Monday March 27 Daily Market Primer

•          US stocks held up Friday
•          Global stock markets down
•          Markets interpret health care bill fail
•          Fed Speak Week³
•          Vanguard, BlackRock oppose DOL rule

The stock market held up remarkably well on Friday after the Republicans killed the health care vote, closing modestly down.  However, the vote was pulled late in the day, so US markets didn’t have much time to react.  Global markets fell more on Monday, with the Nikki 225 down 1.4%, and the Hang Seng and the DAX both down .7%.  The US dollar is at a four month low, which is a sign of weakness in the Trump Trade, and gold is up to pre-election levels.  The VIX has moved up from 11 to 14.5 over the last couple of weeks.  S&P futures are looking at a down open, at -.8% this morning.

	LAST	CHANGE	% CHANGE
DJIA	20,596.72	-59.86	-0.29%
Nasdaq	5,828.74	11.04	0.19%
S&P 500	2,343.98	-1.98	-0.08%
Russell 2000	1,354.64	1.22	0.09%
Global Dow	2,681.87	-2.21	-0.08%
Stoxx Europe 600	375.70	-1.50	-0.40%
Nikkei 225	18,985.59	-276.94	-1.44%
UK: FTSE 100	7,287.77	-49.05	-0.67%
CBOE Volatility	14.59	1.47	11.20%
Australia: S&P/ASX 200	5,746.70	-6.80	-0.12%
China: Shanghai Composite	3,266.96	-2.49	-0.08%
Hong Kong: Hang Seng	24,193.70	-164.57	-0.68%
Europe Dow	1,664.79	1.23	-0.63%
India: S&P BSE Sensex	29,237.15	-184.25	0.07%
France: CAC 40	5,004.64	-16.26	-0.32%
Germany: DAX	11,976.32	-87.95	-0.73%
Italy: FTSE MIB	20,047.56	-140.46	-0.70%
Spain: IBEX 35	10,268.20	-41.20	-0.40%
U.S. 3 Month	0.769	-0/32
U.S. 2 Year	1.236	1/32
U.S. 5 Year	1.902	6/32
U.S. 10 Year	2.367	13/32
U.S. 30 Year	2.973	26/32
Germany 2 Year	-0.734	0/32
Germany 10 Year	0.385	6/32
Crude Oil	47.54	-0.43	-0.90%
Brent Crude	50.49	-0.31	-0.61%
Natural Gas	3.181	0.028	0.89%
S&P GSCI	376.35	-1.78	-0.47%
E-mini S&P 500	2326	-18.75	-0.80%

The market reaction to the health care failure is dominating the financial news over the weekend and today.  There are mixed views on how this effects tax reform and fiscal spending, but there is a clear consensus is that it’s a negative.  OPEC indicated that they may extend production cuts this weekend, but crude prices are moving down this morning anyway.  UK PM Theresa May is on track to trigger Article 50 and start Brexit this week.  Central bankers continue to be in demand, with 14 Fed speakers making public appearances this week.  Janet Yellen is on deck for tomorrow.  EU regulators cleared the $130 billion merger of chemical giants Dow and DuPont.  And, both Vanguard and BlackRock came out against DOL fiduciary rule, which is somewhat surprising since they have the most to gain from further pressure on fees and an increase in indexing that the rule will bring http://bit.ly/DelayDOLRule.

Here’s the news:

Markets slump

The failure of the health-care bill in Congress on Friday is putting pressure on markets as investors reassess the post-Trump election rally. Overnight, the MSCI Asia Pacific Index dropped 0.3 percent, while Japan's Topix index closed 1.3 percent lower as the dollar weakened against the yen. In Europe, the Stoxx 600 Index was down 0.7 percent at 5:10 a.m. Eastern Time, with mining stocks leading the slide. U.S. stock futures were also losing ground. The Bloomberg Dollar Spot Index sank below its 200-day moving average to reach its lowest level since Nov. 10.

Tax plans

The failure of the health-care bill is seen by markets as a sign that President Donald Trump may have difficulty in passing the tax cuts promised by his administration. The president criticized Republicans in the House for defeat of the health-care bill in a posting on Twitter yesterday. House Speaker Paul Ryan warned that the failure of the bill "does make tax reform more difficult."

Oil production

At a meeting in Kuwait over the weekend oil producers said they would consider extending their output curbs beyond the current end-of-June deadline. The existing agreement has a compliance rate of 94 percent, according to Kuwait's Oil Minister Issam Almarzooq. A barrel of West Texas Intermediate for May delivery was trading 33 cents lower at $47.64 as of 5:31 a.m.

