Monday March 13 Daily Market Primer

•          Stocks rose Friday
•         Fed meets Wed. and Thu.
•          Scotland may get a second UK leave vote
•          ACA replacement on a fast track

US stocks rose Friday on the very strong February jobs number, clearing the way for a Fed rate hike this week.  Most stock markets around the world rose Monday, but US futures are pointing slightly down.   Oil sank 1.6% to its lowest close since November 29, wiping out three months worth of price gains last week.  US supply data and a higher a rig count were the culprits.

	LAST	CHANGE	% CHANGE
DJIA	20,902.98	44.79	0.21%
Nasdaq	5,861.73	22.92	0.39%
S&P 500	2,372.60	7.73	0.33%
Russell 2000	1,365.26	5.15	0.38%
Global Dow	2,675.24	6.73	0.25%
Stoxx Europe 600	373.71	-1.52	-0.41%
Nikkei 225	19,633.75	29.14	0.15%
UK: FTSE 100	7,354.86	11.78	0.16%
CBOE Volatility	12.18	-0.12	-0.98%
Australia: S&P/ASX 200	5,757.30	-18.30	-0.32%
China: Shanghai Composite	3,237.02	24.26	0.76%
Hong Kong: Hang Seng	23,829.67	261.00	1.11%
Europe Dow	1,635.87	20.06	0.06%
India: S&P BSE Sensex	28,946.23	17.10	1.24%
France: CAC 40	4,997.30	3.98	0.08%
Germany: DAX	11,977.75	14.57	0.12%
Italy: FTSE MIB	19,562.91	-95.46	-0.49%
Spain: IBEX 35	9,977.00	-29.40	-0.29%
U.S. 3 Month	0.747	0/32
U.S. 2 Year	1.348	0/32
U.S. 5 Year	2.087	2/32
U.S. 10 Year	2.567	2/32
U.S. 30 Year	3.149	9/32
Germany 2 Year	-0.829	-0/32
Germany 10 Year	0.449	12/32
Crude Oil	48.01	-0.48	-0.99%
Brent Crude	50.96	-0.41	-0.80%
Natural Gas	3.119	0.045	1.46%
S&P GSCI	377.04	-1.54	-0.41%
E-mini S&P 500	2366.25	-2.25	-0.09%

Scottish First Minister Nicola Sturgeon wants for Scotland to hold a second referendum on UK independence, which could further complicate the Brexit process.   There is a Dutch parliamentary election on Wednesday, but it is not expected to move markets.  

Intel is buying Mobileye, an Israeli provider of driverless car technology, for $15.3 billion, a 30% premium.   Mobileye previously was the vendor to Tesla’s Autopilot before Tesla dropped them to develop their own system last year.  If you were looking for confirmation that driverless cars are really are going to happen, this is it.   Reuters reported this morning that $5.1 trillion money manager BlackRock is planning to pressure corporate America to provide better disclosure on climate change and diversity.  BlackRock has been criticized in the past for failing to back proxy resolutions on climate change and other important corporate governance initiatives. 

Over the weekend, political pressure increased on President Trump to provide evidence of the Obama administration wiretapping claims.  The ACA repeal and replace effort is on a very fast track in Congress since its being presented as a reconciliation bill, which limits debate, but is also meeting considerable resistance from some Republicans as well as Democrats.   The Congressional Budget Office (CBO), which has not had time to score the fast moving bill, may issue a score as soon as today.   Some Republicans and the White House seem to be trying to publically discredit the CBO in advance of the score.

Goldman Sachs seems positive on Emerging Markets, as this positive note out this morning indicates:

Here’s the news:

Fed meeting

There is near universal agreement that the Federal Reserve will increase interest rates when the latest FOMC decision is announced on Wednesday. A survey of economists conducted by Bloomberg produced a median estimate of three hikes this year, coming in March, June and December. There are also monetary decisions due from the Bank of Japan and the Bank of England on Thursday.

European politics

The temperature on this Wednesday's Dutch election has been turned up following a diplomatic standoff with Turkey over the weekend after authorities in the Netherlands barred entry to Turkish ministers. The last-minute emergence of the spat could boost Geert Wilders' anti-Islam Freedom Party. In the U.K., Prime Minister Theresa May could also trigger Article 50 to start the process of leaving the European Union as early as tomorrow.

