CapMarketComment: Wednesday April 13 Daily Market Primer

Good morning. Oil, banks, and stocks are dominating the financial news for the last two days. The recent stock market rally is showing some strength, as strong equity returns in the US yesterday were followed up by gains in Asia and Europe. Highlights include Hong Kong stocks, up 3.2%, and Japan, up 2.8%. The timing for Japan’s jump is interesting since Bloomberg ran a story on Sunday “Blackrock Joins $46 billion Japan pullout” http://bit.ly/BlkRockJapan. Of course its only one day.

The oil market is very excited about talks on a possible production ceiling scheduled for this weekend in Doha ( http://bit.ly/Doha-Qatar ), and prices are fluctuating with every statement and scrap of news, but oils prices are up about 13% in the last three days on the optimism. Fundamentals have not changed much so oil prices could be set up for a big drop if no agreement is reached.

Tuesday

Wednesday

Asia

Europe

Oil

China

Australia

Japan

Eurozone

Germany

France

WTI

Brent

S&P

Dow

Nasdaq

Shanghai

ASX200

Stoxx 600

FTSE

DAX

CAC

$ 41.51

$ 44.14

0.97%

0.94%

0.80%

1.42%

3.19%

1.59%

2.84%

-0.28%

1.45%

-0.15%

2.47%

-1.6%

-1.3%

Futures

.5%

US 10 Yr

1.778%

As we enter first quarter earnings season, banks are a big concern for investors. http://bit.ly/Q1Banks. However, banking bellwether JP Morgan reported earnings this morning, and its either good or bad depending on which headline you read, as Q1 profit dropped 6.7% but the bank beat estimates for both revenue and earnings. Highlights include weakness in investment banking and trading and higher than expected loss provisions for energy loans. The market likes the quarter with the stock up about 2% in pre-trade. Q1 was tough for the big bank stocks but they are recovering:

There’s lots of news so lets get to it:

Stocks surge

The MSCI Asia Pacific Index gained 1.9 percent overnight, rising to its highest level of the year, following Chinese export data and another session that saw the Japanese yen weakening. In Europe, the Stoxx 600 Index was 2.1 percent higher at 10:20 a.m. London time with the advances led by miners. The U.K. market also gained, with the FTSE 100 Index turning positive for the year. S&P 500 futures were 0.6 percent higher.

China exports

Chinese exports jumped 11.5 percent in dollar terms in March from a year earlier - the biggest rise in a year - while imports declined 7.6 percent. The Shanghai Composite Index rallied to close up 1.4 percent, a three-month high, after the data was released. As the country continues to try to rebalance its economy from manufacturing to services, former bond king Bill Gross tweeted that China growing at 6 percent a year is among "investor delusions."

Wall Street earnings

Earnings season on Wall Street kicks off this morning with JPMorgan Chase & Co. due to report at 6:45 a.m. ET. Ahead of what is expected to be a dismal quarter for many big banks, there are already signs that JPMorgan is joining the global investment bank retrenchment as the company is said to have cut 5 percent of the jobs at its Asia-Pacific wealth-management unit.

Metals rally

Iron ore prices have surged towards $60 a metric ton, climbing to the highest level since the huge price spike in early March, as steel mill profit margins have risen to levels not seen in years. Chinese copper imports jumped 36 percent to a record high with the price increasing almost 11 percent from its 2016 low. Zinc also rallied, while gold is down.

Corporate woes

U.S. coal giant Peabody Energy Corp. filed under Chapter 11 this morning, joining at least four other coal companies that have sought bankruptcy as the industry endures its worst downturn in decades. Corporate woes continue, meanwhile, for Valeant Pharmaceuticals International Inc. as it yesterday said that it received a notice of default from some bondholders. The notice begins a 60-day grace period after which creditors can demand immediate payment if the company fails to file its delayed financial statements.

