Thursday October 20 Daily Market Primer

Stocks rose modestly yesterday, as oil prices moved up again and strong financial sector earnings continued.  The European Central Bank met today and held rates steady, and the press conference just ended. Mario Draghi, sometimes called “Super Mario”,  did not comment on tapering or the horizon of the ECB asset purchase program, though he did spend some time defending the program.  Translation: it was a yawner.  Initial unemployment claims just came out at 260K, a bit higher than the Reuters survey number of 250K.  The four week moving average is 252K.  Markets were mixed overseas and have opened flat this morning.

	LAST	CHANGE	% CHANGE
DJIA	18,202.62	40.68	0.22%
Nasdaq	5,246.41	2.58	0.05%
S&P 500	2,144.29	4.69	0.22%
Russell 2000	1,222.64	5.34	0.44%
Global Dow	2,450.89	-1.39	-0.06%
Japan: Nikkei 225	17,235.50	236.59	1.39%
Stoxx Europe 600	342.12	-1.52	-0.44%
UK: FTSE 100	7,004.45	-17.47	-0.25%
CBOE Volatility	14.51	0.10	0.69%
Australia: S&P/ASX 200	5,442.10	6.70	0.12%
China: Shanghai Composite	3,083.88	42.71	1.40%
India: S&P BSE Sensex	28,129.84	145.47	0.52%
France: CAC 40	4,515.55	-4.75	-0.11%
Germany: DAX	10,627.88	-17.80	-0.17%
Italy: FTSE MIB	16,996.75	-47.59	-0.28%
Spain: IBEX 35	8,992.80	42.70	0.48%
U.S. 3 Month	0.343	0/32	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%
Brent Crude	51.79	-0.88	-1.67%
Natural Gas	3.55	-0.02	-0.56%
S&P GSCI	375.51	-3.98	-1.05%
E-mini S&P 500	2133	-5	-0.23%

Verizon reported this morning, and subscriber growth is tapering off, and revenue is down 6.7% to a still massive $30.9 billion.   They added 442K vs an expected 766K new post pay customers.  Shares are down 2.6%.  BNY Mellon reported an 18.8% jump in quarterly profits, boosted by lower costs and rising net interest revenue. Its go big or go home for Tesla’s controversial autopilot, and Elon Musk is going big by including it in all models going forward, including the “mass market” Model 3.  Interesting that the announcement was just an hour before the third US presidential debate.  There’s a lot of talk in the press about Saudi’s big bond sale, if you want the details read “Keys to the Kingdom”, below.  And, Bloomberg said the Mexican peso called last night’s debate for Clinton, while Business Insider called it a tie.

Here’s the news:

ECB day

At 7:45 a.m. ET the European Central Bank announces its latest monetary-policy decision, followed 45 minutes later by a press conference with Mario Draghi. It's fair to say, with the next round of staff macro projections not due until the December meeting, that expectations for any change in policy today are very low. Every one of the 76 analysts surveyed by Bloomberg expects no change, while the euro is trading at its lowest level since July. It is a different story in Turkey, where the central bank announces its interest rate decision at 7:00 a.m. ET. 19 of 23 economists surveyed predict a rate cut for the eighth consecutive meeting, even while political noises suggest that a hold may be on the cards.  

Clinton wins final debate

If you're using the Mexican peso as a judge, that is. The currency reached a six-week high in the aftermath of the final presidential candidates' debate in Las Vegas last night. During the event, Donald Trump refused to say that he would accept the result of the election in the event that he was to lose, promising election day "suspense." A CNN poll agreed with the peso, saying the majority of viewers thought Clinton won.

May goes to Europe

British Prime Minister Theresa May is in Brussels today for her first summit of European Union leaders. She intends to make clear that there is no turning back from Brexit and that the U.K. is definitely on its way out of the union. On the European side, Brexit is not likely to be a priority at a meeting set to be dominated by questions on immigration, trade and Russian aggression in the Ukraine.

