Thursday April 28 DailyMarket Primer

US stocks were mostly flat yesterday, as the market waited for the Fed.  As expected, the Fed held interest rates steady at the April meeting, and left the door open for a June increase, noting a somewhat stronger domestic economy and improved conditions overseas.  The Bank of Japan also met Thursday, and like the Fed they decided not make a change.  Unlike the Fed however, investors had expected the BOJ to announce even more quantitative  easing.  I guess negative interest rates and the current 80 trillion yen bond buying program are not enough for investors, as Japanese equities got hit, down 3.6%.  Chinese stocks were unaffected by the BOJ stance and were flat.  Markets in Europe followed through with drops from .5 10 1%,  and now the US market is opening down by about .75%, 0r 111 Dow points.

Wednesday

Thursday

US

Asia

Japan

Europe

Oil

China

Australia

Eurozone

UK

Germany

France

WTI

Brent

S&P

Dow

Nasdaq

Shanghai

HK

ASX200

Stoxx 600

FTSE

DAX

CAC

$     45.31

$       46.93

0.16%

0.28%

-0.51%

-0.27%

0.12%

0.73%

-3.61%

0.38%

-0.93%

-1.01%

-1.28%

-0.2%

0.4%

VIX:

0.77%

US 10 Yr:

1.863%

I think we found Apple’s missing market cap – at Facebook, which surged 11% after earning .77 per share vs the expectation of .62, as they continue to scoop online advertising dollars across multiple social platforms.   Facebook is becoming the Amazon of social media, except that Facebook actually makes money.  Facebook also announced it is creating a special class of non voting stock, which they can use for acquisitions and employee awards, and which will allow Mark Zuckerberg to  maintain control over the company as it continues to grow.  This is not a popular corporate governance move, but fast growing successful tech companies, including Alphabet (aka Google) and Facebook can get away with it. 

And speaking of tech titans using financial engineering, my favorite story yesterday was this one, on how Elon Musk has moved money between his three companies to provide unconventional and risky financing http://bit.ly/MuskFinance.

There is a big merger announcement this morning, as Abbott is buying St. Jude for $25 billion.   Big mergers are generally good for market sentiment. 

Here’s the news:

The BoJ does nothing

The Japanese central bank surprised the market overnight by doing nothing. Most economists surveyed by Bloomberg had expected more easing from the Bank of Japan in response to the strengthening yen, but Governor Haruhiko Kuroda has decided to wait to gauge the effect of negative interest rates before further action. The yen, which had been weakening as easing expectations rose, surged higher following the bank's announcement and was trading at 108.20 to the dollar at 5:28 a.m. ET, having traded at 111.68 ahead of the announcement. Stocks were also hit, with the Topix index dropping 3.2 percent. Yesterday the Federal Reserve kept policy unchanged, while the Bank of New Zealand also did nothing new.

Deutsche Bank earnings beat

Shares in Deutsche Bank were trading 4.25 percent higher at 5:29 a.m. ET after the bank announced a surprise profit for the first quarter of 2016. The bottom line was driven by falling legal expenses and a better than expected performance from the bank's trading business. Deutsche Bank Co-Chief Executive Officer John Cryan warned that the bank still has an awful lot to do this year to finish the restructuring of its operations, implying the lender is not out of the woods yet. Elsewhere in Germany, Volkswagen AG’s namesake car brand slumped to a fourth-quarter loss of €127 million ($144 million) as the emissions-cheating scandal tarnished its reputation and added to costs.

Facebook beats, slew of earnings due

Facebook Inc. escaped the tech rout this earnings season as its first-quarter results blew past analyst expectations. Shares in the social-media company, which seemingly can do no wrong at the moment, are 8.6 percent higher in premarket trading. Among companies on the slate for earnings today are LinkedIn Corp., Time Warner Cable Inc., Amazon.com Inc., Dow Chemical Company, and Ford Motor Company.

Stocks are lower

Overnight in Asia the MSCI Asia Pacific Index declined 0.2 percent with losses led by Japanese markets. Asia's two biggest markets, Japan's Topix index and China's Shanghai Composite Index (which have a combined value of almost $11 trillion) are vying for the ignominious prize of being the world's worst performing of 2016. In Europe, the Stoxx 600 Index was 1.7 percent lower at 5:55 a.m. ET as banks - with the clear exception of Deutsche Bank - tumbled following disappointing earnings. S&P 500 futures were 0.8 percent lower.

