Thursday April 7 Daily Market Primer
Stocks
are falling around the world after a rally in the US yesterday. Brazil’s
political crisis deepens as the congress considers impeachment of President
Rousseff (3rd story). Oil prices are dropping after a big surge over
the last few days. Emerging Market currencies are surging (last
story). US stock futures are pointing down.| US. | ||||||
Alternative
energy sources wind and solar had their best investment year ever last year, in spite of
the collapse of oil prices, according to a Bloomberg New Energy Finance
analysis published yesterday. The article discusses the permanent
displacement of coal, even in less environmentally conscious and energy
intensive China. http://bloom.bg/1RFzW9f.
The
market consensus continues to converge to our long held view of lower for longer rates,
as the market assessed probability of a June rate hike dropped below 20% (4th
story).
Jamie
Dimon’s annual shareholder letter is out, and he is bearish on the economy.
As Daily Market Primer readers know I am fascinated by merger breakup fees,
which continue to increase. With the Justice Department moving to block
the Halliburton merger with Baker Hughes yesterday, Halliburton will owe a
$3.5 billion breakup fee if the deal falls through. http://bit.ly/BigFee
Here’s the news:
Stocks slipping
The MSCI Asia Pacific Index added 0.9 percent to reach 125.72 overnight
as stocks in Asia recovered, with the Shanghai Composite Index bucking the
trend and closing 1.4 percent lower. In Europe, the Stoxx 600 Index gave up
early-session gains to trade 0.5 percent lower at 10:40 a.m. London time,
with banks leading the losses. S&P 500 futures are 0.5 percent lower.
Yen surges
The Japanese yen strengthened to 108.20 to the dollar by 10:38 a.m. London
time, climbing to its highest level since before Bank of Japan Governor
Haruhiko Kuroda announced a surprise expansion of its quantitative easing (QE) program in
October 2014. JPMorgan Chase & Co.’s Tohru Sasaki, a
former Bank of Japan official who predicted the currency rally, says the
government will be reluctant to intervene to stem the yen's rise as such a
move would probably prove to be futile.
Meanwhile, there are rising concerns that the Bank of Japan may
already be reaching the technical limits of QE as it
runs out of government bonds to buy.
Reuters (06 Apr.) Brazilian Congressman Jovair Arantes has told a committee of
lawmakers that there are "minimal indications" that President Dilma
Rousseff has committed an impeachable offense. However, he sees grounds for
Rousseff to be tried and says it is up to the Senate to decide whether she
should be removed from office.
Fed rate hike odds fall
Yesterday's Federal Reserve minutes confirmed a cautious outlook for U.S. interest
rates, with concerns about global growth now seen as a barrier to the next hike. Market-implied
odds of a rate hike by the June Fed meeting are now below 20 percent, while the
chances of any interest rate increase at all in 2016 are only barely above
50 percent. The Dollar Spot Index is 0.2 percent lower at 94.353 at 11:05 a.m.
London time.
Source:
Bloomberg, BI, WSJ
ECB could boost stimulus again
European Central Bank officials have underlined their readiness
to ease monetary policy even further, with President Mario Draghi writing in
the forward to the bank's annual report today that they won’t “surrender” to excessively low price
growth. Chief Economist Peter Praet, speaking at a conference in
Frankfurt, said that further stimulus would be provided if
necessary. The euro fell 0.2 percent against the dollar following Praet's
comments. In other central bank news, this morning the People's Bank of China
reported that China's foreign currency reserves unexpectedly increased for the
first time in five months, rising by $10.3 billion to $3.21 trillion in March.
Oil, industrial metals slip
Oil futures dropped 0.5 percent to $37.57 a barrel at 11:05 a.m.
London time, reversing earlier gains of as much as 1.5 percent after rising 5.2
percent yesterday. Copper fell to its lowest level in more than a month,
dropping as much as 1.3 percent on the London
Metal exchange. Zinc, lead and nickel also fell. Gold is higher.
China's
FX reserves stopped sliding. China's foreign-exchange reserves increased by $10 billion in
March to $3.2312 trillion. The 0.3% uptick was the first increase in four
months and is a welcome sign for China, which has bled through $800 billion of
foreign cash after its reserves peaked at about $4 trillion in the middle of
2014. Economists were forecasting a drop of $6 billion.
Venezuela
is making Fridays a holiday to conserve energy. Every Friday for the next
two months has been declared a holiday by Venezuelan President Nicolas Maduro.
According to Reuters, the measure is part of a 60-day plan to fend off a power
crunch that has been exacerbated by drought and weak investment in energy
infrastructure. The announcement was met with skepticism by many who wondered
how kids would go to school and how grocery shopping would get done.
Valeant's
creditors are allowing a restructuring. According to The Wall
Street Journal, Valeant and its creditors have reached an agreement that will
allow the company to restructure $11 billion worth of secure loans. A person
close to the matter told The Journal, "Valeant agreed to pay a fee of $50,000
per $10 million of loans to lenders for the amendment and to boost interest
rates on the debt by 1 percentage point, though the rate could decline if
Valeant achieves certain financial metrics." After gaining 18% during
Wednesday's session, Valeant shares shot up another 4% in after-hours trade on
word a deal had been reached.
