Thursday September 1 Daily Market Primer

Stocks fell in the US yesterday, ending the month of August with a slight drop of .2%.   Volume and volatility continue be low.  Stocks were mixed in Asia but are having a good day so far in Europe, and the US market is opening flat today.  Oil tried to rally but ended up slipping below $45.

	LAST	CHANGE	% CHG
DJIA	18400.88	-53.42	-0.29%
Nasdaq	5213.22	-9.77	-0.19%
S&P 500	2170.95	-5.17	-0.24%
Russell 2000	1239.91	-6.12	-0.49%
Russell 2000	1239.91	-6.12	-0.49%
Global Dow	2449.52	5.23	0.21%
Japan: Nikkei 225	16926.84	39.44	0.23%
Stoxx Europe 600	346.46	2.93	0.85%
UK: FTSE 100	6780.85	-0.66	-0.01%
CBOE Volatility	13.46	0.04	0.30%
Australia: S&P/ASX 200	5415.6	-17.4	-0.32%
China: Shanghai Composite	3063.31	-22.19	-0.72%
Hong Kong: Hang Seng	23162.34	185.46	0.81%
India: S&P BSE Sensex	28423.48	-28.69	-0.10%
Japan: Nikkei 225	16926.84	39.44	0.23%
Singapore: Straits Times	2816.47	-4.12	-0.15
France: CAC 40	4479.78	41.56	0.94%
Germany: DAX	10631.37	38.68	0.37%
Italy: FTSE MIB	17182.97	239.59	1.41%
Spain: IBEX 35	8871.7	154.9	1.78%
U.S. 3 Month	0.343	0/32
U.S. 2 Year	0.813	0
U.S. 5 Year	1.22	-0.09375
U.S. 10 Year	1.611	-0.25
U.S. 30 Year	2.265	-0.71875
Germany 2 Year	-0.609	0/32
Germany 10 Year	-0.046	-0.15625
Crude Oil	44.23	-0.47	-1.05%
Brent Crude	46.36	-0.53	-1.13%
Natural Gas	2.864	-0.023	-0.80%
S&P GSCI	346.17	-2.04	-0.59%
E-mini S&P 500	2170.5	1	0.05%

Brazilian President Dilma Rouseff is out of a job, as the congress moved to impeach her yesterday.  The Brazilian Bovespa stock index is barely budging, down .3% today.  

Apple CEO Tim Cook lashed out the EU/EC on the tax decision, calling it “total political crap”.   Tell us how you really feel, Tim.  Apple’s stock price has barely budged since the tax decision was announced.  Janus’s Bill Gross stepped up his long running criticism of the Fed yesterday, saying they should get on with it already and raise short term rates, which are causing distortions in asset markets.  And, I don’t need to tell you that Mr. Trump went to Mexico and back yesterday.

  

British PMI’s surprised on the upside, which has lots of people wondering if the worries about Brexit are overblown.  

Elon Musk’s Tesla and Solar City are having serious cash flow problems, according to the WSJ http://bit.ly/MuskCash.  I’m rooting  for Tesla, Solar City, and SpaceX for that matter, which according to breaking news just lost a Falcon 9 rocket this morning in Florida.   

Here’s the news:

PMIs

U.K. manufacturing PMI surprised the market this morning when it came in at 53.3 for August, against expectations of 49 and a five-point increase from July's 48.3 reading. The pound surged as much as 1 percent following the data release. In the euro-area, manufacturing PMI fell to a three-month low of 51.7, driven by a slowdown in order growth. There was good news from China's official factory gauge overnight as it unexpectedly rose to the highest level in almost two years. Markit manufacturing PMI data for the U.S. is due later this morning.

Oil under $45

A barrel of West Texas Intermediate for October delivery was trading at $44.57 at 5:55 a.m. ET, with the commodity dropping more than 6.4 percent this week. Russia's Energy Ministry said it sees no need for talks on capping production with oil prices around $50 in a statement ahead of OPEC talks in Algiers later this month. Saudi Arabia, the world's biggest oil exporter, will not boost output capacity and flood the market ahead of that meeting, the kingdom’s Energy Minister Khalid Al-Falih said.

