Wednesday August 31 Daily Market Primer

Happy last day of August.  Stocks fell .2% n the US yesterday, in quiet late August pre-labor day trading ahead of the Friday jobs number.  The dollar strengthened on expectations for higher rates from and crude oil fell another 1.3%.  Returns were mixed and mostly flat around the world.  The ADP payroll survey is out with 177K jobs created in August, slightly better than expected. 

			LAST		CHANGE	% CHG

DJIA	18454.3	-48.69	-0.26%
Nasdaq	5222.99	-9.34	-0.18%
S&P 500	2176.12	-4.26	-0.20%
Russell 2000	1246.03	1.09	0.09%
Global Dow	2451.63	0.15	0.01%
Japan: Nikkei 225	16887.4	162.04	0.97%
Stoxx Europe 600	345.79	1.04	0.30%
UK: FTSE 100	6819.59	-1.2	-0.02%
CBOE Volatility	13.12	0	0.00%
Australia: S&P/ASX 200	5433	-45.3	-0.83%
China: Shanghai Composite	3085.49	10.81	0.35%
Hong Kong: Hang Seng	22976.88	-39.23	-0.17%
India: S&P BSE Sensex	28452.17	109.16	0.39%
Singapore: Straits Times	2820.59	-7.8	-0.28%
France: CAC 40	4484.08	26.59	0.60%
Germany: DAX	10645.8	-11.84	-0.11%
Italy: FTSE MIB	17022.5	131.08	0.78%
Spain: IBEX 35	8772.2	86.8	1.00%
U.S. 3 Month	0.332	0/32
U.S. 2 Year	0.801	0
U.S. 5 Year	1.185	-1/32
U.S. 10 Year	1.578	-3/32
U.S. 30 Year	2.246	-10/32
Germany 2 Year	-0.617	0/32
Germany 10 Year	-0.081	-3/32
Crude Oil	45.85	-0.5	-1.08%
Brent Crude	47.67	-0.72	-1.49%
Natural Gas	2.855	0.028	0.99%
S&P GSCI	352.98	-2.75	-0.77%
E-mini S&P 500	2173.25	-2	-0.09%

The debate over the European Commission decision on Apple’s back taxes is heating up, with lots of back and forth in the press, highlighting the difficulty and complexity of international tax reform.  The international banking SWIFT system is continuing to be hacked, according to a new report by Reuters.  Bangladesh had $81 million stolen through SWIFT in February, and the hackers almost got $1 billion.  S&P and MSCI are getting ready to break out REITS into a separate sector under GICS (Global Industry Classification Standards).  They are currently included with financial stocks.  I’m sure this has kept many coders in the finance industry busy for months. This will create an 11^th GICS sector. 

Here’s the news:

Euro-area inflation, unemployment

Inflation in the euro-area was stable at 0.2 percent in August from a year earlier, below analyst estimates for an increase to 0.3 percent. The European Central Bank, which is due to make its next monetary policy decision on Sept. 8, says its current financial stimulus is justified but other actors must play their part. Unemployment in the common-currency area remained unchanged at 10.1 percent, with falls reported in Germany for August and an unexpected drop in Italy in July. In the the U.K., the Nationwide Building Society said house prices rose at their fastest pace in five months in August as short supply outweighed weaker demand.  

Bonuses hit

The rout in financial stocks this year has wiped more than $2.5 billion from the value of deferred share bonuses for investment bankers at Europe's biggest financial firms, data compiled by Bloomberg show. Deutsche Bank AG Chief Executive Officer John Cryan, responding to market rumours that the bank had considered a merger with rival Commerzbank AG, said that he is looking to shrink and simplify the bank. Shares in Deutsche Bank have lost about 42 percent in market value this year.

