Thursday August 18 Daily Market Primer

After falling on the Fed speak this week, stocks rose after the minutes from the July 26-27 Federal Open Market Committee (FOMC) meeting were released.   While the minutes gave little or no additional insight on when the Fed might raise rates, they did indicate a sharp difference of opinion on the committee, with two members in favor of raising rates at the meeting.  NY Fed President William Dudley reflected this more hawkish tone in TV interview on Fox News this Tuesday.  The US ten year fell to 1.558% from 1.575% on Wednesday.   Minutes from the last European Central Bank meeting were also published this morning,  citing “headwinds” from Brexit but were otherwise being inconclusive on the real economic impact of Brexit on Europe http://bit.ly/ECBheadwinds.    Stocks were mixed in Asia overnight and are up modestly in Europe today.

The US market opened flat this morning, as you can see here:

	LAST	CHANGE	% CHG
DJIA	18573.94	21.92	0.12%
Nasdaq	5228.66	1.55	0.03%
S&P 500	2182.22	4.07	0.19%
Russell 2000	1227.68	-3.45	-0.28%
Asia Dow	2943.17	3.68	0.13%
DJ Asia-Pacific TSM	1465.74	-5.82	-0.40%
Australia: S&P/ASX 200	5507.8	-27.2	-0.49%
China: Shanghai Composite	3104.11	-5.44	-0.17%
Hong Kong: Hang Seng	23023.16	223.38	0.98%
India: S&P BSE Sensex	28123.44	118.07	0.42%
Japan: Nikkei 225	16486.01	-259.63	-1.55%
Singapore: Straits Times	2836.98	-6.37	-0.22%
France: CAC 40	4414.73	-2.95	-0.07%
Germany: DAX	10553.3	15.63	0.15%
Italy: FTSE MIB	16538.9	10.54	0.06%
Spain: IBEX 35	8487.7	0.7	0.01%
U.S. 3 Month	0.299	0/32
U.S. 2 Year	0.714	1/32
U.S. 5 Year	1.125	`
U.S. 10 Year	1.543	1/32
U.S. 30 Year	2.257	3/32
Germany 2 Year	-0.615	0/32
Germany 10 Year	-0.074	8/32
Crude Oil	47.05	0.26	0.56%
Brent Crude	49.78	-0.07	-0.14%
Natural Gas	2.666	0.007	0.26%
S&P GSCI	365.9	0.82	0.22%
E-mini S&P 500	2177	-2.75	-0.13%

The widely reported number of 14K layoffs (repeated here) from yesterday morning at router giant Cisco is thankfully lower, corrected in company statements to a still painful 5,500.  Japanese exports cratered in July, which is more bad news for the beleaguered Japanese economy.  And a pretty interesting story this week is about Aetna strong-arming the Justice Department (Aetna Unloads, below) by tying Obamacare participation to the failed Humana merger.

Fed minutes show a split

While FOMC minutes released yesterday showed that a couple of Federal Reserve officials backed a rate hike at the July meeting, overall the committee remained split on whether the slowdown in jobs growth means the labor market is nearing full employment or whether it's indicative of an economy that needs resuscitating. That left Fed fund futures implying balanced odds that there'll be a rate hike by the end of 2016 — a probability that's not much changed from before the minutes. Officials appeared inclined to continue normalizing rates, but their evident lack of urgency left the dollar trading weaker against most world currencies, setting the tone for much of the markets' overnight moves.

Clues about ECB QE

The European Central Bank is releasing minutes of its own at 7:30 a.m. New York time, which may give investors some clues about the future of its bond-buying program. While inflation is a rare point of consensus among U.S. monetary policy officials, it remains an issue on Mario Draghi's side of the Atlantic, where Sweden is selling inflation-linked bonds and euro zone data showed a tiny acceleration in consumer-price gains (to 0.2 percent in July versus June's 0.1 percent.) U.K. retail sales rose 1.4 percent in July, more than a percentage point faster than economists' expectations, suggesting the economy began its first post-referendum quarter on a strong footing. That has the pound 0.9 percent stronger to $1.3153 as of 4:38 a.m. ET.

Japanese exports fall

Japanese markets are feeling heat from the Fed, with the yen strengthening past 100 to the dollar in the day's trading, sending the Topix index 1.6 percent lower by the close. New data underscored the growth-sapping impact of a stronger yen as the country's exports fell 14 percent in July from a year earlier, the most since 2009 and the tenth consecutive month of declines. The Bank of Japan will review its monetary policy next month, amid fears it is running out of firepower to reflate the economy, while Japanese lenders say they have less flexibility to sell their government bond holdings to the central bank compared with earlier in the year. Meanwhile, part-time labor helped the Australian economy add more than twice as many jobs as economists were expecting, pushing the aussie higher. 

