Tuesday October 18 Daily Market Primer

In case your are in a hurry this morning, here’s the Twitter version of the news summary: “Stks fell Mon, rallied Tue, oil down, sovereigns selling, NFLX, GS, BLK earnings beat, BLK AUM>$5T”

Stocks fell Monday, as oil moved down below $50 and seemed to take the stock market with it.  Oil and stocks are rebounding this morning. The US 10 year hit 1.814% before retreating to 1.766%. Stock markets around the world rallied overnight as government bonds continue to sell off everywhere (last story).

	LAST	CHANGE	% CHANGE
DJIA	18,086.40	-51.98	-0.29%
Nasdaq	5,199.82	-14.34	-0.27%
S&P 500	2,126.50	-6.48	-0.30%
Russell 2000	1,210.14	-2.27	-0.19%
Global Dow	2,435.57	15.32	0.63%
Japan: Nikkei 225	16,963.61	63.49	0.38%
Stoxx Europe 600	342.30	4.88	1.45%
UK: FTSE 100	7,020.96	73.41	1.06%
CBOE Volatility	15.51	-0.70	-4.32%
Australia: S&P/ASX 200	5,410.80	22.10	0.41%
China: Shanghai Composite	3,083.88	42.71	1.40%
India: S&P BSE Sensex	28,050.88	520.91	1.89%
France: CAC 40	4,506.56	56.33	1.27%
Germany: DAX	10,640.45	136.88	1.30%
Italy: FTSE MIB	16,932.58	302.24	1.82%
Spain: IBEX 35	8,868.70	128.00	1.46%
U.S. 3 Month	0.348	1/32
U.S. 2 Year	0.823	-0/32
U.S. 5 Year	1.259	-0/32
U.S. 10 Year	1.778	-3/32
U.S. 30 Year	2.545	-15/32
Germany 2 Year	-0.666	1/32
Germany 10 Year	0.054	-0/32
Crude Oil	50.44	0.5	1.00%
Brent Crude	51.98	0.46	0.89%
Natural Gas	3.651	0.036	1.00%
S&P GSCI	376.72	5.17	1.39%
E-mini S&P 500	2137.75	14.75	0.69%

Netflix crushed earnings last night and the stock rose an incredible 20% in the aftermarket, mostly on higher than expected subscriber growth.  It’s up 19% this morning.  I guess cancelling my DVD subscription a few years ago didn’t slow them down.  Goldman and Blackrock are out with earnings this morning, and both beat the street.  Goldman, the 5^th largest US bank by assets, posted net income of $2.1B, up 58% YOY (year over year), which comes to EPS of $4.88 vs the $3.82 consensus.  Now that’s a beat, and continues what has been a very good earnings season for the big banks.  The company cited higher bond trading revenues as the main driver.   Blackrock’s Q3 net income is up 3.8% to $875 million, and pulled an another $55 billion in AUM for the quarter, almost all of it in iShares, boosting total AUM to over $5T (that’s T for trillion).  EPS was $5.14 vs $5.00 expected. 

Donald Trump’s “rigged election” theme is getting a very harsh reception from analysts and fact checkers and Hillary is dealing with more email trouble as we head in to the third debate, and the battle to retake Mosul from Islamic State is underway.

Here’s the news:

Inflation

Consumer-price inflation in the U.K. rose to 1 percent in September, its highest level since November 2014,  according to data from the Office for National Statistics. The pound rose, and was trading at $1.2280 at 5:55 a.m. ET. Economists surveyed by Bloomberg expect the Bank of England to cut the benchmark rate to 0.1 percent at the November 3 policy meeting. Inflation is also back on the radar in Asia, where bond yields in developed markets are rising to their highest levels since June as oil prices are predicted to drive consumer costs higher. CPI data for the U.S. is due at 8:30 a.m. ET

Goldman earnings

Goldman Sachs Group Inc. reports earnings today, with all eyes on how the bank's fixed-income trading revenue stacks up against its peers, who have so far all beaten analyst estimates in the third quarter. In a report published this week, analysts at Goldman warned of a $1.1 trillion hit to bondholders if yields spike, as duration risk in U.S. bond markets has reached an all-time high

Saudi's investor meetings

Saudi Arabia is meeting investors ahead of the kingdom’s first-ever international bond sale, with reports from those meetings suggesting that government officials would rather not talk about the oil price. The planned reforms, and recent spending cuts, in Saudi Arabia are already having an effect on other economies, particularly the Philippines, which is now seeing a influx of workers that had left to get jobs in Saudi construction. A barrel of West Texas Intermediate for November delivery was trading at $50.39 at 6:14 a.m. ET.