Jamie
Dimon is worried about the future of the US. JPMorgan's annual report
was released Tuesday. It was accompanied by a letter to shareholders from CEO
Jamie Dimon, who among other things, suggested the US had "serious issues
that we need to address." Among the topics he listed were long-term fiscal
and tax issues, immigration, education, and infrastructure. "The problem
is not that the US economy won't be able to take care of its citizens,"
Dimon wrote, "it is that taking away benefits, creating intergenerational
warfare and scapegoating will make for very difficult and bad politics."
Taxing Times
New Treasury rules limiting the ability of U.S. companies to do international deals to lighten their tax burdens drew cries of protest from corporate boardrooms and conservative critics yesterday. While companies around the globe raced to assess the impact, Pfizer and Allergan swiftly condemned the action after terminating their planned $150 billion merger. Both companies now must look to do deals of their own. The Treasury pushed back against the claims that its new rules put U.S. companies at a global disadvantage, arguing that the regulations shut down unfair loopholes. The Obama administration and congressional Republicans agree that the U.S. should cut its corporate-tax rate, but there are few signs that Congress will act in an election year. Meanwhile, on our Opinion pages we have an op-ed written by Pfizer CEO Ian Reid on the new rules. And in other M&A news, the Justice Department filed an antitrust lawsuit challenging Halliburton’s planned acquisition of rival Baker Hughes.
New Treasury rules limiting the ability of U.S. companies to do international deals to lighten their tax burdens drew cries of protest from corporate boardrooms and conservative critics yesterday. While companies around the globe raced to assess the impact, Pfizer and Allergan swiftly condemned the action after terminating their planned $150 billion merger. Both companies now must look to do deals of their own. The Treasury pushed back against the claims that its new rules put U.S. companies at a global disadvantage, arguing that the regulations shut down unfair loopholes. The Obama administration and congressional Republicans agree that the U.S. should cut its corporate-tax rate, but there are few signs that Congress will act in an election year. Meanwhile, on our Opinion pages we have an op-ed written by Pfizer CEO Ian Reid on the new rules. And in other M&A news, the Justice Department filed an antitrust lawsuit challenging Halliburton’s planned acquisition of rival Baker Hughes.
Labor’s Love Lost
As big labor gears up to support the eventual Democratic presidential nominee, a fight among labor unions over who would control a proposed $50 million super PAC has slowed the creation of a unified effort to boost the chances of Democrats winning the White House and Congress in November. The efforts have been delayed in part over disputes about who would receive credit for the work done. Convincing union members and their families to vote for Democratic candidates could be particularly challenging this year if the Republican presidential nominee is businessman Donald Trump. Meanwhile, Mr. Trump faces tougher delegate math after his loss in Wisconsin and unbound delegates are proving more valuable as the possibility of a contested convention comes into focus. In the Democratic race, Sen. Bernie Sanders’s awkward explanation of how he would break up the nation’s biggest banks reverberated on the campaign trail yesterday.
As big labor gears up to support the eventual Democratic presidential nominee, a fight among labor unions over who would control a proposed $50 million super PAC has slowed the creation of a unified effort to boost the chances of Democrats winning the White House and Congress in November. The efforts have been delayed in part over disputes about who would receive credit for the work done. Convincing union members and their families to vote for Democratic candidates could be particularly challenging this year if the Republican presidential nominee is businessman Donald Trump. Meanwhile, Mr. Trump faces tougher delegate math after his loss in Wisconsin and unbound delegates are proving more valuable as the possibility of a contested convention comes into focus. In the Democratic race, Sen. Bernie Sanders’s awkward explanation of how he would break up the nation’s biggest banks reverberated on the campaign trail yesterday.
Warrior Class
The Golden State Warriors, the NBA’s defending champion, now stand three wins from tying the league record of 72 in the regular season. Much of the credit belongs to the star guard Stephen Curry. But there is another tale to be told. It involves a group of executives, led by a Silicon Valley financier, with limited experience that bought a floundering franchise in 2010 and set out to fix it by raising a single question: What would happen if you built a basketball team by ignoring every orthodoxy of building a basketball team? The dominance the Warriors have displayed this season can be traced back to one of the most unusual ideas embraced by the data-loving executives: the notion that the NBA’s 3-point line was a market inefficiency hiding in plain sight. We report how the Warriors have revolutionized the game of basketball, and how Mr. Curry sinks so many 3-pointers.
The Golden State Warriors, the NBA’s defending champion, now stand three wins from tying the league record of 72 in the regular season. Much of the credit belongs to the star guard Stephen Curry. But there is another tale to be told. It involves a group of executives, led by a Silicon Valley financier, with limited experience that bought a floundering franchise in 2010 and set out to fix it by raising a single question: What would happen if you built a basketball team by ignoring every orthodoxy of building a basketball team? The dominance the Warriors have displayed this season can be traced back to one of the most unusual ideas embraced by the data-loving executives: the notion that the NBA’s 3-point line was a market inefficiency hiding in plain sight. We report how the Warriors have revolutionized the game of basketball, and how Mr. Curry sinks so many 3-pointers.
