Tuesday August 9 Daily Market Primer

Stocks dropped slightly in the US yesterday in relatively light trading.  OPECs plans to call a September meeting boosted oil prices, but we’ll see if it holds. Asian and European stocks are mostly up overnight

	LAST	CHANGE	% CHG
DJIA	18529.29	-14.24	-0.08%
Nasdaq	5213.14	-7.98	-0.15%
S&P 500	2180.89	-1.98	-0.09%
Russell 2000	1230.42	-0.88	-0.07%
CBOE Volatility	11.26	-0.24	-2.09%
Australia: S&P/ASX 200	5552.5	14.7	0.27%
China: Shanghai Composite	3025.68	21.4	0.71%
Hong Kong: Hang Seng	22465.61	-29.15	-0.13%
India: S&P BSE Sensex	28085.16	-97.41	-0.35%
Japan: Nikkei 225	16764.97	114.4	0.69%
Singapore: Straits Times	2870.78	42.61	1.51%
France: CAC 40	4446.11	30.65	0.69%
Germany: DAX	10536.11	103.75	0.99%
Italy: FTSE MIB	16769.21	25.39	0.15%
Spain: IBEX 35	8618.9	56.4	0.66%
U.S. 3 Month	0.3	0/32
U.S. 2 Year	0.734	0/32
U.S. 5 Year	1.14	1/32
U.S. 10 Year	1.577	5/32
U.S. 30 Year	2.286	15/32
Germany 2 Year	-0.611	0/32
Germany 10 Year	-0.06	-2/32
Crude Oil	43.3	0.28	0.65%
Brent Crude	45.5	0.11	0.24%
Natural Gas	2.685	-0.063	-2.29%
E-mini S&P 500	2177.25	1.75	0.08%

India held its base rate at 6.5%, as its popular central bank head prepares to depart.  Presidential politics turned to the economy yesterday as Donald Trump gave a speech in Detroit and Hillary Clinton responded.  Secretary Clinton will give her version on Thursday.  China continues to weaken its currency but investors don’t seem to care (see Yuan, one year on).  In spite of all the reported logistical, political, and economic problems with Brazil and host city Rio De Janeiro, the Olympics are underway.  As the last story points out, the market seems very quite as we move into August even though the major stock indices are at all time highs.

Here’s the news:

Rajan's last RBI decision

The Reserve Bank of India decided to maintain its benchmark repurchase rate at 6.5 percent in its last decision before Governor Raghuram Rajan steps down to return to academia. Yields on Indian sovereign bonds dropped the most in two weeks after the governor said that the bank's policy stance would remain accommodative. Rajan, who has a reputation for tackling inflation and is leaving the RBI on Sept. 4, urged his yet-to-be-named successor to continue the fight against rising prices. That person's task may not be made any easier by Prime Minister Narendra Modi's win on the introduction of a national sales tax for the first time. The tax, depending on the rate it's set at, could work counter to the RBI's efforts.

U.K. data

The day after the Bank of England began purchases under its enlarged quantitative easing program, more data showed the economy there softened somewhat in June. Industrial production for the month rose 0.1 percent, with manufacturing output dropping 0.3 percent. The trade deficit unexpectedly widened to 12.5 billion pounds in the second quarter. There was some good news for the post-Brexit economy, however, as the British Retail Consortium reported a 1.1 percent same-store increase in sales in July. The pound was trading at $1.2976 as of 6:09 a.m. ET.

Yuan, one year on

One year since China roiled markets by devaluing its currency there is little sign of the yuan's decline ending. The main difference between the steady drop that has occurred since March of this year and the sudden shock of a year ago is the lack of apparent investor concern at the weakness. While the yuan is within 1 percent of a five-year low against the U.S. dollar, the global effect seems limited, with the S&P 500 Index climbing to an all-time high. There is still at least one investor, however, who is convinced that the currency is going to crash.