Markets rally

Overnight, the MSCI Asia Pacific Index rose 0.9 percent while Japan's Topix index added 0.3 percent as the yen slid against the dollar. In Europe, the Stoxx 600 Index was 1.1 percent higher at 6:13 a.m. ET as company earnings beat expectations and rising commodity prices lifted miners. S&P 500 futures advanced 0.5 percent. 

Netflix jumps

Shares in Netflix Inc. rose by as much as 20 percent in after-market trading after announcing third quarter results that showed growth in subscriptions that exceeded analyst expectations. The company's subscriber growth is best outside of the U.S., while competition to become the 'Netflix of China' is heating up, with companies pouring billions of dollars into new digital content.

That’s Classified
Newly released documents show a State Department official urged the FBI not to mark as classified a Hillary Clinton email. The move, which came after questions were raised about Mrs. Clinton’s use of a private email server while she was secretary of state, focused on a single email about the probe into the 2012 attacks on U.S. outposts in Benghazi. The newly released summaries of FBI interviews also show that senior State officials exerted similar pressure within their own agency as it studied the Clinton emails. Meanwhile, voters are showing signs of tuning out this year’s presidential election, a new WSJ/NBC survey finds. As Mrs. Clinton and Donald Trump prepare for the final debate on Wednesday, each faces a big decision in how to close out an exceptionally ugly campaign. We also report that the Trump camp explored a possible TV venture in recent months.

Stream On
Netflix blew through its forecast for subscriber additions in the September quarter, reassuring investors and sending its shares soaring 20% in after-hours trading. The better-than-expected performance came mainly in international markets, where the company has completed a massive, near-global expansion this year. Wall Street’s reaction shows that the company’s global rollout across many territories at once is creating a foggy business outlook—for itself and investors—and leading to a volatile expectations game. Netflix’s report of 3.57 million new streaming subscribers globally comes a quarter after it reported its weakest subscriber expansion in three years. In other corporate news, a day after our examination of Caterpillar’s mistimed bet on production of machinery and equipment, CEO Doug Oberhelman announced Monday that would step down at the end of the year, leaving company veteran Jim Umpleby to battle a historic sales slump.

Rise of the ‘Passivist’
There is a simple, destructive idea taking over Wall Street: that stock pickers can’t pick stocks well—or at least well enough for the fees they charge. The idea of the “active manager” is rapidly losing its intellectual legitimacy to the primacy of the “passive investor” who merely buys an index of shares. That has certainly been true for the last 10 years, when between 71% and 93% of U.S. stock mutual funds either closed or failed to beat their closest index funds. Passive investing is transforming Wall Street, corporate boardrooms and the life of the neighborhood broker. Our series examines the motivations behind one of the largest migrations of money in history, as well as the resulting upheaval. The shift has deep effects on everything from the outcome of shareholder votes to how pension funds manage teachers’ retirement money to which investing firms have a future and which will struggle to hang on.

