Monday June 13 Daily Market Primer

Stock fell by .7%  in the US on Friday, as nervousness continued over falling bond yields and Brexit.  The US 10 year had its lowest settlement in three years at 1.623%.  For the week, the Dow was up. 3% while the S&P was down .1%.  Financials were down on lower rates and energy stocks were down on lower oil prices.  German bond yields hit a new low for the second day in a row, falling to .01% on the 10 year.   On the Brexit front, the polls moved strongly toward “leave” at the end of the week, rattling markets.   Markets are down around the world Monday on the return of market anxiety over the last few days, with Shanghai and Japan showing 3% drops overnight.  The S&P opened down about 6 points, or .3%.

	LAST	CHANGE	% CHG
DJIA	17865.34	-119.85	-0.67%
Nasdaq	4894.55	-64.07	-1.29%
S&P 500	2096.07	-19.41	-0.92%
Russell 2000	1163.93	-17.27	-1.46%
Global Dow	2310.81	-26.02	-1.11%
Japan: Nikkei 225	16019.18	-582.18	-3.51%
Stoxx Europe 600	327.17	-5.75	-1.73%
UK: FTSE 100	6060.22	-55.54	-0.91%
CBOE Volatility	18.65	1.62	9.51%
Australia: S&P/ASX 200	5312.6	-49.3	-0.92%
China: Shanghai Composite	2833.07	-94.09	-3.21%
Hong Kong: Hang Seng	20512.99	-529.65	-2.52%
India: S&P BSE Sensex	26396.77	-238.98	-0.90%
Japan: Nikkei 225	16019.18	-582.18	-3.51%
Singapore: Straits Times	2785.43	-37.54	-1.33%
France: CAC 40	4236.09	-70.63	-1.64%
Germany: DAX	9683.06	-151.56	-1.54%
Italy: FTSE MIB	16619.02	-501.14	-2.93%
Spain: IBEX 35	8314.5	-176	-2.07%
U.S. 2 Year	0.714	1/32
U.S. 5 Year	1.136	5/32
U.S. 10 Year	1.623	5/32
U.S. 30 Year	2.439	11/32
Crude Oil	48.34	-0.73	-1.49%
Brent Crude	49.78	-0.76	-1.50%
Natural Gas	2.601	0.045	1.76%
E-mini S&P 500	2077.75	-9.5	-0.46%

Microsoft announced a buyout for LinkedIn this morning for $26.2 billion, a 50% premium, in a all cash deal.  This is a rich deal at 91 times EBITDA for a unique social network property.  Apple kicks off its annual Worldwide Developers Conference today in San Francisco with expected changes to Apple Pay and Apple Music, and possibly a smarter Siri.

Here’s the news:

Markets slump

The MSCI Asia Pacific Index slumped 2 percent overnight with Japan's Topix index plunging 3.5 percent while the yen rallied. China's Shanghai Composite Index dropped 3.2 percent, the most in three months, ahead of this week's decision from MSCI Inc. on whether to include mainland shares in its global indexes. In Europe, the Stoxx 600 Index was 1.7 percent lower at 5:25 a.m. ET with Italian banks leading the losses. In London, a gauge tracking share volatility expectations is heading for its biggest three-day jump in six months. S&P 500 futures were 0.8 percent lower. 

Where next for bonds?

Morgan Stanley says that the bond market rally has further to run, while Goldman Sachs Inc. is looking for benchmark U.S. Treasury yields to jump. Meanwhile, economists surveyed by Bloomberg say the German 10-year yield, which continues to flirt with a negative print this morning, is set to climb from the record lows reached in recent days. The continuing global demand for sovereign debt leaves the market "a lot more vulnerable," according to Torsten Slok, the chief international economist at Deutsche Bank AG.

Orlando attack

At least 50 people are dead following Saturday night's attack on a nightcub in Orlando, Florida. The assailant, Omar Mateen, an employee of G4S Plc, declared allegiance to terror group Islamic State in the hours before his attack. In the aftermath of the shooting presumptive Democratic presidential nominee has called for tougher gun laws while presumptive Republican nominee Donald Trump refocused on his proposal to ban muslims.

10 days to Brexit vote

As the campaign on the Brexit referendum enters its final straight, the 'remain' camp is starting to feel the pressure. One poll published on Friday showed the 'leave' campaign 10 points ahead, while other polls published over the weekend show the result as still too-close-to-call. Bookmaker probabilities for the remain outcome, while still well over 50 percent, have hit their lowest level yet. The pound is also at its lowest level since mid-April.

Apple developer event

Apple Inc. starts its annual Worldwide Developers Conference in San Francisco today. The company, which announced on Friday that its next iPhone would use modem chips from Intel Corp., has been focusing recently on breaking into developing markets, particularly India. The company is expected to announce changes to its Apple Pay service at the conference as competition in the online payments space increases.

The IMF has warned China. The International Monetary Fund says China must do something about its mounting corporate debt load. Reuters reports that David Lipton, first deputy managing director of the IMF, told a group of economists in Shenzhen, China: "Company debt problems today can become systemic debt problems tomorrow. Systemic debt problems can lead to much lower economic growth, or a banking crisis. Or both." Specifically, Lipton pointed to the debt of state-owned enterprises, which total 55% of corporate debt but account for only 22% of economic output, Reuters says.

