Monday February 27 Daily Market Primer
- · Stocks down Friday. No, I mean stocks were up Friday. Sorry, not sure what happened there J.
- · Warren Buffet rails
- · Trump talks to congress tomorrow
- · French politics heats up
Stocks
moved up slightly Friday, carried by a late day rally which reversed earlier losses,
and the S&P was up about .75% for the week. Bonds
also rose last week, as the yield on the 10 year treasury was back down to
2.31% on Friday. Utilities, which have been left behind in the post election
rally which has favored financials, health care, and industrials, rallied 3%
last week. The WSJ and others are interpreting bonds and stocks rising
together as a pause or reversal of the reflation trade. Oil has
moved up to about $55, overseas markets are mixed Monday, and US stock futures
are indicating a down opening.
LAST
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CHANGE
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% CHANGE
|
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20,821.76
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11.44
|
0.05%
|
|
5,845.31
|
9.80
|
0.17%
|
|
2,367.34
|
3.53
|
0.15%
|
|
1,394.52
|
-0.10
|
-0.01%
|
|
2,657.12
|
-3.48
|
-0.13%
|
|
371.39
|
1.19
|
0.32%
|
|
Nikkei
225
|
19,107.47
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-176.07
|
-0.91%
|
UK:
FTSE 100
|
7,243.37
|
-0.33
|
0.00%
|
CBOE
Volatility
|
12.02
|
0.31
|
2.65%
|
Australia:
S&P/ASX 200
|
5,724.20
|
-14.80
|
-0.26%
|
3,253.43
|
2.06
|
0.06%
|
|
23,965.70
|
-149.16
|
-0.62%
|
|
Europe
Dow
|
1,583.73
|
-21.69
|
-0.28%
|
India:
S&P BSE Sensex
|
28,812.88
|
-80.09
|
-1.35%
|
France:
CAC 40
|
4,840.12
|
-5.12
|
-0.11%
|
Germany:
DAX
|
11,813.06
|
9.03
|
0.08%
|
Italy:
FTSE MIB
|
18,747.85
|
151.19
|
0.81%
|
Spain:
IBEX 35
|
9,445.50
|
-8.00
|
-0.08%
|
0.515
|
0/32
|
||
1.169
|
-1/32
|
||
1.826
|
-3/32
|
||
2.332
|
-5/32
|
||
2.961
|
-5/32
|
||
-0.932
|
-1/32
|
||
0.202
|
-4/32
|
||
54.45
|
0.46
|
0.85%
|
|
56.53
|
0.54
|
0.96%
|
|
2.678
|
-0.109
|
-3.91%
|
|
403.58
|
1.75
|
0.44%
|
|
2363.25
|
-1.75
|
-0.07%
|
President
Trump will address congress tomorrow, which is probably the most anticipated event
this week. The draft budget is out, with more money for defense and
less for the EPA and other government agencies. Warren
Buffet released his annual letter as Chairman of Berkshire Hathaway over
the weekend, and railed high investment fees and his famous bet with hedge
fund Protégé Partners, among other things. He reiterated his long
held view that most people who don’t have special knowledge about the market
should index their investments. Buffet
discussed these views and many others, and expressed strong optimism in the US
economy, in a long interview on CNBC’s Squawk Box this morning.
Hopefully its not fake financial news. All eyes are turning to the French
presidential election, where independent candidate Emmanuel Macron jumped up in
the most recent polls, increasing his lead on Republican Francois Fillon and
narrowing the gap with National Front populist leader Marine Le Pen.
Here’s
the news:
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President Donald Trump's proposed budget will include a major
increase in defense spending and big cuts in funding
to federal agencies, including the Environmental Protection Agency,
according to a person familiar with the plan. Treasury Secretary Steven
Mnuchin said in an interview broadcast on Sunday that programs such as Social
Security or Medicare would not be touched. The president, who is due
to address a joint session of Congress tomorrow,
suffered another nomination setback yesterday when his pick for Secretary of
the Navy withdrew for personal and business reasons.
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Independent French presidential candidate Emmanuel Macron
narrowed the gap with the National Front's Marine Le Pen and increased his
lead over Republican Francois Fillon in the latest polls for the French election. Both
surveys published over the weekend show Le Pen losing to either Macro or
Fillon in the second round. The nation's bonds are continuing the rally that
started after Francois Bayrou's endorsement of Macron last week, with the
10-year yielding 0.888 percent by 5:10 a.m Eastern Time.
