Wednesday July 6 Daily Market Primer

After rising in a post-Brexit rally last week, global stocks reversed course in a post-Brexit risk off echo.  When the US market opened after the holiday weekend, stocks fell by .6%, oil slid by over 4%, and the US 10 year hit another new low, currently 1.362%.  The selloff continued on Tuesday, with every major market except Shanghai down, with stock markets in Japan, Italy, Spain, France, and Germany down about 2%, and the UK -1.5%.  Oil dropped about 1%, the pound dropped below 130, and the safe haven yen is traded up to about 1o1.  Three UK real estate fund managers have gated withdrawals as investors pulled out, which is rattling markets.   Investors also seem to be reconsidering the effectiveness of more central bank intervention, which helped stock prices last week.    Everyone is asking how low rates can go.  European and especially Italian banks are under renewed pressure this week.  The US is opening down again this morning.

		CHANGE	% CHG
DJIA	17840.62	-108.75	-0.61%
Nasdaq	4822.9	-39.67	-0.82%
S&P 500	2088.55	-14.4	-0.68%
Global Dow	2279.2	-20.84	-0.91%
Japan: Nikkei 225	15378.99	-290.34	-1.85%
Stoxx Europe 600	318.99	-5.18	-1.60%
UK: FTSE 100	6450.04	-95.33	-1.46%
CBOE Volatility	17.01	1.43	9.18%
Asia Dow	2668.03	-36.94	-1.37%
DJ Asia-Pacific TSM	1363.43	-14.28	-1.04%
Australia: S&P/ASX 200	5197.5	-30.5	-0.58%
China: Shanghai Composite	3017.29	10.9	0.36%
Hong Kong: Hang Seng	20495.29	-255.43	-1.23%
India: S&P BSE Sensex	27166.87	-111.89	-0.41%
Germany: DAX	9360.59	-172.02	-1.80%
Italy: FTSE MIB	15479.11	-301.05	-1.91%
Spain: IBEX 35	7926.8	-140.8	-1.75%
U.S. 3 Month	0.274	1/32
U.S. 2 Year	0.553	0/32
U.S. 5 Year	0.94	0/32
U.S. 10 Year	1.362	4/32
U.S. 30 Year	2.132	18/32
Germany 2 Year	-0.673	-0/32
Germany 10 Year	-0.176	-2/32
Crude Oil	46.27	-0.33	-0.71%
Brent Crude	47.44	-0.52	-1.08%
Natural Gas	2.728	-0.03	-1.09%
Reuters-Jefferies CRB	187.985	-1.675	-0.88%
S&P GSCI	360.9	-3.41	-0.94%

The UK PM elections got underway yesterday, narrowing the field from five candidates to three in the first round of voting, with home secretary Theresa May gaining a strong lead, followed by energy minister Andrea Leadsom (last story).  In the US, the FBI rebuked but did not recommend charges against Hillary Clinton over use of her personal email server as Secretary of State.

Here’s the news:

Pull up the gates

Three - count 'em three - asset managers have frozen withdrawals from real-estate funds with almost 9.1 billion pounds ($12 billion) worth of assets following a flurry of redemptions post-Brexit. M&G Investments became the third property fund to pull up the gates, following similar moves by Aviva Investors and Standard Life Investment. The attempts to stem redemptions have brought back financial crisis memories for some, while analysts at CreditSights Inc. point out that no one knows how much further property prices need to fall in order to lure investors back into the market. Others have been worrying about U.K. bank exposure to commercial property with the Bank of England noting in its Financial Stability Report released yesterday that the country's lenders have "material exposure" to the sector. So far the consensus seems to be that well-capitalized banks can withstand a reasonable fall in property prices, but that doesn't mean that they won't be affected by recession as one of the great pillars of the British economy begins to crumble.

Not-so-sterling

The British pound sunk to a 31-year low as Brexit continued to play out in global markets. Sterling fell below $1.29 against the U.S. dollar and sank to its lowest mark against the euro since 2013 as evidence piled up that the Brexit vote is hurting confidence in the U.K. economy (see Exhibit A above). Here's what markets looked like the last time the pound dropped below these levels - back in 1984. For some offsetting levity, here's Conservative Energy Minister Andrea Leadsom discussing the potential impact of Brexit on the pound just a few weeks ago. Leadsom came in second place in yesterday's first round of voting to decide who will succeed U.K. Prime Minister David Cameron, pipped by Home Secretary Theresa May. Elsewhere in British politics, here's Ken Clarke talking and the Chilcot Inquiry on the Iraq War is underway

How low can bond yields go?

