Wednesday February 15 Daily Market Primer

•          Equity rally continues
•         Lots of meetings and speeches today
•        $100 billion + Sprint + Fortress, what could go wrong?

·       US Stocks started the day moving down, but reversed course after Janet Yellen’s comments to the Senate indicating that the Fed feels reasonably good about the US economy, citing consumer spending, household income, and increasing wealth to support normalization of interest rates, and indicating some resolve to start hike rates in spite of political and fiscal uncertainties.  There’s lots of talk of the market mispricing the probability of rate hikes in the press following the testimony, and today Dr. Yellen will address the House Financial Services Committee.  Financial stocks continue to be one of the biggest beneficiaries of the rally, and GS and JPM hit  all time highs yesterday.  Treasury yields rose slightly, for the fourth consecutive day, and the dollar rose against most currencies.  S&P futures are down but Dow futures are up at the moment.

	LAST	CHANGE	% CHANGE
DJIA	20,504.41	92.25	0.45%
Nasdaq	5,782.57	18.62	0.32%
S&P 500	2,337.58	9.33	0.40%
Russell 2000	1,396.65	4.27	0.31%
Global Dow	2,649.85	10.07	0.38%
Stoxx Europe 600	371.39	1.19	0.32%
Nikkei 225	19,437.98	199.00	1.03%
UK: FTSE 100	7,307.71	39.15	0.54%
CBOE Volatility	10.92	-0.15	-1.36%
Australia: S&P/ASX 200	5,809.10	53.90	0.94%
China: Shanghai Composite	3,212.99	-4.94	-0.15%
Hong Kong: Hang Seng	23,994.87	291.86	1.23%
Europe Dow	1,598.74	0.10	-0.65%
India: S&P BSE Sensex	28,155.56	-183.75	0.01%
France: CAC 40	4,924.21	28.39	0.58%
Germany: DAX	11,798.24	26.43	0.22%
Italy: FTSE MIB	19,194.32	6.65	0.03%
Spain: IBEX 35	9,565.40	55.20	0.58%
U.S. 3 Month	0.546	0/32
U.S. 2 Year	1.23	1/32
U.S. 5 Year	1.971	-1/32
U.S. 10 Year	2.481	-3/32
U.S. 30 Year	3.066	-4/32
Germany 2 Year	-0.798	0/32
Germany 10 Year	0.371	-0/32
Crude Oil	52.85	-0.35	-0.66%
Brent Crude	55.65	-0.32	-0.57%
Natural Gas	3.072	0.067	2.23%
S&P GSCI	398.23	-1.06	-0.27%
E-mini S&P 500	2336.5	-0.5	-0.02%

January retail sales were +.4%, higher than the expected .1%, and another plus sign for the economy.  Inflation numbers are out, and the CPI rose .6% month over month, higher than the Reuters consensus of .3%, and 2.5% year over year, slightly higher than the expected 2.4%.  Boston Fed President Eric Rosengren will give a speech in New York today,  Israeli PM Benjamin Netanyahu will meet with President Trump, and NATO defense ministers are meeting in Brussels.

Japanese technology investor SoftBank is buying Fortress, the publicly traded US distressed debt and hedge fund for $3.3 billion, which is a 39% premium.    Softbank, known for controlling interests in Yahoo Japan, struggling US wireless carrier Sprint, and outright ownership of British chip design powerhouse ARM, recently put together the world's largest venture capital fund, the $100 billion Softbank Vision Fund, which includes Saudi Arabia, Softbank, and Apple as anchor investors http://bit.ly/Softbank100B.  Son said in a statement that “Fortress’s excellent track record speaks for itself”, but Fortress has had a tough time in recent years, shutting down its. $1.7 billion Partners Fund in 2015 for poor performance, and investing over $60 million in New York fraudster Marc Dreier’s bogus note scam in 2008.

     Masayoshi Son

Here’s the news:

Yellen

Federal Reserve Chair Janet Yellen sounds like she’s on a mission to raise interest rates this year — no matter what President Donald Trump does on tax cuts and spending. In a clarifying point during Senate questioning on Tuesday, Yellen said the central bank doesn't need to wait for fiscal stimulus in order to hike rates. U.S. Treasuries sold off on her testimony, with the yield on the government 10-year note rising to 2.48 percent from 2.43 percent the previous day. Probabilities for a March rate hike jumped to 34 percent, but some are still worrying that the Fed will have to move faster than the market currently expects.

