Monday November 14 Daily Market Primer

Happy Monday.  Stocks were mixed on Friday and the three main US indices continued to diverge as the market sorts out incoming upcoming Trump presidency.   The Dow was up .2% and the S&P fell .1%, and the NASDAQ was up .5%.  For the election week, the Dow rose 5.4%, the biggest weekly gain in almost 5 years.  Industrials, banks, and health care stocks have been the biggest beneficiaries of the us regime change, while tech stocks suffered.  The global bond rout continued, as rates are adjusting to expectations of higher growth and inflation.  The US 30 year is up to 3% this morning.   Overseas, stocks are mostly higher.

	LAST	CHANGE	% CHANGE
DJIA	18,847.66	39.78	0.21%
Nasdaq	5,237.11	28.32	0.54%
S&P 500	2,164.45	-3.03	-0.14%
Russell 2000	1,282.39	30.79	2.46%
Global Dow	2,436.34	-5.11	-0.21%
Japan: Nikkei 225	17,672.62	297.83	1.71%
Stoxx Europe 600	337.54	0.04	0.01%
UK: FTSE 100	6,738.88	8.45	0.13%
CBOE Volatility	15.38	0.64	4.34%
Australia: S&P/ASX 200	5,345.70	-25.00	-0.47%
China: Shanghai Composite	3,083.88	42.71	1.40%
India: S&P BSE Sensex	26,818.82	-698.86	-2.54%
France: CAC 40	4,494.99	5.72	0.13%
Germany: DAX	10,694.30	26.35	0.25%
Italy: FTSE MIB	16,635.08	-177.29	-1.05%
Spain: IBEX 35	8,611.60	-27.60	-0.32%
U.S. 3 Month	0.48	0/32
U.S. 2 Year	0.972	-3/32
U.S. 5 Year	1.659	-15/32
U.S. 10 Year	2.245	-26/32
U.S. 30 Year	2.996	11 20/32
Germany 2 Year	-0.604	0/32
Germany 10 Year	0.354	-13/32
Crude Oil	42.64	-0.77	-1.77%
Brent Crude	44.16	-0.59	-1.32%
Natural Gas	2.903	0.053	1.86%
S&P GSCI	342.24	-2.38	-0.69%
E-mini S&P 500	2162	0.5	0.02%

Jeff Gundlach, who famously predicted a Trump win in January, said over the weekend that this may be the end of the 35 year secular bull market for bonds, and that the 10-year could hit 6% in the next four or five years.  Here’s the article from Barron’s:  http://bit.ly/GundlachItsOver

Here’s the news:

Bond rout

This morning, the yield on the U.S. 30-year Treasury rose to 3 percent for the first time since January, as the global bond rout that followed Donald Trump's victory in the U.S. presidential election continues apace. Long-dated bonds are also getting hit hardest in Europe, with Italy's 50-year among the biggest losers. The jump in yields may be a message to the president-elect from the bond market on his plans to expand public debt to fund infrastructure investment, with the moves serving as a reminder of how "bond vigilantes" famously curtailed Bill Clinton's spending plans during his first term. Goldman Sachs Group Inc. has warned that Trump's policies risk pushing the U.S. economy into a period of stagflation.

Trump's team

The president-elect may not be listening to those vigilantes at the moment, however, as he is busy putting together his White House team. Yesterday, he announced RNC Chairman Reince Priebus as his chief of staff, and former Breitbart News Executive Chairman Steve Bannon as chief strategist and senior counselor. The two are expected to work together as "equal partners," which is seen as an attempt by Trump to balance the expectations of his supporters and the needs of Washington. Over the weekend, the president-elect also watered down some of his more controversial campaign promises by saying that parts of the famous border wall with Mexico may be a fence, and that same-sex marriage is settled law.

Deals

There are several multi-billion dollar deals in the news this morning. In Asia, Samsung Electronics Co. agreed to buy Harman International Industries Inc., a supplier of audio equipment to the automotive industry, for $8 billion, in a move that is seen as an attempt by the South Korean giant to shift away from its reliance on smartphones. In Europe, Novartis AG is said to be in talks to acquire U.S. generic-drugs maker Amneal Pharmaceuticals LLC in a deal which could value the closely-held company at as much as $8 billion. Siemens AG, meanwhile, agreed to buy software company Mentor Graphics Corp. for $4.5 billion, a premium of 21 percent on Friday's closing price.

Markets rise

Overnight, the MSCI Asia Pacific Index dropped 0.4 percent, while Japan's Topix index gained 1.6 percent after GDP data was better than forecast and the yen dropped to a five-month low. In Europe, the Stoxx 600 Index was 0.9 percent higher at 5:23 a.m. ET with banks accounting for most of the gains. S&P 500 futures added 0.4 percent.

