Wednesday May 25 Daily Market Primer

US stocks surged yesterday and opened strong again this morning as the equity market seems to like the probability of a rate hike, which according to Bloomberg, as risen to 50% by July.  The dollar rose and treasuries fell on relatively strong housing data, as April new home sales were the highest since 2008.  Financial and technology companies showed the biggest gain.  The equity rally continued in Asia and Europe overnight. Oil prices gained 1 ½% on reduce supply and both Brent and WTI are very close to the $50 mark many analysts have been looking for.

Today’s return table includes this morning’s values rather than yesterday’s close for US stocks:

	LAST	CHANGE	% CHG
DJIA	17830.04	123.99	0.70%
Nasdaq	4884.53	23.47	0.48%
S&P 500	2089.29	13.23	0.64%
Russell 2000	1138.11	2.81	0.25%
Global Dow	2334.4	27.89	1.21%
Japan: Nikkei 225	16757.35	258.59	1.57%
Stoxx Europe 600	347.9	3.78	1.10%
UK: FTSE 100	6253.15	33.89	0.54%
CBOE Volatility	14.16	-0.26	-1.80%
Australia: S&P/ASX 200	5372.5	76.9	1.45%
China: Shanghai Composite	2815.09	-6.58	-0.23%
Hong Kong: Hang Seng	20368.05	537.62	2.71%
India: S&P BSE Sensex	25881.17	575.7	2.28%
France: CAC 40	4474.62	43.1	0.97%
Germany: DAX	10188.57	131.26	1.31%
Italy: FTSE MIB	18102.73	198.76	1.11%
Spain: IBEX 35	9100.5	182.4	2.05%
U.S. 2 Year	0.922	0/32
U.S. 5 Year	1.408	0/32
U.S. 10 Year	1.863	0/32
U.S. 30 Year	2.643	2/32
Crude Oil	49.31	0.69	1.42%
Brent Crude	49.96	0.78	1.59%
Natural Gas	2.139	-0.007	-0.33%

Greece reached a deal on austerity and additional borrowing, which is good for European stocks.  Hewlett Packard Enterprises (HPE), which was split from the iconic computer giant last year,  is splitting the enterprise company again and merging the main business with Computer Associates, a consolidation move caused by a fast changing landscape in the computer services business.   The Peoples Bank of China (PBOC) further weakened the Yuan.  Bayer executives definitely need a few aspirin this morning as Monsanto rejected their merger offer, which was already criticized by investors as too rich, as inadequate.  Microsoft and Royal Dutch Shell both announced layoffs this morning.

Sorry this is so late, I had a technical problem this morning.  Here’s the news:

Greece deal reached

Another Eurogroup meeting that ran into the early hours of the morning, another deal reached on Greece. This one paves the way for a €10.3 billion ($11.5 billion) aid payment to Athens. Significantly, the International Monetary Fund dropped its push for 'up front' debt burden reduction ahead of any further payments. In trading this morning yields on 10-year Greek government bonds fell below 7 percent for the first time since November.

PBOC weakens yuan fixing

China's central bank set its reference rate for the yuan  at 6.5693 per dollar, its lowest since March 2011. The spot rate only fell 0.08 percent as investors didn't receive the move as the start of a new round of devaluations for the currency. If a depreciation of the currency does become a factor for investors, then the market for Dim Sum debt would likely be hit hardest.

Rise of the machines

The Euromoney Institutional Investor Plc FX rankings released late yesterday yielded some interesting results. Citigroup Inc. retained the number one spot as the world's largest currency trader by market share, while there was more bad news for Deutsche Bank AG as the bank's market share slipped from 14.5 percent last year to 7.9 percent, dropping them to fourth place overall. The spot market showed the most interesting result, however, as XTX Markets Ltd., a computerized trading firm, has come from nowhere to claim the fourth place in that market - the first time an electronic specialist has displaced a bank in the annual survey.

Market rally

Overnight, the MSCI Asia Pacific Index took its lead from U.S. markets, climbing 1.6 percent as Hong Kong and Japanese equities gained. European stocks are poised for their biggest two-day advance in two months as relief over the Greek debt deal and increasing commodity prices lifted stocks. The Stoxx Europe 600 Index was 1.4 percent higher at 6:15 a.m. ET. S&P 500 futures were 0.5 percent higher.

Oil job losses

Royal Dutch Shell Plc has announced a further round of 2,200 job cuts, taking the 2015-2016 total to 12,500 as it tries to keep the company competitive during the extended period of low oil prices. Crude is rising this morning, with a barrel of West Texas Intermediate for July delivery trading at $49.17 at 6:20 a.m. ET.

Oil is at a 7-month high. West Texas Intermediate crude oil touched a high of $49.45 a barrel in early action. Wednesday's print is the highest since the middle of October, and it comes after the Tuesday-evening release of American Petroleum Institute data that showed a drawdown of supply by 5 million barrels, double market expectations. WTI crude oil is now up 1.1% at $49.16 a barrel.

