Friday October 14 Daily Market Primer

Happy Friday.  US Markets fell about 1/4% yesterday, but actually held up very well in the face of the 10% drop in China exports that was reported in the morning.  Overnight, markets in Asia and Europe are mostly up, and the US equity futures are pointing up as banking bellwether JP Morgan beat earnings, based mostly on strong trading results.  JPM is up in the premarket and taking other bank stocks with it.  The market is also buoyed by positive Chinese producer price inflation data, easing deflationary fears and somewhat offsetting yesterday’s bad export number.  The market has opened up .5% on the S&P.

	LAST	CHANGE	% CHANGE
DJIA	18098.94	-45.26	-.25
Nasdaq	5213.33	-25.69	-.49
S&P 500	2132.55	-6.63	-.31
Russell 2000	1215.75	-11.48	-.94
Global Dow	2429.83	13.87	.57
Japan: Nikkei 225	16856.37	82.13	.49
Stoxx Europe 600	340.5	4.88	1.45
UK: FTSE 100	7028.82	51.08	.73
CBOE Volatility	15.68	-1.01	-6.05
Australia: S&P/ASX 200	5434	-1.5	-.03
China: Shanghai Composite	3063.81	2.46	.08
Hong Kong: Hang Seng	23233.31	202.01	.88
India: S&P BSE Sensex	27673.6	30.49	.11
Singapore: Straits Times	2815.24	9.76	.35
France: CAC 40	4478.61	73.44	1.67
Germany: DAX	10562.27	148.2	1.42
Italy: FTSE MIB	16569.75	300.49	1.85
Spain: IBEX 35	8764.9	156.2	1.81
U.S. 3 Month	0.284	0/32
U.S. 2 Year	0.859	-1/32
U.S. 5 Year	1.272	-2/32
U.S. 10 Year	1.764	-5/32
U.S. 30 Year	2.513	-22/32
Germany 2 Year	-0.655	0/32
Germany 10 Year	0.054	-4/32
Crude Oil	50.71	0.27	0.54
Brent Crude	52.09	0.06	0.12
Natural Gas	3.35	0.009	0.27
S&P GSCI	373.62	0.61	0.16
E-mini S&P 500	2133.75	7.5	0.35

Softbank and the Saudi Sovereign fund are teaming up to form a $100 billion tech fund, it should be really interesting to see what they invest in.  This is part of the kingdom’s new push to diversify away from oil revenues.  Verizon is trying to knock a billion dollars off the price of Yahoo, and who can blame them after the massive 500 million user hack that was somehow reported only after the merger deal was negotiated.  Maybe my phone bills will go down.  And, Bob Dylan won the Nobel prize for literature, the first time its gone to a musician. 

Call a client, have a great weekend, here’s the news:

China inflation

China's factory-gate prices rose for the first time since January 2012, easing fears that the country is contributing to disinflation around the world, and fueling hopes the economy is on an even keel. Producer price inflation posted a 0.1 percent year-on-year gain in September compared with expectations of a 0.3 percent drop. Consumer price inflation, after falling for four consecutive months, also rose 1.9 percent last month from a year earlier, above market expectations. Analysts expect Chinese inflationary pressures to remain subdued in the near-term as Beijing redoubles efforts to reduce excess capacity and address large-scale imbalances in key industries.

U.S. retail data

The most anticipated data release of the week — the September U.S. retail sales report — will be posted at 8:30 a.m. in New York. With consumers doing all the heavy lifting for U.S. GDP amid a weak investment cycle, the data will shed light on economic momentum in the third quarter. Economists polled by Bloomberg forecast that a headline retail sales rise of 0.6 percent in September, compared with a 0.3 percent contraction in August. The report will be followed by U.S. inventories data — with the pace of stockpiling highlighting anticipated aggregated demand — and the preliminary University of Michigan consumer-sentiment survey for October, both at 10:00 a.m. Federal Reserve Chair Janet Yellen will then deliver a keynote speech at the Boston Fed's annual economic conference at 1:30 Eastern Time, providing her with an opportunity to reinforce market expectations for a rate hike this year.

