Thursday September 8 Daily Market Primer

US stocks had another flat day yesterday, with returns barely budging.  Stock markets were also uneventful in Asia, except for Hong Kong, which was up .75%, and stocks are quiet in Europe as Mario Draghi is delivering his press conference following the ECB meeting right now.  European inflation is near zero, they are far from the ECB 2% inflation target, and don’t expect to get there until about 2019.  As has been widely discussed in the financial press, the ECB is running out of bonds to buy for their quantitative easing program.  The ECB is currently buying $80 billion in bonds per month until March 2017, and today he promised to extend the program if necessary.   Sovereign bond yields in Europe and the US are edging up on the news.

	LAST	CHANGE	% CHG
DJIA	18526.14	-11.98	-0.06%
Nasdaq	5283.93	8.02	0.15%
S&P 500	2186.16	-0.32	-0.01%
Russell 2000	1261.01	7.64	0.61%
Global Dow	2487.76	-1.35	-0.05%
Japan: Nikkei 225	16958.77	-53.67	-0.32%
Stoxx Europe 600	350.54	0.08	0.02%
CBOE Volatility	11.84	-0.1	-0.84%
Australia: S&P/ASX 200	5385.8	-38.4	-0.71%
China: Shanghai Composite	3095.95	4.03	0.13%
Hong Kong: Hang Seng	23919.34	177.53	0.75%
India: S&P BSE Sensex	29045.28	118.92	0.41%
Japan: Nikkei 225	16958.77	-53.67	-0.32%
Singapore: Straits Times	2894.48	0.83	0.03%
France: CAC 40	4555.86	-1.8	-0.04%
Germany: DAX	10717.84	-35.14	-0.33%
Italy: FTSE MIB	17333.17	40.33	0.23%
Spain: IBEX 35	9088.7	73.4	0.81%
U.S. 3 Month	0.343	0/32
U.S. 2 Year	0.742	0/32
U.S. 5 Year	1.153	-4/32
U.S. 10 Year	1.578	-11/32
U.S. 30 Year	2.277	-28/32
Germany 2 Year	-0.631	-2/32
Germany 10 Year	-0.068	-15/32
Crude Oil	46.35	0.85	1.87%
Brent Crude	48.77	0.79	1.65%
Natural Gas	2.726	0.05	1.87%
S&P GSCI	355.97	3.79	1.08%
E-mini S&P 500	2183.75	-0.75	-0.03%

One of the great success stories of the 90’s technology boom, storage company EMC, founded in 1979 in Massachusetts, disappeared as a separate public company yesterday as buyout by Dell Computer closed.  At about $65 billion in cash and stock, this is one of the biggest tech deals ever.  I fondly remember my first PC, which was branded “PCs Limited”, the original name for Dell computers, the company Michael Dell famously founded in his dorm at UT Austin in 1984.   Like Bill Gates, Steve Jobs, and Mark Zuckerberg, Dell later dropped out of college to run the company.  Dell+EMC is now owned by Michael Dell and PE firm SilverLake Partners.

The market is opening right now, so here’s the news:

ECB day

Expectations are low for today's monetary policy decision by the European Central Bank. Only one of the 70 analysts surveyed by Bloomberg predicts a change in the base rate from zero percent. For ECB President Mario Draghi there are no signs of market stress to force immediate action, but with macro data continuing to disappoint, there is talk that he will have to extend the central bank's asset purchase program, if not at this meeting, then soon. Ahead of today's announcement at 7:45 a.m. ET, Spanish bonds yields are at a record low and the euro was trading $1.1276 at 5:53 a.m. ET, near a two-week high. 

Pessimistic oil traders

There was little optimism among oil traders at the Asia-Pacific Petroleum Conference in Singapore this week, with almost all agreeing that Brent crude will remain in the $40 to $60 per barrel range for the next 12 months. Doubts over an agreement to freeze production at this month's OPEC (and friends) meeting in Algiers continue to weigh on the price outlook. The fact that Iran is increasingly likely to extend production beyond pre-sanctions levels is also reducing bullishness on the commodity. The market today has, however, seen a boost from falling U.S. crude stockpiles with a barrel of West Texas Intermediate for October delivery trading at $46.30 at 5:57 a.m. ET.

