Wednesday November 30 Daily Market Primer

Stocks edged up on Tuesday with health care up and energy down, but this morning energy companies are up “big league” and oil is surging on reports that OPEC will be able to reach a deal to cut 1.2 million barrels a day in the meeting in Vienna.  Late yesterday news services started reporting that President Elect Trump appointed two key cabinet posts, ex-Goldman Sachs banker and hedge fund manager Steve Mnuchin for Treasury and billionaire investor Wilbur Ross for Commerce.  I was hoping for Warren Buffet for Commerce, but its nice to see Wall Street won’t be banished from Washington.  Stocks are mostly positive overnight except for China, which is down 1%. S&P futures are pointing…up at the moment.

	LAST	CHANGE	% CHANGE
DJIA	19,121.60	23.70	0.12%
Nasdaq	5,379.92	11.11	0.21%
S&P 500	2,204.66	2.94	0.13%
Russell 2000	1,328.22	-1.61	-0.12%
Global Dow	2,460.72	4.31	0.18%
Stoxx Europe 600	342.24	1.29	0.82%
Nikkei 225	18,308.48	1.44	0.82%
UK: FTSE 100	6,827.21	55.21	0.82%
CBOE Volatility	12.56	-0.34	-2.64%
Australia: S&P/ASX 200	5,440.50	-17.00	-0.31%
China: Shanghai Composite	3,250.03	-32.89	-1.00%
Hong Kong: Hang Seng	22,789.77	52.70	0.23%
Europe Dow	1,477.04	12.02	0.98%
India: S&P BSE Sensex	26,652.81	258.80	0.82%
France: CAC 40	4,579.55	28.09	0.62%
Germany: DAX	10,642.31	21.82	0.21%
Italy: FTSE MIB	16,744.54	182.68	1.10%
Spain: IBEX 35	8,676.10	9.10	0.10%
U.S. 3 Month	0.485	0/32
U.S. 2 Year	1.139	-3/32
U.S. 5 Year	1.824	-7/32
U.S. 10 Year	2.362	-20/32
U.S. 30 Year	3.022	-1 16/32
Germany 2 Year	-0.734	-1/32
Germany 10 Year	0.24	-7/32
Crude Oil	48.53	3.3	7.30%
Brent Crude	50.01	3.63	7.83%
Natural Gas	3.311	-0.004	-0.12%
S&P GSCI	374.16	14.16	3.93%
E-mini S&P 500	2208.75	5	0.23%

Barclay’s, Standard and Chartered, and RBS are under pressure after the latest round of European bank stress tests came out yesterday.   Mr. Trump has jawboned Carrier Corp from moving 1000 jobs to Mexico, which is a big psychological win, but may have negative policy implications according to this very good analysis published on Bloomberg http://bit.ly/TrumpPledge. Carrier, which makes air conditioning and refrigerators, is owned by United Technologies, which is a big government contractor.  Hmmmm…

Here’s the news:

VolatOIL

OPEC ministers are meeting in Vienna today, and oil is rising amid hopes that a deal will be struck. A barrel of West Texas Intermediate for January delivery was trading $2.72 higher at $47.94 by 5:39 a.m. ET in a volatile session driven by attendees' comments to the press that a deal is close.

Mnuchin for Treasury

Former Goldman Sachs Group Inc. partner and Hollywood producer Steven Mnuchin is said to be President-elect Donald Trump's choice to be the next U.S. Treasury secretary. According to a person familiar with the matter, Trump is also continuing to meet candidates for the secretary of state role, with retired Marine Corps General John F. Kelly and Massachusetts Governor Mitt Romney still said to be in the running for position.

Carney fires back

Bank of England Governor Mark Carney had a warning for the European Union this morning when he said that the EU has a lot to lose if the British banking system is damaged due to Brexit. This follows comments on Monday from ECB President Mario Draghi where he warned the U.K. is likely to suffer most from a hard Brexit. Carney's comments came as the BOE released the results of its latest stress test, with Royal Bank of Scotland Group Plc forced to bolster its capital plan after failing multiple hurdles. Shares in RBS were down 4.3 percent by 5:19 a.m ET.