JPMorgan beats. The bank earned $1.35 a share, topping the Bloomberg consensus of $1.24. Revenue of $24.08 billion outpaced the $23.80 billion that analysts were anticipating. "While challenging markets impacted the industry, we maintained our leadership positions and market share in the Corporate & Investment Bank and Asset Management, reflecting the strength of our platform," CEO Jamie Dimon said in the earnings release. Bank of America and Wells Fargo are up next, reporting their fourth-quarter results ahead of Thursday's opening bell

Europe is entering an industrial slowdown. Eurozone industrial production fell 0.8% in February, according to Eurostat. The reading was below the 0.7% drop that economists had forecast and far softer than the 1.9% increase seen in January. Ireland, Greece, and Croatia saw the biggest declines, falling 10.5%, 4.4%, and 1.6%, respectively.
Russia has confirmed oil talks with Saudi Arabia. Russia's oil minister, Alexander Novak, has confirmed he held production-freeze talks with Saudi Arabia's oil minister, Ali al-Naimi. "Now I do not want to comment prematurely on what will be discussed on April 17 in Doha. Let's wait for the consultations," Novak told the Russian news agency TASS. "The talks were held yesterday, this is a fact, but I will not announce the decision beforehand." Crude oil is trading down 1.4% at $41.58 a barrel.
The IMF wants debt relief for Greece. The International Monetary Fund says Greece's debt load is "highly unsustainable," and it wants its creditors to grant substantial relief, according to an IMF memorandum seen by Reuters. On Tuesday, Greece and its creditors broke off talks as the two sides were unable to agree on what to do about the fiscal gap the country faces in 2018. Talks are expected to resume after this week's IMF spring meetings in Washington, D.C. "To restore debt sustainability, in addition to our reform efforts, decisive action by our European partners to grant further official debt relief will be essential," the IMF's draft said, according to Reuters.
Some Wall Street banks will have their "living wills" rejected. The Wall Street Journal reports that the "living wills" of at least four of the eight systemically important Wall Street banks will be rejected by federal regulators. The wills are plans for how a bank would wind down operations in the event of crisis without the help of taxpayer money. The Journal says JPMorgan Chase, BNY Mellon, State Street Bank, and Bank of America are likely to have their plans rejected and Citigroup's will is likely to be given the green light. The fate of the plans submitted by Goldman Sachs, Wells Fargo, and Morgan Stanley are unknown, The Journal says.
The world's second-largest coal miner has filed for bankruptcy. Peabody Energy has filed for Chapter 11 bankruptcy protection, making it among the largest causalities of the commodities crash. According to a court filing, Peabody showed both assets and liabilities in the range of $10 billion to $50 billion. The company says operations will continue as normal as it works its way through bankruptcy proceedings. "Through today's action, we will seek an in-court solution to Peabody's substantial debt burden amid a historically challenged industry backdrop," Peabody CEO Glenn Kellow said. "This process enables us to strengthen liquidity and reduce debt, build upon the significant operational achievements we've made in recent years and lay the foundation for long-term stability and success in the future."
Valeant is facing default. The embattled drugmaker has received word that one of its creditors will call a default on the company after it failed to file its annual report by March 15. Valeant is now facing a 60-day window in which it must file its report or pay its bonds back early. According to a statement filed by the company, it's "working diligently and is on schedule to file its 10-K on or before April 29, 2016."
Crude Numbers
The debate among the biggest oil nations over whether to freeze output is beginning to be overtaken by a rapid slide in production around the world. The U.S. government said yesterday that national output dropped in March and will likely continue falling, and this morning OPEC said that production outside the cartel is falling more sharply than expected. Helped by speculation of a deal led by Russia and Saudi Arabia, the two biggest producers, at a meeting in Doha this weekend, oil prices recovered yesterday but they fell again this morning as profit-taking and pessimism over whether producers can agree to a freeze pulled the price down. Any deal could signal that the bottom of the oil-price rout has passed. Others in OPEC—including Venezuela, Iraq, Qatar, Kuwait and the U.A.E.—have said that they would likely go along with a Moscow-Riyadh-led agreement, but it remains unclear whether they would agree to a freeze if Iran, also an OPEC member, doesn’t participate.
Taxing Times
The U.S. Treasury Department’s new corporate rules will reach far beyond the few companies that moved their legal addresses to low-tax countries, forcing many firms based in America to change their internal financing strategies and tax planning. Corporate tax lawyers say the rules cast aside decades of precedents and force corporations to alter routine cash-management techniques. The regulations would also end a strategy used by companies to repatriate foreign profits without paying U.S. taxes. Tax lawyers were surprised at how many transactions may be affected by the rules, which address the line between internal company debt and equity, and are urging clients to examine all existing transactions among subsidiaries. And in other regulatory news, the Fed and the FDIC are set to reject the so-called living wills of at least half of the U.S.’s systemically important banks, including J.P. Morgan Chase, sending them scrambling to revise plans for a potential bankruptcy.
Cruz Control
As he trails his rivals in state polls, Texas Sen. Ted Cruz is campaigning in some unlikely places in the run up to Tuesday’s New York primary. Mr. Cruz has focused on Democratic congressional districts typically overlooked by GOP candidates. His team hopes to pick up at least some of the state’s 95 delegates with the aim of stopping Donald Trump from securing the 1,237 he needs to clinch the nomination before the July convention. Meanwhile, Ohio Gov. John Kasich, who delivered a stinging rebuke of his two Republican rivals yesterday, is trying to connect with individual delegates ahead of the Cleveland convention. Also yesterday, the Clinton Presidential Library released records from Bill Clinton’s presidency that offer insight into how the Clinton White House saw Donald Trump. We also report on Hillary Clinton calling for equal pay for women and economists expressing worry about the impact of the campaign.

