Monday September 26 Daily Market Primer
Nothing
goes up forever, including US stocks, which fell about .7% on Friday,
ending the week with an S&P gain of 1.2%, and with the Russell 2000 up
2.4%. Apple giveth, and Apple taketh away, and an analyst report of slower
than expected iPhone 7 sales on Friday put pressure both Apple stock and the
stock market, the mirror image of what happened just a few days
before. This is par for the course of the Apple hype cycle. Oil
prices declined again on pessimism before the OPEC meeting starting today, but
are bouncing back up this morning and bits and pieces leak out of the
meeting, with WTI above $45. The US 10 year treasury yield fell to
1.615% last week. Markets were down in Asia Monday and are down in
Europe this morning, and stock futures are pointing down 9 S&P points,
or .4%.
|
LAST
|
CHANGE
|
% CHG
|
|
|
18261.45
|
-131.01
|
-0.71%
|
|
|
5305.75
|
-33.78
|
-0.63%
|
|
|
2164.69
|
-12.49
|
-0.57%
|
|
|
1254.62
|
-8.82
|
-0.70%
|
|
|
2451.86
|
-13.67
|
-0.55%
|
|
|
16544.56
|
-209.46
|
-1.25%
|
|
|
340.48
|
-4.86
|
-1.41%
|
|
|
6836.03
|
-73.4
|
-1.06%
|
|
|
13.82
|
1.53
|
12.45%
|
|
|
5431.4
|
0.1
|
0.00%
|
|
|
2980.43
|
-53.47
|
-1.76%
|
|
|
23317.92
|
-368.56
|
-1.56%
|
|
|
28294.28
|
-373.94
|
-1.30%
|
|
|
2849.94
|
-7.01
|
-0.25%
|
|
|
4416.32
|
-72.37
|
-1.61%
|
|
|
10454.92
|
-172.05
|
-1.62%
|
|
|
16173.05
|
-279.79
|
-1.70%
|
|
|
8718.2
|
-105.4
|
-1.19%
|
|
|
0.177
|
0/32
|
||
|
0.742
|
1/32
|
||
|
1.136
|
4/32
|
||
|
1.603
|
4/32
|
||
|
2.336
|
7/32
|
||
|
-0.666
|
0/32
|
||
|
-0.094
|
4/32
|
||
|
45.1
|
0.62
|
1.39%
|
|
|
46.64
|
0.75
|
1.63%
|
|
|
3.035
|
0.022
|
0.73%
|
|
|
353.31
|
1.79
|
0.51%
|
|
|
2149
|
-9
|
-0.42%
|
Moody’s
cut Turkey’s sovereign debt to junk, and President Erdogan says he is not
worried. Angela Merkel said the German government would not assist
Deutsche Bank,
which sent the stock falling again along with shares of other European banks.
Meanwhile, Mario Draghi is calling on Germany to increase domestic
spending, and UK CEO’s are considering moving post-Brexit (Draghi to
Call and UK CEO’s, below).
It’s
Monday and you know what that means, the first head to head presidential
debate is tonight, and the election action is definitely heating up, with
the poles tightening to a tie, and Trump ahead in a four way race,
according to a Bloomberg poll released today (http://bit.ly/2WayTie
and Neck and neck, below). The NYT officially endorsed Hillary
Clinton a few days ago, and published a blistering anti-Trump Op-Ed today
aimed at undecided voters (http://bit.ly/NYTNoTrump).
A close race can only add uncertainty to the global capital markets.
Here’s
the news:
Neck and neck
A Bloomberg national poll
released this morning shows that the race for the U.S. presidency has become a
dead heat, with both the Republican and Democratic nominee tied at 46 percent. The close poll comes
ahead of the critical first debate between the two leading candidates, which begins at 9
p.m. ET tonight.