Markets flat

Overnight, the MSCI Asia Pacific Index climbed 0.2 percent as Samsung Electronics Co. surged to a record high, while Japan's Topix index added 0.1 percent. In Europe, the Stoxx 600 Index was 0.1 percent higher at 5:24 a.m. ET as trading remained thin ahead of the outcome of today's OPEC meeting. S&P 500 futures were also up 0.1 percent.

Euro inflation

Euro-area inflation accelerated to 0.6 percent year-over-year in November, from 0.5 percent in October, with core inflation remaining unchanged at 0.8 percent. The ECB is due to meet next week to discuss whether it needs to extend its asset-purchase plan ahead of the current March 2017 end date. In the U.S. today, ADP employment change, mortgage applications and personal income and spending data are all due.  Oil's surging on OPEC optimism. Brent crude oil, the international benchmark, trades up 6.5% at $50.47 a barrel on renewed hope the cartel will agree to a production cut at Wednesday's meeting in Vienna. Mnuchin and Ross have been selected for Trump's Cabinet. Steve Mnuchin and Wilbur Ross have been picked as Treasury secretary and commerce secretary for the Trump administration, the duo confirmed Wednesday morning on CNBC. The Bank of England's stress tests found 3 banks had 'capital inadequacies.' Barclays, RBS, and Standard Chartered were required to submit plans detailing how they would raise capital and boost their resilience to financial shocks. Euro-area inflation ticks to highest level since April 2014. A flash estimate released by Eurostat showed annual inflation rose 0.6% in November, up from the 0.5% print in October. The euro is little changed near 1.0660 against the dollar. Chinese commodities got destroyed. Heavy selling took hold early in the session and never relinquished, pushing aluminum, copper, and iron ore prices down between 3.6% and 8%. Hedge funder Whitney Tilson has a new short. Speaking at the Robinhood Conference on Tuesday, Tilson gave five reasons he was short Buffalo Wild Wings, among them being he thought the stock was trading at an "absurd" valuation of 62 times its trailing earnings per share. Sony is on track to crush Facebook and HTC in virtual reality sales. Sales of Sony's PlayStation VR are on track to total 745,434 units in 2016, ahead of HTC Vive's 450,083 and Facebook's Oculus Rift's 355,088. Stock markets around the world mostly gain. China's Shanghai Composite (-1%) lagged in Asia, and Britain's FTSE (+0.8%) outperforms in Europe. The S&P 500 is set to open higher by 0.2% near 2,209. Earnings reporting is light. American Eagle Outfitters reports ahead of the opening bell, while Guess, La-Z-Boy, and PVH release their quarterly results after markets close. US economic data is heavy. ADP Employment Change will be released at 8:15 a.m. ET before personal income, Chicago PMI, and pending home sales are released at 8:30 a.m. ET, 9:45 a.m. ET, and 10 a.m. ET, respectively. Then, at 2 p.m. ET, the Fed's latest Beige Book is released. The US 10-year yield is higher by 4 basis points at 2.33%. Trump’s Team President-elect Donald Trump will name longtime banker and former Goldman Sachs executive Steven Mnuchin as Treasury secretary, turning to a campaign loyalist and fundraiser for the incoming administration’s top economic cabinet post. The choice is at odds with Mr. Trump’s message that economic and political elites have left the country damaged, but Mr. Mnuchin’s establishment profile may sit more comfortably with the Republicans in the Senate. The president-elect also is expected to name Wilbur Ross Jr. as his Commerce secretary nominee, selecting a fellow businessman whose name rings out in the Rust Belt. Mr. Trump selected former Labor Secretary Elaine Chao to be his transportation secretary. We report that after largely opposing his 2016 presidential campaign, financial-services executives are making fast friends with Mr. Trump. Meanwhile, Carrier has agreed to keep in Indiana roughly half of the 2,100 jobs it had planned to shift to Mexico, after a lobbying effort from the incoming Trump administration. Back from the Abyss U.S. home prices have climbed back above the record reached more than a decade ago, bringing to a close the worst period for the housing market since the Great Depression and stoking optimism for a more sustainable expansion. The average home price for September was 0.1% above the July 2006 peak, according to the S&P CoreLogic Case-Shiller U.S. National Home Price index released Tuesday. Adjusted for inflation, the index still is about 16% below the 2006 high. While prices have recovered, the market is flashing caution signs. The country is building far fewer homes than normal, the homeownership rate is near a five-decade low, and mortgages remain difficult to come by, especially for less-affluent buyers. Still, while housing has lagged behind some sectors of the economy in recent years, there are signs of gaining strength. Rise of the Populists Italian voters will decide Sunday on a constitutional change that would effectively strip the Senate of most of its powers. It is a gamble by Prime Minister Matteo Renzi—for Italy and abroad—and a centerpiece of his efforts to more quickly revamp Italy’s sickly economy. If he loses, Mr. Renzi has pledged to resign, making the vote a sign of confidence in his nearly three-year-old government, and a possible test of populism’s reach. Mr. Renzi’s popularity is declining, and recent polls suggest a no vote will prevail, though many voters remain undecided. Such an outcome would be the latest victory for antiestablishment politicians in a year that saw Brexit and a Trump presidential win, and would give a boost to Italy’s 5 Star Movement. Markets, meanwhile, have been unnerved at the prospect of a no vote. Written in the Stars The holiday shopping season has only just begun, but the reviews are already in—the online product reviews, that is. Retailers care more than ever about the commentary shoppers leave on their websites, and they are stepping up efforts to encourage more customers to share their thoughts. At the same time, chains are doing more to make the reviews useful and engaging, while discouraging anonymous commenters by verifying actual customers. Most retailers don’t hide or erase bad reviews. Increasingly, they monitor reviews and respond to complaints that might arise there. We explore why it turns out that five-star ratings aren’t the most influential: What’s known as “purchase likelihood” peaks when the average rating is between 4.2 and 4.5 stars.

