Tuesday October 11 Daily Market Primer

You could call it a no-Trump bump, but I would prefer to say that the market was reacting to greater certainty regarding the presidential election after Clinton immediately pulled ahead in the polls after Trump’s disastrous weekend and the second presidential debate on Sunday.  The US stock market, open on Columbus day, was up about .5% after falling slightly on Friday.  Bonds were closed. Oil rose yesterday then fell today, on conflicting comments from Russia (first story).  World markets followed the US up except for Hong Kong and Singapore. The British pound continues to fall, now below $1.23 on worries of a “hard Brexit” and a legal battle brewing on when to pull the trigger on the formal Brexit process.

Friday
	LAST	CHANGE	% CHG
DJIA	18240.49	-28.01	-0.15%
Nasdaq	5292.4	-14.45	-0.27%
S&P 500	2153.74	-7.03	-0.33%
Monday
DJIA	18329.04	88.55	0.49%
Nasdaq	5328.67	36.27	0.69%
S&P 500	2163.66	9.92	0.46%
Russell 2000	1250.76	14.21	1.15%
Global Dow	2467.23	-6.81	-0.28%
Japan: Nikkei 225	17024.76	164.67	0.98%
Stoxx Europe 600	342.75	0.77	0.23%
UK: FTSE 100	7121.91	24.41	0.34%
CBOE Volatility	13.79	0.41	3.06%
Australia: S&P/ASX 200	5479.8	4.4	0.08%
China: Shanghai Composite	3065.25	17.11	0.56%
Hong Kong: Hang Seng	23549.52	-302.3	-1.27%
India: S&P BSE Sensex	28082.34	21.2	0.08%
Singapore: Straits Times	2856.13	-14.11	-0.49%
France: CAC 40	4514.46	17.2	0.38%
Germany: DAX	10670.01	45.93	0.43%
Italy: FTSE MIB	16638.84	6.39	0.04%
Spain: IBEX 35	8742	40.5	0.47%
U.S. 3 Month	0.354	1/32
U.S. 2 Year	0.87	-2/32
U.S. 5 Year	1.304	-7/32
U.S. 10 Year	1.767	-13/32
U.S. 30 Year	2.5	-29/32
Germany 2 Year	-0.662	0/32
Germany 10 Year	0.044	4/32
Crude Oil	50.85	-0.5	-0.97%
Brent Crude	52.72	-0.42	-0.79%
Natural Gas	3.264	-0.011	-0.34%
S&P GSCI	374.71	-2.53	-0.67%
E-mini S&P 500	2153.5	-5.5	-0.25%

Fallout from the Trump video and second debate continues to roil the election this week, as the Republicans reprioritize efforts to house and senate races and Wikileaks continue to drip thousands of John Podesta emails on the Democrats.  Samsung threw in the towel on the Galaxy Note 7 after the replacement phones started catching fire.  Analysts are saying this will benefit Apple and Google, who has a new batch of phones on the market.  I don’t see it helping Apple too much, because Samsung customers mostly want Android phones, nevertheless Apple stock has been moving up.  Tesla  rose yesterday after Elon Musk tweeted over the weekend that he would not have to raise money for Tesla or Solar City (which are merging) in 2016.  Third quarter earnings season kicks off today with Alcoa dropping 5% on an earnings disappointment.

Here’s the news:

Oil drops

The price of a barrel of West Texas Intermediate reached a 15-month high of $51.48 in trading yesterday after Russian President Vladimir Putin said his country is ready to join OPEC in limiting oil production. Crude has failed to add to those gains this morning as uncertainty over Russia's stance rose following comments from Rosneft PJSC Chief Executive Officer Igor Sechin who was cited by Reuters as saying his company won't curb output. IEA Executive Director Fatih Birol said that a rise in oil towards $60 a barrel would see a surge in U.S. production, while Goldman Sachs Group Inc. said the success of any agreement to cut oil production is still in doubt. WTI for November delivery was trading at $51.08 at 5:55 a.m. ET.

