Friday March 17 Daily Market Primer

•          Stocks down, 10 year up
•         It’s budget time
•          Tillerson and Mnuchin fly
•         Tesla raises and rises

Happy St. Patrick’s day.  US stocks fell slightly Thursday after the big move in global stocks on Wednesday, as the market plateaued after digesting rate hike and the more dovish Fed.  The 10 year treasury moved up again 5 basis points to 2.54%.  Overseas markets are modestly up except for China, which dropped 1%.  S&P futures are flat.

	LAST	CHANGE	% CHANGE
DJIA	20,934.55	-15.55	-0.07%
Nasdaq	5,900.76	0.71	0.01%
S&P 500	2,381.38	-3.88	-0.16%
Russell 2000	1,386.03	3.20	0.23%
Global Dow	2,707.02	3.10	0.11%
Stoxx Europe 600	373.71	-1.52	-0.41%
Nikkei 225	19,521.59	-68.55	-0.35%
UK: FTSE 100	7,428.12	12.17	0.16%
CBOE Volatility	11.24	-0.39	-3.35%
Australia: S&P/ASX 200	5,799.60	13.80	0.24%
China: Shanghai Composite	3,237.45	-31.49	-0.96%
Hong Kong: Hang Seng	24,309.93	21.65	0.09%
Europe Dow	1,666.45	37.98	0.21%
India: S&P BSE Sensex	29,648.99	63.14	2.33%
France: CAC 40	5,032.71	19.33	0.39%
Germany: DAX	12,106.32	23.14	0.19%
Italy: FTSE MIB	20,090.70	-19.06	-0.09%
Spain: IBEX 35	10,201.60	33.60	0.33%
U.S. 3 Month	0.731	0/32
U.S. 2 Year	1.333	0/32
U.S. 5 Year	2.047	0/32
U.S. 10 Year	2.532	2/32
U.S. 30 Year	3.134	10/32
Germany 2 Year	-0.77	-2/32
Germany 10 Year	0.465	-5/32
Crude Oil	49.07	0.32	0.66%
Brent Crude	52.07	0.33	0.64%
Natural Gas	2.973	0.006	0.20%
S&P GSCI	384.02	1.77	0.46%
E-mini S&P 500	2378.5	-0.5	-0.02%

The first Trump era budget is out, and represents a major reprioritization of government programs.  Like all budgets, it has a long way to go and its too soon to say how the final version will look.  Reuters ran a pretty interesting article this morning about the US not having enough skilled workers to build the ships in Trump’s planned Naval expansion http://bit.ly/NotEnoughShipbuilders.  Secretary of State Rex Tillerson is traveling in Asia and announced a new policy toward North Korea without saying what it is, but its fair to say they won’t be getting new billions in US foreign aid anytime soon.  Tillerson will be in China on Saturday to talk to the Chinese leadership about North Korea and other matters.  Treasury Secretary Steve Mnuchin has been in Germany meeting with German Finance Minister Wolfgang Schaeuble and will attend the G-20 meeting this weekend, while Mr. Schaeuble’s boss Angela Merkel will in Washington today meeting with President Trump.  So far Mr. Mnuchin has said the US doesn’t want a trade war and warned against competitive currency devaluations.

Tesla is raising money again to no one’s surprise, as it was obvious the company will need more cash to produce the Model 3.  The company is in the market with a $1.1 billion raise of stocks and convertibles.  Analysts are saying its not enough.  Tesla has about 370,000 pre-orders for the Model 3, so at least they won’t have to spend much on marketing for awhile.  The stock moved up 2.5%, presumably because of greater certainty that the company won’t run out of cash, or more likely because of the cult of Elon Musk. 

Here’s the news:

Fair trade

After yesterday's "extremely productive" talks between U.S. Treasury Secretary Steven Mnuchin and his German counterpart Wolfgang Schaeuble, Mnuchin heads to the Black Forest town of Baden-Baden for the G-20 finance ministers' meeting. He's said to plan to use his debut to insist that the U.S. won’t tolerate countries that devalue their currencies to gain an edge in trade. Fresh from making friends, President Donald Trump moves to influencing people when he meets with Chancellor Angela Merkel in Washington today.