Markets rise

Overnight, the MSCI Asia Pacific Index climbed 0.3 percent as the crude rally helped boost explorers. Japan's Topix index added 1 percent to close at its highest level since May as stocks were boosted by earnings expectations and a weakening yen. In Europe, the Stoxx 600 Index was unchanged at 6:10 a.m. ET as investors waiting for the ECB decision. S&P 500 futures were 0.1 percent higher.

The ECB meets. The European Central Bank is expected to keep policy on hold at Thursday's meeting when its latest decision crosses the wires at 7:45 a.m. ET. The euro is little changed at 1.0973 against the dollar.
The Mexican peso suggests the third presidential debate was a tie. Traders have been using the Mexican peso as a proxy for who will win the US election. After seeing a brief spike following Wednesday night's debate, possibly suggesting Clinton won, the peso has fallen back to the unchanged line near 18.5200 per dollar, suggesting a tie.
Australia's jobs report was disappointing. Australia's economy lost 9,800 jobs in September, which was far worse than the addition of the 15,200 jobs that economists had forecast; however, the big miss might be the result of some volatility in the census. The Australian dollar is down 0.7% at .7667 against the dollar.
Wells Fargo is being investigated on suspicion of identity theft. California prosecutors are looking into whether Wells Fargo's creation of millions of fraudulent accounts constitutes identity theft, Bloomberg reports.
Tesla says cars will have self-driving hardware. The electric-car maker announced on Wednesday that all new cars, including the Model 3, would have the ability to be fully autonomous. "The foundation has been laid for fully autonomous, it's twice as safe as a human, maybe better," CEO Elon Musk said during a media call Wednesday evening.
EBay gave weak guidance. The online retailer beat on both the top and bottom lines but said adjusted earnings per share from continuing operations would be in a range of $0.52 to $0.54 for the holiday season. That's at the low end of the $0.54 that Wall Street was expecting.
American Express posted its lowest quarterly revenue in over 5 years. The credit-card giant earned $1.20 a share on revenue of $7.77 billion, which was its lowest in over five years as a result of losing its Costco contract.
Stock markets around the world are up. Japan's Nikkei (+1.4%) paced the advance in Asia and Spain's IBEX (+0.7%) leads the gains in Europe. S&P 500 futures are up 3.00 points at 2,141.00.
Earnings reporting is heavy. American Airlines, Dunkin' Brands, Verizon Communications, and Walgreens Boot Alliance are among the names reporting ahead of the opening bell. AthenaHealth, Microsoft, and Schlumberger highlight the earnings reports coming out after markets close.

US economic data flows. Initial jobless claims and the Philly Fed will be released at 8:30 a.m. ET before existing-home sales crosses the wires at 10 a.m. ET. The US 10-year yield is up 1 basis point at 1.75%.

Belief Suspended
Donald Trump broke with convention and refused Wednesday to commit to respecting the results of the presidential election if Hillary Clinton wins, hinting at a challenge to a core principle of American democracy. “I will tell you at the time. I will keep you in suspense,” he said at the third and final presidential debate when asked if he would support the winner even if it wasn’t him. Mr. Trump said Mrs. Clinton’s very candidacy was proof of conspiracy against him, citing her improper use of private email as secretary of state. Reaction to his claim of a “rigged” election was swift, and negative, from some quarters. After a sedate start to the debate, the tenor of the evening changed when Mr. Trump took Mrs. Clinton’s bait on immigration and began punching back, along with his refusal to commit to accepting the election outcome. Still, after another fierce debate and all of this year’s election turmoil, we report that public views of the two candidates have wound up right where they were in January.

Welcome to the year ahead.

Keys to the Kingdom
Banks and investors flocked to buy Saudi Arabia’s first global bonds on Wednesday, a milestone in the giant oil producer’s efforts to diversify its economy and embrace global financial markets. The $17.5 billion sale, the largest-ever debt sale by a developing country, marks a crucial step for the kingdom as it undertakes an ambitious plan to move away from decades of dependence on oil revenue, which has fallen in recent years along with the global crude price, and to accelerate growth in its private sector. Strong demand for the debt, sold primarily to U.S. investors in a private placement and to Asian institutions, allowed the Saudis to reduce the yields below initial marketing plans. The sale is the latest in a flurry of efforts by Saudi officials seeking to close a widening budget gap that the government expects to reach $87 billion this year.

