Thursday October 27 Daily Market Primer

The Dow was up and the S&P was down by exactly the same percent, as stocks barely moved as earnings season rolled on with over half the S&P 500 companies having reported.   Apple pared losses and closed down 2.2%.   Aircraft maker Boeing rose 6.5% on higher guidance.  Chipotle got hammered, down 9.3% on declines in both sales and profits.   Tesla had a good quarter, which means it barely made money, for the second time since going public, which may ease pressure on the company ahead of the SolarCity merger.  Stocks were modestly up in most overseas markets and US futures are pointing…up.

	LAST	CHANGE	% CHANGE
DJIA	18,199.33	30.06	0.17%
Nasdaq	5,250.27	-33.13	-0.63%
S&P 500	2,139.43	-3.73	-0.17%
Russell 2000	1,204.75	-11.35	-0.93%
Global Dow	2,448.11	-3.39	-0.14%
Japan: Nikkei 225	17,336.42	-55.42	-0.32%
Stoxx Europe 600	341.96	0.20	0.06%
UK: FTSE 100	6,983.15	25.06	0.36%
CBOE Volatility	13.67	-0.57	-4.00%
Australia: S&P/ASX 200	5,295.50	-64.30	-1.20%
China: Shanghai Composite	3,083.88	42.71	1.40%
Hong Kong: Hang Seng	23,132.35	-193.08	-0.83%
India: S&P BSE Sensex	27,915.90	79.39	0.29%
France: CAC 40	4,531.06	-3.53	-0.08%
Germany: DAX	10,717.24	7.56	0.07%
Italy: FTSE MIB	17,377.70	96.96	0.56%
Spain: IBEX 35	9,181.40	8.10	0.09%
U.S. 3 Month	0.33	0/32
U.S. 2 Year	0.888	-1/32
U.S. 5 Year	1.328	15/32
U.S. 10 Year	1.824	-9/32
U.S. 30 Year	2.575	-21/32
Germany 2 Year	-0.632	-0/32
Germany 10 Year	0.138	-16/32
Crude Oil	49.28	0.1	0.20%
Brent Crude	50.23	0.25	0.50%
Natural Gas	3.207	0.02	0.63%
S&P GSCI	371.49	1.02	0.28%
E-mini S&P 500	2142.25	8.25	0.39%

Initial unemployment claims came it at 258K, just over the Bloomberg consensus of 255.  US durable goods orders were down .1% in September.   This is a lite number after a .3% rise in August and a positive 3.6% in July. The previously announced $38 billion Qualcomm – NXP Semi deal was confirmed by the companies this morning.  UK GDP beat expectations, a post Brexit relief, and in some rare good news for European banks, both Deutsche Bank and Barclays beat earnings expectations.  Twitter and Alphabet report today and Snapchat announced plans to raise $4 billion through an IPO which will value the Venice Beach company at $25 - $35 billion.   The valuation growth of this company is mindboggling, after the last round of private financing it was valued at an already unbelievable $19 billion.  This is a reminder of why we like private equity.

Here’s the news:

U.K. GDP

The country's gross domestic product grew 0.5 percent in the third quarter, ahead of analyst expectations for 0.3 percent growth in the first reporting period since the vote to leave the European Union. The expansion in the economy was led by the services sector, which added 0.8 percent. Gilt yields jumped to their highest level since the Brexit referendum following the release. Elsewhere, officials said that in the event of a hard Brexit banks in the U.K. are likely to lose the passporting rights which allow them to easily do business with the rest of the EU. Meanwhile, Nissan Motor Co. has secured 7,000 British jobs after committing to build new models at its English plant.

Bumper bank earnings

Deutsche Bank AG posted a surprise profit in the third quarter with net income of 256 million euros ($279 million) coming in well ahead of analysts' expectations for a 394 million-euro loss. Third-quarter profit at Barclays Plc also climbed, up 35 percent as revenue from fixed-income trading surged. Net income also rose at Nomura Holdings Inc., increasing 31 percent, again driven by trading income.

A big day for tech

Twitter Inc. is first out the gate with earnings before the bell this morning. Analysts are watching for any news on job cuts at the social media company. Amazon.com Inc. and Google parent Alphabet Inc. are due to report after markets close. Snapchat, meanwhile, will seek to raise as much as $4 billion in its initial public offering, according to people familiar with the matter. Meanwhile, analysts are still closely scrutinizing the unexpected profit delivered by Tesla Motors Inc. yesterday.

