Wednesday August 17 Daily Market Primer

US stocks dropped about ½% yesterday on news from two Federal Reserve presidents. NY Fed President William Dudley said on Fox News that the economy should strengthen through the end of the year and that that the presidential race would not effect the Fed’s decision, and that a September rate hike is possible if not probable.   SF Fed President John Williams released a paper that the Fed should reconsider or replace its inflation targets http://bit.ly/WilliamsTgts.  Matt Peron, head of global equity for Northern Trust, told the WSJ “Profit growth will be necessary to drive the market higher from here, but while we wait for that, we’ll probably consolidate the recent gains we’ve had”.  Markets were mostly down overseas with the exception of Japan, and the US market opened slightly down this morning.

DJIA	18552.02	-84.03	-0.45%
Nasdaq	5227.11	-34.9	-0.66%
S&P 500	2178.15	-12	-0.55%
Russell 2000	1231.13	-10.74	-0.86%
Global Dow	2445.25	-0.25	-0.01%
Japan: Nikkei 225	16745.64	149.13	0.90%
Stoxx Europe 600	341.34	-1.98	-0.58%
UK: FTSE 100	6870.27	-23.65	-0.34%
Australia: S&P/ASX 200	5535	3	0.05%
China: Shanghai Composite	3109.55	-0.48	-0.02%
Hong Kong: Hang Seng	22799.78	-111.06	-0.48%
India: S&P BSE Sensex	28005.37	-59.24	-0.21%
Japan: Nikkei 225	16745.64	149.13	0.90%
Singapore: Straits Times	2843.35	-15.45	-0.54%
France: CAC 40	4430.26	-30.18	-0.68%
Germany: DAX	10561.49	-115.16	-1.08%
Italy: FTSE MIB	16601.82	-191.14	-1.14%
Spain: IBEX 35	8524.8	-96.9	-1.12%
U.S. 3 Month	0.299	1/32
U.S. 2 Year	0.762	-1/32
U.S. 5 Year	1.164	-1/32
U.S. 10 Year	1.574	0/32
U.S. 30 Year	2.289	5/32
Germany 2 Year	-0.61	0/32
Germany 10 Year	-0.036	Mar-32
Crude Oil	46.42	-0.16	-0.34%
Brent Crude	49.34	0.11	0.22%
Natural Gas	2.654	-0.003	-0.11%
S&P GSCI	363.02	-0.13	-0.04%
E-mini S&P 500	2176	-0.75	-0.03%

The July Fed minutes will be out today and we will be parsing them closely as always.  Cisco announced 14,000 layoffs, Barnes and Noble sacked the CEO after just one year, there’s trouble at hedge funds Brevan Howard and Tudor Investments, Donald Trump has reorganized his campaign team, and the US continues to win at the Olympics http://bit.ly/MedalTracker.  Here’s the news:

Fed minutes

Anticipation is building for the July minutes of the Federal Open Market Committee meeting, with hawkish comments from New York Federal Reserve Bank President William Dudley on Tuesday helping the dollar snap its losing streak. He said a September rate hike is still possible — even if markets aren't convinced that it's probable — sending the futures-implied odds of a rate hike in 2016 above 50 percent for the first time since the aftermath of the U.K. referendum. Even so, while markets do their best to parse inputs into Fed decision-making, the ground is shifting beneath their feet with ever more big names throwing shade at the efficacy of monetary-policy levers. See Paul Krugman tackle the subject in our most recent episode of What'd You Miss.

Funds shed jobs and investors

Money managers aren't respecting the August lull, with changes afoot at a swath of different funds. While Credit Suisse is hiring, Paul Tudor Jones is said to be firing, after investors withdrew close to $2 billion from Tudor Investment Corp. this year. His is not the only hedge fund experiencing woes — new data from Eurekahedge showed investors pulled $5.7 billion across the industry in July, although this interesting paper debunks the prevailing narrative on lackluster hedge-fund returns. It's not confined to funds: Cisco Systems Inc. is also said to be cutting 14,000 jobs. Turning a more macro lens onto labor markets, data in the U.K. showed jobless claims unexpectedly declined.

Softer crude

Oil prices slid after weekly data highlighted expanding U.S. gasoline stockpiles, renewing concerns of a global oil glut, with Brent futures down by as much as 1.2 percent by 5:47 a.m. in New York. Comments from Saudi Arabia last week that it was prepared to stabilize markets had helped to put crude prices on a winning tear after they'd entered a bear market in late July. The renewed uncertainty in crude prices in recent months has slammed the brakes on asset sales in both Kazakhstan and Russia, which is delaying what would have been its biggest such deal in a decade, a $5 billion stake in Bashneft PJSC.

