Thursday February 16 Daily Market Primer

•        Stocks rose again
•        Inflation is moving up
•         Yahoo is on sale
•         Aww…Snap may be worth (only) $16 billion

US stocks rose again, as Janet Yellen's second day of congressional testimony encouraged talk of a bullish Fed, and US inflation data supported the pro-growth, reflation thesis.   The main US indices rose about .5%,  with banks and health care leading the way  The market implied probability of a March Fed hike rose to 42% from 30% two days ago.   The US 10 Year hit 2.5% yesterday but it off that level a little bit this morning.  World stock markets rolled over on Thursday, the Nikkei 225 is down .5% and the FTSE down .3%,  and US stock futures are down at the moment. 

The press pointed out (over and over) that the S&P now has the longest winning streak in three years (or in decades according to one market pundit):

	LAST	CHANGE	% CHANGE
DJIA	20,611.86	107.45	0.52%
Nasdaq	5,819.44	36.87	0.64%
S&P 500	2,349.25	11.67	0.50%
Russell 2000	1,404.21	7.56	0.54%
Global Dow	2,660.88	4.71	0.18%
Stoxx Europe 600	371.39	1.19	0.32%
Nikkei 225	19,347.53	-90.45	-0.47%
UK: FTSE 100	7,278.31	-24.10	-0.33%
CBOE Volatility	12.04	1.30	12.10%
Australia: S&P/ASX 200	5,816.30	7.20	0.12%
China: Shanghai Composite	3,229.62	16.63	0.52%
Hong Kong: Hang Seng	24,107.70	112.83	0.47%
Europe Dow	1,604.96	12.09	0.52%
India: S&P BSE Sensex	28,301.27	145.71	0.76%
France: CAC 40	4,903.57	-21.29	-0.43%
Germany: DAX	11,763.05	-30.88	-0.26%
Italy: FTSE MIB	19,016.23	-39.93	-0.21%
Spain: IBEX 35	9,547.90	-36.20	-0.38%
U.S. 3 Month	0.536	0/32
U.S. 2 Year	1.243	0/32
U.S. 5 Year	1.97	3/32
U.S. 10 Year	2.471	6/32
U.S. 30 Year	3.067	8/32
Germany 2 Year	-0.791	-0/32
Germany 10 Year	0.36	5/32
Crude Oil	53.39	0.28	0.53%
Brent Crude	56.12	0.37	0.66%
Natural Gas	3.027	-0.01	-0.33%
S&P GSCI	406.24	6.62	1.66%
E-mini S&P 500	2346.75	-3.75	-0.16%

US January CPI came in at a 2.5% YoY (Year over Year), and .6% MoM.  Initial unemployment claims are 239K, up 5K from last week, and better than the Bloomberg consensus number of 245K.  They’ve been trending down, and here’s what they look like over the last two years:

Apparently news of the Fortress buyout by SoftBank leaked,  since trading volume and the stock priced surged on Tuesday ahead of the announcement.   I’ve seem numbers all over the place for the IPO valuation of Snap, and Reuters is saying this morning that the company will come out in the $16.2 to $18.5 billion range, which is far below the $25 billion number in the press last week.   Verizon seems to be close to closing its deal for Yahoo for a $300 million discount to cover damage for the two big hacks over the last few years, bringing the total price down to about $4.5 billion.  Yahoo should sign that deal memo right away.

Here’s the news:

Softbank builds a Fortress

SoftBank Group Corp. confirmed after the close on Wednesday that it's buying Fortress Investment Group LLC for $3.3 billion, in a deal that will push the Japanese telecom and tech company into hedge funds and alternative investment. SoftBank's paying $8.08 a share for Fortress, a 39 percent premium to its Feb. 13 closing price, but much of the focus now is on Tuesday's bullish trading ahead of the deal being announced.

It's the inflation!

Much-awaited U.S. inflation figures showed the Consumer Price Index coming in stronger than expected, with prices rising 0.6 percent month-on-month in January, versus a forecasted increase of 0.3 percent. Given that most of the gain was driven by higher energy prices — including oil and gas — the question now is whether the rise in prices will be enough to convince the Federal Reserve to hike.