Property market wobbles in China

Data suggest the Chinese real-estate sector — a key driver for the economy’s expansion in the first half of the year — is slowing down while imbalances are growing. In July, new-home prices rose in 50 out of the 70 cities tracked by China’s statistics agency, compared with 55 cities in June, while prices fell in more cities for a fourth consecutive month. Bloomberg Intelligence data for July also show property prices in top-tier cities are advancing while sentiment in lower-tier cities is cooling. The divergent outlook could place Beijing in a policy bind as it seeks to stabilize growth in the second half of the year. The yield curve on Chinese bonds is at its flattest since early 2015.

Emerging markets bask in Fed's glow

While UBS Group AG has said emerging markets can't ignore the math of a Chinese slowdown forever, the asset class was lifted this morning by the weaker dollar — even if that's boosting some more than others. All ten industry groups of the MSCI Emerging Market Index were trading higher by 4:31 a.m. in New York, with Samsung Electronics Co.'s share price surging to a record.

The Fed is worried about a couple of things. The minutes from the July FOMC meeting had a little bit of everything, suggesting the Fed still wasn't sure when the next rate hike would occur. While there were numerous positives, the Fed suggested it was particularly worried about banks in Italy and stretched valuations in the US commercial real estate market.

UK retail sales surged after Brexit. Consumers in the UK didn't let Brexit affect their spending habits, as retail sales climbed 1.4% month-over-month in July, easily beating the 0.2% gain that economists had forecast. The data was a bit of an outlier, as most has shown a sign of slowing after the British vote to exit the European Union. The British pound is stronger by 0.9% at 1.3158.

Euro-area inflation was in line. According to Eurostat, inflation in the euro area rose 0.2% in July, up from 0.1% in June. Belgium (+2.0%) saw the hottest reading in the euro area, while Slovakia (-0.9%) saw the coolest. The euro is higher by 0.3% at 1.1321.

Australia's jobs report beat. The Australian economy added 26,000 jobs in July, outpacing the expected gain of 10,000 jobs. While the number looks good on the surface, full-time employment fell by 45,400 jobs, while part-time employment increased by 71,600. Australia's unemployment rate slipped to 5.7%. The Australian dollar is up 0.5% at .7692.

Cisco is cutting jobs. The company announced adjusted earnings of $0.63 a share on a 2% jump in revenue to $12.64 billion. Both numbers were ahead of estimates. Additionally, Cisco said it would eliminate 5,500 jobs, or 7% of its workforce, well below the job cuts of 14,000 job that were reported on Tuesday.

American Apparel is reportedly trying to sell itself. Six months after emerging from Chapter 11 bankruptcy, the retailer has hired the investment bank Houlihan Lokey to look into a sale, Reuters reports, citing people familiar with the matter. "As we have regularly communicated to employees, vendors, and customers, we continuously evaluate strategic alternatives," American Apparel said in a statement.
The $400m Non-Ransom
New details of the cash transfer by the U.S. to Iran earlier this year depict a tightly scripted exchange specifically timed to the release of several American prisoners held in Iran. We report that U.S. officials wouldn’t let Iranians take control of the money until a Swiss Air Force plane carrying three freed Americans departed from Tehran on Jan. 17. Once that happened, an Iranian cargo plane was allowed to bring the cash home from a Geneva airport that day. President Barack Obama and other U.S. officials have said the payment didn’t amount to ransom, because the U.S. owed the money to Iran as part of a longstanding dispute linked to a failed arms deal from the 1970s. But the handling of the payment and its connection to the Americans’ release have raised questions among lawmakers and administration critics.
Aetna Unloads
Aetna told Justice Department antitrust officials in a letter early last month that if they sued to block its deal to acquire Humana, it would immediately reduce its presence on the Affordable Care Act health-insurance exchanges and cancel a planned expansion. On Monday, a few weeks after the Justice Department filed suit to block the deal, Aetna said that it would withdraw from 11 of the 15 state exchanges where it sells health plans. The public emergence of the bluntly worded letter, from Aetna Chief Executive Mark T. Bertolini, has led critics to question the motives behind the insurance company’s pullback from the insurance exchanges. It also has added a layer to a broader debate over the causes and cures for the red ink the exchanges are generating for insurers. President Obama’s signature health-care law is struggling for one overriding reason, writes our Capital Account columnist Grep Ip: Selling mispriced insurance is a precarious business model.
Brace for Bannon
Following our report of Donald Trump hiring Stephen Bannon to his campaign while promoting Kellyanne Conway, some Republicans welcomed the shake-up, hoping it would bring a dramatic change to his faltering trajectory in opinion polls against Hillary Clinton. But some in the GOP also said they were worried that Mr. Trump couldn’t recover lost ground by choosing Mr. Bannon, a provocative media entrepreneur who has never run a campaign, to lead his team. The overhaul is in keeping with Mr. Trump’s expressed desire in recent days to be himself. The New York businessman brought his campaign to Wisconsin on Tuesday night, continuing to campaign in states where he faces daunting deficits in polls.
Shipping Air
It is an experience familiar to every online shopper: You order something extra—socks, some batteries—to reach the minimum dollar amount to qualify for free shipping. A few days later, your small, add-on item arrives in a big box, encased in miles of Bubble Wrap and tissue paper. Free shipping is a dangerous game for retailers, but customers expect it. Nationwide chains such as Macy’s and Target have recently seen declining profits despite rising online sales. Jet, which Wal-Mart is acquiring for $3.3 billion, operates at a loss. Even Amazon says fulfillment costs are rising faster than sales. Reducing cost by shipping orders in fewer, smaller boxes while getting bigger, more profitable orders will separate the winners from the losers online, analysts say. We break down why your tiny items still show up in giant boxes.

