Friday August 26 Daily Market Primer

Happy Friday. Stocks dropped in another dull day yesterday, lead down by health care shares for the second day in a row.  All eyes and ears are on Janet Yellen for today’s speech at Jackson Hole at 9am Central.  No pressure Janet.  Overseas markets were mixed, and Japan was down 1% as the government pension fund reported losses of $52 billion in the last three months.   Maybe they need a robust, globally diversified, multi-asset class portfolio.  Just sayin'.  The market just opened and I’m seeing a little green on the screen.  I’m pressing send now before it reverses.

	LAST	CHANGE	% CHG
DJIA	18448.41	-33.07	-0.18%
Nasdaq	5212.2	-5.49	-0.11%
S&P 500	2172.47	-2.97	-0.14%
Russell 2000	1240	2.75	0.22%
Global Dow	2452.11	1.49	0.06%
Japan: Nikkei 225	16360.71	-195.24	-1.18%
Stoxx Europe 600	341.82	-0.2	-0.06%
UK: FTSE 100	6819.87	2.97	0.04%
CBOE Volatility	13.83	0.2	1.47%
Australia: S&P/ASX 200	5515.5	-26.4	-0.48%
China: Shanghai Composite	3070.31	1.98	0.06%
Hong Kong: Hang Seng	22909.54	94.59	0.41%
India: S&P BSE Sensex	27782.25	-53.66	-0.19%
France: CAC 40	4408	1.39	0.03%
Germany: DAX	10512.58	-17.01	-0.16%
Italy: FTSE MIB	16690.44	-20.34	-0.12%
Spain: IBEX 35	8604.3	4.8	0.06%
U.S. 3 Month	0.322	0/32
U.S. 2 Year	0.77	1/32
U.S. 5 Year	1.146	3/32
U.S. 10 Year	1.556	6/32
U.S. 30 Year	2.241	17/32
Germany 2 Year	-0.612	0/32
Germany 10 Year	-0.079	2/32
Crude Oil	47.35	0.02	0.04%
Brent Crude	49.61	-0.06	-0.12%
S&P GSCI	363.22	0.07	0.02%

Initial jobless claims came in yesterday at 261K, the lowest level in five weeks.  UK GDP was revised up to .6% from .4% for the second quarter, a little better than Dr. Yellen’s speech today on the effacacy of monitary policy in a low interest rate, low inflation world.

Here’s the news:

Janet Yellen at Jackson Hole

10 a.m. ET today may mark the end of the summer trading lull as Federal Reserve Chair Janet Yellen delivers a speech titled "The Federal Reserve’s Monetary Policy Toolkit” in Jackson Hole, Wyoming. Ahead of that address, market-implied odds of a rate rise as early as September have jumped to 1-in-3, up from zero in the weeks after the U.K. voted to leave the European Union. 

Pension fund losses

Japan’s Government Pension Investment Fund lost 5.2 trillion yen ($52 billion), in the three months to the end of June as stocks tumbled and the yen surged. The fund's change of investment focus towards equities last October is being blamed for the increased volatility of the value of its assets. In South Korea, the Government Employees Pension Service is using a different tactic to boost asset values by taking advantage of a strong won to buy overseas assets and to reduce holdings of low-yielding domestic bonds.

Bank capital The European Central Bank and the Bank of England seem to be losing the battle with banks over capital supervision, as a proposal from the European Commission, the EU’s executive arm, would give banks the lead in determining their own capital needs that are not covered by the legal minimum. In the U.S. banks are not getting things their own way so much, as they are due to learn what recommendations the Federal Reserve has, beyond the Volcker Rule, to rein in risky investments by financial institutions.

Markets quiet

Continuing a recent theme, markets remain quiet across the world. Overnight, the MSCI Asia Pacific Index slid 0.5 percent while Japan's Topix index dropped 1.2 percent. In Europe, the Stoxx 600 Index was down 0.1 percent at 6:05 a.m. ET, with volumes more than a third lower than the 30 day average. S&P 500 futures were up 0.2 percent.

