Monday May 9 Daily Market Primer

Stocks rose in the US Friday after opening down, as the disappointing  jobs number that failed to impress the market led investors to conclude that it will be even harder for the Fed to raise interest rates.  The market based odds of a June increase fell to just 2 percent after the jobs report.  Payments processor Square got crushed (-22%) on Friday after reporting that their small business loan program is off to a very slow start.

I simplified the returns table by taking off a few of the individual countries, and I added the US 30 year T-Bond, and changed the index names to links, so you can now click on an index  to get more individual data.  The E-Mini at the bottom of the table is the S&P 500 equity futures contract. 

		LAST	CHANGE	% CHG
	DJIA	17740.63	79.92	0.45%
	Nasdaq	4736.16	19.06	0.40%
	S&P 500	2057.14	6.51	0.32%
	Russell 2000	1114.72	6.77	0.61%
	Global Dow	2312.76	-0.53	-0.02%
	Japan: Nikkei 225	16193.47	86.75	0.68%
	Stoxx Europe 600	331.67	-1.19	0.77%
	UK: FTSE 100	6125.7	8.45	0.08%
	Crude Oil	45.46	0.8	1.79%
	Brent Crude	45.92	0.55	1.21%
	U.S. 10 Year	1.766	3/32
	U.S. 30 Year	2.629	0/32
	CBOE Volatility	15.1	0.38	2.58%
	E-mini S&P 500	2052.75	0	0.00%

The Saudi’s replaced their long running oil minister Ali al-Naimi as part of a broad government and economic restructuring, but so far they have not signaled any change in oil policy.  Greece is back in the headlines, and the battle for Brexit is heating up. There wasn’t much interesting financial news over the weekend, as politics continues to dominate the media, and Donald Trump is already backtracking on his vague economic policies.   I do think this article on a Los Angeles based financial advisor who builds portfolios mostly out of alternative assets is interesting.  He is basically building endowment style portfolios for individual investors http://bit.ly/AltsZeal.  He must be doing something right, since he manages $1.5 billion in assets and is ranked by Barron’s as a top independent advisor. 

Have a great week, here’s the news:

Saudi government overhaul

Saudi Arabia’s King Salman issued more than 50 royal decrees on Saturday in a government shake up that sees the oil minister and central bank head replaced. The changes, the latest step in the Saudi Vision 2030 plan for a post-oil state, also include a range of measures to encourage foreign investment in financial markets in the country. Oil producers across the Middle East are seeking to implement reforms for the longer run but perhaps more significantly for investors, in the short term they are turning to the bond market to fill financial holes created by persistently low oil prices.

Brexit battle heats up

The debate on Britain's membership of the European Union is set to kick up a gear this week with speeches due from the Chancellor of the Exchequer, the governor of the Bank of England and the head of the International Monetary Fund. With about 20 percent of voters still undecided ahead of the June 23 referendum, there is still much to play for. U.K. Prime Minister David Cameron, in a speech this morning, evoked the memory of wartime leader Winston Churchill in a patriotic appeal to Britons not to vote to leave the EU. The pound - which has been the developed world's worst-performing currency this year - is holding its four-day decline against the dollar this morning, trading at $1.4450 at 5:50 a.m. ET.

Greece is back

The seemingly never-ending Greek austerity talks are back in the spotlight today following last night's successful vote in the country's parliament to implement pension and tax reforms. The euro area and the IMF will meet today to discuss whether the measures are enough to allow another disbursement of emergency funds, with the IMF demanding more fiscal “contingency measures” worth about 3.5 billion euros ($4 billion) in case Greece strays off budgetary course. The debate will also focus on the possibility of debt relief for the euro area member.

Markets higher, China slumps

Equity markets across the world, with the major exception of China, are generally higher this morning. The MSCI Asia Pacific Index dropped 0.2 percent to 126.94 with the Shanghai Composite Index doing most of the damage, closing 2.8 percent lower as trade data released over the weekend disappointed. In Europe, the Stoxx 600 Index was 1.38 percent higher at 5:47 a.m. ET following German factory orders data that showed a pick up in that economy. S&P 500 futures were 0.4 percent higher.

