Monday May 16 Daily Market Primer

Happy Monday.   US stocks fell about 1% on Friday, to bringing the weekly market return to about -.5%, for the third down week in a row.  Poor earnings reports by US retailers were the main culprit, although actual April retail sales numbers came in stronger that expected, up 1.3% over March vs. a .8% expectation.  University of Michigan consumer sentiment index was also released Friday and came in at a stronger than expected +6.8 points.  Stocks are doing better in Asia and Europe on Monday and the US market is opening up .4%.

	LAST	CHANGE	% CHG
DJIA	17535.32	-185.18	-1.05%
Nasdaq	4717.68	-19.66	-0.41%
S&P 500	2046.61	-17.5	-0.85%
Russell 2000	1102.44	-6.16	-0.56%
Global Dow	2294.32	1.4	0.06%
Japan: Nikkei 225	16466.4	54.19	0.33%
Stoxx Europe 600	333.06	-1.62	-0.48%
UK: FTSE 100	6108.42	-30.08	-0.49%
Australia: S&P/ASX 200	5358.9	29.9	0.56%
China: Shanghai Composite	2850.86	23.75	0.84%
Hong Kong: Hang Seng	19883.95	164.66	0.84%
India: S&P BSE Sensex	25653.23	163.66	0.64%
Japan: Nikkei 225	16466.4	54.19	0.33%
Singapore: Straits Times	2736.06	1.15	0.04%
U.S. 10 Year	1.726	-7/32
U.S. 30 Year	2.569	-6/32
Crude Oil	47.47	1.26	2.73%
Brent Crude	49.2	1.37	2.86%
Natural Gas	2.187	-0.057	-2.54%
E-mini S&P 500	2044.25	0.75	0.04%

The character of tech bellwether Apple may be changing from growth to value, since according to news reports famed value investor Warren Buffet has been getting into the stock while Carl Icahn and hedge fund manager David Tepper have been getting out.   Republican nominee Donald Trump seems to be exporting isolationism to the UK, where he came out in favor of Brexit and picked a fight with PM David Cameron and new London mayor Sadiq Kahn on a British morning talk show  http://bit.ly/TrumpCameron.  Goldman raised its price forecast for oil, and told us everything they (and everyone else) told us a few months ago about an insurmountable supply overhang was wrong (second story).

I was pretty much off the grid this weekend and didn’t get a chance to read the news, so here’s the news for Monday:

Chinese data disappoints

Chinese industrial production, retail sales and investment data released over the weekend all missed estimates. Measures of money creation and credit growth also came in shy of expectations. The People's Bank of China, meanwhile, sought to reassure the public that policy would continue to support growth. In the overnight session there were some unusual moves in the Hang Seng China Enterprises Index which tumbled from a 1 percent gain to a 1.5 percent loss over the course of about two minutes before ultimately recovering. The same shares listed on the Shanghai Stock Exchange didn't replicate the move. In other Chinese corporate news, car-hailing service Didi Chuxing is said to be targeting an initial public offering in New York next year. Didi received a $1 billion investment from Apple Inc. last week. 

Goldman upgrades oil

Goldman Sachs Group Inc. has upped its price target for crude for the second half of 2016 to $50 a barrel, saying that the global oil market has slipped from a surplus faster than it previously expected. It seems that oil producers are less confident about the path of crude prices as they raise their hedges against a price drop to the highest level in 4 1/2 years. West Texas Intermediate for June delivery increased as much as 93 cents to $47.14 a barrel on the New York Mercantile Exchange, the highest since Nov. 4, and was at $47.09 by 5:52 a.m. ET.

Equities mixed

Overnight in Asia, the MSCI Asia Pacific Index rose 0.5 percent to 126.38, climbing from a one month low following a report that Japanese Prime Minister Shinzo Abe will postpone a sales-tax increase. In Europe, where the German stock exchange is closed for a holiday, the Stoxx 600 Index was 0.4 percent lower at 6:10 a.m ET amid thin trading. S&P 500 futures were 0.1 higher.

Emerging markets

The Polish zloty headed for its biggest advance in two months after Moody’s Investors Service decided not to downgrade the country's credit rating over the weekend. In Turkey, increasing political risks have pushed the market price of companies listed there below the value of their assets for the first time since 2009. Nigeria, which is fast becoming the biggest worry in the global oil market this morning reported inflation accelerating for a sixth consecutive month, to 13.7 percent, the highest pace since 2010. That country's problems are reflected in the bond market - where its yields are now higher than Kenya's local currency debt.