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The pound dipped below $1.24 in early trading after reports in
Sunday papers said that U.K. Prime Minister Theresa May’s team is
preparing for the possibility that Scotland calls a second independence referendum. May is
also facing a battle closer to home as the bill to allow
her to trigger the start of the U.K.'s exit negotiations is set to be
reviewed by the House of Lords this week, which would force a second
vote in parliament, most likely during the week of March 13.
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Overnight, the MSCI AC Asia Pacific Index dropped 0.6 percent while Japan's Topix
index fell 1 percent, with banks and exporters leading the drop despite the
yen remaining little changed against the dollar. In Europe, the Stoxx 600
Index was 0.2 percent lower at 5:33 a.m. Italy's
second-largest bank, Intesa Sanpaolo SpA, climbed more than 5 percent
after abandoning the idea of a merger
with Assicurazioni Generali SpA. U.S. stock futures were also losing ground.
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Deutsche Bank AG has cut its 2016 bonus pool by almost 80 percent, a measure that will affect
about 25,000 employees at the bank. Shares in the lender were 0.5 percent
higher this morning after the size of the bonus cut was revealed
by Chief Administrative Officer Karl von Rohr in an interview published
in Frankfurter Allgemeine Sonntagszeitung yesterday. Corporate bonuses
are becoming a campaign issue in the German election as
the Social Democrats are proposing curbs to manager compensation.
Warren Buffett says stocks are "on the cheap side" when measured against today's interest rates. "If interest rates were at seven or eight percent, then these prices would look exceptionally high," the Berkshire Hathaway chairman told CNBC. Berkshire bought more Apple shares. Buffett said he raised his stake in Apple this year to about 133 million shares, more than double his holding as of December 31. Japan's SoftBank Group nears an investment in the US office-sharing startup WeWork. The deal is expected to be worth over $3 billion, CNBC reported on Sunday. President Donald Trump's first budget proposal will not seek cuts in Social Security, Medicare, and other entitlement programs, Treasury Secretary Steven Mnuchin told Fox News on Sunday. It will seek a hike in defence spending, The Wall Street Journal reports. UK Prime Minister Theresa May is reportedly preparing Scotland to hold a second independence referendum. According to The Times, the call in March would coincide with the triggering of Article 50, the formal notification of the UK's withdrawal from the European Union. The London Stock Exchange's merger with Deutsche Boerse AG is in doubt. The LSE's board said it did not think the deal would pass regulatory scrutiny, Reuters reports. Deutsche Bank cuts its bonus pool for 2016 performance by 80%. The cuts are "of course frustrating," Karl von Rohr, the lender's chief administrative officer, told the German newspaper Frankfurter Allgemeine Sonntagszeitung. Samsung preps a new smartphone. The company sent press invitations for an event in New York City on March 29, when it will announce the Galaxy S8, its first major product since the Galaxy Note 7 explosions debacle last year. The Dow could stretch its record closing streak for a historic 12th session. It would be the longest since 1987. Futures are little changed.
US economic data flows. Preliminary durable-goods orders for
January cross at 8:30 a.m. ET, pending-home sales at 10 a.m., and the Dallas
Fed manufacturing index at 10:30 a.m.
Tinseltown
Surprise
“Moonlight,” a tiny-budgeted movie about a young black gay man’s childhood and adolescence, is unlike any best-picture winner in Academy history, and its win was unlike any other. It was a Hollywood twist at the last minute of the Academy Awards, after presenter Faye Dunaway announced that frontrunner “La La Land” was the winner. While that movie’s producers were making their acceptance speeches, they were interrupted and told that “Moonlight” was the actual winner. Accounting firm PwC, which oversees the voting process, took responsibility and apologized for the error. The victory was particularly shocking because “La La Land” already had won six of the 14 categories it was nominated in, including best director for Damien Chazelle and best actress for star Emma Stone. Casey Affleck won best actor for “Manchester by the Sea,” Mahershala Ali won best supporting actor for “Moonlight,” and Viola Davis won best supporting actress for “Fences.”
Health Risk
Republican leaders are betting that the only way for Congress to repeal the Affordable Care Act is to set a bill in motion and gamble that fellow GOP lawmakers won’t dare to block it. Party leaders are poised to act on the strategy as early as this week, after it has become obvious they can’t craft a proposal that will carry an easy majority in either chamber. They see the “now or never” approach as their best chance to break through irreconcilable demands by Republican centrists and conservatives on issues ranging from tax credits to the future of Medicaid. The strategy means the health-care law could be overhauled in three precarious steps—reflecting the difficulties of concurrently repealing and replacing the law, as President Trump had sought. Meanwhile, a WSJ/NBC News poll shows many Americans disapprove of Mr. Trump but are open to his agenda.