March may be live

Speaking of which, that stronger than expected U.S. inflation data combined with comments from Fed Chair Janet Yellen to Congress helped push the Fed funds futures market-implied chance of a rate hike in March to 44 percent, up from 34 percent the day before. The odds according to overnight index swaps pricing — which some traders favor — have jumped to 52 percent for March. Oddly enough, the dollar hasn't had a very good week despite the prospect of tighter U.S. policy..

Market rally stumbles

Remember when markets used to be worried about the Fed hiking? Well, they don't seem to worry much anymore. They don't seem to worry about U.S. political risk much either. Investors shrugged off a more hawkish Yellen and drama in Washington to push U.S. stocks to record highs on Wednesday. The rally faltered on Thursday though, as the Euro Stoxx 600 dropped 0.32 percent at 5:22 a.m. ET. Futures on the S&P 500 were also pointing 0.1 percent lower.

China Treasuries

Monthly data showed China's holdings of U.S. government debt fell by the most on record last year as the world's second-biggest economy sells its foreign-exchange reserves to help buttress the yuan. China held $1.06 trillion in U.S. Treasuries, notes and bills in December, up $9.1 billion from November, but down $188 billion from a year earlier, according to TIC data. The Bank of Japan's governor warns on low rates. "A new challenge has emerged in the form of low profitability at financial institutions," BOJ head Haruhiko Kuroda said while speaking at an international conference on deposit insurers. "These developments suggest that a different kind of financial crisis could happen in the future." Australia's jobs report beats. The Australian economy added 13,500 jobs in seasonally adjusted terms, beating expectations for a gain of 10,000. All of the growth, however, came from part-time employment, which surged by 58,300, offsetting a sharp decline in full-time workers, which tumbled by 44,800. Goldman Sachs is at an all-time high. Wednesday's session not only marked Goldman's second straight close in record territory but saw shares eclipse the October 2007 all-time high of $250.70 a share. Cisco sees softness in its core business. The company beat on the top and bottom lines but said revenue from its key "NGN Routing, Switching and Data Center product revenue decreased by 10%, 5% and 4%, respectively." Shares fell by more than 1% in after-hours trade. Snapchat has reportedly set the value of its IPO. The company has set a valuation of $19.5 billion to $22.2 billion for its initial public offering, the lower end of its range. A valuation at that level prices shares at $14 to $16. Canada Goose files to go public. Following Wednesday's closing bell, the winter-apparel maker announced its intentions for a $100 million initial public offering. The stock will trade under the ticker GOOS. Hackers may have accessed some Yahoo accounts without passwords. The hackers may have used a forged "cookie" to gain access to users accounts without a password, CNET reports. Stock markets around the world trade mixed. China's Shanghai Composite (+0.5%) led the advance in Asia, and Britain's FTSE (-0.5%) trails in Europe. The S&P 500 is set to open little changed near 2,350. Earnings reports keep coming. Charter Communications, Duke Energy, and MGM Resorts are among the names reporting ahead of the opening bell. US economic data remains heavy. Housing starts, building permits, initial jobless, and the Philly Fed claims will be released at 8:30 a.m. ET. The US 10-year yield is down 2 basis points at 2.47%.

Spies Not Like Us
U.S. intelligence officials have withheld sensitive intelligence from President Donald Trump because they are concerned it could be leaked or compromised, according to current and former officials. The officials’ decision to keep information from Mr. Trump underscores the deep mistrust that has developed between the intelligence community and the president over his team’s contacts with the Russian government, as well as the enmity he has shown toward U.S. spy agencies. On Wednesday, Mr. Trump accused the agencies of leaking information to undermine him and blamed them and the news media for the downfall of Mike Flynn, his national security adviser. Meanwhile, Andy Puzder, Mr. Trump’s pick for Labor secretary, withdrew himself from consideration in a significant personnel blow to the White House, after Republican support in the Senate disintegrated.