Oil deal unlikely
Hopes of a deal to limit crude production at talks in Algiers
this week faded after Saudi Arabia said the meeting would be an opportunity to consult, rather than take a
decision on output levels. With many producers still having conflicting priorities, the best chance of a
deal now appears to be at the regular OPEC meeting in Vienna in November.
A barrel of West Texas Intermediate was trading at $44.82 at 5:50 a.m. ET, after
losing almost $2 on Friday for its biggest one-day drop since July
13.
Deutsche Bank tumbles
Shares in Deutsche Bank AG
dropped to 10.63 euros in trading this morning, a
record low. A German magazine reported last week that Chancellor Angela
Merkel has ruled out any assistance for the lender, and
said that she would not be helping with the legal problems the bank is having in
the U.S. Deutsche Bank shares were off the day's lows to trade at
10.75 euros as of 5:56 a.m. ET.
Turkey junked
In an interview in New York
on Thursday, Turkey’s President Recep Tayyip Erdogan said he is not worried if his country is rated
below investment grade. Moody's Investors Service cut Turkey's sovereign credit rating to junk late on
Friday in an early test of the president's resolve. This morning, Turkish assets
suffered their worst selloff since July's attempted coup,
with the lira dropping to its lowest level in eight weeks, the Borsa Istanbul 100
Index becoming the day's worst performer of the gauges globally tracked by
Bloomberg, and the nation's dollar-denominated debt sinking the most since
July.
Markets are down
Overnight, stocks in Asia
dropped the most in two weeks, with the MSCI Asia Pacific Index down 0.9 percent and Japan's Topix
index losing 1 percent. In Europe, the Stoxx 600 Index
was 1.3 percent lower at 6:13 a.m. ET as banks
and energy producers were hit. An Ifo survey which showed German business
sentiment at the highest level since 2014 failed to lift
equities. S&P 500 futures were down 0.6 percent. In currency news, the
British pound has hit its lowest level against the euro since mid-August
on rising fears of a "hard Brexit."
OPEC
meets in Algiers. Expectations are low that the informal talks in Algiers,
Algeria, will lead to a freeze in oil production. West Texas Intermediate crude
oil is higher by 1.5% at $45.15 a barrel.
Brexit
is causing a bunch of UK businesses to consider moving abroad. That's according to a KPMG
survey, which found that 76% of 100 CEOs surveyed were considering relocating
their companies because of the Brexit vote. "In our own work, we have seen
international clients who had been considering basing European headquarters in
the UK, opt for Ireland instead," KPMG UK chairman Simon Collins said in
an emailed statement.
German
business confidence is booming. Germany's Ifo Business Climate printed 109.5
for September, well ahead of the 106.3 that economists had forecast, to hit its
highest level since May 2014. "The German economy is expecting a golden
autumn," Professor Dr. Clemens Fuest, the president of the Ifo Institute,
wrote in the report. The euro is higher by 0.2% at 1.1245 versus the dollar.
Deutsche
Bank is at an all-time low. Shares of the investment bank tumbled below €11 on Monday after
German Chancellor Angela Merkel ruled out a bailout amid fears that billions in
legal costs and settlements with US authorities over an investigation into
sales of mortgage-backed securities would leave the bank seriously undercapitalized.
Former
employees have filed a class-action lawsuit against Wells Fargo. Reuters reports that the
$2.6 billion or more lawsuit says, "Wells Fargo fired or demoted employees
who failed to meet unrealistic quotas while at the same time providing
promotions to employees who met these quotas by opening fraudulent
accounts."
Debate
Day
Donald Trump and Hillary Clinton meet tonight in their first of three head-to-head debates and it seems that there remain enough undecided and loosely committed voters that the showdown at Hofstra University in New York could produce one more pivot point in the campaign. A new Wall Street Journal/NBC News poll found that 34% of registered voters think the three presidential debates would be extremely or quite important in helping them decide whom to support for president. About 11% of voters are considered “debate persuadables.” Meanwhile, the two candidates are likely to recite their varied promises for fresh government spending at tonight’s first presidential debate but one reality they’re unlikely to note: Whoever wins in November will enjoy far less latitude to spend money or cut taxes than any president since World War II. For the first time in decades, the new president will face the specter of widening deficits despite a growing economy.