Markets cheer

Global equities rebounded after China's inflation data eased concerns over yesterday's weak trade report, and the yen fell amid diminished safe-haven demand. Benchmark U.S. 10-year Treasury yields climbed to 1.77 percent, offsetting yesterday's losses, while West Texas Intermediate crude for November delivery was trading higher at $51 a barrel as of 6:21 New York time.

U.S. bank earnings

JPMorgan Chase & Co., Wells Fargo & Co., and Citigroup Inc. kick off the third-quarter earnings season for U.S. lenders, with analysts expecting a rebound in fixed-income trading revenue to offset cyclical weakness in equities and soft loan growth. Much of the focus will likely fall on Wells Fargo, whose chief executive quit on Wednesday amid a scandal over fake consumer accounts.

$100 billion tech fund SoftBank Group Corp. and Saudi Arabia's sovereign wealth fund will launch a new tech fund that could invest as much $100 billion, a move that would create one of world's largest technology-investment vehicles. Softbank's ambitious founder Masayoshi Son will likely play a key role in the new fund's strategy, possibly backing companies at all stages in a wide-ranging number of sectors from semiconductors to electronic components to software, analysts said.

China's inflation picked up. Consumer prices rose at a 1.9% year-over-year clip in August even though pork prices, a staple of the Chinese diet, slowed to up 5.8% YoY. Producer prices grew at a 0.1% YoY rate, making for their first annualized growth since January 2012.
Singapore's economy contracted sharply. Gross domestic product contracted 4.1% in seasonally adjusted annual terms, making for its sharpest contraction since 2012. Economists had expected Singapore's economy to expand at a rate of 0.3%. The Singapore dollar is stronger by 0.5% at 1.3875 per US dollar.
Wholesale prices in India missed expectations. Prices rose at a 3.57% YoY rate, missing economist expectations for a 3.9% gain. The Indian rupee is stronger by 0.3% at 66.7250 per dollar.
Samsung is taking a big hit because of the Galaxy Note 7. Samsung says its recall of the fire-prone Galaxy Note 7 will cost it $3 billion (3.5 trillion won) in operating profit, with the majority of that total ($2.2 billion) affecting its bottom line next quarter.
Verizon says Yahoo's hack could have "material" impact. "If they believe that it's not, then they'll need to show us that," Verizon general counsel Craig Silliman said in a statement to reporters on Monday. Verizon agreed to buy Yahoo's core assets for $4.8 billion in July, but the deal has yet to close.
HP is planning job cuts. In a Securities and Exchange Commission filing, the company said it was planning to implement a restructuring plan through fiscal-year 2019 that will include the elimination of 3,000 to 4,000 employees.
2 of China's state-owned chemical companies are discussing a mega-merger. Reuters reports that three sources familiar with the matter say Sinochem Group and ChemChina are discussing a combination that would create a company with nearly $100 billion in annual revenue.
Paths of Victory
Donald Trump took a defiant stance on the campaign trail Thursday, angrily denying the latest allegations of sexual misconduct amid fresh poll results that indicate his already narrow path to the White House is constricting. Mr. Trump trailed Hillary Clinton by 4 percentage points in North Carolina, and was ahead by 1 point in Ohio, according to WSJ/NBC/Marist polls released Thursday. Both battleground states took on outsize importance for the Republican nominee after his campaign all but conceded Virginia and a poll earlier in the week showed him trailing by double digits in Pennsylvania. Without winning those two states—and losing in either Ohio or North Carolina—Mr. Trump’s ability to capture the necessary 270 electoral votes appears increasingly unrealistic. Meanwhile, we report that the clearest divide in this year’s election now falls along educational lines.
Things Have Changed
Verizon signaled Thursday that it may demand to renegotiate its $4.8 billion deal for Yahoo following the internet company’s recent disclosure of a 2014 data breach that affected more than 500 million accounts. Verizon General Counsel Craig Silliman said it was “reasonable” to believe that the breach represented a material event that could allow it to change the terms of the takeover. He said it was up to Yahoo to prove the full impact of the data leak and prove it wasn’t material. Many merger agreements contain provisions allowing buyers to withdraw from deals if the value of a transaction has been hurt by a significant development. Legal experts said the contract language gives Verizon leverage to renegotiate or even walk away because of the security breach, but enforcing material adverse change clauses is difficult and courts have resisted their use.
In the Darkest Hour
Even before former Wells Fargo CEO John Stumpf was summoned for hearings in Washington, the bank had been slow-footed in responding to outrage over employee behavior that included opening as many as 2 million unauthorized accounts without customer knowledge. It misjudged the significance of firing 5,300 employees over five years for related bad behavior, failing to tell its own board of the number before regulators made it public. The botched response, a textbook example of how not to handle a crisis, reached a peak when Mr. Stumpf stepped down Wednesday. We report that at the root of Wells Fargo’s crisis-control debacle is an insular corporate culture, fostered by executives with decades of tenure, which left it ill-prepared. We also look at what’s next for the bank under the leadership of new CEO Timothy J. Sloan.
Come Critics and Writers
The bombshell news from Sweden—Bob Dylan winning the Nobel Prize in Literature—would seem to be the last word in a debate that has swirled around the songwriter since he was pegged as the voice of a generation in the 1960s. Mr. Dylan is the first musician to receive the award in its 115-year history, a vindication for literary scholars who have sought to elevate his work. The news riled some writers who objected to literature’s highest honor going to a musician, regardless of his unofficial stature as “poet laureate of rock ’n’ roll.” Mr. Dylan, who has written books and stories as well as more than 500 songs, has often defined himself first and foremost as a musician. But he is much more than a songwriter, and his work is worthy of maximum celebration, writes our critic Jim Fusilli.

