Tuesday May 10 Daily Market Primer

The summer doldrums may have arrived early, as US markets were flat yesterday, but they did better many markets around the world overnight.   Stocks in Japan were up 2.2% on a weaker yen.

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 2310.89 7.52 0.33% Japan: Nikkei 225 16565.19 349.16 2.15% China: Shanghai Composite 2832.59 0.48 0.02% Hong Kong: Hang Seng 20242.68 85.87 0.43% Stoxx Europe 600 335.52 2.3 0.69% UK: FTSE 100 6130.91 16.1 0.26% Crude Oil 43.83 0.39 0.90% Brent Crude 44.39 0.76 1.74 U.S. 10 Year 1.747 -1/32 U.S. 30 Year 2.602 -2/32 CBOE Volatility 14.09 -0.48 -3.29% E-mini S&P 500 61.75 7.5 0.37%

Solar panel installer Solar City got scorched (sorry I just couldn’t resist) on disappointing earnings and lowered guidance, and the stock fell 20% in the after-market, bringing the YTD loss to 33%. Revenues grew a wh0pping 82% but expenses rose and margins fell, and the company lost $2.52 per share.

We continue to see volatility in commodities, and iron ore fell 6% yesterday, and is down 22% since the recent peak on April 22.  The Chinese are stockpiling the material after the government introduced curbs on speculation.  Needless to say this is bad for global mining stocks and the Australian economy, which is heavily dependent on commodities exports.

Debt talks in Greece sparked optimism, for now, and stocks and bonds there rose.  Impeachment proceedings are underway in Brazil, and well, its complicated, read the second story for the blow by blow.  Stocks and the Brazilian currency, the real, plunged on the latest round of maneuvering.

Here’s the news:

Credit Suisse loss

Credit Suisse Group AG reported a loss of 302 million Swiss francs ($311 million) for the first quarter, slightly better than analyst expectations. Shares in the bank are surging following the results as investors look past the loss and focus on Chief Executive Officer Tidjane Thiam's progress in overhauling the business. In the first quarter the bank reduced the inventory of  collateralized loan obligations at its securities unit by 81 percent and cut headcount by 1,000. Shares listed in Zurich were 5.7 percent higher at 5:29 a.m. ET.

Greek bonds, shares jump

Optimism has broken out among investors weighing the progress of the seemingly never-ending Greek debt talks. Yesterday euro-area finance ministers agreed to seek International Monetary Fund backing for an accord on Greek debt, with talks due to reconvene in two weeks to finalize a deal. This morning the yield on Greek 10-year bonds fell to the lowest level of the year, while the equity benchmark ASE Index jumped 3 percent. The one fly in the ointment is that the baseline scenario presented by Greece's European creditors, which includes the country running a primary surplus for decades to come, has previously been described by IMF Director Christine Lagarde as a “far-fetched fantasy.”

EM politics

Keeping track of political developments in Brazil is turning into a full-time job. Yesterday, the Brazilian real plummeted the most in four years and $16.5 billion was wiped off the value of the country's benchmark stock index, before both recovered after lawmaker Waldir Maranhao, the interim head of the lower house of parliament, called for a new impeachment vote in his chamber. Maranhao released a statement late into the night reversing his decision, which will allow the Senate to vote on President Dilma Rousseff's impeachment tomorrow as previously scheduled. Meanwhile, on the other side of the globe, the Philippines peso rose the most in six weeks and the stock exchange index jumped 2.6 percent following Rodrigo Duterte's decisive victory in the country's presidential election.

Markets are higher

The China commodity speculative bubble of 2016 has been one for the ages. While producing some wonderful data points (such as enough cotton being traded in one day to make a pair of jeans for everyone on earth and daily soy trading volume being enough for 56 billion servings of tofu) it has also produced a huge headache for regulators trying to manage the mania. The latest tactic from Chinese authorities has been to roll out their "authoritative person" in the ruling party's most important newspaper to warn of the “original sin” of excessive debt. The interview is seen by China-watchers as a clear warning of a shift in Chinese policy away from excess leverage.