How a $60 billion fund is preparing for Trump.

After Brexit and U.S. election, it's Italy's turn to keep traders awake.

Asia is about to face a significant dollar test.

Trump and the arrival of the post-literate age. Donald Trump Is a Curveball in Long Arc of U.S.-China Ties Samsung Tries to Appease Investors But Delays Big Changes Praxair Approaches Linde About Resuming Deal Talks Oil Soars on OPEC-Deal Optimism Monte dei Paschi’s Future Hangs on Sunday Vote In 1971, Former Treasury Secretary John Connally summed up the U.S.’s stance toward governments lamenting the dollar's gyrations when he declared: “it’s our currency, but it’s your problem.” That 45-year old comment is just as relevant today, as emerging markets look poised to battle dollar shortages in the coming years amid a darkening outlook for portfolio and trade flows. While the IMF and the BIS have sounded the alarm over the sharp post-crisis rise in foreign debt burdens of EM corporates, the challenge of servicing hard-currency obligations as local currencies depreciate is only part of the story. A Trump-led regime shift is brewing that could materially diminish emerging economies' dollar supplies in the coming years — money market de-globalization, the repatriation of dollar liquidity overseas amid U.S. tax reforms, a structural rise in the cost of dollar leverage at the long-end of the yield curve, and diminished Federal Reserve appetite for currency swap lines. Look at how cross-currency basis swaps and front-end onshore forward markets develop in the coming months to gauge how they're handling the stress. Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief

Tuesday November 29 Daily Market Primer

Stocks backed off all time highs yesterday, which included reversals in small caps, financials, and treasuries. Asian stocks fell, but European stocks are trading up at the moment.  The drama continues about OPECs oil deal, as Russia said it will not attend the official meeting in Vienna that starts tomorrow.  If they can hammer out an agreement it will be the first production cut in eight years.  The latest headlines this morning seem to indicate that the deal, if they every had one, is falling apart.