Donald Trump and Hillary Clinton meet tonight in their first of three head-to-head debates and it seems that there remain enough undecided and loosely committed voters that the showdown at Hofstra University in New York could produce one more pivot point in the campaign. A new Wall Street Journal/NBC News poll found that 34% of registered voters think the three presidential debates would be extremely or quite important in helping them decide whom to support for president. About 11% of voters are considered “debate persuadables.” Meanwhile, the two candidates are likely to recite their varied promises for fresh government spending at tonight’s first presidential debate but one reality they’re unlikely to note: Whoever wins in November will enjoy far less latitude to spend money or cut taxes than any president since World War II. For the first time in decades, the new president will face the specter of widening deficits despite a growing economy.
Stuck
in Reverse
The third quarter was supposed to be when earnings growth returned to U.S. companies. Not anymore. Companies in the S&P 500 are now expected to report an earnings decline for the sixth consecutive quarter. As recently as three months ago analysts estimated corporate earnings growth would return by the third quarter but, as of Friday, they were forecasting a 2.3% contraction from a year earlier. A stronger dollar and falling oil prices have abated recently but that hasn’t been enough to bring an end to the earnings recession. The energy sector is expected to again report the largest year-over-year earnings decline of all sectors in the S&P 500, with a drop of 66% projected. The prolonged contraction has raised questions about how far stocks can rise without corresponding strengthening in corporate earnings.
The third quarter was supposed to be when earnings growth returned to U.S. companies. Not anymore. Companies in the S&P 500 are now expected to report an earnings decline for the sixth consecutive quarter. As recently as three months ago analysts estimated corporate earnings growth would return by the third quarter but, as of Friday, they were forecasting a 2.3% contraction from a year earlier. A stronger dollar and falling oil prices have abated recently but that hasn’t been enough to bring an end to the earnings recession. The energy sector is expected to again report the largest year-over-year earnings decline of all sectors in the S&P 500, with a drop of 66% projected. The prolonged contraction has raised questions about how far stocks can rise without corresponding strengthening in corporate earnings.
Syrian
Tragedy
Syria and its Russian allies have pressed an assault on Aleppo amid what the U.N. called the most intense bombing in years of warfare there, and residents say hundreds of civilians have been killed since a cease-fire fell apart last week. “Bunker buster bombs” have left large craters in the rebel-held part of the divided city, Aleppo residents said, and caused shock waves felt blocks away from the point of impact. The U.N. Security Council held an emergency meeting on Sunday over the bombardment. Meanwhile, momentum is growing on Capitol Hill for new sanctions against supporters of Syrian President Bashar al-Assad’s regime, while the collapse of the cease-fire has scuttled hopes that the U.S. and Russia would be able to cooperate in a meaningful away in fighting Islamic State and other militant groups.
Syria and its Russian allies have pressed an assault on Aleppo amid what the U.N. called the most intense bombing in years of warfare there, and residents say hundreds of civilians have been killed since a cease-fire fell apart last week. “Bunker buster bombs” have left large craters in the rebel-held part of the divided city, Aleppo residents said, and caused shock waves felt blocks away from the point of impact. The U.N. Security Council held an emergency meeting on Sunday over the bombardment. Meanwhile, momentum is growing on Capitol Hill for new sanctions against supporters of Syrian President Bashar al-Assad’s regime, while the collapse of the cease-fire has scuttled hopes that the U.S. and Russia would be able to cooperate in a meaningful away in fighting Islamic State and other militant groups.
The 2nd US Circuit Court of Appeals in New York rejected an
attempt by investors to revive lawsuits that say exchanges sold high-frequency
traders early access to market data. The court ruled that regulation of the
dissemination of market data is up to the Securities and Exchange Commission
and not the courts.