China's CPI was a bit light. Consumer prices in China rose 2.3% year-over-year in April, missing the 2.4% gain that was expected. Food prices jumped 7.4% versus a year ago, but that was a bit slower than the March reading of up 7.6%. Notable was the 33.5% year-over-year spike in pork prices. Nonfood prices were up just 1.1% compared with a year ago. Also out were producer prices, which fell 3.4% YoY. The Chinese yuan ended unchanged at 6.5161 per dollar.
Germany's trade surplus is the largest on record. The trade surplus of Europe's largest economy swelled to €20.6 billion in March, a record high, according to the Financial Times. The data showed that German exports within the European Union totaled €62.6 billion, while imports from the bloc reached €53.9 billion. Additionally, Germany's current account surplus reached a record high of €30.4 billion. The euro is little changed at 1.1379.
Greece has been offered debt relief. Reuters reports that Greece has been offered debt relief if it makes good on all of the reforms it has promised its creditors. The deal would reportedly extend the maturities on Greek debt and cap interest payments. But a haircut, which has been publicly supported by the International Monetary Fund, doesn't appear to be in the cards. More details on the deal will come from a meeting of deputy finance ministers on May 24, according to the report. Greece's 10-year yield is down 53 basis points at 7.54% — at its lowest level in five months.
Impeachment proceedings will continue in Brazil. The impeachment proceedings against Brazilian President Dilma Rousseff will continue despite an earlier announcement they had been shelved. Bloomberg reports, "Lawmaker Waldir Maranhao released a statement in the dead of night revoking his own call to annul impeachment sessions in the lower house." A vote on whether to put Rousseff on trial is scheduled for Wednesday, and if it passes, she would be removed from office until the trial concludes.
"The Punisher" is the Philippines' new president. Rodrigo Duterte has won the presidential election in the Philippines. According to CNN, Duterte's top rival, Grace Poe, conceded when exit polls showed she was trailing by 38.92% to 22.14%. Duterte has been compared to Donald Trump for his outspoken demeanor. The results won't be official until June.
Gap warned. The retailer announced that same-store sales cratered 7% in April. Gap was hit especially hard by an 11% slide in Banana Republic same-store sales. The company issued downside EPS guidance of $0.31 to $0.32, far worse than the $0.44 that was expected by the Thomson Reuters consensus. Gap shares were down about 10% in after-hours trading.
SolarCity is getting destroyed. The Elon Musk-led solar company lost a whopping $2.56 a share, missing the $2.31 loss that was expected. Revenue surged 81.6% versus last year to $122.6 million, however, topping the $110 million Bloomberg consensus. Second-quarter guidance came in at a loss of $2.70 to $2.80 a share, worse than the $2.13 loss that Wall Street was anticipating. SolarCity shares are down almost 19% ahead of the opening bell.
A Taxing Manifesto
After making remarks over the weekend that left some Republican tax experts trying to decipher what he believes on key GOP policies, Donald Trump sought to clarify his views on fiscal and monetary issues on Monday, saying he was open to compromise on tax cuts but wouldn’t try to alter the terms of the nation’s $19 trillion in debt. The presumptive GOP nominee is scheduled to meet this week with House Speaker Paul Ryan, who is still deciding whether to back the New York businessman. Mr. Ryan said yesterday that he would step aside as chairman of the GOP nominating convention if Mr. Trump wanted him to. Partisan dysfunction in Washington, more than ideology, draws voters to Mr. Trump, writes our Washington bureau chief Gerald F. Seib. Meanwhile, in the Democratic race, Hillary Clinton must continue to fight with Sen. Bernie Sanders for votes, despite her overwhelming lead.
Stock markets everywhere are higher. Japan's Nikkei (+2.2%) led in Asia, and Spain's IBEX (+1.9%) paces the gains in Europe. S&P 500 futures are up 11.00 points at 2,065.25.
Earnings reports continue to flow. Allergan, Credit Suisse, Crocs, Nokia, and SodaStream are among the companies reporting ahead of the opening bell. Walt Disney is the lone notable reporting after markets close.

US economic data is light. JOLTs — Job Openings and wholesale inventories will be reported at 10 a.m. ET. The US 10-year yield is higher by 1 basis point at 1.76%.

Mr. Brexit came to Washington and things got a bit awkward

A new generation of German homebuyers falls in love with Mario Draghi

Traders eye $100 billion more emerging-market fallen angels

The miraculous rise and dramatic acquittal of the Mad Punter

The stunning fall of LendingClub's founder

Alberta fires worse for Canada economy than Katrina was for U.S.

California Gov. Jerry Brown Makes Some Water Restrictions Permanent

U.S. Warship, Sailing Near Chinese-Claimed Island, Challenges Beijing

Wall Street Cops to Hedge Funds: Treat Investors Better

Dividends Aren’t the Answer. They’re the Problem

The most important paragraph you will read today is on page three of the latest NFIB Small Business Optimism report. It's about labor markets and the first two sentences say: "53 percent reported hiring or trying to hire (up five points), but 46 percent reported few or no qualified applicants for the positions they were trying to fill. Hiring activity increased substantially, but apparently the 'failure rate' also rose as more owners found it hard to identify qualified applicants." In other words, nearly half of businesses can't get good applicants for their open jobs, hiring activity is increasing substantially, and more and more positions are simply going unfilled. Ultimately, a tightening labor market is the mother's milk of higher wages, and though the headline average hourly earnings number from the monthly Non-Farm Payrolls report hasn't yet broken out, evidence continues to build that the economy is shifting more in favor of labor. Today's NFIB report is the latest evidence (the report also says 24 percent of owners are raising worker compensation, which is up 2 points from the previous month). Meanwhile at 10:00 AM E.T. today we'll get the latest JOLTS report, which will have figures on total job openings and quits, among other things. We'll see if this confirms the story of ongoing labor market tightness.

Source: Bloomberg, BI, WSJ