Monday October 17 Daily Market Primer

US stocks rose Friday, though the market rally faded as the day went on.  The S&P finished last week down about 1%.  The banks had a good day, boosted by earnings beats from JPM, Citi, and even beleaguered Wells Fargo.  Bank of America announced earnings this morning, beating expectations for revenue and earnings on better bond trading and lower expenses.  Janet Yellen gave a speech at a Boston fed conference on Friday that made mention of a “high pressure economy”,  which indicates that the Fed is worried about economic growth and might let inflation go above 2% for awhile.   The Atlanta Fed’s “GDP Now” estimate for Q3 is 1.9%, down from about 3.6% in August (you can get the GDP Now app on your phone BTW). Dr. Yellen’s speech was mostly about future monetary policy options, and didn’t discuss the next rate hike, but the market seems to have taken it as a more immediate prescription, as bond yields rose Friday and Asian and European markets are down Monday, and US futures are slightly negative.

	LAST	CHANGE	% CHANGE
DJIA	18,138.38	39.44	0.22%
Nasdaq	5,214.16	0.83	0.02%
S&P 500	2,132.98	0.43	0.02%
Russell 2000	1,212.41	-3.34	-0.27%
Global Dow	2,425.85	9.89	0.41%
Japan: Nikkei 225	16,900.12	43.75	0.26%
Stoxx Europe 600	338.27	-1.68	-0.49%
UK: FTSE 100	6,971.32	-42.23	-0.60%
CBOE Volatility	16.64	-0.05	-0.30%
Australia: S&P/ASX 200	5,388.70	-45.30	-0.83%
China: Shanghai Composite	3,041.17	-22.64	-0.74%
India: S&P BSE Sensex	27,529.97	-143.63	-0.52%
France: CAC 40	4,464.35	-6.57	-0.15%
Germany: DAX	10,554.69	-25.69	-0.24%
Italy: FTSE MIB	16,632.38	41.01	0.25%
Spain: IBEX 35	8,760.70	-7.20	-0.08%
U.S. 3 Month	0.307	-0/32
U.S. 2 Year	0.823	1/32
U.S. 5 Year	1.277	2/32
U.S. 10 Year	1.792	3/32
U.S. 30 Year	2.552	6/32
Germany 2 Year	-0.645	-1/32
Germany 10 Year	0.078	-6/32
Crude Oil	50.49	0.14	0.28%
Brent Crude	52.2	0.25	0.48%
Natural Gas	3.623	-0.005	-0.14%
S&P GSCI	373.59	0.87	0.23%
E-mini S&P 500	2125.5	-1.5	-0.07%

Earnings season picks up steam this week with over 80 companies reporting.  Earnings season is a little better than expected so far, boosted by the good bank results.  The ECB meets this Thursday, and will signal the next step in European QE, though there is a very good chance of no change.

Here’s the news:

Bond selloff

Government bond yields climbed around the world after Friday's comments by Federal Reserve Chair Janet Yellen fueled bets that U.S. policymakers may be prepared to tolerate faster inflation in the interests of a more emphatic economic recovery. The dollar traded near seven-month highs. Those frustrated by the diversity of readings of Yellen's speech will get yet more material to sink their teeth into this afternoon when Fed Vice Chair Stanley Fischer speaks at 12:15 p.m. in New York. Industrial output data are also expected at 9:15 a.m. ET.

Markets lower

The MSCI Emerging Markets Currency Index fell 0.3 percent by 5:50 a.m., heading for its weakest close since Sept. 16. and led lower by Turkey’s lira and South Korea’s won. Equity gauges declined across most of Asia as oil fell toward $50 a barrel, while the Stoxx Europe 600 Index fell for the fourth time in five days.

Earnings begin in earnest

After earnings at JPMorgan Chase & Co. and Citigroup Inc. topped analysts’ estimates for the third quarter on gains in bond-trading revenue, Bank of America will release results ahead of the bell today. Goldman Sachs Group Inc. and Morgan Stanley are among the more than 80 members of the S&P 500 who report earnings this week, with those from IBM and Netflix Inc. also due today. Last week America's benchmark index registered a second-weekly decline for the first time since August.

ISIS endgame?

After months of preparation, operations in Iraq to regain Mosul began on Sunday. Although the Islamic State has been losing ground in recent months its militants have controlled the city (which is Northern Iraq's most populous) for two years, and it's where their leader, Abu Bakr al-Baghdadim declared the self-styled caliphate. As Iraqi and Kurdish troops advance with U.S. air support, the offensive is provoking disagreements between allies already at loggerheads over Syria, while humanitarian agencies warn that a civilian exodus from the city has the potential to stoke a new phase in the refugee crisis.