Pound slips below $1.23

The British pound slid for a fourth day and was trading at $1.2291 as of 6:09 a.m. ET. Brexit Secretary David Davis said that the falling currency would provide a boost to exporters. The triggering of Article 50, which would start the Brexit process, is facing a legal challenge in London this week as Prime Minister Theresa May attempts to maintain the power to invoke the mechanism without holding a vote in parliament first.

Samsung ends Note 7 production

Samsung Electronics Co. announced this morning that it is to end production of its Galaxy Note 7 after a revision of the phone failed to stop it from catching fire. The market value of the Korean electronics company plunged $17 billion overnight following the announcement. The problems at Samsung mean there is one less smartphone on the market coming into the Christmas shopping season, which may give Apple Inc.'s iPhone 7 and Google's recently launched Pixel device a lift.

Markets mixed

The problems at Samsung hit Asian shares overnight, with the MSCI Asia Pacific Index dropping 0.6 percent. Japanese shares escaped the worst of the selloff, with the Topix index closing 0.4 percent higher, as shares were lifted by a declining yen. In Europe, the Stoxx 600 Index was 0.1 percent lower at 6:12. a.m. ET. S&P futures are down 3.75 points as of 6:32 ET.

Chinese currency and property worries

Chinese regulators are looking to cool speculation in the real estate market, according to people familiar with the matter. Concerns about fast-rising property values have prompted the central bank, the China Banking Regulatory Commission, and the China Securities Regulatory Commission, to curb inflows into speculative real estate funds. Meanwhile, Goldman is warning that Chinese currency outflows may be worse than they first appear, as there's been an uptick in yuan outflows (as opposed to dollar outflows). The currency is now at its weakest since September 2010

Tuesday's the unofficial start to earnings season. Alcoa will report ahead of the closing bell, with analysts expecting adjusted earnings of $0.34 a share on revenue of $5.33 billion.
The US 10-year yield is at its highest level since June. The US Treasury market is under pressure as traders return to work from the Columbus Day holiday. Early selling has yields across the curve up by as much as 5 basis points with the 10-year at 1.77%, its highest since June.
The British pound is sinking. Sterling trades lower by 0.8% at 1.2265 versus the dollar and is flirting with its lowest close in 31 years as worries of a "hard Brexit" persist. The currency hit a low of 1.1841 during Thursday's flash crash.
A pound will get you less than a euro at most UK airports. The average exchange rate at 17 UK airport currency exchanges is now just 99 euro cents to the pound, the BBC said, citing a survey by the currency-exchange firm FairFX.
South Africa's finance minister will be charged with fraud. Pravin Gordhan will be charged with fraud based on "allegations that he illegally authorized an early retirement and established a illicit investigative unit when he headed the national tax agency almost a decade ago," Bloomberg reports. The South African rand is down 3.4% at 14.2755 per dollar.
Foreigners are pouring into Chinese bonds. "September saw record foreign investor inflows into China bonds totaling $US11.5 billion," according to ANZ. The bank says $6.2 billion worth of those bonds were China government bonds, which saw a seventh straight monthly inflow.
Economic sentiment in Germany improved. The ZEW Indicator of Economic Sentiment for Germany rose to 6.2 in October from 0.5 and is "a sign of a relatively robust economic activity in Germany," ZEW's president, Professor Achim Wambach, said. The euro is lower by 0.5% at 1.1085 against dollar.
The head of Russia's state oil company doesn't see the need to freeze production. Igor Sechin, the president and chairman of the Russian state oil company Rosneft, said his company would not cut or freeze oil production as part of any agreement with OPEC. The comments opposed a statement from Russian President Vladimir Putin suggesting, "Russia is ready to join the joint measures to cap production and is calling for other oil exporters to join." West Texas Intermediate crude oil is down 0.8% at $50.92 a barrel.
The Grand Old Party
Republicans, still reeling from the events of the weekend, openly fought Monday as they found themselves at risk of losing the White House, the Senate and—though still a long shot—even the House of Representatives. House Speaker Paul Ryan cut the cord to the Trump campaign, telling House colleagues to do what they needed to survive politically while he would neither campaign for nor defend their party’s presidential nominee. His focus, he told them, will be on holding the GOP House majority. The events presented a remarkable spectacle of the party’s chaotic state. It is unprecedented in recent political history for a presidential nominee to be repudiated by his party’s congressional leadership. Many RNC members and other Trump supporters reacted in fury and called their leaders cowards for not standing by Mr. Trump, while RNC Chairman Reince Priebus told the party to stay in line behind its nominee.
Blood Money
One of Theranos’s biggest financial backers has sued the embattled startup and its founder for allegedly lying to attract its nearly $100 million investment. Partner Fund Management, a San Francisco-based hedge fund, filed the suit in Delaware Court of Chancery on Monday afternoon, a letter to the hedge fund’s investors says. The letter says Theranos, its founder Elizabeth Holmes and a former executive deceived the hedge fund by claiming it had developed “proprietary technologies that worked,” and was close to getting regulatory approvals. The suit is the first sign of trouble from investors who poured about $800 million into the company, and then remained silent as it navigated a challenging year that began when The Journal first reported on shortcomings in its operations and technology last October. A spokesman for Theranos said “the suit is without merit and Theranos will fight it vigorously.”
In the Red
Wells Fargo managers pushed bankers to sign up customers for potentially costly overdraft protection that they didn’t always need or realize they were getting, according to current and former bankers and managers. We report that banks became concerned about losing income following a Federal Reserve regulation requiring them to get customers’ permission to opt into a service that would allow customers to overdraw their accounts, incurring a fee. That prompted individual managers at Wells Fargo to push personal bankers to find new ways to get customers into the service. Members of Congress expressed concern about potential overdraft problems at the bank during two hearings last month with Wells Fargo CEO John Stumpf, after the bank agreed to a $185 million fine and enforcement action over what the CFPB called the “widespread illegal practice” of opening unauthorized accounts.

