Wednesday December 21 Daily Market Primer
- · US stocks march toward Dow 20K
- · European banks need more capital
- · Wells failed the living will test
- · VW is buying back 80,000 more cars
US
stocks rose, with the Dow closing another record high, as pundits and
analysts are rooting for it to reach the 20,000 milestone. This is the
forth time its come within 50 points of the mark. Financials and
industrials once again led the way, as investors continue to position for a
higher growth, higher inflation, and lower regulation. European
banks are under pressure again, and need more capital than is currently
available according to Bloomberg, with Italian sick bank poster child Monte
Dei Paschi falling 18% on Wednesday. Trading overseas is mixed, with
Asian markets closing up and European market falling this morning. Oil is
on the move, with WTI trading over $53.
LAST
|
CHANGE
|
% CHANGE
|
|
19,974.62
|
91.56
|
0.46%
|
|
5,483.94
|
26.50
|
0.49%
|
|
2,270.76
|
8.23
|
0.36%
|
|
1,383.96
|
12.27
|
0.89%
|
|
2,545.62
|
2.85
|
0.11%
|
|
Stoxx
Europe 600
|
360.21
|
-1.11
|
-0.12%
|
Nikkei
225
|
19,444.49
|
-50.04
|
-0.12%
|
UK:
FTSE 100
|
7,035.69
|
-8.27
|
-0.12%
|
CBOE
Volatility
|
11.35
|
-0.10
|
-0.87%
|
Australia:
S&P/ASX 200
|
5,613.50
|
22.40
|
0.40%
|
3,137.43
|
34.55
|
1.11%
|
|
21,809.80
|
80.74
|
0.37%
|
|
Europe
Dow
|
1,556.46
|
1.98
|
-0.25%
|
India:
S&P BSE Sensex
|
26,242.38
|
-65.60
|
0.13%
|
France:
CAC 40
|
4,825.19
|
-24.70
|
-0.51%
|
Germany:
DAX
|
11,456.13
|
-8.61
|
-0.08%
|
Italy:
FTSE MIB
|
19,146.35
|
-100.89
|
-0.52%
|
Spain:
IBEX 35
|
9,325.80
|
-82.10
|
-0.87%
|
0.53
|
0/32
|
||
1.204
|
1/32
|
||
2.027
|
2/32
|
||
2.553
|
2/32
|
||
3.145
|
-2/32
|
||
-0.783
|
-0/32
|
||
0.253
|
4/32
|
||
53.42
|
0.12
|
0.23%
|
|
55.38
|
0.03
|
0.05%
|
|
3.41
|
0.126
|
3.84%
|
|
393.17
|
0.84
|
0.21%
|
|
2265.25
|
-1.25
|
-0.06%
|
Alternative
investment giant Blackstone is closing its Senfina hedge fund after a large loss this
year, showing that the environment is difficult even for experienced managers.
Senfina is a fund of funds. Existing home sales are due
out later this morning, look for the number tomorrow. VW agreed to a
$1 billion settlement with the Justice Department, the EPA, and the State of
California to fix or buy back another 80,000 diesel vehicles, this time
with the 3.0 liter engines, as they come closer to resolving their problems and
the bill grows to $17.5 billion and counting. Wells Fargo failed
the living will test, and they are struggling to deal with the fallout,
adding to the big banks woes from the fake account scandal (Wells Fargo
Scrambles, below).
As
we head into Christmas weekend, it’s a fairly slow news day. The market
just opened flat, so I better get this out before you read all the news on your
own.
Here’s
the news:
|
|
Struggles continue in the Italian banking sector, where at
least 52 billion euros ($54 billion) is needed
to clean up balance sheets, according to data compiled by Bloomberg.