Banks gear up for IPO rebound

Wall Street banks are preparing for initial public offerings to bounce back in the second half of this year, after a six-month slump. The success of IPOs from messaging app Line and cloud provider Twilio has persuaded companies that the time is right to go public.

CNBC (17 Aug.),  Business Insider (17 Aug.) 

Deutsche Boerse-LSEG merger in regulators' hands

Deutsche Boerse and London Stock Exchange Group are turning their attention to securing approval for their proposed merger from dozens of regulatory bodies around the globe. The shift comes after more than 89% of Deutsche Boerse shareholders voted to approve the merger.

The Wall Street Journal (tiered subscription model) (17 Aug.), 

A 12th Louisiana Flood Victim Is Found
Russia Keeps Up Airstrikes on Syria From Iran
Patagonia’s Balancing Act: Chasing Mass-Market Appeal While Doing No Harm
Gannett Sweetens Bid for Chicago Tribune Parent Tronc
‘Mystery Shoppers’ for Home Loans: Government Uses Undercover Techniques on Bank
Stock markets around the world are mixed. Germany's DAX (+0.5%) leads the way up in Europe after Japan's Nikkei (-1.6%) lagged in Asia. S&P 500 futures are little changed at 2,179.50.
Earnings reporting is light. Hormel Foods, Walmart, and MSG Networks will report ahead of the opening bell, while Ross Stores and Gap release their quarterly results after markets close.

US economic data trickles out. Initial jobless claims and the Philly Fed will be released at 8:30 a.m. ET. The US 10-year yield is unchanged at 1.55%.

Don't short the FTSE 100, says the guy who called crude's 2014 moves.

Egypt's long-postponed Eurobond sale is back on the table.

Tensions between Hong Kong and the mainland are on the rise.

The U.S. swimming medalists may be in hot water.

How do you rate an Uber driver that doesn't exist? 

Yesterday, the Fed minutes were perceived to be dovish and the odds of a rate hike in 2016 fell back below 50 percent. What's more, as Bloomberg's Matthew Boesler reported, the one thing the FOMC members all agreed on is that there's very little risk of an upside surprise in inflation. That being said, in the actual economy, the evidence is mounting that underlying inflation pressures continue to build. Earlier this week we got the latest installment of the U.S. Consumer Price Index and at first look, it appeared that inflation remains quite subdued. But underneath the surface there are signs that things continue to move in the direction of the Fed's target. As Michael Ashton of Enduring Investments noted in a Bloomberg TV appearance, we saw an increase in the so-called "sticky" inflation categories (rent, healthcare, etc.), meaning that a lot of the categories that dropped were just noisy ones that bounce around a lot. What's more, the Cleveland Fed's Median CPI measure (which strips away outlier categories) hit a new post-crisis high of 2.55 percent year-over-year. For most people, the takeaways from this week will be that the Fed isn't worried about inflation and that CPI was tame. And that's all correct. But don't ignore the signs that prices are going up.

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