Thursday June 30 Daily Market Primer

The post Brexit global equity rebound continued in the US Wednesday, as the S&P 500 rose 1.7%, or 35 points.  Stocks were mostly up in Asia overnight but are down slightly in Europe this morning.  Brent and WTI dropped about 2% as more supply is coming online from Nigeria.  US Futures are pointing to a flat opening. 

	LAST	CHANGE	% CHG
DJIA	17694.68	284.96	1.64%
Nasdaq	4779.25	87.38	1.86%
S&P 500	2070.77	34.68	1.70%
Russell 2000	1131.62	24.32	2.20%
Global Dow	2289.46	3.79	0.17%
Japan: Nikkei 225	15575.92	9.09	0.06%
Stoxx Europe 600	326.12	-0.37	-0.11%
UK: FTSE 100	6350.42	-9.64	-0.15%
CBOE Volatility	16.11	-0.53	-3.19%
Australia: S&P/ASX 200	5233.4	91	1.77%
China: Shanghai Composite	2929.61	-1.99	-0.07%
Hong Kong: Hang Seng	20794.37	358.25	1.75%
India: S&P BSE Sensex	26999.72	259.33	0.97%
France: CAC 40	4201.9	6.58	0.16%
Germany: DAX	9596.25	-16.02	-0.17%
Italy: FTSE MIB	15870.41	-76.52	-0.48%
Spain: IBEX 35	8077.3	-28	-0.35%
U.S. 3 Month	0.269	0/32
U.S. 2 Year	0.62	1/32
U.S. 5 Year	1.04	3/32
U.S. 10 Year	1.50	6/32
U.S. 30 Year	2.30	14/32
Crude Oil	48.95	-0.93	-1.86%
Brent Crude	50.41	-0.91	-1.77%
Natural Gas	2.856	-0.007	-0.24%
Reuters-Jefferies CRB	193.629	-1.008	-0.52%
S&P GSCI	376.85	-3.48	-0.91%
E-mini S&P 500	2066	-0.75	-0.04%

                                                                                                                                         

Former London mayor and aggressive Brexit campaigner Boris Johnson took himself out of the running for Primer Minister today, surprising everybody, seemingly for lack of political support, as his closest ally Michael Gove turned on him and announced his own candidacy http://bit.ly/BorisOut. Home Secretary Theresa May also launched her campaign, pledging to carry out and the EU exit even though she was in the remain camp.   In US politics, everyone’s favorite pollster Nate Silver, who rose to fame on accurate predictions in the last presidential campaign, said there is a 79% chance of a Hillary Clinton win http://bit.ly/Hillary79.  It would be great to see a debate between Nate and Jeff Gundlach, who reiterated his prediction for a Trump win as recently as June 17 http://bit.ly/GundlachOnTrump.

The latest round of stress tests were announced, and the vast majority of US banks and foreign banks with US operations passed. This will trigger a windfall of returned capital to shareholders as the banks execute stock buybacks and dividends, which are now approved by the Federal Reserve.  General Electric, which has been shedding financial assets since the end of the financial crisis, was rewarded for its restructuring but having its SIFI, or Systematically Important Financial Institution, status removed but a group headed by US Treasury Secretary Jack Lew GE Capital Sheds ‘Systemically Important’ Label.  Tech bellwether Oracle sold $14 in bonds, the years third biggest offering, demonstrating the strength of the corporate bond market and demand for investment grade fixed income.

Here’s the news:

Stress test results

JPMorgan Chase & Co., Citigroup Inc., Bank of America Corp. and 27 other firms with major U.S. operations passed the Federal Reserve's stress tests, allowing those banks to boost shareholder payouts. Morgan Stanley got conditional approval, while the U.S. units of Deutsche Bank AG and Banco Santander SA failed. Shares of the banks that passed the test are higher in pre-market trading, with Morgan Stanley flat while Deutsche Bank and Santander are lower in European trading.

Euro area finds a little inflation

Inflation in the euro area unexpectedly returned in May, with consumer prices rising 0.1 percent from a year earlier, according to European Union’s statistics office. This bump in prices is not likely to change the ECB's course as President Mario Draghi has already warned that the Brexit referendum result may lead to output dropping 0.5 percent below previous projections over the next 3 years. Investors are more likely to be keeping an eye on the Bank of England today, where Governor Mark Carney is due to give a speech at 11:00 a.m. ET, in an effort to reassure markets following the post-Brexit turmoil.