Janet Yellen is set to make her most important speech of the year. Federal Reserve Chair Janet Yellen will give her long-awaited speech in which she is expected to lay out the path for Fed policy going forward. Yellen's remarks will begin at 10 a.m. ET.
Odds of a Fed rate hike are on the way up. Data from Bloomberg shows traders are pricing in a 32% chance the Fed will raise interest rates at its September meeting and a 57.4% probability that a rate hike will happen before the end of the year.
Japan remains trapped in deflation. Core CPI fell 0.5% in July, making for the lowest reading since March 2013. The Japanese yen is little changed near 100.45 per dollar.
UK GDP was better than originally thought. The UK economy expanded at a 0.6% clip in the second quarter, according to a revised estimate of the original reading of up 0.4%. The British pound is little changed near 1.3200.
Saudi Arabia threw cold water on the prospects of a freeze to oil output. Khalid Al-Falih, the Saudi energy minister, told Reuters on late Thursday that the kingdom didn't "believe any significant intervention in the market is necessary other than to allow the forces of supply and demand to do the work for us." West Texas Intermediate crude oil is down 0.3% at $47.16 a barrel.
America is driving more than ever. Data released by the Department of Energy shows that vehicles in the US drove a record 1.58 trillion miles in the first half of 2016, up 3.3% from the same period last year.
Amazon is opening another bookstore. The online retailer says it will open a brick-and-mortar bookstore in Chicago's Lakeview neighborhood in 2017.
Immigration Fallout
Donald Trump continues to send mixed signals on his immigration proposals. In the past week, he has steadily backed away from his promise in the primary campaign that, as president, he would deport all illegal immigrants. But even as he has sought to appease critics, who have attacked his proposals as inhumane and impractical, his signals have been dividing his closest allies and prompting warnings he could lose core supporters if he abandons the signature issue of his campaign. Mr. Trump said in a Thursday CNN interview both that it would be difficult to deport 11 million illegal immigrants and that he might do it anyway, but in interviews this week with Fox News he suggested those without criminal records could stay if they pay “back taxes.” The potential shift coincides with a shake-up of his campaign leadership. Meanwhile, Mr. Trump and Hillary Clinton exchanged pointed barbs in back-to-back speeches yesterday, suggesting a bitter fight through November. Mr. Trump this week has called Mrs. Clinton a “bigot.” She responded by painting her GOP rival as a friend to racists.
Missed Targets
In the past decade, Federal Reserve officials have been flummoxed by a housing bubble that cratered the financial system, a long stretch of slow growth they failed to foresee and inflation persistently undershooting their goal. In response they engineered unpopular financial rescues, launched start-and-stop bond buying and delayed planned interest-rate boosts. We explore how years of Fed missteps fueled disillusion with the economy and Washington, fostering the recent rise of populism demonstrated by Donald Trump and Bernie Sanders. Now the Fed confronts hardened public skepticism and growing self-doubt about its own understanding of how the U.S. economy works, as basic assumptions inside the central bank’s complex computer models have been upended. The Fed’s struggles will be on display from Friday to Sunday when it gathers for an annual retreat in Jackson Hole, Wyo.

Obama nominates Kim for second term as World Bank president

Kim (Adam Berry/Getty Images)

In a statement by US Treasury Secretary Jack Lew, President Barack Obama nominated Jim Yong Kim for a second term as president of the World Bank. A Treasury spokesman said the announcement was made at the beginning of the period for submitting nominations, to signal the president's strong support for Kim.

The New York Times (free-article access for SmartBrief readers)
Stock markets around the world are lower. Germany's DAX (-0.2%) leads the way down in Europe after Japan's Nikkei (-1.2%) took a dive in Asia. Hong Kong's Hang Seng (+0.4%) outperformed. S&P 500 futures are up 1.00 points at 2,174.50.
Earnings reporting is light. Big Lots reports ahead of the opening bell.

US economic data flows. The advanced goods trade balance and second-quarter GDP will be released at 8:30 a.m. ET before University of Michigan consumer confidence crosses the wires at 10 a.m. ET. Then, at 1 p.m. ET, the Baker Hughes rig count will be announced. The US 10-year yield is down 1 basis point at 1.56%.

200-year energy demand boom to peak by 2060.

Swedish debt office says central bank is nearing limit of QE.

Putin is building a great Russian firewall.

Saudi Arabia said to target first dollar bond after Fed meeting.

Gold believers lose faith in miner's gain.

Hedge funds suddenly winning on China's most dangerous short.

s Europe lost?

Burden of Health-Care Costs Moves to the Middle Class

Turkey Sends More Tanks Into Syria as Kurds Pull Out of Manbij

Volkswagen Reaches Pact With U.S. Franchise Dealers Hurt by Emissions Scandal

Land Buyers Stampede Into Texas Oil Patch

Chinese policy makers face a delicate balancing act as they seek to cool overheating property markets without triggering market distortions or trimming economic growth in the process. Beijing looks poised to impose fresh measures to deflate real-estate bubbles in first-tier cities, Bloomberg News reported on Thursday. Meanwhile, developers want local-government stimulus in lower-tier cities, amid fears the market will be flooded with unsold apartments in the absence of measures to boost demand. Watch how these real-estate imbalances play out in the coming months. Even a modest cooling of the property market could exert downward pressure on private-investment and consumption, while giving equity markets the jitters, given the correlation between the two in the southern city of Shenzhen, for example.

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