Thursday June 9 Daily Market Primer

US stocks rose Wednesday, with the Dow finishing above 18,000.  Oil and metal prices rose, although oil is down about $1 this morning.  Low rates are pervasive, as the 10-year Treasury note slipped to 1.706% from 1.713% on Tuesday, and fell again below 1.7% today, the 10-year German government bond yield fell as low as 0.036%, the all-time intraday low, before rebounding.  http://bit.ly/EuroYields.  Markets were down in Asia and Europe, and US stocks opened slightly lower this morning.

	Last	Chg	%Chg
DJIA	18005.05	66.77	0.37%
Nasdaq	4974.64	12.89	0.26%
S&P 500	2119.12	6.99	0.33%
CBOE Volatility	14.45	0.37	2.63%
Russell 2000	1188.95	8.98	0.76%
Global Dow	2374.81	-16.44	-0.69%
Japan: Nikkei 225	16668.41	-162.51	-0.97%
Stoxx Europe 600	341.61	-2.95	-0.86%
UK: FTSE 100	6234.22	-67.3	-1.07%
China: Shanghai Composite	2927.16	-8.89	-0.30%
Hong Kong: Hang Seng	21297.88	-30.36	-0.14%
India: S&P BSE Sensex	26763.46	-257.2	-0.95%
Japan: Nikkei 225	16668.41	-162.51	-0.97%
Singapore: Straits Times	2843.8	-18.58	-0.65%
France: CAC 40	4407.8	-40.93	-0.92%
Germany: DAX	10073.97	-143.06	-1.40%
Italy: FTSE MIB	17746.04	-163.66	-0.91%
Spain: IBEX 35	8796.1	-35.3	-0.40%
U.S. 2 Year	0.767	1/32
U.S. 5 Year	1.206	4/32
U.S. 10 Year	1.667	10/32
U.S. 30 Year	2.465	20/32
Crude Oil	50.32	-0.91	-1.78%
Brent Crude	51.6	-0.91	-1.73%
Natural Gas	2.458	-0.01	-0.41%
Gasoline	1.5983	-0.0215	-1.33%
E-mini S&P 500	2109	-9	-0.42%

Weekly initial jobless claims dropped by 4K to 264K, a little better than the Bloomberg consensus of 270K, and the lowest number in six weeks.  EM currencies and commodities are rallying (first story).  The New Zealand central bank did not raise rates as many investors expected, and the Yen is at a three year high vs the Euro, and a five week high vs the Dollar.

As the political pundits gear up for a negative campaign (fifth story), here’s the news:

Buy anything

Even if emerging-market stocks are dipping most risk assets, including commodities, developed-market stocks, and emerging-market currencies are making multi-month highs, while haven assets such as gold and government bonds are doing the same. The blame for this apparent market disconnect from the weak global outlook (we're not even a week past that disappointing U.S. jobs report) is being placed firmly at the door of global central banks who are expected to stay more accommodative for longer. The current focus is on the European Central Bank's corporate bond purchase program which this morning was said to be buying securities issued by troubled carmaker Volkswagen AG. 

Sovereign bond yields

This morning the yield on the U.K.'s 10-year government bonds fell to 1.220 percent, the lowest since Bloomberg started tracking the data in 1989. German bund yields are hovering close to the all-time record low reached yesterday. U.S. Treasury yields were at 1.678 percent at 6:05 a.m. ET, below the 1.7 percent that has proven to be a “key psychological level” over the past few months. With macro risks from Brexit, elections in Europe, and next week's Fed meeting on the horizon, the trend may not be over yet. 

Markets lower

The MSCI Asia Pacific Index dropped 0.5 percent overnight with almost every market in Asia closing lower. The biggest losses were in Japan where the Topix index lost 1 percent as yen strengthening continued. In Europe the Stoxx 600 index was 1 percent lower at 6:13 a.m. ET in a broad-based selloff that saw 520 index members falling. Futures on the S&P 500 Index, which closed within points of an all-time high yesterday, were 0.4 percent lower.

Democrats to turn up heat on Trump

Massachusetts Senator Elizabeth Warren is due to take her involvement in the presidential race to a new level when she joins Vice-President Joe Biden on stage later today. Warren is expected to voice harsh criticism of Republican nominee Donald Trump at the event and upcoming television ads point to a negative campaign from both sides in what promises to be a fraught run-up to the vote in November.

South Korea unexpectedly cut rates. The Bank of Korea cut its benchmark interest rate 25 basis points to a record low 1.25%. The rate cut was the first since June 2015, and comes as "exports have continued their trend of decline." Thursday's decision, while unexpected, wasn't completely out of left field as the bank appointed four new board members in March, at least a few of which are considered to be dovish. This was their second meeting. The South Korean won ended little changed at 1155.89.
New Zealand kept policy on hold. The Reserve Bank of New Zealand held its key interest rate unchanged at 2.25%, as expected. The bank warned, "The exchange rate is higher than appropriate given New Zealand’s low export commodity prices," and said it expects inflation to pick up as a result of accommodative monetary policy. The New Zealand dollar is stronger by 1.3% at .7104.
Consumer prices in China rose lose than expected. China's CPI rose 2% year-over-year in May, missing the 2.3% gain that economists had forecast. The reading was the lowest since January and came as food inflation hit 5.9%. Meanwhile, producer prices fell 2.8%, beating the 3.3% drop that was anticipated. May's print marked the smallest drop since November 2014.
George Soros is trading again. Legendary investor George Soros is back, reports Gregory Zuckerman at The Wall Street Journal. According to the report, Soros is bearish on the global economy and has placed short bets against stocks while also buying gold. Soros is the second most successful money manager of all-time, according to London-based fund of funds LCH Investments, trailing only Ray Dalio.
Europe had its biggest IPO of the year. Wind farm giant DONG Energy opened to gains as large as 10% in Copenhagen. DONG has built more than a quarter of the world's offshore wind farms, according to Reuters. Thursday's IPO values the company at 98 billion crowns ($15 billion).
Goldman Sachs is cutting staff in Russia. The investment bank has reportedly cut traders, back office staff, and investment bankers in Russia. A source told Reuters as much as 10% of Goldman's Russia staff could be let go while another said more cuts are likely by the end of the summer.