Reuters (23 Sep.)
Several members of the German parliament are expected to tell
European Central Bank President Mario Draghi when he visits Wednesday that the
bank's bond-buying scheme has gone too far. A truce between Draghi and his
German critics, led by Finance Minister Wolfgang Schaeuble, has held for five
months but might be coming apart. Reuters (25 Sep)
Acquiring Bats Global Markets would let CBOE Holdings offer
additional asset classes in the US and Europe and would boost growth of the
Chicago market operator, analysts say. CBOE is negotiating to take over Bats
with cash and stock, sources say.
Reuters (23 Sep.), The Wall Street Journal (tiered subscription model) (25
Sep.)
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European Central Bank President Mario Draghi will be in Brussels
and Berlin this week calling for governments to increase spending and
accelerate structural reforms. Germany's budget and current-account surpluses
could allow the government to immediately increase demand. Bloomberg (26 Sep.)
More than three-quarters of CEOs in the UK are considering moving
headquarters or some operations out of the UK because of the country's vote to
withdraw from the EU, according to a survey by KPMG. More than half of CEOs of
companies with at least £100 million in annual sales and at least 500 employees
said the UK's ability to do business would be disrupted once it pulled out of
the EU. Bloomberg (26 Sep.)
The Federal Reserve has proposed rules that would force banks that
invest heavily in commodities and energy to hold more capital against costly
accidents. The Fed says the rules would "better address the potential
legal, reputational, and financial risks posed by such activities, particularly
those that can result from an environmental catastrophe." Reuters (23 Sep.), Bloomberg (23 Sep.),
The Treasury market's
biggest buyers are selling as never before. Mario Draghi goes
on a political tour.
Hedge funds misread the Fed with their bullish dollar
bets.
The ECB starts to make post-Brexit contingencies.
A weaker currency is no
longer the economic elixir it once was.
What a 16th century divorce can tell us about
Brexit.
Microsoft bets its future on
a reprogrammable computer chip.
Stock markets around the
world are lower. China's Shanghai Composite (-1.8%) lagged in Asia, and France's
CAC (-1.7%) leads the losses in Europe. S&P 500 futures are down 10.00
points at 2,148.00.
The British pound is back
near its Brexit lows. Traders are paying close attention to the British pound as
Monday's loss of 0.2% has dropped the currency back down to 1.2939 against the
dollar, where it threatens the post-Brexit low of 1.2798.
Earnings reporting remains
light.
Carnival and Vail Resorts report ahead of the opening bell.
US economic data flows. New-home sales will be
released at 10 a.m. ET, and Dallas Fed manufacturing will cross the wires at
10:30 a.m. ET.
It's debate night in
America.
The sheer stakes and spectacle of it all mean people are predicting record
viewership. While Donald Trump and Hillary Clinton offer vastly different
visions for the future of the country, there's a popular idea that
regardless of who wins, spending by the federal government is going up.
David Kostin at Goldman Sachs, for instance, writes: "Regardless of
victor, the most likely policy outcome of the election is increased fiscal
spending." A Barron's article about infrastructure
stocks this weekend notes that: "This is one issue not up for debate:
Both Hillary Clinton and Donald Trump agree that U.S. infrastructure spending
must be increased dramatically." Meanwhile, the S&P Global
Infrastructure Index is up nearly 14 percent this year vs. a return of less
than 6 percent for the overall S&P 500. Of course, the fact that both
Trump and Clinton broadly agree on the need for more infrastructure spending
only tells you so much. There's not a straight line between policy agreement
and actual policy outcome in Washington DC. If there were, we'd probably have
seen major legislation on tax reform and immigration in recent years. The
game theory of partisan politics requires that people disagree and fight even
when they share legislative goals. And so a theoretical Clinton victory,
where she'd have a GOP Congress to go up against is a very different outcome
than a Trump victory with that same Congress.
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Source:
Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, Politico
posted by Rich Barnett @ 7:10 AM
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