Monday September 12 Daily Market Primer

Everyone has been saying that the market is “too quiet” and volatility was “too low”, and that changed on Friday as the US stock market sold off about 2%, from a combination of the ECB saying that QE won’t last forever, North Korean nuclear tests, and weak German export data.  On Monday, the selloff rolled round the world, with the Shanghai, France, and Germany down about 1.8%, Italy down 2.5%, and Hong Kong down 3.4%.  Bonds also fell, pushing yields on government bonds back up to pre-summer levels.  The German 10 year bund went positive for the first time since Brexit.  Oil is also down 2% as the lower than expected US inventory numbers and Russia-OPEC jawboning last week quickly faded from memory and OPEC raised is supply forecasts.  The only green on my screen is the VIX (aka CBOE Volatility Index), up 8% to 19 on Friday/Monday market action.  US equity futures have bounced off very early morning lows and are almost flat at the moment.

DJIA	18085.45	-394.46	-2.13%
Nasdaq	5125.91	-133.58	-2.54%
S&P 500	2127.81	-53.49	-2.45%
Russell 2000	1219.21	-39.15	-3.11%
Global Dow	2419.15	-23.55	-0.96%
Japan: Nikkei 225	16672.92	-292.84	-1.73%
Stoxx Europe 600	340.59	-4.93	-1.43%
UK: FTSE 100	6678.17	-98.78	-1.46
CBOE Volatility	18.9	1.4	8.00%
Australia: S&P/ASX 200	5219.6	-119.6	-2.24%
China: Shanghai Composite	3021.98	-56.88	-1.85%
Hong Kong: Hang Seng	23290.6	-809.1	-3.36%
India: S&P BSE Sensex	28353.54	-443.71	-1.54%
Singapore: Straits Times	2873.33	-21.15	-0.73
France: CAC 40	4414.97	-76.43	-1.70%
Germany: DAX	10392.89	-180.55	-1.71%
Italy: FTSE MIB	16741.54	-414.94	-2.42%
Spain: IBEX 35	8831.7	-193.8	-2.15%
U.S. 3 Month	0.354	0/32
U.S. 2 Year	0.79	0/32
U.S. 5 Year	1.223	0/32
U.S. 10 Year	1.679	-1/32
U.S. 30 Year	2.389	5/32
Germany 2 Year	-0.622	-1/32
Germany 10 Year	0.028	-5/32
Crude Oil	44.97	-0.91	-1.98%
Brent Crude	47.14	-0.87	-1.81%
Natural Gas	2.938	0.048	1.66%
S&P GSCI	349.98	-3.95	-1.12%
E-mini S&P 500	2113.25	-2.75	-0.13%

Surprisingly, I didn’t see to much commentary on the market selloff in the financial press over the weekend.  Its important to remember that just because the central banks are not doing more, it doesn’t mean they are doing less.  All eyes are turning to the September Fed meeting, which is next Tuesday and Wednesday (Sept 20-21), with the last public speech for a Fed governor Lael Brainard scheduled for today in Chicago.

Presidential candidate Hillary Clinton’s health became a real campaign issue on Sunday, as she was diagnosed with pneumonia, injecting additional uncertainty into the presidential race.  Canadian fertilizer companies Potash and Agrium agreed to merge in a $36 billion deal.

Here’s the news:

Global selloff continues

The selloff that engulfed financial markets on Friday is continuing this morning. Overnight, the MSCI Asia Pacific Index dropped 2.1 percent, while all 33 industry groups in Japan's Topix index declined. In Europe, the Stoxx 600 Index was 1.7 percent lower at 5:40 a.m. ET, as all major western-European stock markets dropped. While bonds were also falling this morning, they were coming off the lows of the day by 5:40 a.m. S&P 500 futures were down 0.7 percent, with the drop in confidence being blamed on heightened conce

Oil, metals fall

The financial asset rout is also being felt in commodities. A barrel of West Texas Intermediate for October delivery was trading at $45.03 at 5:58 a.m. ET, having dropped as-low-as $44.85 earlier. Meanwhile, OPEC has flipped its forecasts for rival supplies next year, predicting an increase in output from outside the group in 2017 instead of a decline, in the latest sign that the global surplus is persisting. Elsewhere in commodities - industrial metals are getting hit particularly hard, with nickel dropping as much as 4.1 percent and iron ore in China slumping to the lowest level since June. Gold was unchanged.

Brainard speech

Federal Reserve Governor Lael Brainard is due to give a speech later today in Chicago that will be closely watched by investors looking for some guidance on the U.S. central bank's interest rate intentions. With hawkish comments from Boston Fed President Eric Rosengren last Friday taking some of the blame for that day's selloff, any sign of an inclination towards imminent tightening today may move markets.

Hillary's health

Democratic presidential nominee Hillary Clinton abruptly left yesterday's September 11 commemoration at Ground Zero in Manhattan, with her campaign later admitting that she had been diagnosed with pneumonia on Friday. If her health problems start to be reflected in polling data, it will be another headache for already rattled investors who had presumed she would become the next President of the United States. Her campaign has announced that she has cancelled a planned two-day trip to California to give herself time to recover.

One merger ends as another starts

Linde AG and Praxair Inc. ended talks on a $30 billion merger amid concerns raised by Linde that jobs and operations would be moved from Munich if the deal went through. Meanwhile, Agrium Inc. and Potash Corporation of Saskatchewan Inc. have reached an agreement to merge their companies, with the new entity set to become North America's largest producer of agricultural fertilizer.