Brexit week

On Wednesday U.K. Prime Minister Theresa May will write to EU President Donald Tusk to officially trigger Article 50 of the Lisbon Treaty, which will start the two-year countdown to Britain leaving the European Union. There are already signs that the negotiating process may be a difficult one, with the Bank of England this morning saying Brexit remains one of the key risks to the U.K. economy.

Fed speakers

If you thought last week was a busy one for Fed speakers, you ain't seen nothing yet. No fewer than 14 Fed speeches are due this week, with tomorrow's address by Chair Janet Yellen likely to be the highlight. With Treasury bears feeling the squeeze, any further talk of Fed balance sheet adjustment could provide some relief.  Jared Kushner is going to run a new White House office to bring business ideas to government. President Donald Trump's son-in-law, Jared Kushner, has been picked to head up the newly created White House Office of American Innovation, the Associated Press reports. The US dollar hits a 4-month low. The US dollar index has lost about 3% in 2017, and it is trading at its lowest level since November 14. Gold is nearing levels last seen on election night. The precious metal tumbled by more than 11% in the weeks following the election, but it has recovered virtually all of its losses. Gold trades up 1.1%, or more than $13 an ounce, at $1,257 on Monday. German business confidence is booming. Germany's Ifo Business Climate survey climbed to 112.3 points in March, hitting its highest level since July 2011. "The upswing in the German economy is gaining impetus," Prof. Dr. Clemens Fuest, the president of the Ifo Institute, wrote. British households are more pessimistic than ever about Brexit. A survey released Monday conducted by the analytics firm Markit showed that just 29% of respondents thought the UK economy would fare better over the next 10 years. That's down sharply from July's 39%. Prime Minister Theresa May has said she will trigger Article 50 on Wednesday. Snap Inc. got a bunch of 'Buy' ratings. Snapchat's parent company received "buy" ratings from Citi, Goldman Sachs, and Jefferies, along with "overweight" at Morgan Stanley and "outperform" at RBC. Price targets range from $27 to $31. Toshiba's US nuclear unit is reportedly preparing for bankruptcy. Westinghouse, Toshiba's US nuclear unit, could file for Chapter 11 bankruptcy as early as Tuesday, Reuters reports, citing Nikkei. Stock markets around the world are under pressure. Japan's Nikkei (-1.4%) led the losses in Asia, and Germany's DAX (-0.9%) paces the decline in Europe. The S&P 500 is set to open down 0.7% near 2,328. Earnings reports trickle out. G-III Apparel reports ahead of the opening bell, and Red Hat releases its quarterly results after markets close. US economic data is light. Dallas Fed manufacturing will be released at 10:30 a.m. ET. The US 10-year yield is down 5 basis points at 2.36%. Shot Across the Aisle The White House sent a warning shot to congressional Republicans that it may increase its outreach to Democrats if it can’t get the support of hard-line conservatives. Days after the House GOP health bill collapsed owing to a lack of support from Republicans, White House Chief of Staff Reince Priebus brought up the idea of working with Democrats multiple times, leaving little doubt that the White House intended to send a message to the hard-line Republican flank. But House conservatives remained undeterred and sought to deflect blame for the health bill’s stunning collapse, which called into question how easy President Trump’s broader agenda would be to achieve. Following their setback over health care, Republicans are heading for what they see as safer political ground: a major tax bill. But they might be heading right into another minefield. Correction Fever Investors don’t typically root for stocks to fall, but some now think a period of declines might be healthy. Many investors and analysts fear a postelection rally that has driven the S&P 500 up roughly 10% has cleaved share prices from the underlying fundamentals that tend to drive gains over time, such as interest rates and corporate earnings. What is due now, some investors say, is a correction: a 10% pullback from the indexes’ March 1 highs. They contend such a retreat would tamp down speculation, deflate pockets of froth in popular investments and provide buying opportunities for those on the sidelines. There have been four corrections during the eight-year bull market, even as stock prices have tripled. On average, market corrections occur once each year, according to data going back to the late 1980s. Narrow Window The next blockbuster film: Coming soon—to your home. We report that Hollywood studios are preparing to upend decades of tradition by releasing movies at home less than 45 days after they debut on the big screen. The studios and theater owners have long been at loggerheads over the issue, which Hollywood executives consider vital to their long-term survival and cinemas consider a threat to theirs. But now, faced with changing consumer habits fueled by proliferating on-demand entertainment options, the two sides are finally discussing a compromise. The question that remains for so-called premium video on demand is when and on what terms it starts, not whether it does. By year-end, it is likely films will start to become available on VOD as soon as a few weeks after their theatrical debut for $30 to $50. Long Live Rock ‘n’ Roll For music fans, the recent flood of celebrity deaths has been overwhelming. But with many of rock’s founding fathers and mothers reaching their 70s, the end of the age of rock ’n’ roll is just beginning. While every generation bemoans the passing of its great artists, the outsize influence of rock promises to have a profound impact on popular culture and overall music-industry sales. Of the 25 artists with the highest record sales in the U.S. since 1991, just one—Britney Spears—is under 40. Rock’s demographic crisis has been a concern for some time. But we report that the spate of deaths over the past 18 months highlights the limited time the industry has to buttress its future and figure out how to better attract young audiences and develop young stars. State Street tools cater to ESG investing State Street has launched a range of analytical tools in response to the rapid rise in demand for responsible environmental, social and governance investments. State Street's custody business safeguards $29 trillion and it claims that the new tools will help investors seek and select appropriate funds. The Wall Street Journal (tiered subscription model) (26 Mar.)  Index shows eurozone economy gaining momentum IHS Markit's composite purchasing managers' index for manufacturers and service providers in the eurozone increased to its highest level since 2011, rising to 56.7 in March from 56 a month earlier. The gain suggests overall market growth and has led to expectations that a tapering of the European Central Bank's stimulus scheme is more likely, although the ECB remains cautious on the sustainability of the rise. The Wall Street Journal (tiered subscription model) (24 Mar.)  Affluent Chinese citizens scramble to get US investor visas US Congress is talking about raising the investment required to qualify for an immigrant investor visa to $1.35 million from $500,000, prompting wealthy Chinese citizens to race to apply for the visas before the proposal becomes law. Most participants of the visa program are wealthy Chinese looking for ways to get their capital out of the country. Bloomberg (27 Mar.)  Hartford debuts 2 actively managed fixed-income ETFs Hartford Funds has brought to the New York Stock Exchange the Hartford Corporate Bond ETF, which focuses on investment-grade corporate debt, and the Hartford Quality Bond ETF, which buys investment-grade fixed-income debt, including US Treasurys and mortgage-backed securities. Wellington Management will subadvise the exchange-traded funds. PlanAdviser.com (23 Mar.),

