Tuesday December 20 Daily Market Primer

• ·         US stocks moved up modestly in the face of terrorism
• ·         The BOJ maintained monetary policy
• ·         China lowered GDP forecast
• ·         Layoffs and Ponzi schemes are in the news.

US stocks showed resilience in the face of three terrorist attacks yesterday, with modest increases in the major indices.  Real estate stocks did best, with the newly broken out S&P real estate sector up 1%.  Equities are mixed around the world on Tuesday.  Separate terrorist incidents in Berlin, Zurich, and Ankara have the world and the capital markets on edge.

	LAST	CHANGE	% CHANGE
DJIA	19,883.06	39.65	0.20%
Nasdaq	5,457.44	20.28	0.37%
S&P 500	2,262.53	4.46	0.20%
Russell 2000	1,371.68	7.49	0.55%
Global Dow	2,535.09	-4.10	-0.16%
Stoxx Europe 600	361.18	1.59	0.33%
Nikkei 225	19,494.53	102.93	0.33%
UK: FTSE 100	7,040.14	22.98	0.33%
CBOE Volatility	11.58	-0.13	-1.11%
Australia: S&P/ASX 200	5,591.10	29.00	0.52%
China: Shanghai Composite	3,102.88	-15.21	-0.49%
Hong Kong: Hang Seng	21,729.06	-103.62	-0.47%
Europe Dow	1,549.83	-5.51	-0.25%
India: S&P BSE Sensex	26,307.98	-66.72	-0.35%
France: CAC 40	4,849.20	26.43	0.55%
Germany: DAX	11,454.02	27.32	0.24%
Italy: FTSE MIB	19,104.87	135.93	0.72%
Spain: IBEX 35	9,395.40	58.70	0.63%
U.S. 3 Month	0.518	1/32
U.S. 2 Year	1.257	-2/32
U.S. 5 Year	2.062	-6/32
U.S. 10 Year	2.574	-8/32
U.S. 30 Year	3.148	-14/32
Germany 2 Year	-0.793	0/32
Germany 10 Year	0.261	-4/32
Crude Oil	52.41	0.29	0.56%
Brent Crude	55.48	0.56	1.02%
Natural Gas	3.387	-0.036	-1.05%
S&P GSCI	393.06	0.97	0.25%
E-mini S&P 500	2266	6	0.27%

The BOJ met and maintained its current monetary policy, which means they will continue to buy 80 trillion yen in bonds annually and target a zero policy rate, as they discussed economic conditions and the weakening yen.  The Italian government has a proposal to raise 20 billion euro to shore up the banks.   GM and Boeing are both talking about more layoffs, which is not in line with the new administration’s pro jobs economic plan.  GM is saying the shift is necessary to build more trucks and SUVs and less cars.  China announced a GDP forecast of 6.5% for next year, down from the official target of about 7% over the last few years.  Two of the worlds biggest industrial gas manufacturers, Germany’s Linde and US based Praxair, announced they are in talks for a $65 billion “merger of equals” this morning.   Wells Fargo is getting into multi-factor ETFs.  Great idea.  And, there is another Ponzi scheme in the news, as Platinum Partners has engaged in a Madoff like fraud, but for a much smaller $1 billion.

Here’s the news:

Bank of Japan

The yen was trading at 118.12 to the dollar at 5:09 a.m. ET, following the Bank of Japan's first meeting since Donald Trump's U.S. election victory, after the bank upgraded its assessment of the economy while keeping its policy stance unchanged. The Japanese currency has weakened by more than 10 percent against the greenback since Nov. 8, a move that should help lift inflation in the economy.

Terror attacks

German Chancellor Angela Merkel said this morning that her nation must assume that last night's truck crash at a Berlin Christmas market, which killed 12 and injured 48, was a terrorist attack. The incident came within hours of a shooting in an Islamic center in Zurich, which left three injured, and the assassination of Russia's ambassador to Turkey in Ankara. For Merkel, facing an election in Germany next year, the terror attack on her home soil is likely to increase pressure from the right on her immigration policies.

Italy bank fund

The Italian government has paved the way for a potential rescue of the country's troubled banks by seeking permission from parliament to increase the nation's public debt by as much as 20 billion euros ($21 billion). While the new prime minister has wasted no time in facing up to the problems in some parts of the Italian banking sector, analysts are not certain the move will be successful.