The EU's former chief executive is under an ethics investigation. Jose Manuel Barroso is under an ethics investigation to see whether he broke any laws by taking a job at Goldman Sachs to help the firm deal with the British exit from the European Union, Reuters reports.
Oil is getting smoked. West Texas Intermediate crude oil is lower for a second day, down 2.1% at $44.94 a barrel. The two-day sell-off has wiped away Thursday's gain of more than 4%.
Linde and Praxair are ending merger talks. The Wall Street Journal reports that the deal, which would have created a $60 billion industrial gas giant, is being called off because Linde says "governance aspects did not result in a mutual understanding."
Samsung is selling its printer business to HP. The $1.05 billion deal will help HP expand its footprint in the printer and copier business, and HP expects the deal to be accretive to earnings in the first year, Bloomberg says.
Samsung got destroyed after announcing the Galaxy 7 Note recall. Shares of Samsung tumbled 7%, wiping away $22 billion in market cap, after the company told users to return their phones because faulty batteries were catching fire.
Tesla announced big improvements to Autopilot. CEO Elon Musk says the new updates will make vehicles with Autopilot three times as safe as those without the feature.
Stock markets around the world are lower. Hong Kong's Hang Seng (-3.4%) was hit hard in Asia, and Spain's IBEX (-2.5%) leads the losses in Europe. S&P 500 futures are down 14.75 points at 2,101.25.
Earnings reporting is light. Manchester United reports ahead of the opening bell, and United Foods releases its quarterly results after markets close.

Fed speak is plentiful. Atlanta's Dennis Lockhart, Minneapolis' Neel Kashkari, and Fed Gov. Lael Brainard will speak at 8:05 a.m., 1 p.m., and 1:15 p.m., respectively. The US 10-year yield is up 1 basis point at 1.69%.

Health Warning
Hillary Clinton’s campaign said Sunday she has been diagnosed with pneumonia, hours after she abruptly left a 9/11 memorial ceremony in New York. The diagnosis, coupled with a remark by Mrs. Clinton late Friday criticizing some Donald Trump supporters as a “basket of deplorables,” is an unwelcome distraction for a campaign facing a tightening of polls in recent weeks, and has thrust her health, as well as her disclosures about it, squarely into the presidential debate. Amateur video taken Sunday near Ground Zero showed Mrs. Clinton looking wobbly as she got into her motorcade with an assist from staff and Secret Service agents. The 68-year-old went to her daughter’s apartment and emerged about two hours later, waving at the waiting cameras; later, she canceled a planned trip to California. Meanwhile, we report that the race in the nation’s biggest swing state, Florida, is shaping up to be a defining test of political enthusiasm versus traditional organization.

Back to Reality
Summer vacation is over for markets. Investors who had bet heavily on calm seas ahead were jolted on Friday as prices of stocks, bonds, oil and gold all slid amid mounting concerns over the willingness and ability of central banks to prop up markets. The CBOE Volatility Index, which tracks investors’ expectations for volatility in stocks and had bounced near multiyear lows during July and August, jumped 40%. The turbulence has reignited fears that the Federal Reserve is moving further into a rate-raising phase that could leave stocks, emerging markets and commodities vulnerable to a deeper pullback. Whether the retreat is a blip or something bigger could hinge on what the Fed does over the next two weeks. Three Fed speakers are scheduled to speak Monday, after which the central bank enters a self-imposed blackout period before its Sept. 20-21 meeting.

Islamic State is a militant group of the internet age, its followers steeped in Facebook, smartphones and text messaging. But these tools, which helped spread the terror group’s message around the world, also helped authorities foil plots in the group’s early years. We report that Islamic State’s communications have evolved into a mix of encrypted chat-app messages, face-to-face meetings, written notes, stretches of silence and misdirection. These techniques help protect attackers from Western intelligence agencies by leaving few electronic clues in a sea of intercepted data. “We relied too much on technology. And we lost track,” said a Western security official on how the militants who led the Nov. 13 terror attacks in Paris were able to mask the group’s travel to France.

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The tricky business of polling under Putin.

C’s Ma says China must act to contain housing market ‘bubble.’

The great debate: Can technology transform the economy again?

VW CFO explains how to take a $20 billion hit and also fund E-cars.

Low-productivity sectors are the only thing keeping inflation afloat.

RIP, Peak Oil.

Markets around the world are picking up where they left off on Friday. The sell-off applies to pretty much everything: developed and emerging market equities, commodities, sovereign bonds of all stripes, emerging market currencies, and so on. Look at any asset price heatmap and you'll see there's virtually no place to hide. That being said, one area that isn't seeing much of a selloff is the short end of the U.S. Treasury curve. Yields on U.S. two-year government bonds are right where they were in the middle of last week and are still meaningfully lower than they were in late August. The short end of the U.S. yield curve is the most policy sensitive - meaning the level largely reflects the near-term pace of expected tightening by the Federal Reserve. The relative lack of action down at this end is an indication that whatever's going on in world markets is not really about the Fed. Yes, there were some hawkish-ish comments from the head of the Boston Fed last week. And people are anxious about what Fed Governor Lael Brainard will say today in a speech in Chicago. But the key thing to understand about the last couple of days is that it's global in nature and predominantly at the longer end of the curve, implying that economic and central banking trends in Europe and Japan are where the action is at the moment.

Source: Bloomberg, BI, WSJ