Presidential uncertainty, Brexit

As speculation increases over presumptive Republican nominee Donald Trump's running mate, the market implications of a divisive campaign are receiving more attention. Currency traders are worried that the candidates' positioning on the U.S. dollar will increase volatility for the greenback to levels similar to those seen in the British pound in the run up to the Brexit vote. Campaigning on the U.K. referendum became even more caustic over the weekend when leading 'out' campaigner Boris Johnson invoked Hitler as a parallel with the European Union.

Take It or Leave It
Health-insurance customers in a growing number of mostly rural regions will have just one insurer’s plans to choose from on the Affordable Care Act’s exchanges next year, as some companies pull out of unprofitable markets. The entire states of Alaska and Alabama are expected to have only one insurer on the health law’s signature online marketplaces next year, and the same is expected to be true in parts of several other states, including Kentucky, Tennessee, Mississippi, Arizona and Oklahoma. The availability of only one insurer in a market poses a challenge for the Obama administration, which has sought to help restrain costs by encouraging competition, and could provide fodder for Republicans intent on dismantling the law. Rural areas are often less inviting for insurers. Last year, rural residents racked up significantly higher medical costs than urban enrollees, in part due to higher expenses at rural health-care providers.

Trump Change
With presumed Republican nominee Donald Trump now moving to raise big sums for his campaign, a close analysis of his finances shows that in terms of ready cash, he would be ill-equipped to foot the bill himself. After long saying his self-financed campaign shielded him from special interests, Mr. Trump reversed course in early May, announcing he will raise donations to ensure his campaign has the resources to compete with Democratic front-runner Hillary Clinton. In the absence of Mr. Trump’s tax returns, our analysis estimates his 2016 pretax income at about $160 million. Top Republicans including RNC Chairman Reince Priebus said yesterday that Mr. Trump has changed the political playbook to such an extent that voters may not care that much about issues like his taxes or episodes from his past. Meanwhile, both front-runners’ have stoked economic uncertainty with either divergent or vague plans for trade, taxes and immigration.

Cheaper Savings
Companies are stepping up efforts to offer lower-cost 401(k) retirement plans, a trend that has already sharply driven down average fees and is likely to continue. An explosion of information about plan fees has helped increase bargaining power for companies in negotiations with fund providers, while a wave of successful lawsuits against companies alleging their plans had high charges has also led many to seek out lower-priced options. Meanwhile, a new Labor Department rule that would hold financial advisers to higher standards of behavior for retirement accounts will likely lead smaller plans to cut costs. The result has been big savings for investors’ combined $4.5 trillion nest eggs. While the changes are adding up a few hundredths of a percentage point at a time, the reduction can make a big difference. We highlight steps employees can still take on their own to understand and potentially lower their costs.

Not Our Cup of Tea
Polls show that British voters are divided over the country’s June 23 referendum on whether to stay in the EU. But a group of European expatriates is trying to influence the United Kingdom—one hug at a time. The Hug a Brit campaign intends to keep the British close to Europe with one thing that seems to go against their psyche: public displays of affection. So far, the group has done hug-ins across London, and so-called hugging cells are being planned for Brits who live abroad in cities such as Paris, Rome and Vienna. The huggers are trying to show the British that they are still welcome in Europe, even though the gesture can be awkward. According to one who man said he supported the cause but declined his free hug: “It’s not a very British thing to do.” A woman who was also approached by the huggers said: “Nothing would make me vote ‘leave’ faster.”

US flags danger of currency war

Lew (Chip Somodevilla/Getty Images)

The US has signaled concern about a currency war ahead of this week's Group of Seven meeting, including possible moves by China and Japan to devalue their currencies. US Treasury Secretary Jack Lew has warned that if countries "start moving towards competitive devaluation, it will start a chain reaction" that leads to "a battle over shares of a shrinking global pie."

The Wall Street Journal (tiered subscription model)

Data breach at FDIC triggers criminal investigation

(Karen Bleier/AFP/Getty Images)

Fred Gibson Jr., acting inspector general of the Federal Deposit Insurance Corp., told a House Science, Space and Technology subcommittee that a criminal investigation has begun into the removal of tens of thousands of people's personally identifiable information from the FDIC's computers. He said the matter is in the "pre-indictment phase, which limits my ability to discuss it directly."

The Hill (12 May.),  (13 May.),  Reuters (12 May.) 

 Saudi Arabia was downgraded at Moody's. The credit-rating agency lowered Saudi Arabia's credit rating one notch to "A1" from "Aa3" as a result of the oil crash. Moody's says, "A combination of lower growth, higher debt levels, and smaller domestic and external buffers leave the kingdom less well positioned to weather future shocks." Moody's also lowered its credit ratings of Oman and Bahrain.

