Tuesday September 27 Daily Market Primer

US stocks dropped again before the presidential debate last night, with the Dow and S&P both down almost 1%.  Oil is down again as the OPEC meeting failed to produce  a substantial agreement on production cuts, as Iran reportedly spiked the deal.  The first US presidential debate was last night, and while the debate will be debated for a couple of days in the press, the market seems to have called it for Clinton, as the Mexican peso rose while the debate was in progress.   He peso is seen as  a barometer for the elections since a Trump win is perceived as bad for Mexico.    The debate also turned US stock futures positive last night, although they have gone flat this morning, and the market is just barely positive as I’m hitting send.  Stock markets around the world are mixed Tuesday.

	LAST	CHANGE	% CHG
DJIA	18094.83	-166.62	-0.91%
Nasdaq	5257.49	-48.26	-0.91%
S&P 500	2146.1	-18.59	-0.86%
Russell 2000	1240.94	-13.68	-1.09%
Global Dow	2432.76	-7.95	-0.33%
Japan: Nikkei 225	16683.93	139.37	0.84%
Stoxx Europe 600	338.6	-1.4	-0.41%
UK: FTSE 100	6780.21	-37.83	-0.55%
CBOE Volatility	14.31	-0.19	-1.31%
Australia: S&P/ASX 200	5405.9	-25.5	-0.47%
China: Shanghai Composite	2998.17	17.74	0.60%
Hong Kong: Hang Seng	23571.9	253.98	1.09%
India: S&P BSE Sensex	28223.7	-70.58	-0.25%
Singapore: Straits Times	2860.23	10.29	0.36%
France: CAC 40	4374.74	-33.11	-0.75%
Germany: DAX	10299.38	-94.33	-0.91%
Italy: FTSE MIB	16024.69	-167.79	-1.04%
Spain: IBEX 35	8676	-35.4	-0.41%
U.S. 3 Month	0.261	2/32
U.S. 2 Year	0.742	0/32
U.S. 5 Year	1.104	2/32
U.S. 10 Year	1.553	8/32
U.S. 30 Year	2.288	23/32
Germany 2 Year	-0.7	2/32
Germany 10 Year	-0.15	12/32
Crude Oil	44.74	-1.19	-2.59%
Brent Crude	46.12	-1.23	-2.60%
Natural Gas	3.076	0.021	0.69%
S&P GSCI	351.52	-4.94	-1.39%
E-mini S&P 500	2140	0.25	0.01%

Bidders are lining up for Twitter, so its just a matter of time until its absorbed into a tech or media or media giant.  One of the bidders is Salesforce, so maybe we’ll have Twitter + Chatter at work.  I watched the debate on Twitter and was surprised by the quality, although it did freeze a few times.  Deutsche Bank is down again on a echo from yesterday after PM Merkel said over the weekend she would not bail them out, even though the bank says they never asked for a bailout and don’t need one.  And Mylan is back on the hot seat after trying to clarify its unit profit on the EpiPen, which apparently was  underestimated by CEO Heather Bresch in congressional testimony last week.  Maybe it will take some heat off Wells Fargo, who could probably use a shot of epinephrine right now.

Here’s the news:

Oil falls

A barrel of West Texas Intermediate was trading more than 1.3 percent lower at $45.32 by 5:53 a.m. ET after Iran said it's unwilling to freeze production at current levels. The nation's oil minister also said the country doesn't intend to strike an agreement with other crude producers in Algiers this week. The increased power the Iranians have over the price of crude shows how much the tables have turned on Saudi Arabia, the world's biggest producer. 

Debate debate

A CNN poll showed that 62 percent of voters who watched last night's presidential candidate's debate felt that Democratic nominee, Hillary Clinton, won. In markets, the Mexican peso seems to agree, with the currency rallying as much as 2 percent after the head-to-head concluded. Supporters of Republican nominee Donald Trump said that their candidate would now hit battleground states hard. 