U.S. GDP

The Commerce Department is due to release its first estimate of U.S. first-quarter growth at 8:30 a.m. in Washington this morning. Expectations are for annualized 0.6 percent growth in the January-March period, which would be the economy's third successive awful start to the year. Initial jobless claims data, also due at 8:30 a.m., will be worth watching as the recent numbers there have been setting lows not seen since the early 1970s. The Reserve Bank of New Zealand says further rate cuts might be necessary. New Zealand's central bank held its benchmark interest rate at 2.25%, as expected. The key part of the RBNZ's statement was when it discussed a "material decline in shorter-term [inflation] expectations" and suggested further policy easing might be required. The New Zealand dollar is stronger by 1.6% at 0.6961. Abbott is buying St. Jude for $25 billion. The deal is worth about $85 a share, a 37% premium to Wednesday's closing price. St. Jude shareholders will receive $46.75 in cash and 0.8708 Abbott shares per St. Jude share. "Together, the company will compete in nearly every area of the cardiovascular market and hold the No. 1 or 2 positions across large and high-growth cardiovascular device markets," the statement said. Facebook crushed estimates. The social-media giant announced earnings of $0.77 a share, well ahead of the $0.62 that was expected. Revenue surged 52% year-over-year to $5.38 billion, beating out the $5.25 billion that Wall Street was looking for. Monthly active users came in at 1.65 billion, while monthly mobile active users totaled 1.51 billion. Facebook announced it would be offering a new C class of shares that wouldn't have voting rights. Bill Ackman and Valeant execs were grilled by a Senate committee. Outgoing Valeant CEO Michael Pearson, former interim Valeant CEO Howard Schiller, and hedge fund titan Bill Ackman appeared before a Senate committee to answer questions about the company's practice of buying drugs and then raising their prices. One of the highlights of the testimony was when ranking committee member Claire McCaskill, the Missouri Democrat, asked, "Can you find me one drug that Valeant didn't raise the price on?" Neither Pearson nor Ackman could answer the question. Deutsche Bank had a "challenging" quarter. The German investment bank saw first-quarter profit plunge 58% to €236 million ($268 million), beating the €249 million loss that was expected by a Reuters poll. "Financial markets were challenging during the first quarter, largely reflecting concerns about the outlook for the global economy," co-CEO John Cryan said. That was reflected in the numbers as debt sales and trading revenues tumbled 29% versus a year ago to €2 billion, and equity sales and trading revenues saw an identical 29% drop to €728 million. Anglo American is selling assets. The mining giant has agreed to sell its Niobium and Phosphates businesses to the state-owned China Molybdenum for $1.5 billion. The sale helps Anglo pay down some of its $12.9 billion debt pile. Back in February, the company said it would sell $5 billion to $6 billion worth of assets and reduce its staff by more than 50% in an effort to shrink its debt load below $10 billion. "This transaction confirms our commitment to creating the new Anglo American, positioned to deliver robust profitability and cash flows through the price cycle," CEO Mark Cutifani said in a statement. Earnings reporting remains heavy. Aetna, Altria, Bristol-Myers, CME Group, ConocoPhillips, Dunkin' Brands, Ford Motor, MasterCard, Sony, Time Warner, and UPS are among the names releasing their quarterly results ahead of the opening bell. Amazon, Banco Santander, Groupon, and LinkedIn highlight the companies reporting after markets close. Stock markets around the globe are mostly lower. Japan's Nikkei (-3.6%) led the losses overnight, while Australia's ASX (+0.7%) outperformed. In Europe, Spain's IBEX (-2.1%) paces the decline. S&P 500 futures are -16.50 at 2,074.25. US economic data flows. GDP and initial and continuing claims will cross the wires at 8:30 a.m. ET. US natural-gas inventories will be released at 10:30 a.m. ET. The US Treasury will hold a $28 billion seven-year-note auction at 1 p.m. ET.

The S&P 500 bull market is 2,607 days old, the second longest in history.

Oil is rallying, but Venezuela needs it to reach $121 to balance budget.

Even the world's largest steelmaker has no idea what's coming next.

China is considering starting trading of credit-default swaps.

Unemployment in Germany continues to fall.

As currency trading volume drops, a flash-crash becomes more likely.

Be afraid, be very afraid if you're investing for the long run.

Here's a slightly ominous sentence: "New York City just turned very quickly and more deeply than we expected.” That's from the chief operating officer of Equity Residential, a big landlord in New York City, who spoke on his company's conference call yesterday. Manhattan landlords are being forced to offer more and more inducements, such as a free month's rent, to get tenants to sign leases. Vacancy rates, meanwhile, are on the rise. The obvious culprit is a major supply glut. As anyone in NYC knows, there's been a ton of fresh development, particularly at the high-end of the market. At the same time, the huge banks aren't having the best run, which inevitably has an effect on the demand side for luxury dwelling in Manhattan. But it's not just this latest earnings report from Equity Residential that indicates a slowdown is here. The most recent S&P Case-Shiller home price report showed home prices in the New York Metropolitan Area rising by just 2.1 percent year-over-year vs. the national average of 5.3 percent. The Washington DC area, which had been one of the hottest markets in the country, only saw price appreciation of 1.4 percent. Whether the slowdown is just confined to a couple cities or proves to be something more widespread is unclear, but this does represent a shift from the post-crisis period, so it's definitely something to keep an eye on.

Source: Bloomberg, BI, WSJ