ECB starts buying corporate bonds; yields fall

The European Central Bank's purchases of nonbank bonds this week have sent yields on eurozone corporate bonds to their lowest level in more than a year. The central purchases focus on the corporate debt of insurance, telecommunication and utility companies, sources say. Issuance has accelerated since the bond-buying plan was announced in March. The Wall Street Journal (tiered subscription model)

Five Months to Go
With the Democratic primary behind her, Hillary Clinton plans to hit Donald Trump on his business record and economic agenda. In an interview with the Journal, Mrs. Clinton said she would deliver an economic speech soon contrasting Mr. Trump’s record and policies with her own, putting the economy at the center of her campaign. Mr. Trump, meanwhile, promised to lay out the case for how Mrs. Clinton and former President Bill Clinton have perfected what he called the “politics of personal enrichment.” Mrs. Clinton also promised in the interview to put forth a middle-class tax-cut plan, but wouldn’t say whether she supports bipartisan efforts to overhaul the corporate tax code. The exchanges left no doubt that the next five months will be particularly bitter and divisive as both candidates strive to patch up divisions within their own parties while asserting the other shouldn’t be president.
Learning Chinese in Germany
Chinese companies are on course to set record investment levels in Germany this year, fueling concerns about Europe’s largest economy losing hold of its most innovative and technologically advanced companies. Since the start of the year, Chinese investors have sought to acquire German companies at a rate of roughly one a week. Behind the surge are China’s rising labor costs and shifting demographics, which have slowed domestic growth. By mid-May, Chinese investors had offered the equivalent of $9.1 billion for German companies. But the splurge is drawing attention less for the sums involved than the targets, some of which are considered pivotal to Germany’s ambitions in manufacturing and engineering technology. The transactions also come at the same time European industry more broadly is complaining about difficulties doing business with China.
Island Epidemic
The Zika virus has already blanketed three-quarters of Puerto Rico over the past six months on its relentless march across the Americas. We report that the island’s battle with the virus is giving local and U.S. health authorities a rare chance to better understand the disease. Puerto Rico has advantages over Latin American and Caribbean nations that lack its modern medical system, but its protracted economic crisis has strained the health-care system and efforts to kill off mosquitoes. The spread of Zika by mosquitoes hasn’t been detected on the U.S. mainland yet. Public-health officials say they expect that to happen this summer, but they don’t believe U.S. outbreaks would be large. The Obama administration has asked Congress for emergency funds to combat Zika, including in Puerto Rico, and Congress is deliberating over the amount to allot.

Paris prepares to welcome bankers after Brexit vote

Paris is preparing to welcome financial professionals from London in the event that Britain votes to leave the EU later this month. The Paris Europlace financial lobby has called for additional tax incentives to increase the city's appeal as a European financial hub.  Reuters (08 Jun.), 

Stocks everywhere are lower. Germany's DAX (-1.3%) paces the decline in Europe after Japan's Nikkei (-1%) led the losses in Asia. China's Shanghai Composite and Hong Kong's Hang Seng were closed for Dragon Boat Festival. S&P 500 futures are down 7.25 points at 2110.75.
Earnings reports trickle out. J.M. Smucker and Vail Resorts are among the names set to report ahead of the opening bell and H&R Block will release its quarterly results after markets close.

US economic data remains light. Initial claims will be released at 8:30 a.m. ET and wholesale inventories will cross the wires at 10 a.m. ET. Then, at 10:30 a.m. ET, natural gas inventories will be announced. The US 10-year yield is down two basis points at 1.68%, its lowest since February.

Larry Page has secret flying car factories.

Larry Page has secret flying car factories.

Putin's core support begins to waver.

UK stocks come in last in Europe during EU membership.

Welcome to China's $1 trillion club. Now for the hard part.

How Intel makes a chip.

Rise of Populist Right Doesn’t Signal Demise of Globalization

Japan’s Largest Bank Considers Quitting Role in Government-Bond Market

Pentagon Shifts Command Structure for Terror Fight

To track the winds of change in emerging markets, let the humble tomato be your guide. In Africa the Tuta absoluta moth is decimating the continent's tomato crop, upending livelihoods and putting more than 10 percent of global output at risk. In Russia the tomato has become a symbol of the new mood of patriotic capitalism, exemplified by tycoon Vladimir Evtushenkov's new agricultural complex, where production of the hybrid T-34 tomato has gone into overdrive in order to meet the government's goal of food self-sufficiency. That plan works against the interests of Turkish farmers, who've been unable to export produce to what was formerly one of their biggest markets, ever since Russia slapped sanctions on the country in the wake of last year's airspace dispute. Now those farmers have one more thing to worry about, after the Turkish authorities banned several kinds of common fertilizer this week, citing their potential to be used in the bomb attacks that have been hitting the country's cities. As the UK's referendum moves into focus and emerging markets head for their first day of losses since last week's poor U.S. jobs data, the tomato may be telling investors something juicy: event risk is back.

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