Channel Swap
Google reached an agreement with CBS to carry the broadcast network on its soon-to-be-launched web TV service. The deal made CBS the first major TV network to sign on to the new service, which will be housed on Google’s YouTube platform and is likely to premiere in early 2017. Dubbed Unplugged, the venture aims to be a low-cost option targeting consumers who have resisted subscribing to traditional pay-TV or cut the cord because of rising subscription costs. Google is looking to offer a “skinny” bundle of live TV channels with a price in the range of $25 to $40 a month. Meanwhile, AT&T is preparing to roll out an internet video service called DirecTV Now that will stream dozens of live channels to TVs and mobile devices without the need for a satellite dish, cable box or annual contract.

What it takes to be the world's crude king.

Fit to Shrink
Appliance makers’ big new pitch is small. After years of touting supersize ovens, hulking refrigerators and ever-larger washers, manufacturers are rethinking. Now, new kitchen and laundry appliances emphasize high performance in smaller, more versatile sizes. Microwaves, refrigerators and dishwashers come in small drawers, while a two-in-one washer and dryer can tuck inside a closet. The move chases two major shifts under way in U.S. households: More people are moving to smaller homes, and more owners of sprawling homes want appliances in rooms beyond the kitchen. Spending on kitchens is expected to rise as the two biggest generations in the U.S., millennials and baby boomers, form new households and retire. And when it comes to appliances, smaller sizes don’t necessarily shrink the price tag.

Fed paints mostly optimistic picture of US economy

The Federal Reserve described the US economy's outlook as "mostly positive" in its Beige Book, an anecdotal roundup of reports from its 12 districts. The economy is growing steadily and the labor market is tightening, with modest growth in employment and wages, according to the central bank. Bloomberg

Collection of FTT expected to cost millions

Ten countries in the EU are looking to add a financial-transactions tax to bonds, stocks and derivatives transactions, but collection costs in Germany alone could hit €8 million due to high trading volume. Costs could range significantly, according to an EU document, with Slovenia estimating €1.5 million to €2 million and Austria estimating implementation costs at less than €1 million. Reuters

Brazil cuts benchmark rate for first time in 4 years

Brazil's central bank voted unanimously to reduce its benchmark interest rate from 14.25% to 14%, the first drop in four years. "The committee considers that the convergence of inflation toward the target in 2017 and 2018 is compatible with a moderate and gradual easing of monetary conditions," according to the central bank. Bloomberg

IndexIQ readies low-volatility, high-yield bond ETF

IndexIQ has filed with the Securities and Exchange Commission for an exchange-traded fund investing in high-yielding, below-investment-grade US corporate bonds selected for low volatility. The IQ US High Yield Low Volatility ETF would be linked to an index of high-yield debt issued by US-domiciled companies. ETF.com

The tech bubble didn't burst this year. Just wait...

...as Silicon Valley asks what happens if tourist investors flee.

What's next for Asia's best-performing stock market?

China's property is so attractive, couples are divorcing over it.

250 years of the bond-equity correlation.

We're in the midst of yet another round in the unending debate over whether or not there's a future in active fund management or whether passive investing will inevitably swallow the world. Here's a new idea though: Deutsche Bank says there's a "surprisingly high correlation" between the total assets controlled by all exchange-traded funds and the number of internet users. Hmm. At first this might seem like a mere coincidence or a specious correlation, but perhaps there's something to it. The ideology of the internet is mercilessly anti-expert (and perhaps even anti-expertise). Financial products that are premised on the idea that nobody is smart enough to beat the market may be the natural fit for the digital age. By comparison, the inherent ideology of print is far less democratic. Just pick-up a copy of Barron's, and you're transported to a world where fund managers are still feted for their great stock picks and their creative approach to turning up undiscovered gems (and their wisdom can be yours for less than $4 per week at the newsstand). As this debate continues, the changing nature of how we get information and how that shapes the way we see the world is an angle worth thinking more about.

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