Oil weakness

A barrel of West Texas Intermediate for April delivery dropped below $48 a barrel in overnight trading before paring losses to trade at $48.45 by 5:29 a.m. Eastern Time. The drop in prices came as the U.S. oil rig count rose by eight to 617 last week, the highest level since September 2015. Investors had cut bullish bets on the commodity just prior to the dive below $50, with some analysts saying things will get worse from here.

Markets flat

Overnight, the MSCI Asia Pacific Index rose 0.8 percent, with Japan's Topix index climbing 0.2 percent as traders await decisions from the Bank of Japan and the Fed. In Europe, the Stoxx 600 Index was 0.1 percent higher as of 5:41 a.m. while U.S. futures slipped 0.1 percent.

Chinese  improvement

Senior officials said the Chinese economy is showing signs of improvement, with little risk of a hard landing. Goldman Sachs Group Inc. seems to agree, as it upgraded its forecast on Chinese stocks. In the bond market, there are moves to make the country's $9 trillion domestic debt market more global as the central bank pledged to create a "more convenient and friendly environment" for foreign investors. The head of China’s currency regulator said in an interview that policy makers support opening the market to let money flow both in and out of the economy.

Theresa May is getting ready to trigger Article 50. UK Prime Minister Theresa May will most likely receive the authority to trigger Article 50 in a vote Monday evening. If it passes, as expected, May could begin guiding the UK out of the European Union as early as Tuesday. Japan's core machinery orders miss big. Data released by the Cabinet Office on Monday showed orders fell 3.2% month-over-month in January, more than the 0.1% dip that economists were anticipating. The Japanese yen is down 0.2% at 114.60 per dollar. Oil's slide continues. West Texas Intermediate crude oil trades down 0.8% at $48.11 a barrel on Monday, its lowest since November 30, the day OPEC announced plans to cut production. The SEC rejected the Winklevoss twins' bitcoin ETF. The Securities and Exchange Commission handed down its ruling shortly after markets closed Friday, saying it would disapprove of the ETF as it believed "significant markets for bitcoin are unregulated" and therefore "the exchange has not entered into, and would currently be unable to enter into, the type of surveillance-sharing agreement that has been in place with respect to all previously approved commodity-trust ETPs." Bitcoin tumbled by more than 16% after the decision but has retraced the lion's share of those losses. Mario Draghi speaks. European Central Bank head Mario Draghi will speak in Frankfurt, Germany, at 9:30 a.m. ET on "Fostering innovation and entrepreneurship in the euro area." Intel is reportedly buying Mobileye. Shares of Mobileye are up 30% before the opening bell following a report from the Israeli newspaper Haaretz, citing sources, that suggests Intel has agreed to buy it for $15 billion. Vista Equity Partners is nearing a deal to buy DH Corp. The firms are in advanced talks, and an agreement could be announced as soon as this week but could still fall apart, Bloomberg says, citing people familiar with the matter. Terms of the potential deal are unknown. HSBC names a new chairman. The bank has named Mark Tucker, the current CEO and president of the insurer AIA, as its new chairman. Tucker is scheduled to begin September 1. A blizzard is bearing down on New York. The National Weather Service has issued a blizzard warning for New York City and southern New York state that will be in effect for 24 hours beginning at midnight. The storm is expected to produce as much as 20 inches of snow accumulation and wind gusts up to 55 mph. Stock markets around the world are mixed. Hong Kong's Hang Seng (+1.1%) led the gains in Asia, and Germany's DAX (+0.1%) clings to small gains in Europe. The S&P 500 is set to open down 0.1% near 2,370. Test of Faith Surging global stocks and commodities face another hurdle this week as a succession of potentially market-moving events—a Fed policy meeting expected to produce a rate increase, Dutch elections and a likely step by the U.K. toward exiting the EU—challenges investors to bet on the next direction. For now at least, they appear to have accepted the possible changes ahead. A Fed increase in short-term interest rates Wednesday would signal a return to a more-normal world, writes Greg Ip. But beneath the investor optimism is some worry that it wouldn’t take much to turn markets unruly. Changing the Guard We report that while the sudden departure of Preet Bharara as top federal prosecutor in Manhattan raises uncertainty about his office’s long-term direction, it isn’t likely to change the course of several high-profile investigations. Mr. Bharara, Manhattan U.S. attorney since 2009 and known for a string of high-profile white-collar and public-corruption investigations, was fired Saturday, after refusing a Justice Department request to step down along with the other 45 remaining U.S. attorneys appointed by former President Obama. The most notable cases he leaves behind are a probe of New York City Mayor Bill de Blasio and his aides and a pending trial of people with ties to Gov. Andrew Cuomo. For now—and likely for some months—the office will be led by Mr. Bharara’s close friend Joon Kim, deputy U.S. attorney Pension Plans Millions of retirees are expecting to get a company pension check for the rest of their lives, but increasingly the name on it is likely to be an insurance company’s. In a growing business called pension-risk transfer, employers with old-fashioned pension plans cut deals with insurers to take responsibility for retirees’ monthly benefits. For the insurance industry, it represents a new source of growth at a time when some traditional businesses are slipping; for employers, a way to reduce exposure to volatile stock and bond markets. The prospect of higher U.S. interest rates provides another incentive for employers: Under the complex math used to calculate liabilities, higher rates generally make it less expensive for them to unload pension obligations. Merkel reportedly to warn Trump over tax proposals Merkel (Carl Court/Getty Images) German Chancellor Angela Merkel is getting ready to put US President Donald Trump on notice that some of the taxes he is proposing could prompt retaliatory measures from other countries, including higher taxes on US companies, Der Spiegel reports. Documents prepared for Merkel's upcoming meeting with Trump describe the border-adjustment tax backed by Trump as a "protective tariff" that would violate rules of the World Trade Organization. Der Spiegel (Germany) (English online version) (10 Mar.),  Bloomberg (11 Mar.)