May's balancing act

With the Brexit mantra of "take back control" now finding favor in Scotland, U.K. Prime Minister Theresa May is going to try to neutralize trouble in the north with a speech today, in which she'll unveil a "plan for Britain." As of 5:19 a.m. Eastern Time, the pound was trading at its highest levels this month, after Bank of England policy maker Kristin Forbes caught markets by surprise by voting for an interest-rate increase. The central bank kept the benchmark rate at a record-low 0.25 percent in an 8-1 vote yesterday.

Energy markets

OPEC may extend oil-supply cuts if stockpiles stay above the five-year average, Saudi Energy Minister Khalid Al-Falih told Bloomberg TV this morning. That was one factor helping crude toward its first weekly advance this month, after U.S. stockpiles eased from a record. Meanwhile, billionaire investor Carl Icahn is betting against the renewables market that he wants President Trump to overhaul.

Stocks lose steam

Global equities are still on course for the best week since January even though, by 4:32 a.m. in New York, the rally spurred by the Federal Reserve’s outlook was losing some of its momentum. With emerging markets among the strongest gainers, Jakarta's benchmark index touched an all-time high. While a gauge of volatility on the Euro Stoxx 50 Index plunged 26 percent on Thursday — the most on record — it may rise in Europe today when some options expire. The Bloomberg Dollar Spot Index was little changed after a two-day loss.

Coming up...

Secretary of State Rex Tillerson arrives in Beijing on Saturday, having declined to rule out a pre-emptive strike against North Korea during the early leg of his tour. Both Theresa May and Scottish First Minister Nicola Sturgeon end two-day conferences, with Brexit and Scottish independence set to rule the agendas. Trump meets Merkel. German Chancellor Angela Merkel is visiting the White House on Friday, marking her first face-to-face meeting with President Donald Trump, Reuters reports. NATO and Russia are among the topics that will be discussed. Australia's mining downturn appears to be over. "A key theme in this month's release is the improved momentum in the mining states of Queensland and Western Australia," Giulia Lavinia Specchia and Cherelle Murphy, members of ANZ's economics team said of the bank's monthly "Stateometer." Dan Loeb is raising cash. Loeb's Third Point opened to new money about six months ago, the first time it had done that since 2014. The minimum investment for those investing directly is $10 million. Apple is opening 2 new R&D centers in China. Apple plans to open new research-and-development centers in Shanghai and Suzhou, the company announced on its Chinese website on Friday. Nintendo is ramping up production of its new Switch console. The video game maker says it will double production of its Switch console to 16 million units or more for the year ahead, The Wall Street Journal says. France is investigating Airbus' jet deals. French authorities have joined UK authorities in looking into Airbus' use of third-party agents to win jetliner contracts, Reuters reports. Here comes the first enterprise tech IPO of the year. Mulesoft priced its initial public offering at $17 a share, above the $12 to $14 that was expected. The stock will trade under the ticker MULE. Stock markets around the world are mixed. China's Shanghai Composite (-1%) lagged in Asia, and Spain's IBEX (+1.9%) leads in Europe. The S&P 500 is set to open little changed near 2,381. Earnings reports trickle out. Tiffany will release its quarterly results ahead of the opening bell. US economic data is light. Industrial production will be released at 9:15 a.m. ET, and University of Michigan consumer confidence will cross the wires at 10 a.m. ET Weak on Arrival Republicans were quick to lodge objections on Thursday to President Trump’s budget plans, many of which trim away smaller programs that help the sort of local communities he vowed to rejuvenate during the campaign. The response suggests Mr. Trump’s first blueprint for federal spending, like many before his, is likely to undergo a major rewrite by Congress. While GOP lawmakers embraced the president’s impulses to boost military spending by cutting what some consider wasteful programs, they then began scouring the fine print for details about school-enrichment, environmental-cleanup and other programs, and immediately began planning to shift the burden of cutbacks elsewhere. Republican leadership, including House Speaker Paul Ryan gave a muted endorsement. Meanwhile, the House GOP health plan passed a key test in Congress on Thursday, winning approval in the House Budget Committee on a narrow 19-17 vote. Goldman Strikes Again In a strange reverberation of the housing crisis, Goldman Sachs has become a voracious buyer of soured mortgages, trying to make money even as it looks to fulfill terms of a government settlement that calls for it to help struggling homeowners. Over the past year and a half, the Wall Street giant has become the largest buyer of severely delinquent home loans from mortgage giant Fannie Mae. Goldman’s buying spree was sparked by its $5.1 billion settlement with federal and state governments over its role in packaging and selling mortgage-backed securities in the housing meltdown. As part of the settlement, the firm agreed to provide $1.8 billion in homeowner relief. The way it works: Goldman fixes up loans by helping borrowers get current, gets credit for doing so from regulators and hopes to sell the debt—when people are paying consistently again—at a profit. A Splintered Europe The Netherlands’ election result, for all its local idiosyncrasies, foreshadows themes that will color elections in the year ahead in France, Germany and potentially Italy. In the most closely watched Dutch election of modern times, mainstream conservatives shifted right to contain a strong challenge from anti-immigrant populists while social democrats’ voter base frayed and fresh faces opposed to populism filled gaps in the center. Thirteen parties won seats in parliament, with the largest—Prime Minister Mark Rutte’s center-right VVD—winning only around 21% of the vote. The country’s simple, proportional electoral system allowed the party system to splinter to a degree that is unlikely elsewhere. But we report that across much of Europe, party systems are fragmented as allegiances to traditionally dominant conservatives and social democrats fade, and upstarts of various stripes win favor.