Spanish vote, judgment day in Brazil

Spain, without a government since last December, sees a vote in parliament today in which caretaker Prime Minister Mariano Rajoy will try to win support to form a government. He currently has 170 of the 350-seat legislature backing him, but needs a majority to form a stable government. If he fails today, a plurality of votes on Friday will allow him to continue. But without an overall majority, Spain may face a third election in a year. Meanwhile, in Brazil, the final impeachment vote of former president Dilma Rousseff is scheduled for midday local time, with senators expected to vote in favor of her removal. 

Markets mixed

Overnight, the MSCI Asia Pacific Index climbed 0.1 percent, to bring its gain for August to 1.2 percent. Japan's Topix index added 1.3 percent to wipe out losses for the month. In Europe, the Stoxx 600 Index was 0.2 percent higher at 6:11 a.m. ET, with banks leading the gains. S&P 500 futures were flat.

Consumer confidence is slowing down in China. The latest Westpac-MNI China consumer-sentiment index fell 2.2% to 111.5 and showed notable weakness in the labor market as the employment outlook indicator sank to a six-month low of 92.2.
Eurozone inflation disappointed. Data from Eurostat showed that consumer prices in the eurozone rose 0.2% year-over-year in August, missing the 0.3% print that economists had forecast. The euro is little changed near 1.1145.
UK home prices jumped after Brexit. Nationwide home prices climbed 0.6% month-over-month in August, and they have yet to show any impact from the UK's June 23 vote to exit the European Union. The British pound is stronger by 0.5% at 1.3140.
Africa's largest economy is in recession. Still reeling from the oil crash and a decision to unpeg its currency from the dollar, Nigeria's economy contracted by 2.1% in the second quarter, and it is now in a recession for the first time in more than 20 years.
Canada has applied to join the Asia Infrastructure Investment Bank. Reuters reports that Canada seeks to join other US allies such as Britain, Germany, Australia, and South Korea in becoming a member of the China-led bank, which rivals the World Bank and the Asian Development Bank.
America's stock markets are slowing down. The New York Stock Exchange, the Nasdaq, and the Chicago Stock Exchange have all announced measures to take away some of the edge from high-frequency traders.
SWIFT discloses more cyberattacks. The global financial messaging system announced new hacking attacks on its member banks and said some victims lost money, but it declined to give a specific dollar amount, Reuters reports.
Apple Picking
The European Commission’s ruling that Apple must pay $14.5 billion in back taxes to Ireland intensifies a feud between the EU and the U.S. over the bloc’s tax probes into American companies and further complicates efforts to forge a bipartisan deal on U.S. tax policy. To the Treasury and members of Congress, EU regulators represent a threat, partly because companies could get U.S. tax credits if they pay more abroad, reducing future U.S. tax collections. The widely unpopular ruling highlights the difficulty inherent in international tax reform, and suggests that Brexit might make the U.K. more attractive to multinationals. The new tax bill is the latest headache for Apple CEO Tim Cook, but even if Apple is forced to pay the full penalty, it would make only a small dent in the company’s cash hoard.
An Unstable Foundation
The Clinton family is being pressed by some party officials and donors to sever all ties to the Clinton Foundation should Hillary Clinton win the presidential election. Some Democrats want to see more definitive steps to prevent an appearance of undue influence by the charity’s donors. Current plans call for winding down programs on an uncertain timetable, but keeping daughter Chelsea Clinton on the board and continuing to accept donations from U.S. individuals. Meanwhile, the State Department said on Tuesday it has found approximately 30 emails from Mrs. Clinton’s account that could be related to the 2012 attacks on two U.S. government facilities in Benghazi, Libya. And late Tuesday, Donald Trump announced that he will make a quick trip to Mexico today to meet with President Enrique Peña Nieto, shortly before Mr. Trump is slated to give a speech on immigration in Phoenix. Meanwhile Rep. Debbie Wasserman Schultz, the Florida Democrat who was pressured into giving up her post as chair of the national party, survived a high-profile primary challenge for her House seat Tuesday. In Florida Republican Sen. Marco Rubio easily beat back a long-shot bid from his closest primary challenger Carlos Beruff. And in Arizona, Sen. John McCain, campaigning for his sixth Senate term, overcame a primary challenge from former state Sen. Kelli Ward.
Fund for Spies
Like the agency that founded it, the CIA-funded venture-capital firm In-Q-Tel operates largely in the shadows. The firm’s officials regard it as independent, yet it has extremely close ties to the CIA and runs almost all investment decisions by the spy agency. In-Q-Tel discloses little about how it picks companies to invest in, never says how much, and sometimes doesn’t reveal the investments at all. Even less well-known are potential conflicts of interest the arrangements entail. We report that nearly half of In-Q-Tel’s trustees have a financial connection of one kind or another with a company the firm has funded. And unlike other venture-capital firms, In-Q-Tel is a nonprofit that uses public money, to which strict conflict-of-interest rules apply.