	LAST	CHANGE	% CHANGE
DJIA	19,097.90	-54.24	-0.28%
Nasdaq	5,368.81	-30.11	-0.56%
S&P 500	2,201.72	-11.63	-0.53%
Russell 2000	1,329.83	-17.37	-1.29%
Global Dow	2,453.46	-2.88	-0.12%
Stoxx Europe 600	340.71	0.88	-0.59%
Nikkei 225	18,307.04	-49.85	-0.59%
UK: FTSE 100	6,759.17	-40.30	-0.59%
CBOE Volatility	12.97	-0.18	-1.37%
Australia: S&P/ASX 200	5,457.50	-6.90	-0.13%
China: Shanghai Composite	3,282.92	5.92	0.18%
Hong Kong: Hang Seng	22,737.07	-93.50	-0.41%
Europe Dow	1,457.92	1.09	0.17%
India: S&P BSE Sensex	26,394.01	43.84	0.07%
France: CAC 40	4,543.68	33.29	0.74%
Germany: DAX	10,603.54	20.87	0.20%
Italy: FTSE MIB	16,470.41	253.46	1.56%
Spain: IBEX 35	8,644.70	25.40	0.29%
U.S. 3 Month	0.495	0/32
U.S. 2 Year	1.123	-1/32
U.S. 5 Year	1.822	-5/32
U.S. 10 Year	2.342	-8/32
U.S. 30 Year	2.995	-12/32
Germany 2 Year	-0.74	-1/32
Germany 10 Year	0.227	-6/32
Crude Oil	45.66	-1.42	-3.02%
Brent Crude	46.79	-1.47	-3.05%
Natural Gas	3.286	-0.034	-1.02%
S&P GSCI	362.81	-7.6	-2.05%
E-mini S&P 500	2204	3.25	0.15%

European leaders are speaking out against giving the UK a sweetheart open trade deal on Brexit, saying that terms must be inferior to EU members.   The Chicago Stock Exchange, a regional equities exchange not to be confused with that other Chicago exchange, global powerhouse CME Group, is being bought by China’s Chongqing Casin Enterprise Group.  Both companies are going to great lengths to explain that the acquirer is not controlled by the Chinese government.   That’s what they want you to think J. In the “you can’t make it up” category, the President of South Korea, Park Gen-hye, is close to impeachment or resignation after getting caught up in an influence peddling scandal orchestrated by a friend and daughter of a cult leader who seems to have had undue control over madam president for many years.  

One time venture capital unicorn and Silicon Valley darling Theranos continues to melt down, as a key investor has sued for fraud, which follows a recent lawsuit by business partner Walgreens.   According to the WSJ, Tyler Schultz, the employee who blew the whistle on Theranos, was berated by his bosses for “not understanding the science” when he originally complained to them about quality problems.  His grandfather is Theranos board member George Schultz, who was Treasury and Labor Secretary in the Nixon administration.  Must have made for an awkward Thanksgiving.

Here’s the news:

Oil split

Russia has said it will not attend tomorrow's crucial oil talks in Vienna as the chances of a deal to cut production seem to be fading. Goldman Sachs Group Inc. have warned that the price of a barrel of crude may swing $6 on Wednesday, based on options contracts' implied volatility, and have put the chances of a cut agreement at 30 percent. A barrel of West Texas Intermediate for January delivery was trading at $46.38 at 5:06 a.m. ET.

Brexit strategy

U.K. Prime Minister Theresa May has always insisted that Brexit means Brexit, without adding much in the way of detail. A photograph of scribbled notes in the arms of a Conservative Party aide entering Downing Street yesterday reveals something of the plan, showing the U.K. aim is to “have your cake and eat it.” In testimony to European Parliament lawmakers, ECB President Mario Draghi took a different view, warning that Britain’s economy would be the first to suffer from a so-called 'hard Brexit.'

Trump warning

UBS Group AG’s $2 trillion wealth-management arm predict the yen will strengthen to 98 to the dollar as expectations of a Trump-led fiscal expansion have become overblown. The yen dropped as low as 114 to the dollar on Friday last, capping a sell off that began with the results of the U.S. election. Elsewhere, Bank of Canada Governor Stephen Poloz, warned of heightened uncertainty following the Republican victory in an interview with Bloomberg TV. The President-elect, meanwhile continues to add to his picks for government, with U.S. Representative Tom Price selected as secretary of the Department of Health and Human Services, according to a person familiar with the matter, while Trump tweeted positively following his meeting with retired General David Petraeus who is being considered for the secretary of state role.

