Friday October 21 Daily Market Primer

Happy Friday.  Stocks were fairly flat yesterday in a relatively uneventful day.  American Express jumped 9% on an earnings beat while Verizon fell 2.5% on slowing customer growth and Travelers fell 6% on drop in operating earnings.  GE announced this morning and beat earnings (up 10%) but lowered guidance. British tobacco giant BAT is bidding for the rest of US based Reynolds (it already owns 42%) in a $47 billion dollar deal, which will create the worlds largest tobacco company.  Stocks are mixed overseas, and Hong Kong was closed due to Typhoon Haima.   US stocks are opening now and I see nothing but red on the screen.

	LAST	CHANGE	% CHANGE
DJIA	18,162.35	-40.27	-0.22%
Nasdaq	5,241.83	-4.58	-0.09%
S&P 500	2,141.34	-2.95	-0.14%
Russell 2000	1,219.79	-2.85	-0.23%
Global Dow	2,446.54	-4.76	-0.19%
Japan: Nikkei 225	17,184.59	-50.91	-0.30%
Stoxx Europe 600	344.28	-0.01	0.00%
UK: FTSE 100	7,043.42	16.52	0.24%
CBOE Volatility	14.16	0.41	2.98%
Australia: S&P/ASX 200	5,430.30	-11.80	-0.22%
China: Shanghai Composite	3,083.88	42.71	1.40%
India: S&P BSE Sensex	28,077.18	-52.66	-0.19%
France: CAC 40	4,533.95	-6.17	-0.14%
Germany: DAX	10,698.85	-2.54	-0.02%
Italy: FTSE MIB	17,138.84	-2.54	-0.01%
Spain: IBEX 35	9,074.10	12.90	0.14%
U.S. 3 Month	0.343	0/32
U.S. 2 Year	0.807	-0/32
U.S. 5 Year	1.244	-2/32
U.S. 10 Year	1.755	-3/32
U.S. 30 Year	2.516	-5/32
Germany 2 Year	-0.646	-2/32
Germany 10 Year	0.056	-8/32
Crude Oil	50.8	-0.8	-1.55%
Crude Oil	50.31	-1.29	-2.50%
Brent Crude	51.8	0.42	0.82%
Natural Gas	3.535	-0.034	-0.95%
E-mini S&P 500	2130.5	-6.5	-0.30%
S&P GSCI	375.49	1.4	0.38%

Maybe its time to bring back Clippy, the unintelligent assistant, and Zune the iPod killer, as Microsoft stock finally exceeded its all time high from 1999 yesterday.  It’s trading at almost $60 this morning.

The UK budged deficit unexpectedly rose in September, putting more pressure on Finance Minister Philip Hammond ahead of the Brexit vote.  Philippines president Duterte has been backing away with comments about “being done” with the US, at least as it refers to trade.

The WSJ has been running a series on active vs. passive investing, with some in-depth articles.  It makes me wonder if the Sanford Bernstein research note comparing passive investing to Marxism gave them the idea.  I can’t say I’ve read them all, but if you want to get caught up this weekend (and I know you do J), here are links to all the articles.  I haven’t read them all, but the one’s I’ve read are interesting, though I’m not too happy about the title of the series, “The Rise of the ‘Do-Nothing’ Investor". 

The Rise of the 'Do-Nothing' Investor

Passive mutual funds are growing rapidly, pushing aside stock pickers and changing the investment world. Click here to read more about The Wall Street Journal series.

·         Wall Street’s “Do-Nothing” Revolt

·         The Dying Business of Picking Stocks

·         Index Funds Invade The S&P 500

·         Making the Case for Passive Investing’s Triumph

·         One Place Where Passive Investing Doesn’t Rule: Bonds

·         'Passive Investing' Can Be a Lot More Active Than You Think

·         What Does Nevada’s $35 Billion Fund Manager Do All Day? Nothing

·         Making Billions With One Belief: The Markets Can’t Be Beat

·         How Passive Funds Trim Your Tax Bill

Have a great weekend, here’s the news:

Tobacco offer

British American Tobacco Plc has offered to buy the 58 percent of Reynolds American Inc. it doesn't already own for $47 billion in cash and shares, a 20 percent premium to the last closing price. In other corporate news, senior executives at AT&T Inc. and Time Warner Inc. met in recent weeks to discuss business strategies, including a possible merger, according to people familiar with the matter. There are concerns that AT&T's debt load may stay the company's hand, as it looks to protect its investment-grade rating. 

