Tuesday September 20 Daily Market Primer
Is
that a typo or is the S&P 500 return for yesterday really…zero. I’ll
take zero once in awhile, its better than the jolts of volatility we have seen
several times over the last two weeks. Markets around the world are
mostly moving sideways ahead of the Fed and BOJ meetings this week,
although German stocks are up .6% this morning. There is lots of
speculation about what the BOJ will do or say, but with two market holidays
in Japan this week the home market is calm. We’ll know by tomorrow
morning, as the decision will be announced in the middle of the night our time,
followed by the Fed’s decision tomorrow afternoon. S&P futures are
pointing to a slightly positive open.
|
LAST
|
CHANGE
|
% CHG
|
|
|
18120.17
|
-3.63
|
-0.02%
|
|
|
5235.03
|
-9.54
|
-0.18%
|
|
|
2139.12
|
-0.04
|
0.00%
|
|
|
1232.53
|
7.75
|
0.63%
|
|
|
2419.71
|
3.1
|
0.13%
|
|
|
16492.15
|
-27.14
|
-0.16%
|
|
|
342.03
|
0.76
|
0.22%
|
|
|
6850.21
|
36.66
|
0.54%
|
|
|
14.88
|
-0.65
|
-4.19%
|
|
|
5303.6
|
8.8
|
0.17%
|
|
|
3023
|
-3.05
|
-0.10%
|
|
|
23530.86
|
-19.59
|
-0.08%
|
|
|
28523.2
|
-111.3
|
-0.39%
|
|
|
2854.69
|
2.55
|
0.09%
|
|
|
4409.13
|
14.94
|
0.34%
|
|
|
10439.95
|
66.08
|
0.64%
|
|
|
16295.23
|
-104.03
|
-0.63%
|
|
|
8718.9
|
3.4
|
0.04%
|
|
|
0.297
|
0/32
|
||
|
0.778
|
0/32
|
||
|
1.205
|
2/32
|
||
|
1.684
|
7/32
|
||
|
2.42
|
24/32
|
||
|
-0.66
|
1/32
|
||
|
-0.008
|
8/32
|
||
|
42.83
|
-0.47
|
-1.09%
|
|
|
45.46
|
-0.49
|
-1.07%
|
|
|
3.044
|
0.039
|
1.30%
|
|
|
346.97
|
-1.99
|
-0.57%
|
|
|
2139.75
|
6.75
|
0.32%
|
Deutsche
Bank continues to be under pressure after a demand from US regulators to pay $14
billion, and is putting together a big Collateralized Loan Obligation (CLO)
to move risky assets off the balance sheet and shore up capital. In a
CLO, assets are pooled and sold in tranches based on different levels of risk
and return. Hedge funds are the natural buyers. I noticed the spread
is very wide between Monsanto’s current market price of $102 and the Bayer
buyout price of $128. Spreads are driven by merger arbitrage,
and wide spreads generally reflect the markets doubt that a deal will
actually close. In this case, its due to anticipated political
opposition to St. Louis MO based Monsanto selling to a German company. The move from active to passive
continues, according to “Investors Moving..”, below. And, Twitter
is finally expanding the 140 character limit, by not counting links to
other material in the 140. I know you’re excited.
Here’s
the news:
Fed meeting
While expectations of a rate rise announcement from the Federal
Open Markets Committee tomorrow remain low, there are a few banks out there
predicting tightening. Two of the Federal Reserve's primary dealers
— Barclays Plc and BNP Paribas SA — are going against the crowd and
forecasting that officials will hike rates. Other bond market players
are expecting Chair Janet Yellen to wait until December to announce further
tightening thanks to the recent bond market sell-off.
Bank of Japan
Ahead of the Fed decision, the Bank of Japan will release its
monetary policy statement, typically between noon and 1:00 p.m in Tokyo (midnight
ET), with a press conference from Governor Haruhiko Kuroda scheduled for
2:30 a.m. ET. Despite the central bank proving as hard to predict as ever, investors are
expecting it to do something to
ease policy further. The lack of clarity, the timing of the meeting so close to
the Fed decision, and two Japanese holidays this week, all mean that there
has been less positioning than usual ahead of the
decision.
Markets calm
Overnight, the MSCI Asia Pacific Index climbed 0.3 percent with Japan's Topix index
adding 0.4 percent in its first trading
session this week. In Europe, the Stoxx 600 Index was 0.2 percent higher at 5:57 a.m. ET as
investors (yes, you guessed it) await the Fed. S&P 500 futures advanced 0.2 percent.
Deutsche Bank
Deutsche Bank AG is having a bad week, with the company's shares
down 12.5 percent in the past three days.
With some hedge funds extending their bets against Germany's
largest lender, the bank is said to be attempting to offload some risk from its balance
sheet. Deutsche intends to securitize billions of dollars in corporate
loans, structuring the deal as a synthetic collateralized loan obligation
(CLO).
China stimulus/risks
Authorities in China are attempting to open the private sector's
wallets by selecting a new batch of about 1 trillion yuan ($150 billion) worth of
public-private partnership projects. The welcome from investors for the new
spending may be tempered by a report from CLSA Ltd. which estimates that
losses from China's shadow banking system could be as high as $375 billion. Adding to the woes are the
continued high costs of borrowing associated with
stabilizing the yuan less than two weeks ahead of the currency's inclusion in
the IMF's SDR basket.