Markets say 'meh'

It's August, and even though markets are pretty quiet, gains are still being eked out. Overnight, the MSCI Asia Pacific Index added 0.5 percent to extend a one-year high amid optimism over China's economic stability. In Europe, the Stoxx 600 Index was 0.25 percent higher in trading that saw volume almost 40 percent lower than the 30-day average. S&P 500 futures were flat. 

Valeant miss

Valeant Pharmaceuticals International Inc. reported sales and earnings for the second quarter this morning that fell short of analyst expectations. Nonetheless the stock is rising over 7 percent in pre-market activity. The company, which is facing a debt pile built up after an acquisition spree, may now have to sell some of the assets purchased in order to meet repayments on $5 billion that will fall due by the end of 2018. Another company that disappointed after the bell yesterday was LendingClub Corp., reporting a loss of $81.4 million in the second quarter and the departure of Chief Financial Officer Carrie Dolan.

China's inflation grew at its slowest pace in 7 months. Consumer prices in China rose 1.8% year-over-year in July, according to data released by the National Bureau of Statistics. Pork prices grew at a 16.1% YoY clip (30.1% YoY in June), helping push food inflation down to 3.3% YoY. As for producer prices, they fell 1.7% YoY, an improvement from the 2.6% YoY contraction seen in June.
India's central bank made its last policy decision under Raghuram Rajan. The Reserve Bank of India held its key rate at 6.50%, as expected. In its policy stat
UK retail sales weren't affected by Brexit. The latest figures from the British Retail Consortium and KPMG showed that retail sales rose 1.1% in July. "Warmer weather helped blow away some of the postreferendum blues, boosting the UK feel-good factor and giving consumers a sense that 'life goes on' following the initial shock of the Brexit vote," David McCorquodale, KPMG's retail head, noted in the release. Food and drink as well as fashion were the biggest beneficiaries of the warm weather.
LendingClub's CFO is leaving the company. CFO Carrie Dolan has resigned to "pursue a new opportunity." The announcement accompanied LendingClub's quarterly results, which showed a top-line miss of an adjusted loss of $0.09 a share and a bottom-line beat of $103.4 million in revenue.
Twitter is looking to sublease out a bunch of office space. The social-media company wants to get rid of 183,642 square feet of office space from its San Francisco headquarters, according to the San Francisco Business Times. The office space is the biggest sublease available in San Francisco.
US Steel is offering a bunch of stock. The steelmaker announced a public offering of 17 million common shares. The share sale will increase the amount of US Steel shares by about 11.6%.
News Corp. missed on the top and bottom lines. The media giant earned $0.40 a share on revenue of $8.29 billion. "Digital subscriptions continue to grow and now account for approximately 45% of the subscriber base, while print sales have also risen tangibly in recent months," CEO Robert Thomson said in the earnings statement.
Trump on the Stump
Donald Trump blasted Hillary Clinton in an economic-policy speech that sought to pick off some of her supporters and stabilize his campaign after a rocky week. Mr. Trump fused his populist message with appeals designed to win support from the left, alongside a full embrace of policies on regulation and energy production to try to please skeptics on the right. In St. Petersburg, Fla., Mrs. Clinton fired back, dismissing her rival’s plans as a repackaging of old Republican ideas. Washington bureau chief Gerald Seib said Trumpism—a populist mix of anger at the status quo, skepticism about free trade and immigration, fondness for law and order and a dose of nationalism—is a combination of attitudes that existed before Mr. Trump’s rise, and may not be dependent upon to his fate.
Low Interest
Policy makers in Europe and Japan have turned to negative rates to stimulate their lackluster economies. Yet, instead of opening their wallets, many consumers and businesses are squirreling away more money. Recent economic data show consumers are saving more in Germany and Japan. In Denmark, Switzerland and Sweden, three non-eurozone countries with negative rates, savings are at their highest since 1995. Companies in Europe, the Middle East, Africa and Japan also are holding on to more cash. Tumbling interest rates are also motivating companies and government agencies to “call” bonds at the fastest pace in four years, taking advantage of provisions that let them redeem securities under certain circumstances and save money by reissuing at lower rates.

