Wednesday April 6 Daily Market Primer

It didn’t take long for Pfizer to scuttle their merger with Allergan after the Obama administration changed the inversion rules yesterday.  Allergan will walk away with a $400 million breakup fee (352  million Euro for Irish based Allergan).   That’s a lot of Botox (Allergan’s big product).  The justice department is also busy blocking the merger of oil service giants Halliburton and Baker Hughes this morning.

The PM of Iceland was the first political causality of the Panama Papers reveal, after it was disclosed that he held stakes in Icelandic banks in offshore accounts.  Russia basically ignored the evidence that Putin’s cronies have controlled about $2 billion in offshore trusts and China issued a flat denial regarding members of President Xi’s family and eight other Chinese officials.  President Xi famously enacted a crackdown on corruption as one of his first initiatives after ascending to the presidency in 2013.  Also, search engines in China are not working properly this morning: http://bit.ly/Er404

March was a good month for stocks  The outperformance of the US may be reversing, as the the MSCI ACWI was up 7.5%,  beating the S&P by about .7%.   Overnight, stocks mostly recovered around the world after falling about 1% in the US yesterday.  Equity futures are pointing to a slightly positive opening this morning.

US			Asia			Japan	Europe
			China		Australia		Eurozone	UK	Germany	France
S&P	Dow	Nasdaq	Shanghai	HK	ASX200		Stoxx 600	FTSE	DAX	CAC
1.00%	-1%	-1%	0.1%	0.15%	0.4%	-0.11%	0.3%	0.7%	-0.1%	0.4%
	Futures	0.11%

Oil is making a strong recovery after hitting $35 yesterday, with WTI at $36.66 and Brent at $38.51, up about 2%.

Don’t believe everything you read, not even here.  After quoting the Wired story that attributed the Mossack Fonseca leak to a whistleblower, the company denied it yesterday, saying it was a hack.  The Fed minutes are due out later today.  And, just what you were hoping for, the combination of artificial intelligence (AI) and high frequency trading (HFC).  What could go wrong?  (Second to last story).

Here’s the news:

Pfizer/Allergan merger terminated

Pfizer Inc. has decided to end its $160 billion merger with Allergan Plc, according to a person familiar with the matter. The cancellation comes after the Treasury Department unveiled new rules to combat tax inversions. The cancellation of the deal, which was to be the largest ever in the pharma industry, will cost banks and advisors millions of dollars in lost fees but will be seen as a victory for U.S. President Barack Obama who called inversions “one of the most insidious loopholes out there.” 

US reportedly aims block Halliburton-Baker Hughes merger

The US Justice Department will sue to stop Halliburton from acquiring oilfield-services company Baker Hughes because the $34.6 billion deal violates antitrust laws, a source says. The companies have offered to sell assets, but that reportedly isn't enough to satisfy the government's concerns.

Bloomberg (05 Apr.),

Markets rise

After a mixed session in Asia overnight which saw the MSCI Asia Pacific Index little changed, European stocks are rising. The Stoxx 600 Index added 0.4 percent by 10:11 a.m. London time, rebounding from a six-week low, with energy shares leading the gains. S&P 500 futures were 0.4 percent higher. In the bond market, U.S. Treasuries are giving back some of yesterday's gains, while Germany this morning sold €3.2 billion of debt maturing in 2018 at a yield of -0.48 percent.

Fed minutes are due

The Federal Reserve will release minutes from the March 15-16 meeting at 2 p.m. EDT in Washington . Investors will be watching for signs of hawkishness as they look to the return of global central bank divergence. The European Central Bank releases its account of its March 10 meeting tomorrow. The euro was 0.4 percent lower at $1.135o at 11:00 a.m. in London.

Oil recovers

Oil is extending its gains following comments from Kuwait's governor to OPEC saying that a production freeze may be agreed, even if Iran refuses to take part. West Texas Intermediate for May delivery was $1.00 a barrel higher at $36.87 at 10:57 a.m. London time. In oil consolidation news, the U.S. Justice Department has prepared a lawsuit to stop Halliburton Co.’s bid to buy Baker Hughes Inc.

Underdogs win in Wisconsin

Texas Senator Ted Cruz and Vermont Senator Bernie Sanders both won their respective party votes in Wisconsin. For Republican front-runner Donald Trump, the setback increases the likelihood of the race going all the way to the party convention in July. On the Democratic side Hillary Clinton still holds a strong delegate count lead as she looks to the New York primary on April 29

Donald Trump and Hillary Clinton suffered setbacks in Wisconsin.

Sen. Ted Cruz of Texas won the Wisconsin Republican presidential primary, taking 48.3% of the vote, compared with 35.1% for Donald Trump. The win gave Cruz 33 delegates to Trump's three, and it increases the chances of a contested convention. In a statement released after Cruz was projected to win, Trump's team said, "Ted Cruz is worse than a puppet — he is a Trojan horse, being used by the party bosses attempting to steal the nomination from Mr. Trump." On the Democratic side, Sen. Bernie Sanders took 56.5% of the vote, beating former Secretary of State Hillary Clinton (43.1%). The win gave Sanders 45 delegates to Clinton's 31.

Bill Ackman is holding his first-quarter investment call.

Hedge fund titan Bill Ackman will hold a call for investors, explaining what went wrong during the first quarter as his fund posted its largest quarterly loss on record. Ackman is likely to discuss positions in Valeant Pharmaceuticals and Herbalife as well as other holdings. According to Reuters, one of Ackman's funds lost 25% during the first quarter of 2016, and that was on top of the 20.5% decline in 2015. The call will begin at 10 a.m. ET.