Markets slip

Overnight, the MSCI Asia Pacific Index slid 0.1 percent, with Japan's Topix index closing one point lower after a 12-day rally. In Europe, the Stoxx 600 Index was 0.1 percent lower at 5:26 a.m. ET in thin trading as investors watch for news from OPEC and await this weekend's Italian referendum. S&P 500 futures were broadly unchanged.

Coming up...

This is a big week for U.S. economic data. Today at 8:30 a.m. the second reading to third-quarter GDP is released, with S&P CoreLogic home prices numbers coming at 9:00. There are two Fed speakers today, with New York Fed's Bill Dudley speaking at 9:15 a.m. and Governor Jerome Powell due at 12:40 p.m. With a December rate rise practically a certainty, those speeches will be watched for hints as to rate-path projections. Doubts are growing that OPEC can reach an agreement. Key members still cannot agree on how much oil production should be cut ahead of Wednesday's meeting. Brent crude oil, the international benchmark, trades down 2% at $47.43 a barrel. China is trying to limit capital outflows. Regulators are requiring transfers abroad worth $5 million or more to be reported to the State Administration of Foreign Exchange, Reuters reports. Previously, transfers of $50 million or more needed to be reported. Korea's president is willing to resign. Scandal-ridden Korean President Park Geun-Hye said in a TV address to the nation, "Once lawmakers come up with measures to transfer power in a way that minimizes any power vacuum and chaos in governance, I will step down." UnitedHealth is optimistic on 2017. The health insurer preannounced guidance for 2017 saying it expected to earn an adjusted $9.30 to $9.60 a share on revenue of $197 billion to $199 billion. AT&T unveils DirecTV Now. The streaming-TV service launches Wednesday and will give subscribers 60 channels for $35 a month or 120 channels for $70 a month. Theranos and its founder got hit with another lawsuit. The blood-testing company and its founder, Elizabeth Holmes, are being sued by investors who claim she lied about the technology. Theranos is also facing lawsuits from a major investor, patients, and Walgreens. Uber drivers are protesting nationwide. Drivers for the ride-hailing service will protest across the US on Tuesday, joining the "Fight for $15" minimum wage. Stock markets around the world are mixed. Overnight, China's Shanghai Composite (+0.2%) eked out a gain. In Europe, Britain's FTSE (-0.6%) lags. The S&P 500 is set to open up 0.2% near 2,205. Filling the Roster The real-estate company controlled by Jared Kushner, President-elect Donald Trump’s son-in-law, has hundreds of millions of dollars in loans outstanding from domestic and foreign financial institutions, and markets condominiums to wealthy U.S. and foreign buyers. The firm has also obtained development financing through a controversial U.S. program that sells green cards. We report that those and other business activities could raise conflicts of interest if Mr. Kushner is named to a staff position in the Trump administration. In other transition news, Mr. Trump has chosen House Budget Committee Chairman Tom Price (R., Ga.) as his nominee for secretary of the Health and Human Services Department, putting the six-term congressman in charge of the sprawling agency that will likely dismantle Democrats’ 2010 health-care overhaul. Today Mr. Trump will meet with Mitt Romney for a second time amid a messy—and unusually public—debate over who should get the nation’s top diplomatic post as secretary of state. Blood Loss Theranos, the blood-testing company that ran afoul of regulators after a spate of Wall Street Journal reports revealed highly questionable practices, received much of its funding from high-profile private investors. These were often individuals who aren’t part of the ecosystem that typically backs startups and could see their stakes wiped out by the blood-testing company’s regulatory and technological troubles. We report that several large investments from families and individuals helped infuse Theranos with $632 million in its latest funding round, which stretched from 2014 to 2015. Those investors include Rupert Murdoch—executive chairman of 21st Century Fox and News Corp, which is the parent of The Wall Street Journal—and family-controlled Cox Enterprises. They put about $100 million each into Theranos. Another prominent investor was Riley Bechtel, chairman of closely held construction giant Bechtel Group. Meanwhile, Robertson Stephens co-founder Robert Colman accused Theranos in a lawsuit filed Monday of making false and misleading claims about its operations and technology while soliciting money from investors. Extra Credit China’s newest tool for social control is a credit rating for everything. Beijing wants to give every citizen a score based on behavior such as spending habits, turnstile violations and filial piety, which can blacklist citizens from loans, jobs, air travel. Hangzhou’s local government is piloting the “social credit” system the Communist Party has said it wants to roll out nationwide by 2020, a digital reboot of the methods of social control the regime uses to avert threats to its legitimacy. More than three dozen local governments across China are beginning to compile digital records of social and financial behavior to rate creditworthiness. The endeavor reinforces President Xi Jinping’s campaign to tighten his grip on the country and dictate morality at a time of economic uncertainty that threatens to undermine the party. Fiduciary-rule challenge rejected by US judge US District Judge Daniel Crabtree has denied a preliminary injunction to prevent the Labor Department from enforcing its fiduciary rule. Market Synergy Group, which develops fixed-indexed annuities and other insurance products, failed to show that the Labor Department had exceeded authority or had treated fixed-indexed annuities capriciously, the judge says. InvestmentNews (28 Nov.) Draghi notes concerns about stalled eurozone recovery Draghi (Frederick Florin/AFP/Getty Images) The most serious risk confronting the eurozone's economy is the possibility that its recovery will stall, European Central Bank President Mario Draghi told a committee of the European Parliament. Despite forecasts that the region's inflation will top 1% next year, when the central bank's rate setters meet next week, they will look for ways to preserve "very substantial" stimulus, he said. Reuters (28 Nov.) Earnings reporting is light. Tiffany & Co. reports ahead of the opening bell. US economic data flows. GDP will be released at 8:30 a.m. ET before S&P Case Shiller home prices and consumer confidence cross the wires at 9 a.m. and 10 a.m. ET.