Final deal on Greek rescue not expected this month Progress is being made toward release of the next round funding for Greece's bailout, but there isn't much chance a final deal will be agreed upon by a March 20 meeting of eurozone finance ministers, officials say. It is more likely negotiations will conclude in April, they say. Reuters (10 Mar.),  Reuters (10 Mar.),

High-yield bond funds face outflows High-yield bond funds lost $2.1 billion in net withdrawals last week as oil prices fell and yield spreads narrowed, according to Lipper data. The increasing probability that the Federal Reserve will raise interest rates is also weighing on bonds. Reuters (09 Mar.)  Online car retailer reportedly aims for $2B valuation in IPO Carvana, a used-car seller that lets customers select purchases over the internet, has hired investment banks to manage its initial public offering, people familiar with the matter said. The company hopes to get a $2 billion valuation when it comes to market in the first half of this year, they said. Reuters (11 Mar.)  China's industrial, services sectors see strong growth The growth of China's industrial output in January and February exceeded 6% and the services sector expanded more than 8%, Ning ­­Ji­zhe, head of the National Bureau of Statistics, said while attending a political gathering in Beijing. Official figures are scheduled for publication Tuesday. South China Morning Post (Hong Kong) What to expect in U.K. markets when May pulls the Brexit trigger.

The truth of Trump's wiretap claim should soon emerge, lawmakers say.

Wall Street enforcer Preet Bharara is fired after refusing to resign.

The UN says the world faces the largest humanitarian crisis since 1945.

Daylight saving time is dumb, dangerous and costly.

Iceland ends capital controls, eight years after banking crash. Republicans Pose Growing Challenge to Trump’s Trade Agenda GOP Health Plan Would Hit Rural Areas Hard Web Browsers, Not Apps, Are Internet Gatekeepers for the ‘Next Billion’ For-Profit Schools: Trump Delays Enforcing New Rules, Lifting Shares Great Groveling, Guys: Counting All the Ways Analysts Fawn Over Management

President Trump is due to release his budget this week, and of course there's a lot of interest in what -- if anything -- it will indicate in terms of infrastructure spending. Regardless of whether those details emerge soon or later (or never), you should really be following Ed Zarenski, a construction economist who teaches at Worcester Polytechnic Institute, and who writes a great blog on the industry. In a series of posts and tweets he's recently made the case that economists and investors talking about $100 billion in new infrastructure spending every year for the next decade are dreaming. In this piece, for example, he notes that only three times in history has the entire construction industry ever seen a $100 billion increase in a year. Elsewhere, he argues that at a maximum sustainable growth rate for the industry there's room for perhaps an additional $26 billion in infrastructure spending per year. Over the long term, an additional $10 billion per year is more plausible. Definitely check out Ed's stuff, as it's an important reminder that industry capacity -- not the money itself -- is the big constraint on ambitious budgetary plans.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, SCMP