.76%	-0.33%	-0.41%	-0.73%	-0.61%	0.9%	1.0%

Barron's’ ran an article highlighting a big rebound in MLPs, but also pointing out that substantial risks remain as they have turned out to be much more correlated to crude prices than anyone expected http://bit.ly/MLPsStillRisky

Here’s the news:

Saudi Arabia prepares for post-oil world

Later today Saudi officials will reveal Deputy Crown Prince Mohammed bin Salman’s "Vision for the Kingdom of Saudi Arabia," a plan for reducing the country's reliance on crude oil revenues. It is already known the plan will include the creation of a $2 trillion sovereign wealth fund, by far the world's largest, which is intended to diversify into non-petroleum assets. In the shorter term, the problems faced by the Saudi administration were highlighted over the weekend as the key three-month Saudi Interbank Offered Rate rose to its highest level since January 2009 as low oil prices and increased government borrowing puts a strain on bank funding.

Tokyo whale

The Bank of Japan has been buying Japanese equities via exchange-traded funds, and the scope of its purchase plan means the central bank is now a top 10 shareholder in 90 percent of the Nikkei 225, according to estimates compiled by Bloomberg. When it comes to ETFs the picture is even more stark, with the bank owning more than half of those instruments issued in Japan. Equities in Japan retreated from an 11-week high overnight.

Big week for central banks

Central banks are set to dominate markets this week, with the Federal Reserve announcing its latest monetary policy decision on Wednesday, the Bank of Japan meeting on Thursday, and a suite of euro-area data, including first-quarter GDP, possibly putting pressure on Draghi's easing policies at the European Central Bank. While the chances of a rate hike by the Fed this week are seen as zero by investors, the statement will be watched for signals of a hike in July. In Japan, further easing is expected by a slim majority of economists surveyed by Bloomberg in the wake of the recent earthquake and expectations of another year of sluggish growth.

Cruz and Kasich cut a deal

Overnight, the MSCI Asia Pacific Index dropped 0.3 percent while in Europe the Stoxx 600 Index was 0.7 percent lower at 5:00 a.m. ET following the release of disappointing German business confidence data. S&P 500 futures were unchanged. The bond market is quiet ahead of the central bank meetings this week, but the U.S. five-year breakeven rate climbing to a nine-month high is noteworthy as it points to increasing inflation expectations.

China's debt load is at a record high. The Financial Times reports China's debt total climbed to 237% of GDP in the first quarter, an all-time high. Data from the Bank of International Settlements shows China's debt load is far greater than emerging markets as a whole, which carry debt at an average of 175% of GDP. According to the FT, China's debt has exploded since 2007, when it was 148% of GDP.