More Brexit political fallout

U.K. parliamentary politics are not having a good week. The opposition leader, Jeremy Corbyn, is clinging onto power, despite a vote by his own MPs that overwhelming called on him to leave and the Prime Minister imploring him to go in the House of Commons yesterday. It has been a lively morning in the race for the Prime Minister's job, with Michael Gove, who lead the 'leave' campaign with Boris Johnson, declaring that he is going to run against Johnson for the leadership. U.K. Home Secretary Theresa May also launched her campaign for the position this morning. In a Bloomberg poll, more than a third of U.S. voters see the U.K.’s decision to leave the European Union as damaging to the American economy.

Markets rise

Markets are rising again today, but well below the pace of recent sessions. Overnight, the MSCI Asia Pacific Index advanced 0.8 percent with Japan's Topix Index erasing an earlier rally to finish 0.2 percent lower. In Europe, the Stoxx 600 Index was 0.1 percent higher at 6:15 a.m. while London's FTSE 100 was up 0.4 percent, consolidating its post-Brexit recovery. S&P 500 futures had advanced 0.1 percent. 

Commodity quarter

It is the last day of the quarter, and it turned out to be a great one for commodities. The Bloomberg Commodity Index entered a bull market this month and is having its best three months since 2010. Crude, which has surged 29 percent in the quarter is paring some of those gains this morning, with a barrel of West Texas Intermediate at $49.24 at 6:20 a.m.

Wall Street banks announced their share-buyback plans. After passing the Dodd-Frank stress tests, Wall Street banks announced their stock-buyback plans. Among the notables, JPMorgan will buy back $10.6 billion worth of stock, while Citi and Bank of America will repurchase $8.6 billion and $5 billion worth of shares. Goldman Sachs will also buy back shares, but it did not release an amount.
Anthem's planned takeover of Cigna is in jeopardy. Anthem's $48 billion takeover of Cigna is in jeopardy after the Department of Justice said the deal would threaten competition. Specifically, the DOJ is worried that large employers would have reduced options for finding insurers that can provide coverage on a national scale, a person familiar with the matter told Bloomberg. The DOJ is willing to listen to solutions but is skeptical that a resolution can come from selling parts of the business, Bloomberg reports.
Oil is on track for its best quarter since the financial crisis. Back in January, West Texas Intermediate crude oil touched a 14-year low, falling below $27 a barrel. Fast forward to Thursday, and the energy component is up about 85%, near $50, thanks to supply disruptions in Canada, Kuwait, Nigeria, and other oil-producing nations. For the second quarter, WTI is up about 29% and on pace for its best quarterly advance since 2009.
Taiwan cut rates. The Central Bank of the Republic of China (Taiwan) lowered its key interest rate for a fourth straight meeting. Thursday's cut of 0.125% pushed the central bank's main policy rate down to 1.375%. The decision was widely expected, and more rate cuts are likely before the end of the year as the central bank looks for ways to combat the slowdown in China, the biggest importer of Taiwanese goods.
UK GDP held. Data released by the Office for National Statistics showed that the UK economy expanded 0.4% in the first quarter. The final reading was unchanged from the previous look and in-line with estimates. The data is expected to slow in the second quarter, however, because of the uncertainty surrounding the UK referendum. The British pound is stronger by 0.2% at 1.3458.
Eurozone CPI ticked up. CPI Flash Estimate climbed to +0.1% year-over-year in June from -0.1% in May, according to Eurostat data. Services saw the biggest gain, +1.1% YoY, followed by food, alcohol, and tobacco (+0.9% YoY), and nonenergy industrial goods (+0.4% YoY). Energy was a drag as prices tumbled 6.5% versus a year ago. The euro is up 0.2% at 1.1150.
Stock markets around the world are up. France's CAC (+0.7%) leads the gains in Europe after Hong Kong's Hang Seng (+1.8%) posted a strong overnight advance. S&P 500 futures are up 5.75 points at 2,072.50.
Earnings reporting remains light. ConAgra, Constellation Brands, and Darden Restaurants will report ahead of the opening bell, and Micron will release its quarterly results after markets close.