Deutsche Bank falling again

Deutsche Bank AG shares are falling again this morning, down 3.4 percent to 10.21 euros at 6:05 a.m. ET. The bank has been under pressure due to a $14 billion request from the U.S. Department of Justice to settle claims over sales of mortgage-backed securities, as well as German Chancellor Angela Merkel's lack of enthusiasm for bailing out the bank, should it become necessary. For Merkel, it seems there may be a lengthening list of German companies to worry about as the DOJ is currently assessing how big of a fine it can extract from Volkswagen AG over emissions-cheating without putting the carmaker out of business.

Markets turn lower

Overnight, the MSCI Asia Pacific Index rose 0.7 percent for its first session of gains in three days, with Japan's Topix index adding 1 percent by the close. In Europe, where stocks opened higher, the Stoxx 600 Index was down 0.5 percent by 6:15 a.m. ET as banks and carmakers came under pressure. S&P 500 futures were 0.2 percent higher, paring a gain of as much as 0.7 percent following the debate.

Bond rally

Global bonds have been the big winner as renewed concerns over Europe's banks spur demand for safe assets. Germany's 10-year yield fell to the lowest since July and Finland's dropped below zero for the first time. Spain's 10-year yield dropped to a record low. The outlook may be different for Treasuries, as Blackrock Inc., the world's biggest money manager, warned of the risks of holding the instruments as the Federal Reserve moves towards raising rates.

Round 1 of the presidential debate is over. The economy was one of the three topics of the debate, with Donald Trump suggesting the US had become a "piggy bank" for China and that Mexico was "stealing" jobs. Hillary Clinton took aim at Trump as someone who "rooted for the financial crisis."

The Mexican peso is rallying. The peso is stronger by 1.6% at 19.5616 per dollar on the heels of Monday night's presidential debate. Many are pointing to strength in the peso as a sign Hillary Clinton won the debate. The peso, however, has weakened by 9% since August 15, as Lawrence McDonald (@Convertbond) points out on Twitter. You can draw your own conclusions about what the market is saying.

China stockpiles oil whenever prices are at $50 or lower. "Since the price fall in 2014, China's implied crude stock build has increased significantly," Barclays analysts Miswin Mahesh and Michael Cohen wrote in a note to clients. "On a monthly basis, it appears that $50/bbl Brent is a key price level, below which implied crude build tends to remain at elevated levels."

Deutsche Bank is sinking again. The investment bank is down more than 3% in Germany and sitting at a record low near 10.20 euros, as shares continue to reel following Monday's comments from German Chancellor Angela Merkel suggesting Deutsche Bank will not receive a bailout.

Perry Capital is reportedly closing its flagship fund. The fund has seen its assets under management dwindle down to $4 billion from its peak of $15 billion in 2007, Bloomberg reports.

Polls says most Americans think Wells Fargo's CEO should resign. A survey of 507 Americans conducted by SurveyMonkey found that 86% of respondents thought John Stumpf should resign after the recent accounts scandal at the bank.

Caesars and its creditors have agreed on a restructuring. Creditors will receive about 70% of the fully diluted equity in the new structure, while second lien noteholders and unsecured creditors will get paid $0.66 on the dollar, Bloomberg reports.

Round One
Hillary Clinton and Donald Trump clashed last night in one of the most eagerly awaited presidential debates in modern political history, offering dramatically different visions of how they would lead. Mrs. Clinton repeatedly managed to put Mr. Trump on the defensive on his business record and tax returns and avoided being knocked off her own message. Mr. Trump, meanwhile, seemed at times distracted and gave some curious answers to questions. And he appeared to miss key opportunities to bash the Democratic nominee. In the early stages he landed some blows on Mrs. Clinton’s shifting position on trade, but he spent little time on questions about her email practices at the State Department and there was no discussion at all of the controversies surrounding the Clinton Foundation. If presidential debates are supposed to illuminate differences and get candidates to engage directly and critically, this one did its job almost from the outset, writes our Washington bureau chief Gerald F. Seib. The sparring eliminated any doubts that Mrs. Clinton was willing to get into attack mode with Mr. Trump. We tracked which topics the candidates discussed, and we fact checked their statements. Stocks rose, the Mexican peso soared and haven assets retreated today as investors scored the debate in favor of Mrs. Clinton, with many believing markets would be lifted in the short term if she won.