Warning
Signs
Stocks and bonds are again moving in tandem after diverging in recent months—a sign some investors may be losing faith in the so-called reflation trade. The Dow Jones Industrial Average has soared more than 1,000 points so far this year and closed at a record of 20821.76 on Friday, while bond prices, too, are rising. It is a shift from late last year when investors were selling bonds and buying stocks, anticipating that large fiscal stimulus from Mr. Trump would lead to accelerated growth and higher inflation, a bet known as the reflation trade. The new pattern is generating debate among investors. Some money managers and traders believe that a rising market for Treasury bonds, often seen as a haven for investors, is a warning that valuations of riskier assets may be stretched.
Price Check
Facing mounting criticism about prices, drug companies put some limits on their increases this year. Prescription-drug makers traditionally raise list prices in January. But this year, they didn’t do so for as many drugs as last year and imposed fewer boosts of 10% or more. Even so, we report that the median drug-price increase was little changed from last year, at 8.9%, still far above the U.S. inflation rate of around 2%. Part of the reason pharmaceutical makers are keeping most price increases below 10% is concern that bigger ones could spark public anger, industry analysts say. Companies also hope to blunt calls for granting Medicare authority to negotiate drug prices directly with them. Still, even price increases below 10% can drive total drug spending up by hundreds of millions of dollars. And self-policing on prices hasn’t been universal.
US Treasury Secretary Steven
Mnuchin met with Bank of England Governor Mark Carney and discussed the US
role in global financial regulations. "Secretary Mnuchin underscored
that he looked forward to working with Governor Carney on international
financial regulatory issues and noted that one of the administration's core
principles for financial regulation is to promote American interests in
international financial regulatory negotiations and meetings," according
to a Treasury department statement. Bloomberg (24 Feb.)
SoftBank is looking to invest more
than $3 billion in WeWork, a startup that offers shared office space, a
source says. The transaction would value WeWork at more than $20 billion. CNBC (26 Feb.)
Simon Black, CEO of financial
technology specialist PPRO Group, says that his firm is planning a move to
Luxembourg and that most fintech firms are closely considering a similar move
out of the UK amid fears that Brexit will present obstacles to trade within
Europe. Black contends that fintech operations cannot afford to wait for the
outcome of Brexit talks and need to make alternative plans. The Observer (London) (25 Feb.)
The Shanghai Municipal Financial
Service Office will develop rules on blockchain technology to move the city
toward leadership in blockchain research and innovation. The regulator
"would like to tie up with the financial industry and legal communities
to see whether Shanghai could lead in the introduction of regulatory
framework for the industry," said Director Zheng Yang. Shanghai Daily (China) (27 Feb.)
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Warren Buffett says $100 billion has been wasted on investment
fees.
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The bond market is
calling Yellen's rate bluff as the meeting nears.
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Age of populism shakes
pedestal of central bank independence.
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Euro-area economy looks in better shape to repel 2017's threats.
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The man who moved oil with his words won't talk about
it anymore.
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Deutsche Boerse-LSE deal is in danger.
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Decomposing the euro
area’s current account surplus.
Economic Surveys Show Deep Splits in Confidence Along
Party Lines
Trump to Propose Significant Increase in Defense Spending |
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Welcome to a new week! It should be an interesting one for
markets and the economy. Without a doubt, the most anticipated event is going
to be on Tuesday when President Trump makes a speech to Congress and the
nation. There's this narrative out there that people may get fed up with the
lack of details and progress on tax cuts and fiscal stimulus. A number of
investors think this speech is Trump's first big test on this. Overall, markets
don't seem to have minded much about the lack of concrete policy out of this
administration, but some cracks are starting to emerge in the rally. Rates
have been falling, and last week saw some weakness in infrastructure and bank
stocks. Meanwhile, there are a number of interesting data points set to be
released this week, including U.S. GDP on Tuesday, Personal Income &
Spending and the ISM report on Wednesday. In Europe, expect a lot of interest
in any headlines coming out of the French election or the Brexit process, as
it wends its way through the House of Lords.
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Source:
Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Shanghai Daily, The Observer