This is far above the scale of the rescue package
proposed this week by the government, and comes amid concerns that Banca
Monte dei Paschi di Siena SpA will fail in its efforts to attract 5
billion euros of private-sector funds. Shares in the embattled
lender lost 18.2 percent in trading this morning. Spanish lenders'
shares were also hit — falling as much as 10 percent — after Europe's top
court ruled against the institutions on a mortgage interest-payments case
that means customers may be entitled to billions of euros in
compensation.
|
|
|
Blackstone Group LP is closing its Senfina hedge fund after it
lost 24 percent this year. Two-year-old
Senfina — which means 'endless' in Esperanto — was one of the top performing funds in 2015,
according to data compiled by Bloomberg. But a bad performance early in 2016, coupled with some wrong-way
bets around the U.S. election, meant Blackstone did "what was in the
best interest of our investors" and closed the fund, according to a
spokesperson.
|
|
|
A barrel of West Texas Intermediate for February delivery was
trading at $53.56 at 5:13 a.m. ET, as data
showed U.S. stockpiles declined last week. On the supply-side, Libya is set
to load its first crude cargo in two years from its largest export terminal,
with the war-torn country expected to double output in 2017. In North America,
Canadian Prime Minister Justin Trudeau joined U.S. President Barack Obama in freezing new offshore leases in Arctic
waters.
|
|
|
Overnight, the MSCI Asia Pacific Index was little changed, while Japan's Topix index
dropped 0.5 percent as the yen strengthened against the dollar. In Europe,
the Stoxx 600 Index was 0.2 percent lower at 5:20 a.m. ET, with
losses in bank shares pulling equities lower. In the U.S., where investors
are still waiting to see Dow 20K, S&P futures were unchanged.
|
|
|
The Confederation of British Industry outlined what different sectors want from Brexit, with
many responses along the lines of "as little Brexit as possible,
please." For the U.K. prime minister, who said the country may seek to
make a transitional deal to ease departure from
the EU, a court ruling in Luxembourg on a
proposed trade deal between the union and Singapore highlights the
difficulties the U.K. could face in the future. The implication from the
ruling is that the country will have to negotiate with 27 other national
parliaments, and in some cases their regional lawmakers, in order to put a trade
deal in place. There was some good news this morning, as borrowing data showed Britain’s
budget deficit narrowed marginally in November.
|
While all eyes are on the Dow Jones as it roars within a
whisker of 20,000, bullish market sentiment sits awkwardly with the ongoing
Chinese bond rout and rising expectations of yuan
depreciation — a noxious cocktail that could dent global risk appetite next
year. Yields have been guided higher by China's central bank, to discourage
leverage, but capital outflows and yuan weakness have
exacerbated the liquidity squeeze. The question is whether domestic
deleveraging and a more hawkish Federal Reserve may precipitate further
outflows next year, tightening onshore conditions even more.
The People's Bank of China has the option of injecting extra
liquidity to stabilize conditions but the move may backfire by raising the
incentive to lever up, and exerting downward pressure on the currency. China
in 2016 had the political and economic space to bite the leverage bullet, but
2017 may bring new risks.
The
Dow is getting closer to 20,000. The Dow Jones Industrial Average gained 0.5%
on Tuesday, finishing at 19,974.62. It's expected to open little changed on
Wednesday.
Oil is on track to close at its best level
since July 2015. West Texas Intermediate crude oil trades up 0.6% at $53.63 a
barrel ahead of crude-oil inventory data, which will be released at 10:30
a.m. ET.
The
world's oldest bank is running out of cash. The Italian lender Monte
Paschi warned it would run out of cash in four months, sooner than the 11
months investors had previously thought.
Blackstone
is winding down its "big bet" hedge fund. Senfina has lost 24% this
year through November as bets in its center book, which featured managers'
best ideas, saw the biggest losses, Reuters reports.
Tesla
upped its credit lines. The electric-car maker expanded its borrowing capabilities by
about $500 million, Bloomberg reports. Tesla now has about $1.8 billion
available through its credit lines.
Nike
beats. The sneaker giant earned $0.50 a share, easily beating the
$0.43 that analysts had forecast, as sales rose by 8% excluding the currency
impact to $8.2 billion.
FedEx
whiffs. The global logistics company earned an adjusted $2.80 a share,
well below the $2.91 that Wall Street was expecting, as the growth of its
FedEx Ground system led to some of the increased costs.
Stock
markets around the world trade mixed. China's Shanghai
Composite (+1.1%) led the gains in Asia, and France's CAC (-0.5%) lags in
Europe.