Unsettled Business
Mr. Trump abandoned Washington’s decades-old push for a two-state solution to the Israel-Palestinian conflict on Wednesday, saying the two sides should determine for themselves whether separate states were necessary for peace and hinting at a broader approach to Mideast discord. At a White House press conference with Israeli Prime Minister Benjamin Netanyahu, Mr. Trump also told him to “hold back on settlements for a little bit.” Mr. Netanyahu declined to agree to that, saying he would discuss it further with Mr. Trump “so we don’t keep on bumping into each other” on the issue. The joint press conference opened the first meeting between the two leaders since Mr. Trump’s Jan. 20 inauguration. Their brief exchange revealed that Mr. Trump is already having to confront some issues in the Middle East that have long vexed U.S. presidents.

IndexIQ bond ETF focuses on high yield, low volatility

IndexIQ has brought to NYSE Arca a fixed-income exchange-traded fund designed to deliver high yields while maintaining low volatility. The S&P High Yield Low Volatility Bond ETF tracks the rules-based S&P US High Yield Low Volatility Corporate Bond Index.  Bloomberg (15 Feb.) 

PBOC recommends cautious deleveraging efforts

China must take precautions to avert asset bubbles or a liquidity crisis while deleveraging, allowing market forces to dictate which sectors need higher leverage ratios, the People's Bank of China said. China aims to reform its supply-side structure through deleveraging.  China Daily (Beijing)/Xinhua News Agency (16 Feb.) 

ECB: Too soon to consider tapering bond buying Should Europe's economy recover more quickly than expected, the European Central Bank would respond with an early wind down of its bond buying, a scenario that is still purely hypothetical, said Governing Council member Bostjan Jazbec. He noted that the ECB stands by its monetary policies and that they were "in line with our understanding of what was needed in the European economy" even when they were unpopular.  Bloomberg (15 Feb.)  Snapchat is aiming for a $22.2 billion valuation.

This time is different, Iceland edition.

Do you trust big data? Try Googling the Holocaust.

Wall Street is to volatility as Goldilocks is to porridge temperature.

Trump's F-35 calls to Lockheed Martin came with a surprise.

And Trump's manly manufacturing push is a headache for Canada.

Square-headed engineer meets soft-sell bankers. Airport ensues. Global Risks Begin to Recede Mike Pence Finds Himself in Unusual Role in Mike Flynn’s Firing U.S., Middle East Allies Explore Arab Military Coalition U.S. Defense Secretary Jim Mattis Warns NATO Allies on Military Spending Verizon, Yahoo Near Revised Deal That Cuts Price of Web Firm by About $300 Million Behind the Fortress Deal: A Japanese Billionaire’s Huge Ambitions Snapchat Parent Snap Inc. Sets Valuation at $19.5 Billion to $22.2 Billion as IPO Approaches

In one of the more fascinating calls from an analyst in recent memory, shares of Under Armour were downgraded yesterday by Susquehanna's Sam Poser because its chief executive has publicly praised President Donald Trump. According to Poser, it was a mistake for Under Armour CEO Kevin Plank to describe Trump as a "real asset" to the country. Plank's comments drew scorn from Under Armour-sponsored athletes like Stephen Curry. As Bloomberg's Jennifer Kaplan points out, CEOs face an unusual new challenge in an era where everything is politicized. It doesn't take much for any brand to go from ostensibly neutral on politics to being associated with one ideological camp. As soon as there's any whiff that a brand is either pro- or anti-Trump, then buying that brand's products becomes a political act. One side buys less in protest and the other side buys more as a show of endorsement. (Witness liberals shopping at Nordstrom after the department store was criticized by the president). Next thing you know, you're locked into one camp or another. More and more brands are going to get sucked into these controversies in the coming years, and it will be interesting to see how CEOs handle it and what the business fallout is. It also raises the question of whether, in four years, there will be any brands left at all that aren't defined clearly as 'blue' or 'red.'

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, China Daily