China flows

China's bid to open its financial borders for foreign investors took another step forward after analysts said a program to allow market participants in Hong Kong to trade stocks on the mainland Shenzhen exchange would boost its chances of getting domestic equities included in MSCI Inc.'s main benchmarks. The Shenzhen Composite Index added 0.3 percent by the market close. The exchange link, expected to commence in four months, will lift some restrictions on inbound and outbound flows. Still, efforts to manage the country's capital account were underscored after Chinese authorities announced that so far this year they've arrested 450 suspects in a crackdown on using offshore companies and black-market lenders to transfer money illegally. 

Trump shifts gears

In the U.S. election, Trump ups his game — or at least his game plan — by replacing key members of his campaign staff. Breitbart News chair and one-time Goldman Sachs Group Inc. banker Stephen K. Bannon becomes the chief executive of the Republican nominee's presidential machine. (Bannon was profiled by

Bloomberg Businessweek last year.) Elsewhere in U.S. political news, there are signs that marijuana might lift Hillary Clinton's poll showing, and that she'd pay half as much tax under President Trump. 

Britain's job market is shrugging off Brexit, for now. Data from the Office for National Statistics showed that the number of people claiming jobless benefits in the UK unexpectedly fell by 8,600 in July; economists were expecting the tally to climb by 9,500. Additionally, the UK's unemployment rate held at a record-low 4.9%. The British pound is down 0.3% at 1.3000.

Subprime credit-card lending is making a comeback. TransUnion's Q2 2016 Industry Insights Report shows that 11% of the 10 million new customers entering the credit-card marketplace in the past year were subprime borrowers. Additionally, the data suggests subprime borrowers are seeing the biggest increase in balances, up 14% versus a year ago. Still, Nidhi Verma, the senior director of research and consulting in TransUnion's financial services business unit, says delinquency levels are not "alarming."

A Deutsche Bank exec says company's bonuses should be waived. "What's clear is that if we don't pay our shareholders a dividend, then our own bonus must be put up for debate," retail bank head Christian Sewing told the German newspaper Bild. The investment bank eliminated its dividend back in February.

Barnes & Noble's CEO is out. Ronald Boire is on his way out as Barnes & Noble CEO after less than a year on the job after it was determined that he was not a "good fit" for the company, Reuters reports. Boire's duties will be divvied up between executive chairman Leonard Riggio, who is postponing his retirement, and other executives until a replacement is named.

Cisco Systems is readying for job cuts. The company is expected to eliminate 14,000 jobs, or about 20% of its labor force, beginning in the next few weeks, CRN reports, citing sources close to the company. The announcement will come after the tech giants Microsoft, HP, and Intel all announced big jobs cuts within the past year or so.

Urban Outfitters beat on the top and bottom lines. The retailer earned an adjusted $0.66 a share on revenue of $890.6 million, easily beating the $0.55 and $885.6 million that analysts were expecting. Comparable-store sales unexpectedly rose 1%, outpacing the 1.2% decline that was expected. "These results were driven by a positive retail segment 'comp' and substantial improvement in merchandise margins," CEO Richard Hayne said in the earnings statement.

The iPhone 7 might be coming soon. That's according to a leaked photo spotted by 9to5Mac of "reset hours" at AT&T stores for September. The website speculates that the photo shows September 9 as the date AT&T will begin advertising the iPhone 7 and September 23 as the day when the phone will go on sale.

IShares readies ETF investing in firms with ESG policies

IShares has filed with the Securities and Exchange Commission for an exchange-traded fund investing in the equities of companies that pursue what it believes to be high-quality environmental, social and governance strategies. The iShares MSCI USA ESG Optimized ETF would select investments from the MSCI USA ESG Focus Index.

ETF.com (16 Aug.) 