German business climate slowed. Germany's Ifo Business Climate survey unexpectedly fell in April. The reading slipped to 106.6 from March's 106.7, and missed the 107.1 that economists had forecast. In the report, Dr. Clemens Fuest from Ifo said, "Firms at both levels of trade were less satisfied with both their current situation and their business outlook." The euro is up 0.2% at 1.1248.
Japan has announced an extra budget to repair earthquake damage. Japanese prime minister Shinzo Abe said he will create an additional budget to provide aid to Kumamoto, which was damaged earthquakes earlier this month. According to Bloomberg, Abe says the funds will go towards rebuilding homes, businesses, and infrastructure. "We will gather all strength of the government and work on the relief and reconstruction," Abe said. The Japanese yen is stronger by 0.6% at 111.17 per dollar.
Halliburton is delaying earnings. The oil services provider announced it's taking a $2.1 billion charge for the first quarter after cutting more than 600,000 jobs and taking a write off. Additionally, Bloomberg reports, Halliburton's earnings will be delayed from April 25 to May 3 in order to account for the Baker Hughes deal which is expected to close before the end of the month.
Goldman Sachs has entered online banking. The investment bank is now allowing ordinary citizens, not just the super-rich, to open a bank account. Goldman's digital savings account offers a rate of 1.05%, and can be opened for as little as $1. The bank accounts are available after Goldman acquired about 150,000 retail customers through its GE Capital deal that closed last week, according to the Financial Times.
Boots on the Ground
President Barack Obama is expected to announce today that he is sending up to 250 additional military personnel to Syria to help local forces fighting Islamic State. The new deployment will increase the total number of American military personnel operating on the ground inside Syria from 50 to about 300 and runs counter to Mr. Obama’s strong aversion to deepening U.S. involvement in global hot spots. Meanwhile, we chronicle the rise and deadly fall of Islamic State’s No. 2 oil executive, who was killed last May in a raid by U.S. Special Forces. The raid also captured a trove of proprietary data that explains how Islamic State became the world’s wealthiest terror group. We report on the recovered files and how international coalition strikes have dented but not destroyed the group’s multinational oil operation.
The Bond Market’s Groundhog Day
As the Federal Reserve’s policy-setting committee prepares to meet tomorrow, one signal suggests that investors believe the economy, and financial markets, may be finding a footing after a tumultuous start to the year. Government-bond yields are heading higher around the world, a move typically linked to rising expectations of economic growth and inflation. As investors drive down bond prices, yields rise. But many worry the recent bond selloff is just the latest in a series of false starts. In three of the last four years, bond prices have fallen sharply at the start of the year, only to surge later as economic and geopolitical concerns took over investors’ minds. And in other market news, the European Central Bank’s plan to buy corporate bonds has raised the question of whether easy access to money will let companies put off making hard choices.
Fear and Loathing in the Boardroom
Chief executives at big American companies are increasingly frustrated by the populist tone of the presidential campaign, and concerns are mounting in boardrooms and corner offices that anti-business rhetoric may solidify even after the November election. Executives worry the political climate could weigh on consumer confidence, thwart any immigration overhaul and derail the Trans-Pacific Partnership. Meanwhile, both Donald Trump and Hillary Clinton hold double-digit leads in Pennsylvania ahead of tomorrow’s primaries. But Mr. Trump’s two rivals, Sen. Ted Cruz and Ohio Gov. John Kasich, announced an alliance last night to divvy up the remaining primary states in an unprecedented last-ditch effort to stop the GOP front-runner. Mr. Cruz outflanked Mr. Trump in the delegate fight at state party conventions over the weekend, while in the Democratic race, Sen. Bernie Sanders adopted a more conciliatory tone toward Mrs. Clinton.

ECB, banks rethink CoCo bonds

Bank executives indicated to the Single Supervisory Mechanism that the complexity of contingent convertible bonds, meant to bolster capital in times of crisis, could in fact undermine stability. Financial Times (tiered subscription model)

Earnings reports flow. Philips and Xerox are among the companies releasing their quarterly results ahead of the opening bell. Container Store and Express Scripts highlight the names reporting after markets close.
Stock markets around the world are in the red. Japan's Nikkei (-0.8%) lagged in Asia and Germany's DAX (-0.7%) leads the losses in Europe. S&P 500 futures are lower by 1.50 points at 2085.50.

US economic data is light. New home sales will be released at 10 a.m. ET and the Dallas Fed will cross the wires at 10:30 a.m. ET. The US 10-year yield is down 1 basis point at 1.88%.

It's dangerous out there in the bond market.

Mohammed El-Erian: Argentina's triumphant return to capital markets.

RBS sees China 'black swan' risk from loans for non-bank finance.

Inside on the world's most secretive iPhone factories.

U.K.'s BHS expects to enter administration, risking 11,000 jobs.

Austria rocked by anti-EU party surge in presidency first round.

Billionaire farmers reap fortunes from Russia food sanctions.

Long-Term Costs of Cutting Emissions Grow Hazy

Obama, Merkel Urge Action on Trade Agreement

Department Stores Need to Cull Hundreds of Sites, Study Says

Oil Producers Lock In Once-Snubbed Prices

Warren Buffett’s Former Heir-Apparent Resurfaces as Activist Investor

The main events this week will take place on Wednesday and Thursday when we get back -to-back decisions from the Federal Reserve and the Bank of Japan. It's possible that of the two central banks, the BoJ will be the one that gets more attention. There's total agreement that the Fed is going to hold, and the only question really is whether the market comeback and the quietness out of China will affect the outlook at all. Meanwhile the BoJ is considering fresh measures to encourage bank lending, and with the yen having strengthened significantly this year, there may be some urgency to act further. Earlier this year, when the BoJ first dipped its toe into the negative rates waters, it was followed by a swift market selloff, with particular pain felt by the banks. Avoiding a repeat of that scenario is likely to be a major policy goal.