Yuan intervention

Increasing speculation that China's central bank is intervening in the foreign exchange market to support the yuan has seen the cost of borrowing the currency in Hong Kong spike. With the yuan approaching 6.7 per dollar, seen as the People's Bank of China's redline in halting depreciation of the currency, overnight Hibor rose to the highest since February. Data released yesterday showed that the country's foreign exchange reserves are at the lowest since 2011 amid the continuing defense of the 6.7 level. It's not just Hibor that is rising; rule changes for money market funds due to be introduced next month are also set to push Libor even higher, according to some analysts.

Markets marking time

It was something of a mixed bag in Asia overnight as the MSCI Asia Pacific Index rose less than 0.1 percent, with Hong Kong's Hang Seng Index's 0.8 percent gain countered by Japan's Topix index's 0.3 percent slip. In Europe, the Stoxx 600 Index was little changed at 6:14 a.m. ET as investors await the ECB decision. Futures in the S&P 500, which hasn't seen a daily move of more than 1 percent since July 8, were 0.1 percent higher.

Presidential campaign

Hillary Clinton and Donald Trump put their weaknesses on display a forum on the U.S. military Wednesday night. Clinton was put on the defensive over her decades-long record in government while Trump was light on the details of how he would defeat ISIS. The Republican nominee's use of social media in his campaign to date has been compared to that of Canada's current Prime Minister, Justin Trudeau (apologies in advance for the pic.)

China's trade surplus narrowed slightly. Exports fell 2.8% year-over-year and imports rose 1.5%, making for a trade surplus of $52.05 billion in August, a bit narrower than the $52.31 billion figure seen in July.

China's steel production is about to fall further behind schedule. China's top steel making city, Tangshan, has ordered a two-week suspension of production as it grapples with overproduction and pollution, Reuters reports. China's production has amounted to just 47% of its annual target through the first seven months of the year.

The UK will take its time with Brexit. "We will not take decisions until we are ready, we will not reveal our hand prematurely and we will not provide a running commentary on every twist and turn of the negotiation," prime minister Theresa May told parliament. The British pound is stronger by 0.2% at 1.3365 versus the dollar.

Hewlett-Packard Enterprise sold its software business. The $8.8 billion deal will give Micro Focus a 50.1% stake in the combined company and pay HPE shareholders $2.5 billion in cash.

Intel is spinning off its McAfee Security unit. Intel and private equity firm TPG will work together to complete the spinoff, which is worth $4.2 billion, or 45% below the $7.6 billion that Intel paid for the company six years ago.

Liberty Media is buying Formula One for $4.4 billion. F1's biggest shareholder, CVC Capital Partners, and other shareholders, will still own 65% of Formula One stock, but have agreed to give up control to Liberty Media, Associated Press reports.

Security Scuffle
Donald Trump and Hillary Clinton sketched dueling visions Wednesday night of the U.S. role on the global stage, sparring over questions about their experience and wrestling with issues that have tripped them up in the past in back-to-back appearances during a forum televised on NBC. Mrs. Clinton defended her handling of classified material as secretary of state, while Mr. Trump stood by his past admiration of Russian President Vladimir Putin. Earlier Wednesday, Mr. Trump laid out plans to jettison current defense-spending caps and embark on a military buildup that includes big outlays for ships, planes and troops, although he didn’t put a price tag on his plan. Meanwhile, we report that vulnerable Senate Republicans are campaigning on hyperlocal issues in a bid to create distance from Mr. Trump.
Billions at Sea
The financial woes of one of the world’s biggest shipping lines have left as much as $14 billion worth of cargo stranded at sea. Since Hanjin Shipping of South Korea filed for bankruptcy protection last week, dozens of ships carrying more than half a million cargo containers have been denied access to ports around the world because of uncertainty about who would pay docking fees, container-storage and unloading bills. Owners are scurrying to try to recover their goods and get them to customers. Samsung said it is considering chartering 16 cargo planes to fulfill its shipment contracts, mostly to the U.S. Analysts don’t expect the snarl to leave U.S. retailers with inventory shortfalls for the holidays, but the longer the logjam drags on, the greater the risk. As Hanjin ships drift at sea, their crews face increasing uncertainties and diminishing supplies.