Netflix crushed earnings. The video-streaming giant earned $0.12 a share on revenue of $2.29 billion, topping the $0.06 and $2.28 billion that were expected. Netflix says it added 3.2 million international subscribers, well ahead of the 2 million that analysts were looking for. The stock was up by more than 20% in after-hours action.
IBM earnings beat on the top and bottom lines. IBM earned $3.29 a share on revenue of $19.2 billion, beating the $3.24 and $19 billion that Wall Street was anticipating. The company has seen declining year-over-year revenue for 18 consecutive quarters.
Disney is afraid of Twitter's abuse problem. The entertainment giant was afraid the bullying and behavior of some of Twitter's users would tarnish its image as a family brand if it bought the company, Bloomberg reports.
Visa's CEO is stepping down. Charlie Scharf is stepping down as Visa's CEO effective December 1 because "he could no longer spend the time in San Francisco necessary to do the job effectively." Scharf told Bloomberg he wanted to be closer to his family on the East Coast.
China's debt is surging again. New loans in China grew by 1.22 trillion yuan, easily surpassing the 1 trillion yuan that was expected. Reuters reports that the pick-up in lending was driven by a sharp jump in local government debt swaps aimed at reducing interest payments, in addition to strong mortgage demand.
UK inflation is picking up. Consumer prices in Britain rose 1% year-over-year in September, topping the 0.8% gain that economists had forecast. The return of inflation comes after the pound's 17% plunge following the UK's vote to leave the European Union.
Protests are happening again in Greece. Greeks demanded that their government protect wages and pensions and restore collective bargaining on Monday as leaders begin fresh negotiations with lenders.

Abu Dhabi adds blockchain-based stakeholder voting

The Abu Dhabi Securities Exchange is launching a blockchain voting service to allow stakeholders to participate in annual meetings of listed companies from anywhere in the world as part of a larger effort by the emirate's government to modernize the economy. "ADX is committed to creating a business environment that is both competitive and flexible," said CEO Rashed Al Blooshi. CoinDesk (U.K.)

High-speed data feed from Thomson Reuters to debut

Computer traders will be able to access real-time market data in as little as 25 milliseconds with Thomson Reuters' high-speed data feed scheduled to launch in November. The development of faster data feeds has been linked to an influx of high-speed traders using complex algorithms to boost order output. Reuters

Financial Engineers Take On New Rule With More Engineering
IBM Revenue, Profit Edge Lower
CEO Mark Fields Sets Ford on a Dual Track
FBI’s Online Anti-Extremism Effort Meets Resistance

Why Americans work so much more than Europeans.

Draghi's QE history lesson is that flexibility can backfire.

Ryanair cuts profit guidance, blaming post-Brexit vote pound weakness.

The Czech Republic passes Switzerland for world's lowest bond yields.

Shares in the Swiss central bank have been on a huge rally, and nobody knows why. 

America's pork belly future is now.

VWs diesel settlement might actually hurt electric cars.

Stock markets around the world are higher. Hong Kong's Hang Seng (+1.6%) led the gains in Asia and Germany's DAX (+1.2%) is out front in Europe. S&P 500 futures are up 10.50 points at 2,133.50.
Earnings reporting picks up. Domino's Pizza, Goldman Sachs, Harley Davidson, and UnitedHealthcare report ahead of the opening bell while Intel and Yahoo release their quarterly results after markets close.

US economic data flows. CPI will be released at 8:30 a.m. ET and the NAHB Housing Market Index is due out at 10 a.m. ET. The US 10-year yield is down 1 basis point at 1.75%.

Government bonds around the world are selling off. This story has been building up for a while but it's starting to get more attention, and spreading to more corners of the world. The latest data point that is that yields on the Taiwanese 10-year have jumped by the most in three years. The popular explanation for all this is growing concerns about inflation, perhaps driven by stabilizing oil prices. But none of this is all that satisfying. We've known for a long time, for example, that just due to base effects alone, stable oil prices would boost headline inflation. Meanwhile, other measures of inflation have been slowly building up without a dramatic shift. This morning U.K. inflation did surge to its highest level in nearly two years, but of course the U.K. has unique circumstances driving its price dynamics. Today U.S. gets its September CPI report. Headline inflation is expected to have jumped 1.5 percent year-over-year, and the core rate is expected to have been 2.3 percent. One area of the U.S. economy that's seen really stable inflation for a while now is domestic services excluding energy. This is the part that's the least exposed to international conditions, and there the inflation rate has been over 3 percent for awhile now. Meanwhile, as the chart below shows, Chinese Producer Prices have turned positive for the first time years. So perhaps the deflationary winds blowing in from around the world are finally set to abate.

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