China's services sector is looking better.

The Caixin-Markit services purchasing managers' index rose to 52.2 in March, up from 51.2 in February, indicating that China's services sector is accelerating. According to Markit, "New orders rose modestly at service providers in March, with the rate of growth little changed from the previous month." Not all the news was good as companies took a cautious approach to hiring, and sentiment fell to its lowest level of the year. However, "Optimism was generally linked to forecasts of an improving economic climate and planned company expansions," Markit said.

IPOs in China are slowing.

Xinhua reports that data provided by ChinaVenture says 43 companies went public in China during the first quarter, amounting to a 56% drop versus a year ago. In all, the companies raised 35.9 billion yuan ($5.6 billion), which was down 42% year-over-year. China Zheshang Bank raised 10.9 billion yuan ($1.7 billion), making it the biggest initial public offering in the world during Q1.

Crude oil is surging.

West Texas Intermediate crude oil is up 2.9% at $36.91 a barrel Wednesday as traders continue to price in the possibility exporters will agree to freeze production at the April 17 meeting in Doha, Qatar. Reuters reports, citing Nawal Al-Fuzaia of Kuwait, the OPEC governor, that there are "positive indications an agreement will be reached." The oil market has been recently supported by the initial output freeze agreed to in February by Saudi Arabia, Qatar, and Venezuela, gaining about 40% over that time.

Front-Runner Fumble
Both parties’ presidential front-runners lost the Wisconsin primary yesterday as GOP Sen. Ted Cruz beat Donald Trump and Democratic Sen. Bernie Sanders bested Hillary Clinton, virtually assuring heated battles all the way to the final primaries in June. The GOP result was a hard-won victory for anti-Trump forces who had seen the Wisconsin primary as their last, best hope to slow the front-runner’s momentum toward the Republican nomination. In the Democratic race, superdelegates who have endorsed Mrs. Clinton are facing increased pressure to change their positions after Mr. Sanders’s recent victories. The candidates now turn their attention to New York, where Mr. Trump and Mrs. Clinton hope to use their home-state advantage. Meanwhile, President Barack Obama waded into the Republican presidential race yesterday, accusing both Mr. Trump and Mr. Cruz of harming U.S. relations with foreign countries.

Close Ties
In my interview with Prime Minister Shinzo Abe yesterday, he offered a stout defense of the U.S.-Japan alliance and warned against “naked nationalism” in light of the American presidential campaign. He also told me that he wants to push through a Pacific trade agreement that presidential candidates of both parties have called a bad deal for America. Japan and other Asian nations have drawn unusual attention in this year’s campaign, as Mr. Trump has questioned the decades-old bedrock of U.S. military policy in the region. Mr. Abe declined to discuss individual candidates directly but alluded several times to the views of Mr. Trump. He also defended his economic program and said countries should avoid competitively devaluing their currencies, speaking after the dollar fell to its lowest level against the yen in nearly a year and a half. I invite you to read excerpts from the interview here.

Global bond yields plunge to record-low 1.3 percent.

The coming default wave is shaping up to be among the most painful.

Hedge funds have a lot riding on Iceland's coalition surviving...

Something strange is happening in U.K. stocks.

Global profits recession leaves investors with nowhere to hide.

... As other offshore banking locations come under the spotlight.

Fund Chief Survives Oil’s Swings

Retirement-Savings Rule: Who Wins

Stock markets around the world are mixed. Overnight, Japan's Nikkei (-0.1%) suffered a seventh straight loss. In Europe, Britain's FTSE (+0.5%) leads while Germany's DAX (-0.4%) lags. S&P 500 futures are higher by 3.50 points at 2,042.25.

Earnings reporting remains light. Constellation Brands and Monsanto are among the names reporting ahead of the opening bell, and Bed Bath & Beyond will release its quarterly results after markets close.

Dollar seen weakening as inflation picks up

The dollar is expected to weaken against foreign currencies over the next few months now that the Federal Reserve is slowing its move toward higher interest rates, currency-market strategists say. That leaves the US with dollars that are worth less as inflation rises. Over the 12 months that ended in February, the consumer price index rose 2.3%, its biggest jump since May 2012.

Reuters (05 Apr.) 

AI becomes next frontier in HFT

High-frequency trading firms are discovering they can boost profit and performance by incorporating artificial intelligence to help computers make assessments more like human stock traders, who learn from mistakes. After two years of research, Japan's Nomura Securities is poised to offer such a system to institutional investors.

Nikkei Asian Review (05 Apr.) 

US economic data trickles out. Crude-oil inventories will be announced at 10:30 a.m. ET. The US 10-year yield is up 2 basis points at 1.74%.

The idea that "currency wars" have come to an end (at least for now) seems to be gaining popularity. The basic idea is that the Bank of Japan seems comfortable letting the yen appreciate, while the European Central Bank is engaging in balance sheet expansion (as opposed to deeper negative rates) in order to boost its economy. Earlier this week, David Zervos of Jefferies LLC said that the currency war "truce" was a good reason to buy emerging markets. HSBC's David Bloom made similar points on TV yesterday. This is all well and good, but it's also fascinating how rapidly a new story can emerge. Through the first half of February all we could hear about was how the world economy was cratering, and central banks were out of bullets. People were panicking about everything (growth, China, the Saudi budget, etc.). Now people are taking a fresh look at central banks and concluded that maybe they still have some juice left and the world isn't falling apart. While it's great that people don't think everything is coming unglued, it's quite remarkable to see how quickly popular stories can turn around.

Source: Bloomberg, BI, WSJ, Nikkei Asian Review