Commodities

Iron ore prices are getting clobbered once again. The SGX AsiaClear contract for June settlement in Singapore plunged 9.1 percent. Meanwhile, spot ore prices in Qingdao just had their worst week since 2011, and are off over 17 percent from their recent highs. West Texas Intermediate crude is up close to 2 percent as of 6:16 a.m. ET, amid ongoing wildfires in Canada that have knocked approximately 1 million barrels of production offline. In other commodity news, hedge funds are the most bullish that they've been on gold since 2011. Saudi Arabia has a new oil boss. Ali al-Naimi is out as the Saudi oil minister after 20 years. The veteran oil minister will be replaced by the chairman of Saudi Arabia's state-owned Aramco, Khaled al-Falih, who has been named head of the newly created Energy, Industry, and Natural Resources Ministry. The shakeup is part of the kingdom's "2030 vision" to diversify away from its dependence on oil. West Texas Intermediate crude oil is up 2.1% at $45.59 a barrel. There are more details on a Saudi Aramco IPO. Ambrose Evans Pritchard of The Telegraph reports that Saudi Arabia is planning to list its oil giant Aramco in Hong Kong, London, and New York in addition to Riyadh. The total listing, which is planned for 2017 or 2018, will value the company at $2.5 trillion. According to Saudi Deputy Crown Prince Mohammad bin Salman, the kingdom will sell just 5% of the oil behemoth. There's a split at the Bank of Japan over negative rates. The minutes from the March BOJ meeting show that policymakers had conflicting views on the central bank's negative-interest-rate policy. The Japan Times reports that the latest minutes showed that a few members had voiced concerns that negative interest rates "had not necessarily exerted its intended effects." Others, however, believed the recent strength in the yen and in Japanese stocks weren't because of policy but were due to "the overly heightened risk aversion of investors worldwide." The Japanese yen is weaker by 0.9% at 108.04 per dollar. Greece passed more reforms. Greek lawmakers approved "unpopular pension and tax reforms" in hopes of securing more bailout cash, according to Reuters. The measures were passed by a slim margin ahead of Monday's Eurogroup meetings. The International Monetary Fund has repeatedly called for a restructuring of Greek debt, but so far there hasn't been any agreement on the matter. German factory orders gain unexpectedly. Factory orders in Germany unexpectedly rose 1.9% month-over-month in March, ahead of the 0.6% gain that was expected. Monday's reading was supported by a 6.2% jump in export orders from outside the euro area. The euro is weaker by 0.1% at 1.1390 per dollar. Berkshire Hathaway misses. The Warren Buffett-led conglomerate announced operating earnings of $2,274 a share, missing the Bloomberg consensus of $2,761. Revenue rose 7.7% to $52.4 billion, but that was shy of the $52.88 billion that was anticipated. Class A shares ended Friday's session at just under $217,000 apiece. Twitter is blocking US spy agencies from using its analytics. The Wall Street Journal reports that Twitter has banned US intelligence agencies from using Dataminr, a service it partly owns that provides real-time alerts for breaking news stories. According to a Twitter representative, the company has "never authorized Dataminr or any third party to sell data to a government or intelligence agency for surveillance purposes," and "this is a longstanding Twitter policy, not a new development." US spy agencies had used the service for two years before the ban was put in place. Money Talks Even as the Democratic primary race has been charged by searing anti-Wall Street rhetoric, Hillary Clinton is consolidating her support among donors from the financial sector, ahead of a general-election battle with Donald Trump. The former secretary of state received 53% of all donations from Wall Street in March, as some donors shifted their financial support to her from Republican candidates who earlier dropped out of the race. Mr. Trump hasn’t aggressively pursued the finance sector for funds so far. Meanwhile, the New York businessman said his ambitious package of across-the-board tax reductions is meant to serve as a starting point for negotiations with Congress, and taxes could rise for upper-income households. While Sen. John McCain contends with Mr. Trump’s influence in the Arizona Senate race, other Republicans worry that the presumptive nominee’s inflammatory rhetoric will tarnish the entire GOP