China data, Japan GDP

There were no signs of the Chinese economy losing steam in figures published overnight. Industrial production rose 6.1 percent, retail sales grew 10.1 percent, and fixed-asset investment added 8.3 percent as domestic drivers eased concerns over the possible impact of a Trump presidency on the economy. Japanese GDP surprised, expanding an annualized 2.2 percent, far ahead of expectations for 0.8 percent, with a rebound in exports leading the gains. Coming up later in the U.S. are retail sales data due at 8:30 a.m. ET. Bond markets everywhere are getting smoked. Selling continues in bond markets all over the world as a President-elect Donald Trump has brought out the vigilantes. Here in the US, the 10-year is up 12 basis points at 2.27%, its highest level since the beginning of the year. And bonds elsewhere are getting hit hard too. In Asia, South Korea's 10-year spiked 17 basis points to 2.11%, and Italy's 10-year leads the advance in Europe, up 15 basis points to 2.17%. Stock markets around the world are higher. Japan's Nikkei (+1.7%) led the gains in Asia, and Britain's FTSE (+0.9%) is out front in Europe. The S&P 500 is looking to open little changed near 2,164. The US dollar is at best level since January. The US Dollar Index briefly crossed 100.00 for the first time since December as traders continue to price in a Federal Reserve interest-rate hike at the December meeting. Fed fund futures data compiled by Bloomberg shows an 84% probability the Fed will raise its benchmark interest rate 25 basis points at its December meeting. China's economy is humming along. Industrial production rose 6.1% year-over-year, and retail sales grew at a 10.0% YoY. Both numbers were shy of expectations but still represented solid growth. Japan's economy crushed expectations. The Japanese economy grew at a seasonally adjusted annualized rate of 2.2% in the third quarter, crushing the 0.9% growth that economists had forecast. The yen is weaker by 1.2% at 107.93 per dollar, its lowest level since June. Siemens is buying Mentor Graphics. Siemens will pay $4 billion, or $37.25 a share in cash, for the semiconductor-design software company. The deal price represents a 21% premium over Friday's close. Samsung is betting on cars. The electronics giant has agreed to pay $8 billion for Harman International Industries. According to The New York Times, "Samsung could combine its display and semiconductor operations with a business that already provides sound, electronics, and other smart components for a new generation of digitally connected cars." American Apparel files for bankruptcy. The retailer filed for bankruptcy for the second time in just over a year, listing assets and liabilities in the range of $100 million to $500 million, Reuters reports, citing a Delaware court filing. A hedge fund wants Kate Spade to sell itself. Caerus Investors believes that while brand equity is strong, it would be "better suited in the hands of a larger, more experienced, global player." Trump’s Team President-elect Donald Trump has started to make key appointments, naming RNC Chairman Reince Priebus as his chief of staff and Stephen Bannon, who was chief executive of the Trump campaign, as his chief strategist and senior counsel. Mr. Bannon’s role will give him unfettered access to the 45th president, and his demeanor suggests he will likely approach the role differently than his predecessors. The selection of Mr. Priebus suggests Mr. Trump is interested in a more conventional approach to governing after his insurgent campaign. The choice is an important marker in Mr. Trump’s high-pressure race against the clock to build the next administration. That effort begins in earnest on Monday, as his broader transition team holds its first formal meetings since a shake-up on Friday that installed Vice President-elect Mike Pence atop the organization. A Fresh Start for the Economy Mr. Trump’s presidency is poised to usher in a new era for the U.S. economy that forecasters say could boost economic growth, bring higher interest rates and inflation, and a new set of potential risks including international trade wars. The cautious optimism revealed in our latest monthly survey of economists owes to the belief that the Republican’s proposals to reduce taxes and invest in infrastructure will amount to a substantial fiscal stimulus. On average, economists marked up their growth forecasts. But Mr. Trump’s administration is only beginning to take shape, and many economists cautioned that their estimates are tentative. Certain policies Mr. Trump could enact the most quickly, such as restricting trade or immigration, could do swift harm to the economy. The source of the current optimism is tax cuts and infrastructure plans, but these would take longer to implement because they would need to go through Congress. Pension Pressure Central bankers lowered interest rates to near zero or below to try to revive their flagging economies. However, in the process they have put in jeopardy the pensions of more than 100 million government workers and retirees around the globe. Managers handling trillions of dollars in government-run pension funds never expected rates to stay this low for so long. Now, the world is starved for the safe, profitable bonds that pension funds have long needed to survive. Low rates helped pull down assets of the world’s 300 largest pension funds by $530 billion in 2015, the first decline since the financial crisis. As investment gains in the pension plans are suppressed, it generally means one thing: Standards of living for workers and retirees are decreasing, not increasing. And pension officials and government leaders are left with vexing choices. Fed speak is heavy. Dallas' Kaplan, Richmond's Lacker, and San Francisco's Williams will all take the mic on Monday. New Zealand spared widespread destruction after quake kills two. China pumps the brakes on U.S. dealmaking after Trump's win. The oil man who foresaw a crash sees OPEC uniting in self-interest. Brexit has already cost U.K. businesses $82 billion. Duterte outbursts are starting to scare U.S. companies. A casino at the end of the world may be the most successful ever. A casino at the end of the world may be the most successful ever. Enrollment From Abroad Sets Record at U.S. Colleges Paul Ryan Expected to Keep His Speakership Obama Faces Task of Reassuring World Leaders on Trump Study Suggests Celebrex Isn’t Riskier Than Rival Pain Drugs The Mortgage Market Is Changing Fast Philippines Returns $15 Million Stolen From Bangladesh Account at N.Y. Fed There's something remarkably steady about this post-election market. U.S. equities continue to rise, emerging markets continue to dive, and government bonds are still getting shellacked. The yield on the benchmark U.S. 10-year Treasury is now 2.2792 percent, its highest level since the very beginning of 2016. Investors appear to be focusing squarely on the notion that Trump will boost growth via higher deficits and perhaps lower regulation. Any concerns about Trump as an unpredictable wild card have been thrown out the window. As Matt Busigin of New River Investments put it: "Markets have essentially superimposed Obama-level rational stability onto new political structure and policy projections." But even if markets turn out to be correct, and Trump does all the pro-growth things people expect, there still may be trouble lurking. "The stage is set for a politicization of the Fed like we haven't seen for decades," said Tim Duy, a Bloomberg contributor and Fed-watcher at the University of Oregon. In other words, if Trump is trying to boost the economy through spending and tax cuts, and the central bank is perceived to be working at odds with that agenda by hiking rates, how do you think the Trump White House will react? This will get very interesting and - with the markets pricing in an 84 percent chance of a Fed rate hike at next month's meeting - the story could begin very soon.