Trump to issue far-reaching reversal of Obama climate push.

The Fed has room for more rate increases in 2017, Lockhart says.

U.K. tells WhatsApp to open up to intelligence services.

Merkel party's victory in regional election blunts a rival's surge.

The 300-year quest to make a foolproof £1 coin.

Michael R. Bloomberg: Stop blaming. Start governing.

Evolution is slower than it looks and faster than you think. Sluggish Housing Recovery Took $300 Billion Toll on U.S. Economy, Data Show Iraq Military Contradicts Claim U.S.-Led Coalition Airstrike Killed Civilians, Blames Islamic State The Future of Music: Playing for $30,000 in Tips The High-Speed Trading Behind Your Amazon Purchase OPEC Warns Members to Comply With Oil-Production Cuts In the Era of Cheap Oil, Gulf Producers Are Forced to Borrow

Futures are lower this morning, and the story that everyone will be telling is that the failure to pass a replacement to Obamacare is an inauspicious sign for tax reform -- the policy change investors have really been salivating over. For this narrative to make sense it's important to understand and isolate why health-care reform failed.  Let's go through some options. One possibility is that it's uniquely difficult. Attempts to reform the health system famously ended in disaster during Bill Clinton's presidency, and the passage of Obamacare resulted in the GOP sweep of 2010. If this failure was something unique to health care, then maybe it doesn't say much about taxes. Another possibility is that deep down President Donald Trump just didn't view this as a priority. One might surmise that he's more enthusiastic about taxes, and so will be able to get that done. Alternatively, as per this POLITICO report, Trump really wasn't into the nitty-gritty of health-care policy, which could be a bad sign for complex tax negotiations. Another possibility is that the bill died because of internecine ideological battling (Freedom Caucus vs. Paul Ryan), in which case the real question is whether those divides will be as stark in a debate about taxes. Or maybe health-care reform died because liberal activists did such a good job showing up at town halls and made politicians scared to sell it, in which case it's hard to imagine the same level of opposition energy when it comes to reforming taxes. The bottom line is that before concluding what the failure of health-care reform means for taxes it's important to have a clear idea of why it actually failed, since some reasons will apply to the next debate while others won't.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, FT