ticket in the general election. But a smaller and less-noticed pack of Republican candidates has fully embraced him, inspired by his blunt talk and nationalist message. Manufactured Success There are new signs of stress in the world’s second largest economy. China is doubling down on efforts to keep unprofitable factories afloat despite, for years, pledging to curb excess capacity. The country’s overproduction of steel, aluminum, diesel and other industrial goods has driven down prices and crippled competitors, leading to thousands of lost jobs in the U.S. and elsewhere. The glut of basic materials flooding the global economy has triggered a sharp rise in trade disputes and protectionist sentiment, especially in the U.S. Our analysis finds that Chinese government support includes billions of dollars in cash assistance, subsidized electricity and other benefits to companies. Recipients include steelmakers, coal miners, solar-panel manufacturers, and producers of other goods including copper and chemicals. The U.S. launched seven new investigations into alleged dumping or government subsidies involving Chinese goods in the first three months of this year. Meanwhile the Shanghai Composite Index tumbled after the Communist Party’s mouthpiece reported that China’s economy is headed for an “L-shaped” recovery, further stoking worries about growth. Wanted Middleman In Syria, George Haswani sees himself as a patriot who is helping keep his country from plunging into the dark ages. In the West, he is a wanted man for allegedly acting as a middleman between Islamic State and the Syrian government, the terror group’s largest customer. Islamic State controls much of Syria’s energy infrastructure and sells stolen oil and natural gas at a discount—even to the regime it is ostensibly battling. U.S. and European Union officials have sanctioned Mr. Haswani, a dual-Russian-Syrian national, for his alleged role as a broker of crude-oil shipments from Islamic State to the government of President Bashar al-Assad. We report that he is buttressed by his strong ties to Russia. U.S. officials say that Moscow’s military and economic alliance with Damascus make it clear Russia knows of the dealings between the Assad regime and Islamic State. Stock markets around the world are mostly higher. Germany's DAX (+1.9%) leads the gains in Europe after Japan's Nikkei (+0.7%) paced the advance in Asia. China's Shanghai Composite (-2.8%) was the laggard after April trade data showed that exports fell 1.8% and imports tumbled 10.9%. S&P 500 futures are higher by 4.75 points at 2,057.50. Earnings reports continue to flow. JD.com, Teva Pharmaceuticals, and Tyson Foods are among the names reporting ahead of the opening bell. Hertz Global, MBIA, and Solar City are among the companies releasing their quarterly results after markets close. US economic data is absent. A slow week for economic data kicks off on Tuesday with the release of JOLTS - Job Openings and wholesale inventories.

The jump in the U.S. dollar catches traders short.

Negative rates hit global shipping.

The guys who created the model for SIVs are back with a bank.

Years of historically low interest rates have failed to stoke the inflation that central bankers around the world are so keen to see. Now the big question is whether negative interest rates (Nirp) will do what low rates could not accomplish. The CEO of one shipping company offers a hint as to why central bankers will fail yet again. Nils Smedegaard Andersen, chief executive officer of A.P. Moeller-Maersk A/S, told Bloomberg that current policy "means that consolidation will be much slower because it’s easy for banks to keep weak shipping companies above water.” In other words, too many shippers are staying alive because of cheap money and that's preventing industry consolidation and making it harder to get pricing power. Of course Andersen, as the head of a shipping giant, has his own personal reasons why he'd like to see more of his rivals go out of business. But his point may hold - and apply to other industries as well (including oil companies that might otherwise go bust were it not for continued loans and investment). Meanwhile, China is arguably continuing to export deflation, so long as its credit-led stimulus keeps zombie enterprises alive. None of this is to definitively say that low or negative rates are counterproductive, but it's interesting to see more examples of how they can produce consequences that work against stated policy goals.

  

Source: Bloomberg, BI, WSJ, Barron’s