The
Bank of Japan meets Tuesday evening. There has been growing
speculation the central bank will tweak its bond-buying program to include the
purchase of more short-term bonds in an effort to steepen the yield curve, The
Japan Times reports. The Japanese yen is little changed near 101.90 per dollar.Jeff Gundlach doesn't think the Fed will raise rates at Wednesday's meeting. The CEO of DoubleLine Capital believes the US Federal Reserve will use a "hawkish no-hike" language.
Wells Fargo's CEO is testifying before the Senate Banking Committee. Wells Fargo CEO John Stumpf will appear before the Senate Banking Committee on Tuesday and tell members he takes "full responsibility" for his bank's selling customers unauthorized bank accounts and credit cards, The New York Times reports.
Bayer might drop the Monsanto name. The German drug and chemical maker is considering moving Monsanto products under the Bayer CropScience label to remove the stigma of the Monsanto name, Bloomberg reports.
Twitter is finally letting you use more than 140 characters. The social-media company will no longer count links to media like photos, GIFs, polls, and videos as part of its 140-character limit.
Carl Icahn dumped a bunch of his Chesapeake Energy shares. A Securities and Exchange Commission filing showed Carl Icahn owned a 4.55% stake in the energy explorer as of Monday, down from 9.40% on August 4, Reuters reports.
British Prime Minister Theresa May
has met with about 60 US executives, including those from Morgan Stanley,
Goldman Sachs Group and BlackRock, to assure them that there is no need to
leave the UK because of the Brexit vote. "Britain is open for
business," May told the group. Reuters (19 Sep.),
The trend of investors shifting from
actively managed equity funds to passive funds continued in August, according
to data from Morningstar. Outflows from actively managed funds totaled $25.4
billion as investors put $16.4 billion into passive funds. ThinkAdvisor (19 Sep.)
The Federal Reserve need not raise
interest rates to tighten monetary policy. Approaching money market regulations
have driven up the London Interbank Offered Rate, effectively increasing
borrowing costs. Financial Times (tiered subscription model)
Germany's public-sector banks lose
more than €500 million a year because of negative interest rates, sources say.
The lenders have not been passing on negative rates to clients, even though
they have been paying to deposit excess funds with the European Central Bank
since 2014. Reuters (19 Sep.)
UK banks should experience only a
modest, manageable hit if Brexit causes a loss of EU passporting, according to
Moody's Investors Service. "The greater impact would be felt through
higher costs and diversion of management attention, as companies concerned
restructure, reducing profitability for a time," Moody's said. Reuters (19 Sep)
Van Eck Securities is launching two
exchange-traded funds offering exposure to municipal bonds with different
maturity ranges to Bats Global Markets. The VanEck Vectors AMT-Free 6-8 Year
Municipal Index ETF buys bonds with maturities of six to eight years, and the
VanEck Vectors AMT-Free 12-17 Year Municipal Index ETF invests in bonds in the
12- to 17-year maturity range.
ETF.com (19 Sep.)
Why 'quantitative tightening' may again become a
problem for markets.
The ECB says weak trade is the new normal in post-crisis world.
Four simple ideas for trading a possible Trump presidency.
Michel Temer vows to spend political capital on reforming Brazil.
Women launch more than half of all new internet companies
in China.
It's time to kill the 9-to-5.
2 IPOs are
expected to price on Tuesday. According to Bloomberg, The Trade Desk (TTD) and Novan (NOVN)
are expected to price at $16 to $18 and $11 to $13, respectively.Stock markets around the world are trade mixed. Japan's Nikkei (-0.2%) slipped amid a quiet overnight trade, and Germany's DAX (+0.6%) paces the gains in Europe. S&P 500 futures are higher by 6.75 points at 2,139.75.
Earnings reporting picks up a bit. Lennar will release its quarterly results ahead of the opening bell, and FedEx and KB Home will report after markets close.
US economic data is light. Housing
starts will be released at 8:30 a.m. ET. The US 10-year yield is down 2 basis
points at 1.69%.
As the election draws nearer, there's growing interest in
trades and hedges to play its possible outcomes. People have been talking for
a while about how, for obvious reasons, the
Mexican peso is sensitive to
Trump risk. There have been a few times when the peso quickly moved lower
after a positive poll for Trump, though for the most part the impact hasn't
been that clear. Plus it's always hard to disentangle a single risk factor
for a currency (for example, the peso can get pushed around due to oil or the
fact that it's a popular proxy for all of emerging market risk). That being
said, there are some clear ways that Trump risk is now showing up. The
easiest chart to look at is the spread between implied volatility in the peso
for two months out and one month out. Two months out covers the election
period, whereas one month doesn't, so the gap between the two should show
hedging activity timed specifically for market moves in November. Sure
enough, you see that this spread is near its highest level in years, confirming
that peso traders are taking clear positions on Trump risk.
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Source:
Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, ETF.com, ThinkAdvisor
posted by Rich Barnett @ 6:31 AM
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