More rate rises

Former bond-king Bill Gross has called for two Fed rate hikes by as early as March next year, twice the pace markets currently expect. The billionaire money manager said in a client note yesterday that negative yields are turning assets into a liability and stifling the financial system. Currently, the probability of a rate hike in September is 36 percent, according to the futures market, with the chances of a second hike not getting above 50 percent in the forecast horizon until the end of 2017. That all might change tomorrow, though, depending on what payrolls data show.

Markets rise

After a disappointing end to August, equity markets are starting September on a more positive note. Overnight, the MSCI Asia Pacific Index was little changed at 138.05, while Japan's Topix index rose 0.6 percent. In Europe, the Stoxx 600 Index was 0.7 percent higher at 6:11 a.m. ET, a gain led by banks, and enough to erase the index's post-Brexit vote losses. S&P 500 futures were up 0.1 percent.

Coming up...

While markets are waiting for the daddy of econ data tomorrow, there is plenty due this morning to whet the appetite. At 8:30 a.m. ET we get the latest weekly jobless claims, with expectations for a slight rise to 265,000 from last week's 261,000. At 9:45 a.m. Markit release manufacturing PMI data for the U.S., with ISM manufacturing due at 10 a.m. Also today, domestic vehicle sales data is due, with expectations for total sales to drop to 17.2 million from July's 17.77 million.

China's manufacturing sector bounced back. China's Manufacturing PMI printed 50.4 in August, its highest reading since October 2014. Nonmanufacturing PMI, however, came in at 53.5, its weakest reading in three months.
Macau gaming revenue is positive for the first time in more than two years. Bloomberg reports that data from Macau's Gaming Inspection and Coordination Bureau shows that gross gaming revenue edged up 1.1% in August to 18.8 billion patacas ($2.4 billion). The increase in revenue was the first since May 2014.
The British economy got more good news after Brexit. Manufacturing PMI surged to a 10-month high of 53.3 in August, well above July's 48.3 print and ahead of the 49.0 that was expected. The British pound is stronger by 0.8% at 1.3240.
Ireland might try to keep its $14.5 billion Apple-tax windfall. The Irish government says it will announce a decision on Friday as to whether it will appeal the European Union's ruling against Dublin's tax dealings with Apple. A formal appeal must be filed in just over two months time.
Oil has given up its overnight gains. West Texas Intermediate crude oil climbed as high as $45.08 a barrel in early trade, but it is now down 0.3% near $44.60. On Wednesday the energy component tumbled more than 3.5% after US inventories showed a build that was much larger than expected.
Charter Communications is being added to the S&P 500. Charter will replace EMC, which will merge with Dell on September 7.
Top US McDonald's executive is on his way out. Mike Andres, the president of McDonald's USA, is retiring after 30 years at the company. Andres was the man behind the plan to bring all-day breakfast to the masses.
Mixed Message
Hours after seeming to ease his immigration and trade policy while standing with Mexico’s president, Donald Trump reiterated the tough stance that powered his campaign in a speech yesterday evening. Placing a clear bet that it is more important to err on the side of revving up his supporters than to soften his tone to reach out to unpersuaded voters, Mr. Trump said that all illegal immigrants are “subject to deportation” and doubled down on his assertion that Mexico will pay to build an “impenetrable” wall on the southern border. But Mexican President Enrique Peña Nieto earlier said he told Mr. Trump during their visit that his nation had no intention of underwriting such a project. Meanwhile, on the issue of trade, the Republican candidate did appear to give some room, telling reporters in Mexico City that he would aim to “improve” the Nafta trade pact, which he previously said “shouldn’t exist.”
Friends Electric
Two pillars of Elon Musk’s empire, Tesla and SolarCity, are facing financial crunches as he seeks to combine them through a controversial acquisition. Tesla disclosed in a securities filing Wednesday that it has to pay $422 million to its bondholders in the third quarter, and that it will raise additional money by the end of the year. The purpose of the additional capital, among other things, is to support its proposed merger with home-solar company SolarCity. The filing also revealed that in recent weeks 15 institutional investors passed on either acquiring SolarCity or injecting equity into it. The company is having difficulty tapping public markets amid the proposed merger and is facing a liquidity squeeze. Last week, Mr. Musk and his cousins—SolarCity Chief Executive Lyndon Rive and its technology chief, Peter Rive—disclosed they would together buy more than 80% of a $124 million SolarCity bond issue.
Dog Days Deliver
An August surge in U.S. bank shares is helping to drive an emerging consensus that the economy is strong enough to allow Federal Reserve officials to raise interest rates at least once by the end of 2016. The S&P Financial Sector rose 3.6% in August, far outperforming a 0.1% decline in the S&P 500 and making financials the best-performing sector in the index for the first month this year. Shares of Morgan Stanley rose by 12% in August, while Bank of America shares added 11% and Citigroup shares increased 9%. A Fed interest-rate rise would deliver banks modest but long-awaited relief. Meanwhile, we report that executives at Deutsche Bank are contemplating dramatic options for the German lender, including selling all or part of a key business, a sign of growing pressure to speed up a flagging overhaul.
Stock markets around the world are mostly higher. Spain's IBEX (+1.5%) leads the charge in Europe after Hong Kong's Hang Seng (+0.8%) outperformed in Asia. China's Shanghai Composite (-0.7%) was a notable laggard. S&P 500 futures are up 3.50 points at 2,165.75.
Earnings reporting picks up a bit. Campbell Soup and Joy Global report ahead of the opening bell, while Lululemon Athletica and Smith & Wesson release their quarterly results after markets close.