Trump Hits Reset
Donald Trump is overhauling his campaign team in a bid to recover ground he has lost in recent weeks. We report that Stephen Bannon, executive chairman of Breitbart News, an outspoken Trump supporter and a former Goldman Sachs banker, will assume the new position of campaign chief executive. At the same time, Mr. Trump is also promoting Kellyanne Conway, a veteran GOP pollster and strategist, to become campaign manager. Ms. Conway has been a campaign adviser for several weeks. Paul Manafort, who joined the team late in the primary season, remains campaign chairman. The reset is designed to bulk up a structure that many Republicans have complained wasn’t adequate for the rigors of the general-election campaign. In a meeting on Monday, Mr. Trump, his advisers and family members, also discussed the need for the candidate and campaign to stay on message to avoid giving foes “ammunition against him.” Meanwhile, we report that the FBI gave Congress a written summary of interviews with Hillary Clinton and some of her key aides on her use of private email to do government business.

Dangerous Allies
Russia launched airstrikes Tuesday against targets in Syria from a base in western Iran, sparking concerns in Washington that the move may violate a United Nations Security Council resolution and threaten U.S. cooperation with Moscow on the Syrian conflict. The strikes are a sign of new coordination between Moscow and Tehran to support the government of Syrian President Bashar al-Assad, and an indication that the U.S. has fallen short in its efforts to draw Russia away from a close military alliance with Iran. Russia’s defense ministry said the bombers carried out a “concentrated airstrike” against Islamic State militants and the group formerly known as Nusra Front. The bombing comes amid intense combat around the northern city of Aleppo, where activist groups and rebels on Tuesday reported that at least 20 civilians had been killed in Russian airstrikes.

Cutting the Hedge
A growing exodus from hedge funds extended to two of the biggest names in the industry Tuesday, Tudor and Brevan Howard. The funds’ problem is clear: They just aren’t performing. Brevan Howard’s master fund was one of the star performers during the credit crisis, but is now on track for its third straight calendar year of losses. Investors withdrew more than $3 billion from its flagship fund in the first half of this year, while for the same period, two key Tudor hedge funds were down about 3%, well below the overall market. On Tuesday, Tudor reduced its workforce by about 15%, or around 60 employees, including money managers. The firm’s move toward computer-driven investing is a sign of how even hedge-fund giants are feeling pain lately amid a growing shift to so-called quant strategies.

Don’t Say ‘Relax’
It is a paradoxical fact: When someone is getting stressed out, one of the least effective (and perhaps most annoying) things to say is “Relax.” The directive has exactly the opposite effect on most people. Those who instruct a colleague, subordinate or loved one to relax may have good intentions. But it is usually better to resist ordering people to change their emotional state. Relaxing on command is physiologically impossible if the body is already too acutely stressed, and research shows that trying to hide or suppress an emotion typically backfires. We offer tips to help calm someone, such as first acknowledging his or her feelings and asking open-ended questions. If you are on the receiving end of an order to relax, there are countermoves that can keep your blood pressure from soaring higher.

The candidates lined up to replace Raghuram Rajan at the helm of India's central bank.

The world's worst performing stock market has more hurdles ahead.

The E.U. has a plan that could boost appetite for riskier debt.

Louisiana's sinking coastline is a $100 billion nightmare for big oil.

Barnes & Noble's CEO is out after less than a year in the job.

Viacom, Redstone’s National Amusements Resume Deep Settlement Talks

Too Big to Frack? Oil Giants Try Again to Master Technology That Revolutionized Drilling

A Trading Halt, Two Years in the Making

Stock markets around the world are mixed. Japan's Nikkei (+0.9%) led the gains in Asia, and Germany's DAX (-0.9%) paces the decline in Europe. S&P 500 futures are down 0.50 points at 2,176.25.

Earnings reports trickle out. American Eagle Outfitters, Lowe's Staples, and Target report ahead of the opening bell, while Cisco Systems and L Brands release their quarterly results after markets close.

US economic data is light. US crude-oil inventories will be announced at 10:30 a.m. ET, and the minutes from the July FOMC meeting will cross the wires at 2 p.m. ET. The US 10-year yield is up 1 basis point at 1.58%.

One of the biggest questions for the economy is: What will changes in technology mean for the future of labor? Will new innovations continue to erode the demand for what we characterize as unskilled labor? Will technology obliterate demand for huge swathes of the labor market eliminating the need for many people to work? But maybe people should be asking more questions about technology's impact on laborers themselves. A piece recently written in the conservative religious magazine First Things, titled "America's Lost Boys", talks about research showing that men who are not in the labor force are spending more and more time on leisure activities (video games, etc.) And what's more, they're content and not depressed as one might imagine them to be. As technology gets better and better at stimulating key needs of the human brain (the desire to solve problems, to gain recognition, to socialize) it seems possible that work will hold less and less appeal and the supply of available labor will diminish.

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