Very low, apparently. Global government bond yields are plunging to fresh depths with Japan’s 20-year yield dropping below zero for the first time to reach minus 0.005 percent, while the 10-year U.S. Treasury reached a(nother) record low yield of 1.3397 percent. While much of the rush into bonds has been pinned on Brexit jitters, others are looking at the longer-term trend of central bank actions that have herded investors into sovereign debt. Mohamed El-Erian reckons that record low U.S. Treasury yields say more about Europe and Japan than anything else. Stock markets, meanwhile, continued their sell-off with the MSCI All Country World Index down 0.97 percent as of 4.56 a.m. ET. The Stoxx Europe 600 Index declined 1.14 percent as of 4:58 a.m. New York time while futures on the S&P 500 Index also point to a down day

Heavy metals

Gold bugs are perhaps one of the few investors enjoying themselves this week as the price of the precious metal has reached a two-year high on safe haven demand. Gold for immediate delivery rose as much as 1.1 percent to $1,371.39 an ounce in London, the highest level since March 2014, and traded at $1,367.39 by 4:03 a.m in New York. UBS AG Strategist Joni Teves figures the metal has further to go. We're in the early stages of the "next bull run," she said in a note lifting the bank's short-term price target to $1,400 from $1,250. Also in precious metals, it seems China's Great Ball of Money has rolled into silver with day traders in the country said to be behind the shiny stuff's biggest two-day rally in five years. Silver was up as much as 2.4 percent to $20.41 per ounce in early trading on Wednesday, and traded at $20.19 as of 4:07 a.m. New York time.

A little data deluge

German factory orders for May, released early on Wednesday, unexpectedly failed to rise as uncertainty over the global outlook deterred demand for goods. Economists had expected a 1 percent rise, but orders adjusted for seasonal swings and inflation were unchanged from April. In the U.S., trade deficit figures for May will be published at 8:30 a.m. New York time and are forecast to show a decline from $37 billion to $40 billion. They'll be followed by the June Markit Services PMI figures at 9:45 a.m. and then the minutes of the Federal Open Market Committee (FOMC) June meeting will be released at 2 p.m. ET. While that meeting took place before Britain's historic Brexit decision, they'll be closely watched for clues as to how the U.S. central bank is monitoring economic data, especially in the context of May's disappointing jobs report.