Phelps Goes for Corporate Gold

Michael Phelps’s triumphant return to the pool Sunday night made it clear he is serious about extending his legacy as the most decorated athlete in Olympic history. It is unclear if adding to his historic medal collection will help rebuild the personal branding empire that was downsized after a brief retirement and a 2014 drunken driving incident. Phelps saw his sponsorship portfolio shrivel, and his agent says he is seeking to rebuild his corporate persona—with the Rio Olympics as his springboard. In other Olympics news, Lilly King of the U.S. set an Olympic record in winning the 100-meter breaststroke Monday night. Meanwhile, Jason Gay confronts the idea that the most compelling parts of U.S. men’s basketball team’s story are taking place off the court.

QUOTE OF THE DAY

Later-stage companies that can’t raise capital or stop burning cash can either seek a profitable M&A outcome, or become a smoking black-hole by shutting down. The smoking black-hole scenario is the higher probability outcome. Michael Kim, managing director of Cendana Capital, and an investor in Dollar Shave Club Inc., on the likely future of some startups that have seen their ambitions thwarted as capital markets tighten.

Stress test: Fannie, Freddie could need $126B to survive crisis

US housing-finance agencies Fannie Mae and Freddie Mac would need a major infusion of taxpayer cash to survive a financial crisis, a stress test by the Federal Housing Finance Agency has found. A major economic downturn would trigger a need for as much as $126 billion, according to the test.

Reuters (08 Aug.) 

Futures market signals higher expectation of rate hike

Strong job creation in July raises the chance the Federal Reserve will increase interest rates. The futures market indicates an 18% chance of a rate bump in September and a 40% chance by December.

CBS MoneyWatch

Stock markets around the world are higher. China's Shanghai Composite (+0.7%) led the gains in Asia, and Germany's DAX (+0.6%) paces the advance in Europe. S&P 500 futures are up 0.75 points at 2,176.25.
Earnings reports continue to flow. Coach and Valeant are among the companies reporting ahead of the opening bell, while Fossil, Solar City, The Walt Disney Company, and Yelp highlight the names releasing their quarterly results after markets close.

US economic data is light. Wholesale inventories will cross the wires at 10 a.m. ET. The US 10-year yield is down 2 basis points at 1.57%.

Odd Lots Podcast: Why summer has gone on sale.

Mobster or central banker? Spanish cops allege this Russian is both. 

Emerging markets aren't really in charge of their own interest rates any more.

There are signs American workers are gaining power.

Arrivederci Treasuries as Italy yields lure Japan investors. 

Gold futures are back on the London Metal Exchange after 30 years.

Bernanke on the Fed’s shifting perspective on the economy and its implications for monetary policy.

The overriding theme of this market right now is that it's very quiet. Measures of volatility are low and there hasn't been much market-moving news. That being said, there are two themes that continue to stand out. One is that there's a general recovery in various indicators related to emerging markets, particularly out of Asia. Today we saw Chinese Producer Price deflation ease to its best level since August 2014, for instance, a sign that industrial slack may be on the decline. Yesterday Taiwanese exports also turned positive for the first time in 17 months. Secondly, there have been signs of improvement in the position of labor. The latest NFIB Small Business Economic Trends survey showed that 15 percent of small business owners cited the difficulty of finding quality workers as their single biggest problem, which is close to the highest level of the expansion. Meanwhile, businesses that have at least one job opening they can't fill stood at 29 percent, which is the best level of the expansion. So on top of a bunch of other indicators, the labor shortage in the U.S. continues to be a theme. This August has been stereotypically quiet so far, but that doesn't mean that there aren't some interesting macro trends unfolding.

  

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