Markets rally

Yellen's hawkish comments boosted the U.S. greenback, with the Bloomberg Dollar Index gaining 0.29 percent on Tuesday and going up 0.21 percent on Wednesday, as of 5:17 a.m. ET. The Stoxx Europe 600 Index climbed 0.39 percent as of 5:19 a.m. ET, the highest level since December 2015. Futures on the S&P 500 were little changed after the index closed 0.4 percent higher on Tuesday. Reflation trades are back in vogue with banks the big-winners in equity markets, as shares of Goldman Sachs Group Inc. reached a closing record.

Inflation data is coming

Speaking of inflation, at 8:30 a.m. ET we'll get the Consumer Price Index for January. That comes after Tuesday's Producer Price Index report showed U.S. wholesale prices jumped in January by the most since September 2012. Data from China on Tuesday showed the producer price index increasing the most in five years — driven by a recovery in commodity prices – while U.K. inflation rose less than expected.

Flynn fallout

The Trump administration is facing growing pressure following Michael Flynn's resignation from the post of National Security Adviser on Tuesday, with several congressional Republicans calling for expanded probes of the administration's relations with Russia and of Moscow's alleged interference in U.S. politics. Bloomberg reports that the Trump administration was preparing to replace Flynn as early as last week, according to a senior official. Meanwhile, members of the presidential campaign staff had repeated contacts with senior Russian intelligence officials in the year before the election, the New York Times says, citing four current and former American officials it didn’t identify.

U.K. jobs day

U.K. unemployment declined and a measure of the number of people in work rose to a record in the fourth quarter, pushing the labor market closer to "full capacity," according to data released by the statistics office this morning. While employment is still rising, the pace has cooled over the past year thanks to uncertainty over Brexit. Wage growth has also been sluggish, with basic pay growth slowing in the quarter to 2.6 percent from 2.7 percent, weaker than economists had forecast. The pound lost ground against the dollar after the data were released and was at $1.2435 as of 5:32 a.m. ET down 0.28 percent on the day.  Yellen takes her testimony to the House. Fed Chair Janet Yellen will appear before the House Financial Services Committee on Wednesday for the second day of her semiannual Humphrey-Hawkins testimony. In her prepared remarks on Tuesday, Yellen said waiting too long to raise interest rates was "unwise" and could cause a recession. UK employment is at its highest point on record. The UK added 37,000 jobs in the three months that ended in December as it posted a sixth consecutive quarterly gain. The British pound is down 0.3% at 1.2428 versus the dollar. Humana is pulling out of Obamacare. Humana, one of the five largest publicly traded health insurers, announced on Tuesday that it would abandon individual marketplaces in 2018 because it was "seeing further signs of an unbalanced risk pool." Cigna is suing Anthem after walking away from their merger. Cigna has filed a $13 billion lawsuit against Anthem for what it called "the lost premium value to Cigna's shareholders caused by Anthem's willful breaches of the Merger Agreement." Anthem responded by saying the terms of the agreement did not allow Cigna to back out of the merger and that it intended to follow through on the deal. Toshiba tumbles after announcing its massive write-down. Toshiba fell by more than 10% at its open in Tokyo following the company's announcement that it was taking a $6.3 billion write-down on its US nuclear unit, Reuters reports. The stock would trim some of its losses from the session and finished down 7.6%. Warren Buffett is loading up on airlines. A 13-F filing released Tuesday showed the legendary investor bought more than $5 billion worth of airlines as he initiated a new position in Southwest Airlines while adding to his stakes in Delta Air Lines and American Airlines. Buffett slashed his stake in Walmart by 89%. Twitter's CEO is buying stock. Jack Dorsey scooped up $7 million worth of Twitter shares after the company's disappointing fourth-quarter earnings that pushed the stock down 10%. Stock markets around the world are higher. Hong Kong's Hang Seng (+1.2%) was the top performer in Asia, and France's CAC (+0.5%) is out front in Europe. The S&P 500 is set to open little changed near 2,338. Earnings reports keep coming. Pepsi and Groupon are among the companies reporting ahead of the opening bell, while Cisco and Kraft Heinz highlight the names releasing their quarterly results after markets close. US economic data is heavy. Empire Manufacturing, CPI, and retail sales will all be released at 8:30 a.m. ET before industrial production and capacity utilization cross the wires at 9:15 a.m. ET and the NAHB Housing Market Index is announced at 10 a.m. ET. The US 10-year yield is higher by 1 basis point at 2.48%. Flynn Fallout We report that federal agents questioned then-National Security Adviser Mike Flynn in January, shortly after the White House denied he had talked about sanctions with a Russian official. The president’s spokesman, Sean Spicer, said Mr. Trump was informed about the contents of Mr. Flynn’s conversations with the Russian ambassador in late January and that White House officials spent a few weeks looking into the matter. Mr. Flynn’s departure generated more questions yesterday about what Mr. Trump knew about his activities and why it took weeks for the president to push him out. Vice President Mike Pence, who had vouched publicly for Mr. Flynn, didn’t learn until Feb. 9 about the discussion of sanctions, his spokesman said. Several congressional committees are investigating the possible role that Russia played in the 2016 elections, and the administration’s senior ranks are creating headlines of their own as they jockey for power and influence with the president. The White House is now at a crossroads. The Urge Not to Merge Two health-insurance mergers worth a combined $82 billion are unraveling in the wake of court rulings that found the transactions violated federal antitrust law, all but quashing a deal boom that would have reshaped the industry. Aetna and Humana said Tuesday that they would terminate their $34 billion merger agreement. Just hours later, Cigna said it was calling off its $48 billion merger agreement with Anthem and pursuing more than $13 billion in damages from its deal partner, in addition to a $1.85 billion breakup fee. Cigna’s announcement escalated a months long fight in which the two companies have accused each other of violating their merger agreement. Anthem immediately disputed Cigna’s authority to nix the deal. The fate of both deals represents a victory for the Obama administration’s antitrust officials, who were able to win the cases despite major differences between the two transactions. Banks Rising Shares in America’s banks are booming again, with Goldman Sachs Group, J.P. Morgan Chase and Bank of America hitting fresh trading milestones yesterday that seemed unreachable during the crucible of the financial crisis. Investor expectations of higher interest rates, lower taxes, lighter regulation and faster economic growth under the Trump administration have added $280 billion in combined market value to the nation’s six largest banks since Nov. 8. Yesterday, shares of Goldman and J.P. Morgan hit record highs, and Bank of America traded in line with its net worth for the first time since late 2008. One reason for such investor optimism: After years of hacking away at expenses—shedding businesses, cutting staff and investing in technology that can be ramped up and down cheaply—expenses are near all-time lows across Wall Street. That means that if revenue does grow as many investors expect, the payoff could be especially big.