Hedging politics is becoming a pain in Europe.

Cape Town risks running out of water.

French asset managers display sangfroid in the face of political risks....

...as Vladimir Putin's French gambit backfires.

The market is acting like the Fed just cut rates.

China's hidden protectionism nabs Peppa Pig.

Bob Diamond has a U.K. comeback plan. U.S. Cities Battle Each Other for Jobs With $45 Billion in Incentives Travel Ban Heads Toward Supreme Court in Transition Saudis Seek U.S., Asian Investment to Diversify Economy Tillerson to Press China Over Handling of North Korea Threat Marathon Sells Muscular-Dystrophy Drug to PTC After Pricing Scrutiny Canada Goose Soars in IPO Did Xie Zhikun’s Nearly $1 Billion Go Missing? A Private-Equity Mystery

The big political event this week was Wednesday's Dutch election and the poor performance of Geert Wilders's Freedom Party. Before attention turns to the French election, there are a few interesting takeaways beyond the obvious fact that the populist surge might have been over-hyped. As Corina Ruhe and Anne Van Der Schoot note, one theme that continues to run strong is political fragmentation. There are now 13 parties represented in the Dutch parliament, up from 11. This is happening across Europe, as Economist columnist Jeremy Cliffe pointed out on Twitter. Many traditional centrist parties — particularly of the center-left variety — are in free-fall. Greece's Pasok was an harbinger of that trend. Intuitively, this doesn't lend itself to stable and effective governance. Meanwhile, as tempting as it is to see Wilders as being equivalent to France's Marine Le Pen, it's noteworthy that the latter's economic message is much more statist, in contrast to the classical right-wing tradition. In theory, this would broaden her appeal and give her an electoral advantage, though she's still 20 points behind in most polls of the crucial second-round stage. Finally, in the Netherlands, surveys of voter intention in the final days showed Wilders collapsing — and they were right! So not all polling is as horrible as everyone says. In fact, it's kind of a myth that they've been so bad over the past year. The Brexit vote was always pretty close, and the polls that had Hillary Clinton winning reflected the popular vote, which she did in fact win. Dismissing all polling is either cynical or lazy.

Source: Bloomberg, BI, WSJ, Reuters