Goldman’s Gambit
There is perhaps no better sign of the changes that have engulfed Wall Street than this: Goldman Sachs has recently started giving clients the tools that made it a trading powerhouse, for free. Traders and executives tap into Goldman’s Securities DataBase, or SecDB, to inform how to price securities, and how the value of those assets may change with a twist on the dial on any one of thousands of potential variables. The firm’s new gambit: Deploy its technology to win more business from clients. Many of those tools are being offered in the form of web-based applications that customers can customize and operate on their own. Goldman’s motives aren’t altruistic; rather, many of the edges that once made the firm’s traders feared and admired have been blunted. Meet the inventor who helped design the system.

All Ears
Apple on Wednesday announced improvements to the iPhone that stopped short of a major overhaul, hoping that the upgrades will revive sagging sales of its flagship product. The new iPhone 7 and iPhone 7 Plus deliver practical improvements that were long overdue, writes our Personal Technology columnist Geoffrey A. Fowler. But Apple is only catching up to the competition, not flying past it. Yet this doesn’t necessarily spell doom for company. The new phones offer longer battery life, more storage and brighter screens than their predecessors, but eliminate the traditional headphone jack. The lack of a must-have feature breaks an Apple tradition of major design changes every other year and poses a crucial question: Will users find enough value in the improved features to upgrade from older models?

UK execs press Hammond on Brexit plans

Hammond (Carl Court/Getty Images)

UK bank executives and insurers have made their case on Brexit in a meeting with Chancellor Philip Hammond, who says he wants the best deal for the industry. "It is important Britain maintains its status as a great place for financial services," Hammond said.  Reuters

Vladimir Putin just wants to be friends.

Europe's corporate-bond sales soar, yields fall

Record-low borrowing costs have touched off a torrent of corporate-bond offerings across Europe. Bond sales are accelerating after pharmaceutical firm Sanofi and household products maker Henkel sold debt with negative yields, the first time non-financial companies could get fixed-income investors to pay them in euros for borrowing money.

Bloomberg (07 Sep.), 

Blockchain prompts labor-market questions

Blockchain has emerged as a transformative technology, but it could jeopardize jobs as financial institutions seek savings.

Financial Times (tiered subscription model)

China National Petroleum is considering using small-cap company Daqing Huake to list an oilfield-services unit, a technique known as a backdoor listing, which gets assets on to the public market without a time-consuming initial public offering, sources say. China's biggest producer of oil and gas reportedly might use the same company to list an equipment business.

Bloomberg (08 Sep.) 

Mark Carney is serene, and so are pound traders.

If you think diversification is harder than ever, you're right.

Googletown is on edge after the Apple tax grab.

These technologies may deliver Tusk's dream of changing the world.

How to launch a nuclear weapon.

Apache Has High Hopes for New Oil-Field Discovery in Texas

Wells Fargo to Be Subject of Enforcement Action Over Cross-Selling, Sales Practices

Negative Rates Are Working (a Bit)

On Final Asia Trip, Obama Faces Tests to U.S. Power

Stock markets around the world are mixed. Overnight, Australia's ASX (-0.7%) lagged and Hong Kong's Hang Seng (+0.8%) led. In Europe, Spain's IBEX (+0.9%) is out in front. S&P 500 futures are higher by 1.75 points at 2,186.25.
Earnings reports trickle out. Barnes & Noble will report ahead of the opening bell and Restoration Hardware will release its quarterly results after markets close.

US economic data is light. Initial jobless claims will be released at 8:30 a.m. ET. The US 10-year yield is down 1 basis point at 1.53%.

A few weeks ago in this space we talked about the work of Erik Hurst, an economist at the University of Chicago, who's looking at the economic impact of young men dropping out of the workforce to - basically - play video games. Basically, such leisure activities are becoming more immersive, more social and more satisfying and that makes going out and working and acquiring skills relatively less appealing. It increasingly looks like Hurst is headed on his way to becoming a household name, at least by economist standards. Tyler Cowen recently gave him a plug on his blog and Hurst now has a big article in the Chicago Booth Review about how technology is changing the labor force, in which he notes that "22 percent of lower-skilled men aged 21–30 had not worked at all during the prior 12 months." As he notes, there's been a lot of discussion about how technology may impinge on the demand for labor (will artificial intelligence make human brains obsolete?) but far less discussion on how technology may reduce the supply of available labor. So keep an eye out for this. Hurst and his focus on labor supply are about to get way more attention in this debate.

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