Markets mixed

Overnight, the MSCI Asia Pacific index slid 0.3 percent, while Japan's Topix index closed 0.2 percent higher following the Bank of Japan decision. In Europe, the Stoxx 600 Index had gained 0.3 percent by 5:23 a.m ET as deal activity pushed the index to its highest level in almost a year. S&P 500 futures added 0.1 percent.

Obama to block oil rights

President Barack Obama is set to use a provision in a 1953 law to block the sale of new offshore drilling rights in much of the U.S. Arctic, and parts of the Atlantic. The move, which could come as soon as today, is almost certain to be challenged in court as the law does not include a mechanism for a reversal of the decision by a new president. Meanwhile, Bridgewater Associates founder Ray Dalio has said changes under the Donald Trump administration may be more significant than those brought about by Ronald Reagan and Margaret Thatcher. The Bank of Japan kept policy on hold. At Tuesday's meeting, the BOJ said it would continue to purchase Japanese government bonds at an annual pace of about 80 trillion yen to maintain a 10-year JGB yield of about 0%, adding that a "moderate recovery trend had continued" while exports "picked up." The Japanese yen is weaker by 0.7% at 117.88 per dollar. China's economy is expected to post its slowest growth in more than 25 years. The Chinese Academy of Social Sciences said on Monday that it expected the Chinese economy to grow at a 6.5% clip in 2017 as Beijing looks to target asset bubbles. A key investor is unhappy with the plan for bailing out the world's oldest bank. The bailout fund Atlante wrote a letter expressing "deep reservations" over the terms of the bridge loan accord, Reuters says. Obama will block the sale of new offshore drilling rights. President Barack Obama is preparing to use a 1953 law that will allow him to "withdraw US waters from future oil and gas leasing," Bloomberg reports, citing anonymous sources. Credit Suisse is in talks to settle an investigation of toxic debt sales. The US Justice Department has asked the Swiss bank to pay $5 billion to $7 billion to settle an investigation of its sale of toxic mortgage securities stemming from the days leading up to the financial crisis, Reuters reports. Uber had a rough third quarter. The company lost more than $800 million in the third quarter, and it is on track to lose $2.8 billion for 2016, according to The Information. The price tag for the latest batch of F-35s is out. After more than 14 months of negotiations between the Department of Defense and Lockheed Martin, the ninth Low Rate Initial Production, or LRIP-9, contract for 57 F-35 jets was valued at $6.1 billion. Apple is in talks to manufacture in India. The tech giant is in talks with the Indian government to make products locally, a move that Apple hopes will help it gain market share in a country where it holds only 2% of smartphone sales, The Wall Street Journal reports. Earnings reporting picks up a bit. BlackBerry, Darden Restaurants, and General Mills report ahead of the opening bell, while FedEx and Nike release their quarterly results after markets close. Stock markets around the world trade mixed. China's Shanghai Composite (-0.5%) lagged in Asia, and France's CAC (+0.3%) leads in Europe. The Dow Jones Industrial Average is set to open high by 0.2% near 19,925. Target: Berlin Apparent terrorist incidents in Germany and Turkey sent shock waves through geopolitical establishments on Monday as a turbulent 2016 edged to a violent close. In Berlin, a truck plowed into a popular Christmas market near one of the city’s prime tourist sites, leaving at least 12 people dead, in what German Chancellor Angela Merkel said is believed to have been a terrorist attack that may have been perpetrated by a migrant who had sought asylum in the country. At about 8 p.m., a black semitrailer with Polish license plates drove onto the sidewalk and plunged into a crowd of revelers, injuring 48 additional people. The driver fled the scene but was apprehended about a mile away. A passenger in the truck, a Polish man, was among the dead. The suspect in the attack is from Pakistan, a person familiar with the investigation said. If determined to be a terror attack, it would be the first in Germany to result in deaths in recent years and could have significant political ramifications. Assassination in Ankara A young Turkish policeman, railing about Russia’s role in Syria’s bloody war, shot and killed Moscow’s ambassador to Ankara during an art opening in the Turkish capital on Monday night, an attack that all three countries termed an act of terror. A video of the shooting showed the assailant, in a black suit and white shirt, standing over Andrey Karlov with gun in hand, shouting, “Don’t forget Aleppo, don’t forget Syria.” Although Ankara and Moscow have been on