Banking Pressure
Intensifying concerns about Deutsche Bank’s financial health caused the German lender’s shares to drop yesterday and pushed it into the awkward position of denying that it had sought help from the German government. Shares in the bank, a linchpin of Europe’s financial system, tumbled 7.5% in European trading, closing at their lowest price in decades. They have fallen 53% this year, whittling Deutsche Bank’s market value to about $16 billion. The concerns—voiced by a number of analysts and investors—center on whether Deutsche Bank would need to raise capital to fortify its finances. The latest source of pressure is the possibility of a multibillion-dollar legal settlement with the U.S. Justice Department. The mounting worries threaten to put the German government, which has railed against taxpayer-financed banking rescues in other European countries, in a tricky position. Meanwhile, the Justice Department is investigating Standard Chartered over allegations that an Indonesian power company controlled by the London-based bank paid bribes to win contracts

Price Check
Mylan on Monday clarified the profit it said it made from its lifesaving EpiPen drug, days after House members questioned the company’s chief executive on the device’s steep price increases. Testifying before a congressional committee last week, CEO Heather Bresch said Mylan’s profit was $100 for a two-pack of the injectors, despite a $608 list price. Mylan said yesterday that the profit figure presented by Ms. Bresch included taxes. The company substantially reduced its calculation of EpiPen profit by applying the statutory U.S. corporate tax rate of 37.5%—five times Mylan’s overall tax rate last year. Without the tax-related reduction, Mylan’s profit on the EpiPen two-pack were about 60% higher than the figure given to Congress, or $166, it said in a new regulatory filing to the SEC.

CBOE, Bats agree on merger terms

CBOE Holdings has agreed to pay $3.2 billion in stock and cash for Bats Global Markets. "We're excited about how to be disruptive in a new way," said Bats CEO Chris Concannon, who will become president and chief operating officer of the merged entity.

Potential Twitter suitors reportedly increase

(Andrew Burton/Getty Images)

Microsoft and Walt Disney have joined Salesforce and Google parent Alphabet on the list of companies considering buying Twitter or preparing a bid, according to media reports. Twitter reportedly could be sold in 30 to 45 days.

Reuters (26 Sep.)

Homebuyers are stampeding to snap up real estate in China.
Saudi Arabia scraps civil servants' bonuses and cuts MPs' pay.
An auction result shows a silver lining to Turkey's downgrade.
Why every investor should be thinking more about the Italian referendum. 
This is the story of post-Brexit vote Britain.

Nike reports after the closing bell. The athletic-apparel giant is expected to earn $0.56 a share on revenue of $8.87 billion, according to the Bloomberg consensus.

Stock markets around the world are mixed. Hong Kong's Hang Seng (+1.1%) led in Asia, and Germany's DAX (-0.9%) paces the decline in Europe. S&P 500 futures have given up most of their overnight gains, trading up 3.75 points at 2,143.50.

US economic data is moderate. S&P Case Shiller home prices will be released at 9 a.m. ET before Markit services PMI and consumer confidence are reported at 9:45 a.m. ET and 10 a.m. ET. The US 10-year yield is down 1 basis point at 1.57%.

Remember the global bond selloff? Two weeks ago, that was all anyone was talking about. German 10-year yields actually went into positive territory and U.S. 10-year yields rose above 1.7 percent. The story was that there was a big handoff taking place from central banks to fiscal policymakers and that a combination of less quantitative easing and more government spending would push yields up. Flash forward to today and that same German bond is yielding -0.142 percent. In the U.S., the 10-year yield is back below 1.6 percent. In Japan - where the whole selloff started - long-term yields have been slipping again (though not by as much) despite the BoJ's attempt to target the overall curve. Three things come to mind here: The first is how quickly narratives change and then change back. The second is that it's awfully easy to prematurely declare the death of the bond bull market, as many people over the years can attest. And third, for the moment, a portfolio of long bonds and long stocks is "working" in the sense that bonds have been rallying while equities have faltered, in contravention of the extreme positive correlation that we've otherwise been witnessing in recent weeks.

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