China's investment hit a 15-year low. China's fixed-asset investment slowed to 9.6% through May, the first time it has been below 10% since 2000. Additionally, retail sales rose 10% year-over-year, just missing the 10.1% that was expected. China's yuan fell 0.4% to 6.5864 per dollar on Monday and is nearing its weakest level since the first quarter of 2011.

Betting odds for Britain remaining in the EU are falling. The latest Betfair odds show that the likelihood of Britain remaining in the European Union are down to 64% from 78% on Thursday. The uncertainty surrounding the vote continues to pressure the British pound, which has fallen more than 3.5% since May 25. Traders will be watching the February low of 1.3871, which if broken would produce the lowest print since 1985.

Oil is lower. West Texas Intermediate crude oil trades down about 1% near $48.50 a barrel. Monday's selling extends crude's slide to a third day, during which it has lost about 6%. In a Monday-morning email, Mike van Dulken of Accendo Markets wrote: "$50 could be a tough level to surpass for Crude. While Brent is currently in a consolidation pattern (mid-downtrend) around $50, WTI has dropped back below to trade around $48.5."

Bitcoin is surging. The digital currency is higher by almost 20% near $690, and it is threatening the $700 level for the first time since February 2014. Monday's gain has bitcoin up almost 30% since the middle of May. The strong gains come as halving, or the reduction of the number of bitcoins produced by mining, is set to occur later this month.

The final round of bidding for Yahoo's core assets is set. The rivals AT&T and Verizon have made the third and final round of bidding for Yahoo's core assets, Reuters reports. A group led Dan Gilbert, the founder of Quicken Loans, and backed by Warren Buffett also made the next round, while a couple of private-equity firms did not. Yahoo hopes to complete the process by next month, a person familiar with the matter told Reuters.

Walgreens has terminated its relationship with Theranos. A statement posted on Walgreens' website says the pharmacy chain is shutting down all 40 Theranos' wellness centers at Walgreens stores in Arizona. The decision by Walgreens is a huge blow to Theranos, as the wellness centers were the company's primary source of revenue, according to The Wall Street Journal. "Quality and safety are our top priorities, and we are working closely with government officials to ensure that we not only comply with all federal regulations but exceed them," Theranos representative Brooke Buchanan told Business Insider.

Blood Simple
Drugstore operator Walgreen formally ended a strained alliance with Theranos as regulators near a decision on whether to impose sanctions against the embattled Silicon Valley firm. Officials at the Walgreens Boots Alliance unit had grown frustrated at not getting more details and documentation from Theranos after learning it had corrected tens of thousands of blood tests, including many performed on samples collected from patients at Walgreens pharmacies. The drugstore operator said it had told Theranos it was terminating their nearly three-year-old partnership, effective immediately, and that it was shutting down Theranos lab-testing services in Walgreens locations. The move is a significant blow to the blood-testing startup: the 40 Theranos blood-draw sites inside Walgreens stores in Arizona have been the primary source of revenue for the company and its conduit to consumers.

PBOC might allow "doomed" banks to go bankrupt, official suggests

The People's Bank of China is ready to accept the volatility that would likely follow letting troubled banks go out of business, Zhang Tao, the central bank's deputy governor, said at a financial forum in Shanghai. "Those institutions that need to be restructured should be restructured, and those doomed to go bankrupt should do so under the discipline of market forces," he said. South China Morning Post (Hong Kong)

China's A-shares will be brought into MSCI index, official predicts

China's A-shares will eventually be included in the MSCI global index because of the sheer size of the market, Qi Bin, head of the China Securities Regulatory Commission's international affairs department, said at a financial forum in Shanghai. "China's A-share market is the world's second-largest market; it is also the largest emerging capital market and the fastest-growing one," he said. "So, theoretically a global index without A-shares is incomplete."

Bloomberg (12 Jun.) 

Stocks everywhere are under pressure. Japan's Nikkei (-3.5%) was hit hard overnight, and Spain's IBEX (-1.6%) leads the losses in Europe. S&P 500 futures are down 8.75 points at 2,087.50.

US economic data is absent. Data picks up Tuesday with import/export prices, retail sales, and business inventories. The US 10-year yield is down 2 basis points at 1.62%.

The ECB says the oil-price slump is not the global boon it might have been.

Disney's foreign curse could end with its $5.5 billion Shanghai park.

The world nears peak fossil fuels for electricity production.

We want food!' Looting and riots rock Venezuela daily.

Brexit sends Danish 30-year mortgage costs below U.S. Treasuries.

Six events that could make Soros a winner.

Regulators to Banks: We’ll Size Up Your Risks

After Record Week, How Much Lower Can Bond Yields Go?

The next several days in markets are likely to be dominated by two things: This week's Federal Reserve decision and next week's Brexit vote. For today, let's talk about Brexit. The pound is tumbling and the betting market odds have 'remain' at their lowest level yet. Two columns written over the weekend make for some worthwhile reading on the pluses and minuses of either outcome. In the New York Times, Paul Krugman writes that were he a UK voter, he'd opt to remain, but he'd do so reluctantly due to what he sees as an EU that's "dysfunctional" and "utterly resistant to improvement." He cites the problems created by the euro and the refugee crisis as two examples of difficulties that the EU is unable to solve. On the opposite side, The Telegraph's Ambrose Evans-Pritchard says he's going to vote to leave, due to some of the concerns that Krugman cited. But he too is reluctant. "The Leave campaign has offered no convincing plan for our future trading ties or the viability of the City," he writes.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, SCMP