opposite sides of the struggle in Syria, official ties between the two have warmed this year. Both capitals said they expect talks about an Aleppo cease-fire to go ahead in Moscow on Tuesday. Meanwhile, just hours after the shooting, another Turkish man fired shots outside the American embassy in Ankara, leading the U.S. to close its three main missions in Turkey. ‘Ponzi-esque’ Platinum Federal prosecutors filed a criminal indictment on Monday alleging that the founder of hedge fund Platinum Partners, Mark Nordlicht, and others operated perhaps the largest fraud since Bernard L. Madoff’s Ponzi scheme. Authorities estimate that $1 billion from more than 600 Platinum investors may have been swindled. Mr. Nordlicht was arrested on Monday, along with Platinum’s former president, and four others, accused of faking the firm’s performance figures to collect a hefty cut of all investment gains and project a veneer of financial stability. Brooklyn U.S. Attorney Robert Capers described the scheme as “Ponzi-esque.” Platinum struggled to attract money from skeptical, deep-pocketed professional investors. Instead, like Madoff a decade ago, it turned time and again to a tightknit group of fellow observant Jewish businesspeople with whom Platinum’s founders were acquainted socially. Trump reportedly favors ex-prosecutor Yang to head SEC Yang (Pool/Getty Images) Former US attorney and Gibson, Dunn & Crutcher partner Debra Wong Yang is at the top of President-elect Donald Trump's list to replace Mary Jo White as head of the Securities and Exchange Commission, a source said. Yang served on the Bush administration's task force on corporate fraud. Bloomberg (19 Dec.)  Wells Fargo seeks to enter ETF business Wells Fargo has filed with the Securities and Exchange Commission to get into the exchange-traded fund business by offering products based on smart-beta and multifactor strategies. The bank expects to bring its first product to market in three to six months. Bloomberg (19 Dec.),  ETF Trends (19 Dec.)  Study: Financial services making more use of AI Financial-services firms are swiftly embracing artificial intelligence, according to a study by Narrative Science, a technology firm. Almost a third of executives say their companies are using some basic AI technologies, such as predictive analytics, recommendation engines and voice recognition and response, the study found. InvestmentNews (19 Dec.)  GM gets ready to lay off 3,300 workers General Motors said it will lay off about 3,300 workers as consumers shift from buying passenger cars to sport utility vehicles and small trucks. All the jobs being lost are at plants that build cars. Bloomberg (20 Dec.)       Boeing warns of more layoffs in 2017 Boeing said it will continue to reduce its workforce in 2017 as it copes with selling commercial airliners made more expensive to foreign buyers by the strengthening dollar. The action follows an 8% cut in staff this year. Reuters (19 Dec.),  Markets shake off geopolitical risk. The best and worst performing hedge funds of 2016. Brexit and European elections leave euro-pound analysts the most divided on record. Four years of living dangerously: CEOs brace for the Trump era. Cuba's rum-for-debt offer to the Czechs isn't as weird as it sounds. Irrational despondency is passé. The Nightmare before Christmas: Financial crises go global in 1857. Donald Trump Wins Enough Electoral Votes to Become President Donald Trump Selects Trading Firm Founder Vincent Viola as Army Secretary Air Force: Cost Overruns on F-35, Decried by Donald Trump, Are ‘in the Past’ Reasons to Be Miserable Don’t Include Bond Yields Monday was a bad session for Trump trades -- in other words, a good one for fixed income and bond proxies -- which affords us a chance to step back and examine what could upend the reflation trade that's accelerated since Nov. 8  Some -- like Bank of America's David Woo -- have zoomed out from Trump to focus on the effects of a unified government, which tends to produce larger deficits.  Most of the focus has been on the opposition Trump could face from within his party if he pursues budget-busting measures, which could result in less fiscal stimulus than markets are pricing in. But Paul Krugman reminds us that the distributional effects of the new administration and Congress' plans matter. A deeper budget deficit doesn't necessarily mean a bigger fiscal impulse, or even a positive one!  If policy changes disproportionately benefit upper-income Americans but result in smaller transfers to those who are worse off, this could well be a net drag on economic activity. That's something to keep in mind. The man who adopted "You Can't Always Get What You Want" as his theme song might have to echo Mick Jagger's words to his colleagues.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, ETF Trends, InvestmentNews