Bon Voyage
When it comes to summer travel, a strong dollar and cheaper airline tickets are overpowering terrorism fears. Travel agencies say bookings are already filling up in popular destinations across Europe. Paris tourism, hit hard by the November attacks, has rebounded significantly, though some travelers are opting to explore lower-profile destinations considered less likely to be a target, such as Lisbon and Prague. The strength of the U.S. dollar against other currencies has made it much cheaper for Americans to venture abroad. And low oil prices and increased competition among airlines, both domestically and internationally, have kept fares down on many routes this year. “We’re kind of learning to live with this now. The traveler is much more resilient these days,” said the chief executive of the World Travel & Tourism Council.
When it comes to summer travel, a strong dollar and cheaper airline tickets are overpowering terrorism fears. Travel agencies say bookings are already filling up in popular destinations across Europe. Paris tourism, hit hard by the November attacks, has rebounded significantly, though some travelers are opting to explore lower-profile destinations considered less likely to be a target, such as Lisbon and Prague. The strength of the U.S. dollar against other currencies has made it much cheaper for Americans to venture abroad. And low oil prices and increased competition among airlines, both domestically and internationally, have kept fares down on many routes this year. “We’re kind of learning to live with this now. The traveler is much more resilient these days,” said the chief executive of the World Travel & Tourism Council.
The Australian Securities and Investments Commission has launched
legal action against Westpac Banking, alleging manipulation of the bank-bill
swap reference rate numerous times between April 2010 and June 2012. Australia
& New Zealand Banking Group is facing a similar charge.
Bloomberg (05 Apr.)
Fixed-income exchange-traded funds brought in $31.8 billion in the
US and $43.7 billion globally in the first quarter, BlackRock reported. While
ETFs investing in government bonds were the most popular in the first six
weeks, money shifted to corporate and emerging-market debt mid-February.
Bloomberg (06 Apr.)
The US Treasury Department said it will soon propose a requirement
that banks obtain the identities of beneficial owners of accounts held in the
names of shell companies. Regulators have been considering the proposal since
2012, but no rule has been formally proposed, a former Treasury official said.
Stock markets around the world are mixed. Spain's IBEX (-0.8%) is a
drag in Europe after Australia's ASX (+0.4%) paced the overnight advance.
China's Shanghai Composite (-1.5%) underperformed. S&P 500 futures are
lower by 10.25 points at 2,050.00
Earnings reporting remains light. CarMax, ConAgra, and Rite
Aid are among the names releasing their quarterly results ahead of the opening
bell.
US economic data trickles out. Initial
and continuing claims will be announced at 8:30 a.m. ET, and consumer credit
will cross the wires at 3 p.m. ET. Natural-gas inventories are due out at 10:30
a.m. ET. The US 10-year yield is down 3 basis points 1.73%.
The $5-trillion, 300 year-old London gold market is set for an overhaul.
So just how much of an inflation overshoot will Janet Yellen
tolerate?
London luxury apartment slump triggers 20 percent
bulk discount
Hedge funds with billions at stake face pirate rules in Iceland.
Bad loans will keep troubling China, HSBC says.
Low-key Jack Lew becomes sledgehammer.
Stock markets around the world are mixed. Spain's IBEX (-0.8%) is a
drag in Europe after Australia's ASX (+0.4%) paced the overnight advance.
China's Shanghai Composite (-1.5%) underperformed. S&P 500 futures are
lower by 10.25 points at 2,050.00
Earnings reporting remains light. CarMax, ConAgra, and Rite
Aid are among the names releasing their quarterly results ahead of the opening
bell.
US economic data trickles out. Initial
and continuing claims will be announced at 8:30 a.m. ET, and consumer credit
will cross the wires at 3 p.m. ET. Natural-gas inventories are due out at 10:30
a.m. ET. The US 10-year yield is down 3 basis points 1.73%.
 One of the (many) big financial surprises of the year so far
has been the performance of emerging markets. The Brazilian real
remains the second best performing major currency of the year. Other gainers
include the South African rand the Malaysian ringgit (which is up over 9
percent on the year), Indonesia's rupiah (up nearly 5 percent) and the
Russian ruble (up over 8 percent). The popular explanation is that the gains
are a function of central bank easing (i.e. the European Central Bank
expanding its balance sheet and the Fed taking its foot off the pedal in
terms of interest rate hikes). But the fundamental conditions on the ground
are also worth watching. Citigroup Inc.'s Emerging Markets Surprise Index,
which measures data against expectations, is at its highest level since
January. Meanwhile the Markit Emerging Markets Composite PMI is at its
highest level in 10 months. In China specifically, things appear to have
calmed down with regard to outflows and the currency. So while emerging
market currencies may be getting help from the world's major central banks,
there are also signs of some underlying stabilization. |
Source: Bloomberg, BI, WSJ, CFAI Financial Newsbrief, Reuters
Labels: DailyMarketPrimer, Fed, Investments, Markets, News, Oil
posted by Rich Barnett @ 6:51 AM
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