Obstfeld (Molly Riley/AFP/Getty Images)

The International Monetary Fund has downgraded its forecast for global growth to 3.2%, from 3.4% in January, and has called for immediate action to prevent a recession. The IMF says weak productivity growth, China's slowdown and falling commodity prices are major factors driving the revision. "Growth has been too slow for too long," Economic Counselor Maurice Obstfeld said. "Lower growth means less room for error."

MarketWatch (12 Apr.)

Fed skepticism about data puts rate-hike timing in doubt

Yellen (Win McNamee/Getty Images)

Janet Yellen, head of the Federal Reserve, has said economic data will guide interest-rate decisions, but policymakers and their staffs are dismissing large amounts of information as unreliable. Growing doubt about GDP and inflation data within the central bank creates difficulty for businesses and investors to predict the Fed's next step.

Reuters (12 Apr.)

Goldman eyes Asian-Pacific fin-tech firms

Goldman Sachs' Principal Strategic Investment Group is shopping for financial-technology startups in Asia-Pacific, with a special eye on India. "Indian tech companies are evolving from services to software development, and [Bangalore] is emerging as a global center for innovation that is comparable to Silicon Valley of the US," the group's Alokik Advani said. "For us, startups dealing with data analytics or machine learning could be a big opportunity in India."

(The Economic Times (India)/Press Trust of India (12 Apr.)

Recon Capital readies 4 ETFs designed to offer low volatility

Recon Capital has filed with the Securities and Exchange Commission for four equity exchange-traded funds that aim to deliver low volatility. The International Minimum Volatility ETF, the Europe Minimum Volatility ETF, the Japan Minimum Volatility ETF and the USA Minimum Volatility ETF will be linked to indexes managed by Stoxx.

ETF.com (12 Apr.)

China Investment in U.S. Economy Set for Record, But Political Concerns Grow

Social Conservatives Try New Tack With State-Level Efforts on Religious Freedom

U.S. Readies ‘Plan B’ to Arm Syria Rebels

Venezuela Blunts Opposition’s Rise Months After Landmark Victory

J.P. Morgan Profit Slides as Trading Business Struggles

Oil producers risk a severe price slump if the Doha production-freeze talks fail.

Twitter posts whip up stock volatility, even when there is nothing new.

Lessons from Japan's experiment with negative rates.

Blackrock likes Treasuries ahead of auctions; Gundlach says wait.

Want a higher salary? It helps if you're a man with rich parents.

World's once-biggest gem field lies idle as illicit trade costs Zimbabwe $13 billion.

Paypal co-founder says just about everything is overvalued.

Stock markets everywhere are green. Hong Kong's Hang Seng (+3.2%) led the gains in Asia, and France's CAC (+2.5%) paces the advance in Europe. S&P 500 futures are up 11.50 points at 2,067.25.
US economic data is heavy. PPI and retail sales will cross the wires at 8:30 a.m. ET, and business inventories will be announced at 10 a.m. ET. The Fed's Beige Book is set for 2 p.m. ET. US crude-oil inventories are due out at 10:30 a.m. ET. The US 10-year yield is higher by 1 basis point at 1.79%.

There are signs that people are becoming more optimistic about the global economy just about everywhere you look in markets. The Canadian dollar (which is affected by China, commodities and the U.S. economy) has been on a tear. Emerging markets in general have also been on a big run. Iron ore prices have been climbing nicely, not to mention West Texas Intermediate crude oil breaking above its 200-day moving average for the first time in two years. One chart that caught my eye this morning was the chart of Wynn Resorts Ltd., the big casino company. The stock is up nearly 100 percent since the low it made in early January. Given Wynn's exposure to Macau and therefore China, that's a move worth watching. The stock is still down around 60 percent from its high in early 2014. But the dramatic move is a sign that investors see China taking a few steps back from the ledge, at least.