Goldman Sachs thinks oil's oversupply might be over. A note from a team of Goldman analysts led by Damien Courvalin says: "The physical rebalancing of the oil market has finally started. While supply and demand surprised to the upside commensurately in 1Q16, leaving the market oversupplied by 1.4 mb/d, we believe the market has likely shifted into deficit in May." The team cites strong demand and a sharp decline in production as reasons for the rebalancing. West Texas Intermediate crude oil is up 1.8% at $47.04 a barrel.
Warren Buffett has entered the bidding war for Yahoo. On Friday evening, Reuters reported that Warren Buffett was among a group of investors backing Quicken Loans founder Dan Gilbert's run at Yahoo's web assets. Verizon and numerous private-equity firms are said to be involved in the bidding process. Wall Street estimates peg the value of the assets at $4 billion to $8 billion.
David Tepper is out of Apple. A 13-F released by Appaloosa Management showed that the fund run by billionaire David Tepper had gotten out of its massive stake in Apple. Data from Bloomberg shows that the hedge fund had held 1.26 million shares, last valued at about $133 million. The 13-F also showed that Tepper maneuvered in and out of the troubled pharmaceutical company Valeant, booking a profit on the trade.
Didi Chuxing has no IPO plans. Bloomberg reported Sunday that the Chinese car-hailing service Didi Chuxing, which last week received a $1 billion investment from Apple, was considering a US initial public offering within 18 months. A report from Tech Crunch, however, says that's not the case. In a statement sent to Tech Crunch, Didi said, "We currently have no IPO plan, so there’s no point of talking about location or schedule." Didi is raising $3 billion, including Apple's investment, at a valuation of more than $26 billion.
The world's largest sovereign wealth fund is going to sue Volkswagen. Norway's sovereign wealth fund is set to sue Volkswagen over the huge losses it suffered as a result of Volkswagen's emissions scandal, AFP reports. "We have been advised by our lawyers that the company's conduct gives rise to legal claims under German law," Peter Johnsen, the CEO of the fund's manager Norges Bank Investment Management, told the Financial Times. "As an investor it is our responsibility to safeguard the fund's holding in Volkswagen." The size of the losses has not been disclosed.
Amazon is expanding its private-label business. The online retailer is entering the private-label foods business. According to The Wall Street Journal, citing people familiar with the matter, Amazon will begin selling private-label brands of coffee, tea, nuts, and other items. Additionally, Amazon will offer private-label household items including diapers and laundry detergents, the people said. The offerings will reportedly be listed on Amazon by the end of the month, or in early June.
Stock markets around the world are mixed. Hong Kong's Hang Seng (+0.8%) led the advance in Asia, and Spain's IBEX (-1.2%) paces the decline in Europe. Germany's DAX is closed for Whit Monday. In the US, S&P 500 futures are down 0.75 points at 2,042.75.
Earnings reporting is light. Agilent highlights the names reporting after markets close.

US economic data is moderate. Data for the week begins with the release of Empire Manufacturing at 8:30 a.m. ET and the NAHB Housing Market Index at 10 a.m. ET. Net long-term TIC flows will cross the wires at 4 p.m. ET. The US 10-year yield is higher by 1 basis point at 1.71%.

Never has the Bank of Japan done so much for so little.

India’s central bank governor warns on stimulus overuse.

The great gold rush of 2016 gathers pace.

How to lose money invested in a company that prints it.

The bull market is losing its biggest ally as buybacks fall.

Hedge funds reap big rewards from roller-coaster Russian markets.

Why the ETF acronym can be misleading.

Islamic State Attacks Iraqi Gas Plant

A Battle Brews Over Negative Rates on Mortgages

Will IPOs Pick Up? June Will Tell

"The U.S. presidential election is now part of every client conversation," David J. Kostin, chief U.S. equity strategist at Goldman Sachs & Co., wrote in his latest note. It seems guaranteed that anxiety over the presidential election is going to be a constant fixture for investors between now and November. One question that's worth asking is whether that anxiety will spill over into the real economy. In the U.K., we're seeing data begin to flag in a significant way. The most recent Manufacturing PMI report fell into contraction territory for the first time in years. The U.K. Construction PMI is at its lowest level since June 2013. It stands to reason that in the run-up to June's Brexit vote, there's some hesitation on the part of real economic actors to wait and see just what the result of the referendum is going to be. Right now the U.S. economic situation basically looks like it has for years - not necessarily amazing, but definitely not going into recession. In other words, it's just chugging along. As the vote comes into focus, however, it will be worth watching various measures to see if nervousness begins seeping in.

  

Source: Bloomberg, BI, WSJ, CFAI Financial Newsbrief, FT, Reuters, The Hill