US economic data is heavy. Productivity and initial jobless claims will be released at 8:30 a.m. ET before manufacturing PMI crosses the wires at 9:45 a.m. ET. Then, at 10 a.m. ET, construction spending and ISM manufacturing will be announced. US vehicle sales will be reported throughout the day. The US 10-year yield is higher by 2 basis points at 1.60%.

September could be huge for markets around the world.

America's corporate bond party goes on as sales near $1 trillion.

This how leverage in the financial system lives on.

Donald Trump affirms nativist immigration vision in fiery speech.

Code bros united by Netflix run two of world's best quant funds.

U.S. nuclear reaction that took 42 years to build shuts after fire.

Croc of gold: Kenya's booming crocodile farm industry.

Kurds Carve Out a Home in Syria, Testing U.S. Ties With Turkey

Michel Temer Seeks New Start as Brazil’s President

Insurers Move to Limit Options in Health-Care Exchange Plans

Consumers Are Driving Up the S&P 500. Why That’s Nothing to Worry About

Donald Trump went down to Mexico yesterday, and the trip was declared a success by the pundits, because the bar was set very low and he cleared it. People thought it was going to be a disaster and it wasn't. Trump also had a solid day in the polls on Wednesday. Two new national polls (one from FOX and one from Reuters/Ipsos) showed Hillary Clinton only up by two points nationally in the four-way race - with Gary Johnson and Jill Stein included. The state polls yesterday were also good for Trump. Two out of Wisconsin showed Clinton's lead to be rather minimal in a state that has been seen as reliably safe for Democrats. Meanwhile, an Emerson poll of North Carolina showed Trump leading, contrary to some previous polling in the state. Following some of yesterday's polling data, election guru Nate Silver tweeted: "Repeating myself a bit, but people underrate how fragile Clinton's Electoral College advantage will be if the race keeps tightening overall." In the last few weeks, there's been a view that the race was settled and finished; and it may be. But if Trump has more polling days like yesterday and if he can maintain the discipline he's been showing, then a new meme might emerge about how it's a real competition again. And to the extent that this election counts as "event risk" such a shift could begin to show up in markets.

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