Earnings reports trickle out. Bed Bath & Beyond and
Micron Technology are among the names reporting after markets close.
US economic data is light. Existing-home sales will
be released at 10 a.m. ET. The US 10-year yield is little changed at 2.55%.
Berlin Manhunt
The search for at least one perpetrator behind Germany’s deadliest terror attack in decades entered a third day on Wednesday. Amid the uncertainty over who plowed a truck through a crowded Christmas market in Berlin on Monday evening, the attack that left 12 people dead and dozens injured, with 14 people still in critical condition, poses new challenges for Chancellor Angela Merkel. The police said a lack of forensic links to the crime scene helped clear their initial suspect, a Pakistani who arrived in Germany a year ago. Separately, Islamic State claimed responsibility for the attack, saying that one of its fighters had followed calls to strike members of “coalition countries.” Meanwhile, we report that the assassination of Russia’s ambassador to Turkey highlights a backlash against Moscow after it successfully ended America’s status as the Middle East’s sole superpower.
Settling for More
Donald Trump’s choice for ambassador to Israel, David Friedman, has helped raise millions of dollars for a prominent West Bank settlement, a connection that could complicate the president-elect’s promised effort to revive Israeli-Palestinian peace talks. Mr. Friedman and his family have longstanding connections to Beit El, a large and politically active settlement, founded in 1977, that has benefited from extensive support from the U.S. Mr. Trump’s personal foundation also has donated to the settlement. Mr. Friedman heads an organization named Bet El Institutions, which aids the settlement, and leads the organization’s U.S.-registered charity. He has also expressed skepticism about the possibility of the so-called two-state solution. In other transition news, we report that venture capitalist Peter Thiel has successfully pushed to give commercial space companies a stronger voice within Mr. Trump’s NASA transition team.
A Billionaire Retrenches
Hedge-fund manager Jamie Dinan is ending 2016 the way he started it: eating humble pie. The main fund at his York Capital Management, which fell 14% last year, lost another 1% through early December. That performance has pushed Mr. Dinan to crisscross the globe in his most intense client interactions in years. After years of disappointing performance across the industry, investors have pulled money from hedge funds for four consecutive quarters—the longest stretch of outflows since 2008. The pressure is particularly visible at York, where the decline in assets under management has been among the most stark. Assets have slumped to $17 billion this year, down 35% from $26 billion last year. Mr. Dinan recently told partners at York he has no intention of closing the firm.
A Year to Remember
It would be correct to say 2016 was the year of the politically unexpected. It would be more accurate to say it was the year of the politically unimaginable. First came the surprise vote by Britons to leave the European Union, followed by Mr. Trump’s historic win. For global investors, it was the most eventful year since the financial crisis. The year began with a panic and is closing with a party. Meanwhile, rising prices for drugs again drew fire, hackers expanded their exploits and tensions ran high between police and minority communities in the U.S. Attacks in Brussels, Nice and elsewhere left scores dead while Islamic State appeared to be in retreat, and the flow of migrants to Europe eased, though political repercussions expanded. We take a look back at the year's biggest events, and on a lighter note, we review the year’s best offerings in art, music, film, theater, books and more.
NYSE Arca malfunctioned Monday and Tuesday, briefly suspending
trading and hurting exchange-traded funds and stocks. The error, which some
have attributed to a software installation, affected more than 700 securities
worth more than $1 trillion.
Foreign investors are hindered in obtainment of dollar funding
to buy US high-yield corporate bonds because of the rising cost of currency
hedges, data from Bank of America Merrill Lynch suggest. Purchases abroad
have declined since the US election, but Merrill Lynch expects the pressure
to lift next year, prompting rapid growth in buying.
Preliminary discussions are underway between Hong Kong and
Chinese officials that could create a connection to simplify and accelerate
bond trading between the jurisdictions, said Norman Chan Tak-lam, CEO of the
Hong Kong Monetary Authority. Hong Kong could play an important role in
easing foreign investors' participation in China's debt market.
South China Morning Post (Hong Kong) (20 Dec.)
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Source:
Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, SCMP
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