Maniac killers of the Bangalore IT Department.

What newly-wealthy Chinese spend their money on.

Volatility traders have had enough of quiet markets.

The best-performing U.S. Treasuries have a message about inflation.

Rainbows and sunshine. Investors haven't been this optimistic since 2011.

Putin's central banker is on a tear. Yellen Says Fed Will Consider Raising Rates at Coming Meetings Colleges, Faced With Funding Cuts, Target Tenure Trims U.S. Drops Insistence on Two-State Solution to Israeli-Palestinian Conflict Trump Puts NATO Allies in the Crosshairs Over Military Spending PewDiePie Show Canceled by Google’s YouTube SoftBank to Buy Fortress Investment Group for $3.3 Billion Trump’s ‘Stew of Uncertainties’ Puts Hedge-Fund Managers on Alert

Shares of Twitter plunged last week, disappointing investors who had hoped that President Trump's active presence on the platform might give it new vitality. Why can't Twitter thrive as the preeminent place for consuming and talking about real-time news? The Canadian theorist Marshall McLuhan posited four laws of media, one of which was that all media eventually flips or reverses itself. A look at modern media shows this is clearly true. Twitter started as a great place to have intelligent conversations. Now it's filled with abuse and shouting. Facebook aspires to be a place to connect with your friends and get the news. Now it's where you get fake news and come to loathe your friends. E-mail promised to offer a more efficient alternative to physical mail. Now e-mail is a chore and people brag about 'inbox zero' like it's an accomplishment. Meanwhile, mobile phones ended up leading to the death of phone calls. This is a handy concept to keep in mind, and a fun game to play as you try to anticipate the unexpected consequences of future technological innovations.

Source: Bloomberg, BI, WSJ