China fixed the yuan at its weakest level in 5 years. The People's Bank of China set the midpoint of its yuan fix at 6.5468 per dollar, down 0.34% from Tuesday. The weakening of the yuan comes as the PBOC looks to soften the blow of a potential Fed interest-rate hike, which could come as early as the June 15 meeting. According to the Financial Times, the fix was the lowest by the PBOC in five years.

Greece and its creditors reached a deal. The deal paves the way for Greece to receive €10.3 billion from its creditors along with debt relief once the current deal ends in 2018. While it's unclear how exactly a deal will look, it could reduce the International Monetary Fund's exposure to the country by buying back up to €14.6 billion of its loans. Eurogroup president Jeroen Dijsselbloem said, "We have achieved a major breakthrough on Greece which enables us to enter a new phase in the Greek financial assistance programme." Greece's 10-year yield is down 10 basis points at 6.92%.

German business confidence rose. Germany's Ifo Business Climate rose to 107.7 in May, up from 106.7 in April. The reading was the highest since December and ahead of the slight uptick that economists were anticipating. According to Dr. Clemens Fuest, president of the Ifo Institute, German companies are "significantly more satisfied with their current business situation," and "the German economy is growing at a robust pace." Additionally, the report showed the construction component of the index hit its highest level since 1991.

HP Enterprises is spinning off its services business. The company earned $0.18 a share on revenue of $12.7 billion. HP Enterprises plans to spin off and merge its enterprise services business with the IT infrastructure services firm CSC, according to a statement released by the firm. The combination of the two units could generate as much as $26 billion in annual revenue. Shares of HPE were up more than 10% in after-hours trade.

US antitrust officials are investigating Anheuser-Busch InBev. The world's largest brewer is being investigated on suspicion of providing incentives encouraging distributors to sell more of its beer than competing craft beers, Reuters' Diane Bartz reports. According to the report, authorities are looking into a new incentives program that was announced at the end of 2015 that refunded 75% of the money a distributor spent on AB InBev advertising if 98% of a distributors' sales were AB InBev products. US authorities continue to review the announced merger between AB InBev and SAB Miller.

Microsoft announced layoffs in its smartphone business. The company says it would eliminate nearly 2,000 jobs as it looks to streamline its smartphone hardware business. About 1,350 of the job cuts will occur in Finland as Microsoft shutters its phone design and production businesses in the country. Microsoft will take a restructuring charge of about $950 million. "We are focusing our phone efforts where we have differentiation — with enterprises that value security, manageability, and our Continuum capability, and consumers who value the same ... We will continue to innovate across devices and on our cloud services across all mobile platforms," CEO Satya Nadella said in a statement.

Legislative Chemistry The House of Representatives overwhelmingly approved new chemical safety rules yesterday designed to overhaul federal regulation covering thousands of chemicals in daily use, a rare bipartisan action in a year in which Congress has been torn by presidential politics. The bill, the first significant update to federal chemicals safety law in 40 years, is expected to be passed by the Senate as soon as this week and signed into law by President Barack Obama. Trade groups representing Dow Chemical, DuPont and others pushed for the legislation as states, and even large retailers like Wal-Mart, Lowe’s and Target, were stepping in with their own, sometimes far-reaching rules over concerns about chemical safety. The new rules would give the EPA authority to evaluate and impose restrictions on chemicals used in everything from dry-cleaning to grease removal to paint thinners.

Split Decision One of the most storied names in technology is undergoing yet another transformation. Hewlett Packard Enterprise plans to spin off most of its technology services operations and merge them with those of Computer Sciences, in an $8.5 billion transaction that marks HP Enterprise’s latest adjustment to a shifting landscape that is roiling the market for corporate technology. The deal, a blockbuster follow-up to the breakup of Hewlett-Packard last fall, will create a corporate technology services specialist that will be led by Computer Sciences executives and have roughly $26 billion in annual revenue. Facing increasing competition from cloud-computing vendors such as Amazon and Microsoft, HP Enterprise will shed a business that accounts for roughly 100,000 employees, or two-thirds of the Silicon Valley giant’s workforce. The remaining operations will concentrate mainly on software, server systems, networking and storage hardware. Egypt’s Allies Rally Amid Fears Over Worsening Security Monsanto Rejects Bayer Merger Offer, Says It’s Open to Talks OPEC’s Ability to Ease An Oil Supply Shock is Now Fading Will Fannie and Freddie Need Another Bailout? U.S. Colleges’ Bounty of Foreign Students Thins

We used to ask if the U.S. could 'go it alone' in raising interest rates. The answer seems increasingly to be 'no.' Other countries are ever more candid about having a stake in Yellen's decision - sometimes even suggest their own advice, whether invited or not. Bloomberg reports that Chinese officials plan to ask their U.S. counterparts about the timing of the next rate hike (which China hopes will take place in July instead of June, if it must happen at all). China has good reason to tag along. Expectations for U.S. rate rises this year have increased obediently, following a spate of Fedspeak, and with them so too has the U.S. dollar. That in turn has put pressure on the yuan, whose reference rate was this morning set at its lowest in about five years. One imagines that U.S. officials might, in turn, have something to say about that too...

Source: Bloomberg, BI, WSJ,