Euro low

The euro hit its lowest level since March against the dollar this morning, and was trading at $1.0893 at 6:13 a.m. ET. The move comes after yesterday's European Central Bank monetary policy decision and press conference, in which Mario Draghi gave away as little information as possible over the central bank's plans for its quantitative easing program. Separately, in trading this morning, Deutsche Bank AG shares recovered from the selloff sparked by the U.S. Department of Justice’s request for $14 billion to settle a probe into the bank's mortgage-backed securities business.

Theresa May's 100 days

U.K. Prime Minister Theresa May marks her first 100 days in office today, a term that has thus far been completely dominated by the Brexit debate. She clashed with European leaders at the summit yesterday, as her continental counterparts seem to be taking the lead ahead of official post-Article 50 negotiations. Her cabinet ministers are trying to assure bankers in London that her government will fight for the City, while concerns for the capital's global influence increase.

Markets mixed

Overnight, the MSCI Asia Pacific Index fell 0.3 percent, with Hong Kong markets closed due to a typhoon. In Japan, the Topix index closed 0.4 percent lower after a magnitude-6.6 quake struck the west of the country. In Europe, the Stoxx 600 Index was 0.1 percent higher at 6:19 a.m. ET as deal activity and the lower euro helped lift stocks. S&P 500 futures were 0.3 percent lower

Trump will accept a 'clear' result

Republican presidential candidate Donald Trump said he would accept a 'clear' result in the U.S. election, after he stoked speculation on the matter in the final debate on Wednesday. There was mixed reaction to some of comments at the Alfred E. Smith Memorial Foundation Dinner in New York last night, with a couple of his quips meeting with jeers from the audience.

China's red-hot housing market is still accelerating. Data released by China's National Bureau of Statistics showed new-home prices rose 11.2% year-over-year in September. Prices in Shenzhen, Shanghai, and Beijing — some of China’s largest cities — saw prices jump by 34.1%, 32.7% and 27.8%, respectively.
The euro hit a 7-month low. The single currency touched a seven-month low of 1.0878 on Friday, a day after Mario Draghi suggested the European Central Bank wouldn't taper policy anytime soon. The euro is now down 0.3% at 1.0894 against the dollar.
A successful Brexit could hinge on a single region of Belgium. The European Union has spent seven years negotiating a trade deal with Canada, and Wallonia, one of Belgium's six legislatures, has vetoed the deal, meaning Belgium's national government cannot give its approval unless something changes Friday. The failure or success of this trade deal could have similar consequences for Britain.
BAT wants to buy the remainder of Reynolds American. British American Tobacco has made a $47 billion offer to acquire the remaining 57.8% stake of Reynolds American that it doesn't already own, Reuters reports.
Qualcomm might finally put its cash to work. The tech giant is said to be in the final stages of talks to acquire NXP for $110 to $120 a share, or about $40 billion, according to Bloomberg. Qualcomm has about $30 billion in cash, most of which is overseas, so acquiring a foreign company is attractive.
AT&T and Time Warner are reportedly discussing a merger. The two sides held informal talks to discuss potential business opportunities, including a merger, Bloomberg reports.
Microsoft hit an all-time high after its earnings beat. Better-than-expected earnings and revenue ran shares of Microsoft up by more than 5% and to their first record-high print since December 1999.
Stock markets around the world trade mixed. Overnight, Japan's Nikkei (+0.3%) led while Hong Kong's Hang Seng (-0.3%) lagged. In Europe, Britain's FTSE (+0.2%) paces the advance. S&P 500 futures are down 5.00 points at 2,132.00.
Earnings reports flow ahead of the opening bell. General Electric, Honeywell, and McDonald's are among the names releasing their quarterly results before markets open.

US economic data is absent. Baker Hughes, however, will release its weekly rig count at 1 p.m. ET. The US 10-year yield is little changed at 1.75%.

  

UBS's currency trading volume hit a record as the pound crashed.

Hong Kong markets shut as Typhoon Haima hits.

Putin helped save his oil giant. Now Rosneft returns the favor.

Hedge fund managers struggle to master their miserable new world.

Are gilts one of the biggest shorts in developed-world global bond markets? Speaking on Bloomberg Television yesterday, Alberto Gallo, portfolio manager at Algebris Investments, said yields on the U.K.'s 10-year government bonds would need to jump to at least 1.5 percent, citing an oncoming inflationary shock as a hard Brexit depresses the value of the pound and imported prices shoot up. Gallo cites the large differential between yields and inflation-expectations in the U.K. — one crude way of looking at valuations in rates markets — which is now at 240 basis points, an historic high. Traders say this gap is due to technical reasons — positioning and hedging — while critics contend market-implied inflation expectations, more generally, are effectively broken. In any case, FX and credit-induced price pressures would make the U.K. a big outlier in a still-lowflation world.

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