Competitive devaluations, Brexit on G-20 summit agenda

When Group of 20 leaders meet at their summit next week in Hangzhou, China, they will look for ways to prevent competitive currency devaluation and work on policies to manage the effect of Britain's withdrawal from the EU, said Lou Jiwei, China's finance minister. G-20 finance ministers and central bank governors are strengthening their cooperation in an effort to maintain financial-market stability and encourage economic growth, he said.

Reuters (30 Aug.), 

SWIFT: More cyberattacks on member banks

The Society for Worldwide Interbank Financial Telecommunication said in a letter to clients that since June, when it informed them of a series of attacks, there have been additional efforts by cybercriminals directed at banks, and some have been successful. "The threat is persistent, adaptive and sophisticated -- and it is here to stay," the letter said.

Reuters (30 Aug.) 

REITs to have separate index sector

Real estate investment trusts will be broken out into a group in the Standard & Poor's 500 index under the Global Industry Classification Standard. The change allows a better gauge of sector performance and is expected to draw more investors to REITs.

The Wall Street Journal (tiered subscription model) (30 Aug.) 

Stock markets around the world are mixed. Japan's Nikkei (+1.0%) booked solid overnight gains, and Britain's FTSE (-0.3%) lags in Europe. S&P 500 futures are down 1.25 points at 2,174.00.
Earnings reporting is light. Salesforce.com is set to report its quarterly results after the closing bell.

US economic data picks up. ADP Employment will be released at 8:15 a.m. ET, and Chicago PMI will cross the wires at 9:45 a.m. ET. Then, at 10 a.m. ET, pending home sales are due out. The US 10-year yield is higher by 2 basis points at 1.58%.

The world's top performing fund is running out of stocks to buy.

Goldman Sachs is said to have lost a $1.8 billion U.S. property deal.

This quant fund gives robots 364 days off and still beats rivals.

Mystery of oil held on Chinese islands is puzzling crude markets.

Cult of Corbyn exposes new political order.

Trump plans to go to Mexico.

Whistleblower gets $22 million from the SEC.

And the Anthropocene is here.

After Initial Drop, Fresh Surge in Migrant Arrivals Puts Extra Strain on Greece

Islamic State Spokesman Killed in Syria

Fertilizer Producers Agrium and Potash in Merger Talks

Theranos Halts New Zika Test After FDA Inspection

FDIC Fund Climbs to Postcrisis High

Oil-Deal Score Helps Aubrey McClendon’s Heirs Hang on to NBA’s Thunder, for Now

It's been a while since Greece has been front and center, but early this week, Greek Finance Minister Euclid Tsakalotos warned that the next tranche of bailout money could be in jeopardy due to the country backsliding on its reforms. These don't appear to be new issues, but rather a continuation of challenges that have plagued Greece from the beginning of this crisis. Meanwhile, today, we got Greek retail sales for the month of June, and by any objective measure they were dismal. Retail sales were down 5.2 percent from a year earlier. Supermarket sales were down 2.4 percent, while furniture sales fell 2.3 percent, and pharmaceutical and cosmetic sales dropped 6 percent. Between ongoing political issues and a bad economy, it's easy imagine Greece being back on the front pages eventually.

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