Markets and the Federal Reserve finally agree on something.

What coal tells us about China's one-size-fits-all approach to economic reform.

Russia's central bank wants you to believe.

Supersonic is coming back. Will the airlines buy it?

The U.S. and China are fighting over Mars, but Japan may win the space race.

Leaning San Francisco tower seen sinking from space. Energy Firms Step Up Business Investment Donald Trump’s Line on Cuba Unsettles Latin America Activist Elliott Management Calls for Change at Cognizant How to Kill the Volcker Rule? Don’t Enforce It

Cash is so hot right now. Well to be more precise cash as a topic of study is really hot right now. One of this year's must-read books is The Curse of Cash. In it the Economist Kenneth S. Rogoff argues for the phasing-out of high-denomination currency, as a means of cracking down on crime. It's a controversial book that has inspired a ton of criticism by those who equate physical money with freedom and privacy, but you should read it nonetheless. Meanwhile we're getting some live, real-time experiments in these theories. India is currently going through a wrenching period of demonetizing its large denomination bills, forcing people to bring their currency to the bank. A new set of high-rupee notes will be issued later, but anyone who doesn't bring in their cash by the end of the year will see those notes expire worthless. So it's not really about eliminating cash, but more about flushing out those who have been improperly hiding their money. The program, which was announced on the U.S. election day (which may explain why it hasn't gotten more coverage) has had all kinds of weird effects, like causing people to buy Rolexes like crazy, instead of waiting in line to deposit their large bills. Another real-time cash experiment is happening in Zimbabwe, where the government has reintroduced its own currency for the first time in several years. Most people know about Zimbabwe's incredible hyperinflation in 2008. To beat hyperinflation, the economy has been using the U.S. dollar. Zimbabwe says that its new money, called "bond notes," will be backed by the dollar, but there's a deep amount of skepticism about whether they will really hold their value. The best person to follow for all this stuff is JP Koning, an expert on monetary economics and the history of money. His blog, Moneyness, is essential reading right now. Here's a post on why the Zimbabwean stock market is booming with the introduction of the new currency (hint: It's not a good sign). Here's a brilliant post on why the chaos caused by the situation in India is a goal of the program, and not a sign of failure. And here's his review of Ken Rogoff's book. Read 'em all, and then get lost in the rest of his blog. It's a fascinating time to be studying what money really is, and the future of the physical version of it.

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