UK court to rule on whether May can trigger Brexit

May (Carl Court/Getty Images)

A court in London is scheduled to rule this week on whether British Prime Minister Theresa May can initiate the UK's withdrawal from the EU without first getting Parliament's approval. If the judge decides Brexit requires action by Parliament, it will put the decision in the hands of the House of Commons and the House of Lords, which largely support remaining in the EU.

Bloomberg (11 Oct.) 

Stock markets around the world are mostly higher. Japan's Nikkei (+1.0%) led in Asia and France's CAC (+0.2%) paces the gains in Europe. S&P 500 futures are down 5.00 points at 2,154.00.

Stock markets should brace for disappointment, says HSBC's Laidler...

...While, on average, strategists see the FTSE 100 falling 5.9 percent by year end.

A $1 trillion paradigm shift is boosting demand for U.S. bills.

One U.S. recession indicator looks a lot less scary on closer inspection.

The South African rand plunges as finance minister is to be charged with fraud.

Jobs data keeps Fed hawks sidelined.

Hurricane Matthew Tests Electric Grid’s New Storm-Resistant Technology

Twitter Shares Plunge, as Suitors Appear to Lose Interest

Investors See New Risk in Trump Swoon: A Democratic Congress

The British pound has plunged nearly 7 percent over the past month amid fears of a 'hard Brexit' that would see the U.K. completely removed from any formal economic relationship with the rest of Europe. On a year-to-date basis, the pound is one of the worst-performing currencies in the entire world. Others at the bottom of the list include the Nigerian naira, the Venezuelan bolivar and the Angolan kwanza. It's tempting to think of currency traders as "vigilantes" whose aggressive selling could keep the government in check, punishing it for decisions that would hurt the economy. But it's also possible to imagine it differently. SocGen's Kit Juckes pointed on Monday to a Telegraph article calling pound traders "ignorant teenagers without the foggiest idea what Brexit means." In other words, rather than seeing the pound plunge as a verdict on Brexit, it's seen as an indictment of the traders themselves. The political stature of finance is on the decline as it is. Watch to see if this becomes a reinforcing cycle, where unpleasant financial market moves only harden opposition to the industry.

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