Treasury issues final rules on inversion

The US Treasury Department has issued final rules to prevent businesses from moving their tax base overseas through inversion. The rules include exemptions that the business community wanted, such as allowing some transactions among foreign subsidiaries of US companies and permitting cash pooling, a cash-management technique.  The Wall Street Journal (tiered subscription model)

Bank earnings are coming. JPMorgan beat on both the top and bottom lines, earning $1.58 per share on adjusted revenue of $24.67 billion. Wells Fargo and Citigroup are expected to release their quarterly results at 8 a.m. ET.
Stock markets around the world are up. Hong Kong's Hang Seng (+0.9%) led in Asia and France's CAC (+1.8%) paces the gains in Europe. S&P 500 futures are up 7.75 points at 2,134.00.

US economic data flows. Retail sales will be released at 8:30 a.m. ET, and University of Michigan consumer confidence is due out at 10 a.m. ET before the Baker Hughes rig count is announced at 1 p.m. ET. Fed Chair Janet Yellen will take the mic in Boston at 1:30 p.m. ET. The US 10-year yield is higher by 3 basis points at 1.77%.

The ECB is pricing itself out of the corporate-bond market.

It's the flight of the Brexit bankers.

Whale 0, Minnow 1.

Low rates have benefited the rich more than the poor in the country with the world record for subzero rates. 

Hong Kong homes are becoming more affordable than China's.

The U.S. offers an awful work-life balance.

And can the U.S. labor force grow?

J.P. Morgan’s Results Beat Estimates, Propelled by Investment Bank

China Trade: Another Weak Signal for Global Economy

Markets are now pricing in a nearly 66 percent chance of a Fed rate hike by the end of the year. Over the next few days we'll get some highly relevant data that may inform whether the central bank goes for it or not. Today's retail sales and Producer Price Index numbers plus next Tuesday's Consumer Price Index report will be critical for assessing the U.S. economy. In the meantime, there are some yellow warning lights that aren't getting that much attention. Bloomberg's Matt Boesler has found two charts in the past week that you should pay particularly close attention to. The first is a simple chart of the ratio of non-financial business debt to GDP, which is on the march higher. There's growing anxiety within the Fed about excessive borrowing and leverage by corporations. The other chart he found was one showing that consumers are starting to grow more worried about missing debt payments over the next few months, a possible sign that the consumer debt burden is starting to get too high. Neither of these charts necessarily signal an imminent cyclical problem, but they're both trends worth watching in the months and quarters ahead.

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