China fixed its currency at a 6-year low. The People's Bank of China set the yuan's midpoint at 6.7379, its weakest level since September 2010.
Australia's central bank is worried about China's debt levels. The Reserve Bank of Australia says China's "continued reliance on debt-financed growth and bank forbearance, along with official actions that reinforce perceptions of implicit government guarantees, add to existing vulnerabilities."
Oil is lower. West Texas Intermediate crude oil briefly dipped below $50 a barrel, but it has recovered the majority of its losses. The energy component is now down 0.3% at $50.22 a barrel.
Bank of America beats. The bank beat on both the top and bottom lines, earning $0.41 a share on revenue of $21.6 billion. Wall Street was expecting earnings of $0.34 on revenue of $20.82 billion, according to Bloomberg.
Deutsche Bank is reportedly trying to shrink its US operations. Bloomberg and the German paper Sueddeutsche Zeitung report the bank is considering shrinking its US investment-banking operation to save money while the German newspaper Die Welt am Sonntag says such a move could happen as part of a settlement with the US Department of Justice.
China has detained 18 employees of Crown Resorts casinos. The reason for the arrests is unclear aside from China's Foreign Ministry telling Reuters some Australian nationals had been suspected of "gambling crimes," Reuters reports.
A Wall Street titan is getting his own TV show. David Rubenstein, the founder and co-CEO of the private-equity company Carlyle Group, will host a show 0n Bloomberg called "The David Rubenstein Show: Peer-to-Peer Conversations" in which he will conduct one-on-one interviews with business leaders like Lloyd Blankfein, Warren Buffett, and Bill Gates.
The Battle for Mosul
A diverse coalition of Iraqi forces launched a long-awaited offensive against Islamic State in Mosul, one of the last major cities still controlled by the militant group. In a nationally televised announcement early Monday, Iraq time, Prime Minister Haider al-Abadi announced the start of the push to take back Iraq’s second-largest city. Reclaiming Mosul is seen as essential to the broader battle against Islamic State. The group has suffered a string of losses lately in its self-declared caliphate, including on Sunday, when Syrian rebels backed by Turkey and the U.S. drove the militants from the Syrian town of Dabiq. The assault on Mosul comes after months during which Iraqi forces have tried to capitalize on discontent with Islamic State’s harsh rule to turn locals against the group and seek aid for Iraqi forces.
Trump Tactics
Donald Trump on Sunday intensified his charge that the election is rigged against him by media bias and malfeasance at the ballot box, after his running mate, Mike Pence, tried to temper the nominee’s rhetoric by saying the Republicans would accept the Nov. 8 election result. The mixed messages on the GOP ticket come as Hillary Clinton enjoys a lead in polls. A new WSJ/NBC poll found Mrs. Clinton has an 11-point lead over Mr. Trump, 48% to 37%, a big jump from a 6-point edge she held in mid-September. Other polls suggest Mrs. Clinton has a somewhat smaller lead. Mr. Trump has begun arguing he will win the election on a surge of silent backers who have gone undetected by surveys and the political establishment. Meanwhile, the GOP headquarters in Orange County, N.C., was firebombed and sprayed with graffiti overnight, local officials said Sunday.
Trading Down
Some of the world’s biggest investors, worried about the broad slowdown in trade and growing worldwide populist opposition to deals that open markets, are shifting their money away from stocks buoyed by the so-called globalization premium. U.S. equity prices have been supported for the past three decades by an acceleration of global trade and a freer flow of capital. But now there is worry that the party is ending. Global trade this year will grow at the slowest pace since 2007, according to the WTO, just as protectionist policies are on the rise and efforts to liberalize trade have stalled. The IMF recently warned that anti-trade trends could cause long-term damage to the world economy, while companies around the globe have already pointed to slowing trade and rising protectionism as a drag on profits.

Kuroda (Toru Yamanaka/AFP/Getty Images)

Bank of Japan Governor Haruhiko Kuroda said he will adjust monetary policy to keep moving the economy toward 2% inflation, but his milder language suggests he sees little need to further ramp up stimulus. "We will continue to make necessary policy adjustments to maintain the momentum toward our price-stability target, based on economic and price conditions," he said. Reuters (16 Oct.)

British "flash crash" trader faces extradition to US

Sarao (Justin Tallis/AFP/Getty Images)

British futures trader Navinder Singh Sarao will face extradition to the US in the next 28 days to stand trial on 22 charges of fraud and market manipulation that may have contributed to the "flash crash" of 2010. The London High Court on Friday rejected Sarao's final appeal against extradition.

Bloomberg (14 Oct.),

Stock markets around the world are mostly lower. China's Shanghai Composite (-0.7%) trailed in Asia, and Britain's FTSE (-0.8%) lags in Europe. S&P 500 futures are down 6.75 points at 2,120.25.
Earnings reporting picks up a bit. IBM, Netflix, and United Continental release their quarterly results after markets close.

US economic data is light. Empire State Manufacturing will be released at 8:30 a.m. ET, and industrial production will cross the wires at 9:15 a.m. ET. The US 10-year yield is unchanged at 1.80%.

Earnings announcements are still important, ok?

Zizek isn't just for hipsters; he can tell you about poker and the peso.

Earnings announcements are still important, ok?

Zizek isn't just for hipsters; he can tell you about poker and the peso.

Stress is building in Saudi Arabia.

China's currency poses a policy bind.

Once king, London risks becoming the U.K.'s slowest housing market.

Clinton and Trump will have to set aside the rancor over dinner.

Restaurant Chains Get Burned by Overexpansion, New Rivals

Philippine Leader Rodrigo Duterte Rolls Dice With Embrace of China

U.S., Britain Call for Immediate Cease-Fire in Yemen

It's easy to get gloomy if you pay close attention to the news these days (which presumably describes anyone reading this paragraph.) There's a lot of depressing stuff going on, particularly in the realms of politics and global affairs. Also, it's the nature of news that the bad things are what gets highlighted, because in a sense, when things go "right" it's normal and not news. On that note, here's something to lift you up on a Monday morning. Check out this chart showing the total amount of installed solar power in the world relative to expectations in recent years. Not only is solar far ahead of the expectations from 2002, 2006, and 2010, even expectations made in 2015 are proving to be too conservative. It's a good reminder that amid all the tumult, the pace of human innovation and creation hasn't faded away completely.