US economic data trickles out. Initial claims will be released at 8:30 a.m. ET, and Chicago PMI will cross the wires at 9:45 a.m. ET. The US 10-year yield is higher by 2 basis points at 1.53%.

Brexit clears way for eurozone capital-markets union

Britain's exit from the EU will allow for the creation of a capital-markets union based on the single currency, an initiative that was previously hampered by the British influence.

Financial Times (tiered subscription model)

European corporate-bond yields lowest on record

The European Central Bank's corporate-bond purchases have buoyed highly rated corporate bonds during the sell-off precipitated by Britain's vote to leave the EU. Average yields on investment-grade corporate bonds hit 0.9285% on Wednesday, their lowest point since Bank of America Merrill Lynch began to record data in 1998.

Bloomberg (29 Jun.) 

Oracle undeterred by Brexit, sells $14B in bonds

Oracle has sold $14 billion in bonds, confirming the resilience of investment-grade corporate bonds, even in the face of Brexit volatility. The offering is the third-biggest this year. The Wall Street Journal (tiered subscription model) (29 Jun.) 

Micklethwait: Goodbye to all that.

Where are investors looking after Brexit? Anywhere but the U.K.

U.S. 'ham capital' proves Chinese investment can be a good thing.

The see-no-evil Supreme Court.

Trump campaign allegedly broke law by soliciting foreign donations.

U.K. vote sees stampede by banks into higher gold targets.

Brexit in the echo chamber.

Democrats Launch Push to Regain North Carolina

European Union Leaders Meet Without Britain for First Time After Brexit Vote

U.K. Tax Code Could Entice Companies

GM’s U.S. Share Shrinks Amid Truck Boom

Keep Calm and Carry On
Two of the best days for stocks this year began to undo two of the worst, putting major U.S. indexes back into the black for 2016. The rebound comes as investors shake off their initial panic over the U.K.’s decision last week to leave the EU. But still-strong demand for the safety of government bonds and currencies like the yen shows that markets are far from sounding the all-clear. The rapid rebound prompted some traders and analysts to question whether the rally was sustainable given that fundamental questions remain about the health of the global economy and the direction of central-bank policy. Global stocks mostly stabilized Thursday following a two-day bounceback around the world, when the FTSE 100 rose above last Thursday’s close. However, don’t be fooled, writes our Streetwise columnist James Mackintosh—the index is a poor representation of the U.K. Meanwhile, the race for the leadership of the U.K. Conservative Party, and therefore the U.K.’s next prime minister, took a sharp and unexpected turn Thursday, as former London mayor Boris Johnson said he wouldn’t run.

Isle of Woes
Senate approval of debt-relief legislation for Puerto Rico on Wednesday paved the way for President Obama to sign the bipartisan bill into law, but the beleaguered island still faces a grinding turnaround. Puerto Rico has suffered a 9% population decline in the past decade, worsening the island’s debt crisis and challenging the survival of its hospitals and health-care system. The exodus of workers, retirees and entire families has been steeper and more financially disastrous than in any U.S. state since the end of World War II. A decadelong recession has left one in nine residents out of work and roughly half dependent on the cash-strapped government for health care. We report that the island’s hospitals show the potential for a vicious cycle if Puerto Rico’s government can’t spark enough economic growth to stem the outflow.

In a fresh statement delivered to the European Parliament in Brussels, George Soros warned that the Brexit vote has unleashed a financial crisis in markets that is similar to what we saw in 2007 and 2008. He also talked about some of the underlying ills of the European Union, reserving space to criticize Angela Merkel for a refugee policy that was, in his view, "not well thought through." While he praised Merkel's moral leadership, he slammed her lack of planning, lack of funding and the lack off consensus that has transformed Greece into a "de facto holding pen with inadequate facilities." This isn't the first time Soros has had harsh words for the German Chancellor. In a speech delivered in June 2012, he said that the seeds of the euro zone crisis were planted in 2008, after Lehman brothers failed, when Angela Merkel declared that each country should deal with their own financial institutions, instead of creating a Europe-wide solution. This idea, that each country should look after itself, exposed one of the euro zone's key architectural flaws, which is that the member states don't have flexible budgets, having outsourced the task of printing money to the ECB. At times over the last few years, it's seemed as though Merkel is the only politician in Europe with stature or authority. But, at least in Soros's view, she's been at the center of some of the continent's biggest and longest-running mistakes.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, FT, Politico, CNBC