The British pound made a fresh 31-year low. Another day, another fresh 31-year low for the British pound. Sterling sank to 1.2798 in overnight action as traders continued to punish the currency amid the fallout from the British vote to leave the European Union in a so-called Brexit. According to Goldman Sachs, the pain isn't over yet. Analysts Silvia Ardegna, Robin Brooks, and Michael Cahill think a "second leg of weakness" is coming, which could pressure the pound to 1.20. Sterling is now trading down 0.3% at 1.2985.
Bond yields continue to slide. The US 10-year yield pressed below 1.32% in early trade, making for the lowest reading on record. The move lower in yields isn't relegated to just the US, as Australia (1.86%), Italy (1.21%), and the UK (74 basis points) are among numerous other countries seeing yields put in record lows. The drop in yields has come amid renewed worries over global growth that have resurfaced following the Brexit vote.
UBS says "gold has entered a new phase." The investment bank says risks to the global economy have made the yellow metal the go-to investment for the remainder of 2016. In a note to clients circulated on Tuesday, UBS strategist Joni Teves and her team raised their annual forecast for gold to an average of $1,280 an ounce, up from $1,225 an ounce. "Key drivers include: 1) low/negative real rates, 2) the view that the dollar has peaked against DM currencies, and 3) lingering macro risks," the team wrote. The precious metal is now up 1.3% at $1,374 an ounce.
Copper inventories are piling up. Copper inventories at the London Metals Exchange-approved warehouses rose 10,525 tonnes to 198,925 tonnes, data showed. The jump in inventory made for the biggest copper stockpile in nearly a month. The metal is lower by 1.8% at $2.1465 a pound in New York trade.
Tesla says it alerted regulators about the fatal Autopilot crash. Tesla says it told federal authorities about the fatal Autopilot crash nine days after it occurred. The company released that information on Tuesday after the company was criticized for not making the accident public before a federal investigation was announced. "Tesla does not find it necessary, nor does any automaker, to share the details of every accident that occur in a Tesla vehicle," the company said in a recently released statement. "More than a million people die globally every year in car accidents, but automakers do not disclose each of these accidents to investors, let alone before those investigations are complete and without regard to what the results of those investigations end up being."
Blackstone is selling medial and life-science properties. The real estate investment trust Ventas has agreed to buy virtually all of the medical and life-sciences properties of Wexford Science & Technology LLC from Blackstone for $1.5 billion, according to a statement released by Ventas, cited by Bloomberg. The deal includes 23 properties and two development sites, which are home to tenants including Yale University, Wake Forest University and Alexion Pharmaceuticals Inc., Bloomberg reports.
Facebook's old CTO has been appointed Twitter's board. Bret Taylor, Facebook's chief technology officer from 2009 to 2012, will become the ninth member of Twitter's board. Recently, Taylor has been running the startup Quip, which has raised $45 million to date.
Off the Hook?
The FBI’s decision not to recommend that Hillary Clinton face criminal charges over her use of private email, has removed a grave legal threat to the former secretary of state’s presidential campaign. But the detailed account given by James Comey, the agency’s director, of Mrs Clinton’s behavior, still presents a significant political gift to her opponents. Mr. Comey called Mrs. Clinton’s handling of classified information while secretary of state “extremely careless” and raised serious doubts about her candor, undermining her argument that she has the sober judgment that she says Republican rival Donald Trump lacks. According to the FBI, 110 of the approximately 30,000 emails Mrs. Clinton provided for the investigation contained information considered classified when they were sent. Republicans criticized the FBI’s decision not to recommend charges despite the damning evidence the bureau presented. Mr. Comey sharply criticized the State Department’s security practices and defended the investigation as exhaustive and impartial.
Brexit Rumbles On
Two big British asset managers blocked worried investors from pulling money out of real-estate funds while the pound sank to a new 31-year low on Tuesday, continuing to fall today, twin signs that the U.K.’s vote to leave the EU was injecting new turbulence into financial markets after days of relative calm. At the same time, the Bank of England eased regulatory restraints on British banks, a bid to allow them to lend more and keep the economy flush with credit. Investors fled to government bonds: Yields on the 10-year U.S. Treasury bond, the 10-year U.K. gilt and Japan’s benchmark 20-year government bond touched record lows. Meanwhile, U.K. Home Secretary Theresa May established herself as the front-runner in the race to become the next prime minister by convincingly winning a first round of voting for a new Conservative Party chief. Breaking on WSJ.com: a long-awaited official report into the Iraq war in 2003 was sharply critical of the U.K. government’s handling of intelligence and its lack of proper preparation for war.
Stock markets around the world are in the red. France's CAC (-2.3%) leads the decline in Europe after Japan's Nikkei (-1.9%) paced the losses in Asia. S&P 500 futures are down 13.50 points at 2,069.25.
Walgreens Boots Alliance reports ahead of the opening bell. The pharma giant is expected to earn an adjusted $1.14 a share on revenue of $29.72 billion, according to the Bloomberg consensus. Adjusted EPS has topped analyst expectations in six of the past eight quarters while revenue has fallen short of estimates in seven of the past eight quarters, Bloomberg data shows.

US economic data flows. The trade balance will cross the wires at 8:30 a.m. ET before Markit PMI and ISM nonmanufacturing are released at 9:45 a.m. ET and 10 a.m. ET. The latest FOMC minutes are due out at 2 p.m. ET. The US 10-year yield is down 4 basis points at 1.34%.

The FBI's Clinton e-mail decision just changed the presidential race.

How the 'Remain' campaign failed on Brexit.

If adjusted Ebitda isn’t offensive enough to you, here's LinkedIn's modified Ebitda.

If you read one profile of a central banker today, let it be this one.

Gauging Saudi Arabia's crude reserves is a graveyard for oil analysts.

And - go figure - big oil majors are approving big oil projects.

Saudi King Speaks Against Extremism After Attacks

Bank Profits Dealt Another Blow, as Yields Hit Record Lows

Low-Yield Blues? Corporate Bonds Are the Last Ones Paying

You know it's an extraordinary time for world markets when everyone has to get up to speed on the method through which the U.K.'s Conservative Party selects its next leader. Obviously, it's of major importance who succeeds David Cameron, as that person may decide when (or if?) to trigger Article 50, thereby beginning the two-year negotiation to exit the European Union. In addition to the question of timing, the next prime minister would also shape the U.K.'s goals for the negotiation. For proof that world markets are watching this process closely, go back to last Friday, when S&P 500 futures popped higher after leadership candidate Michael Gove said during a press conference that he didn't foresee Article 50 being triggered this year. Gove isn't even a frontrunner! Anyway, after yesterday's first round of voting by members of parliament it's down to three candidates. Gove, Andrea Leadsom (who campaigned for 'Leave'), and Theresa May, who took just over 50 percent of the MP votes in the first round. After the next round it will be down to two remaining candidates, and then actual members of the Conservative Party (not just the MPs) will have their say. Although Theresa May wasn't a 'Leave' supporter, she has pledged to honor the results of the referendum. If it comes down to May and Leadsom as the final two, expect there to be a surge of interest in how each one would approach their premiership and the tough Brexit decisions ahead.