Markets slip

Overnight, the MSCI Asia Pacific Index dropped 0.6 percent while Japan's Topix index slipped 0.1 percent following disappointing earnings. In Europe, the Stoxx 600 Index was 0.3 percent lower at 6:16 a.m. ET as corporate earnings from ABB Ltd. and Telefonica SA missed expectations. S&P 500 futures were 0.1 percent lower.

UK GDP shrugs off Brexit. The British economy grew at a 0.5% clip in the third quarter, outpacing economists estimates of 0.3% growth, data released by the Office National Statistics showed. "There is little evidence of a pronounced effect in the immediate aftermath of the [Brexit] vote," Joe Grice, the ONS chief economist, said in a statement on Thursday. The British pound is up 0.1% at 1.2248 against the dollar.

China's industrial profits jumped. Profits for China's industrial firms climbed 7.7% year-over-year to 557.1 billion yuan ($85.15 billion) in September, according to data released by the National Bureau of Statistics.

Tesla reported its first quarterly profit since 2013. The electric-car maker earned an adjusted $0.71 a share after changing the way it accounts for some adjustments in its earnings. Wall Street was expecting an adjusted loss of $0.54 a share, according to Bloomberg data. Tesla is up 4.6% ahead of the opening bell.

Deutsche Bank posted an earnings surprise. The German investment bank reported a net income of €259 million ($279 million) versus analyst expectations for a loss. CEO John Cryan said the bank was "working hard on achieving a resolution" to its residential mortgage backed securities matter in the US. Deutsche Bank trades little changed in Germany.
Texas Instruments boosted its dividend. The company announced earnings of $0.94 a share on revenue of $3.68 billion and raised its dividend by 32% to $0.50 a share. Texas Instruments is down 0.2% in premarket trade.
Buffalo Wild Wings' sales slipped. The restaurant chain earned a better-than-expected $1.23 a share, but sales fell 1.6% to $494 million. Shares of Buffalo Wild Wings are higher by 4.4% ahead of the opening bell.
A Chinese company just had the biggest IPO in the US this year. ZTO Express priced 72.1 million shares at $19.50 a share, above the high end of its range of $16.50 to $18.50, and raised $1.4 billion as a result, a source familiar with the deal told Reuters.

Alphabet project for self-driving car evolves

Alphabet, which owns Google, is transforming an autonomous-vehicle project run by research lab X into a free-standing unit. The car group will generate revenue quickly, although it might take time to become profitable, X chief Astro Teller says. CNET

Research gives HFT respectability

High-frequency traders have obtained a bad reputation for sparking extreme volatility, but 30 research papers published since 2013 put HFT in a positive light 2-1. "As a whole, the literature strongly supports HFTs being a net positive," said University of Washington professor Jonathan Brogaard.

Bloomberg

Stock markets around the world. Australia's ASX (-1.1%) lagged overnight, and Spain's IBEX (+0.4%) leads a mixed session in Europe. The S&P 500 is looking at a 0.2% drop at the open.

Earnings reporting remains heavy. Aetna, ConocoPhillips, Ford Motor, and Twitter will highlight the companies reporting ahead of the opening bell, while Amazon, Google, and LinkedIn are among the names releasing their results after markets close.

US economic data flows. Durable goods and initial jobless claims are due out at 8:30 a.m. ET, and pending home sales will be released at 10 a.m. ET. The US 10-year yield is up 4 basis points at 1.83%.

Charts that go bump in the night.

Twitter's firehose of tweets is incredibly valuable — and just as dangerous.

OPEC may need help to end the global glut of oil.

Goldman's multifactor robots: A post-human guide to investing.

Is 70 percent the Fed's magic number for a rate hike?

The curse of Asia's witching hour haunts traders after pound crash.

Modelling a pendulum's swing is way harder than you think.

The weakening path for the Chinese yuan continues with the USDCNH (offshore) rate now at its highest level since late August, 2010. While the move is eye-catching, it's explained at least in part by the fact that China targets a basket of currencies, and those other non-dollar currencies have been weakening. As such, there hasn't been much yuan volatility nor spillover into other markets. So how's the Chinese economy overall doing? Bloomberg Intelligence economists Tom Orlik and Justin Jimenez have a fresh look at some leading indicators, and they conclude that growth momentum is "resilient." One clever indicator they've put together is a Chinese Trade Partner PMI. By looking at the flash manufacturing data from the country's big export regions and then putting them together into a trade-weighted basket, you can get some insight into how China's own manufacturers will do. The verdict there, per Orlik and Jimenez: there are signs of strengthening from overseas trading partners. It's one clever way of getting an early read on China, and as you can see in the chart, the overseas PMI lines up pretty nicely with Chinese export orders.

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