Thursday March 16 Daily Market Primer

•          Fed moves
•         Stocks jump
•         PBOC moves, BOJ holds
•         Central bank beat goes on

They say “buy the rumor, sell the news”, but equity investors have been buying both the rumor and the news lately, as US stocks turned in a very favorable reaction to the Fed hike of  the benchmark rate to .75% on Wednesday.    Janet Yellen said that the “simple message is the economy is doing well” and the Fed dot plot predicts three hikes this year.  Minneapolis Fed president Neil Kashkari dissented.  Kashkari worked with Treasury Secretary Hank Paulson in the Bush administration, then for PIMCO, and ran for Governor of California before joining the Fed in 2016.   The emergence of Kashkari as the biggest dove and the more moderate tone of the press conference led the market to a more dovish interpretation of the Fed’s position than was expected.  The S&P rose .9%, as energy shares came back strong and oil price rebounded 2.4%.  The MSCI Emerging Market index rose 1% J.  Overseas markets are flashing green and US futures are anticipating some follow through from yesterday.

	LAST	CHANGE	% CHANGE
DJIA	20,950.10	112.73	0.54%
Nasdaq	5,900.05	43.23	0.74%
S&P 500	2,385.26	19.81	0.84%
Russell 2000	1,382.83	20.45	1.50%
Global Dow	2,705.47	27.76	1.04%
Stoxx Europe 600	373.71	-1.52	-0.41%
Nikkei 225	19,590.14	12.76	0.07%
UK: FTSE 100	7,421.16	52.52	0.71%
CBOE Volatility	11.20	-1.10	-8.94%
Australia: S&P/ASX 200	5,785.80	11.80	0.20%
China: Shanghai Composite	3,268.94	27.18	0.84%
Hong Kong: Hang Seng	24,288.28	495.43	2.08%
Europe Dow	1,659.62	33.03	0.64%
India: S&P BSE Sensex	29,585.85	187.74	2.03%
France: CAC 40	5,018.15	32.67	0.66%
Germany: DAX	12,109.96	100.09	0.83%
Italy: FTSE MIB	20,106.82	332.80	1.68%
Spain: IBEX 35	10,139.00	155.80	1.56%
U.S. 3 Month	0.734	-0/32
U.S. 2 Year	1.34	-2/32
U.S. 5 Year	2.038	-5/32
U.S. 10 Year	2.525	-8/32
U.S. 30 Year	3.135	-16/32
Germany 2 Year	-0.792	-2/32
Germany 10 Year	0.455	-12/32
Crude Oil	49.28	0.42	0.86%
Brent Crude	52.3	0.49	0.95%
Natural Gas	2.987	-0.053	-1.74%
S&P GSCI	385.02	4.86	1.28%
E-mini S&P 500	2385.25	4.75	0.20%

Initial unemployment claims came in at 241K, -2K from the prior week, and in line with the Bloomberg consensus number of 240K.  The People’s Bank of China also moved on Thursday, boosting rates on all short and mid term liquidity tools by 10 basis points.  Hong Kong must have liked it since the stock market jumped up 2%.   The Bank of Japan held rates steady, and did not alter the course of its very big asset purchase program.  And the central bank beat goes on, with meetings in the UK, Norway, Indonesia, and Turkey this week.

Noteably, the Fed is ready to talk about letting their balance sheet decline.  If you assume that Janet Yellen may not serve beyond next January, she will be more comfortable if the process of reducing the balance sheet has started when she retires.  Mortgage rates have ticked up, which may influence the decision on the timing of the Fed unwind, since the Fed holds a great deal of mortgage securities on the balance sheet.   The legislative agenda is not moving very well, with the ACA replacement bogged down, and the pipeline is ambitious, with trade reform and infrastructure spending not even started.    The lynchpin of all the fiscal policies is the border tax, which is not very popular in Washington.  If they can’t push it though,  they won’t have the money to pay for the fiscal stimulus and the other things they want to pass.

Here’s the news:

Markets rally around the world

Markets everywhere have been in rally mode since the Fed decision yesterday. Overnight, the MSCI Asia Pacific Index rose 1.5 percent, while Japan's Topix index added 0.1 percent following the BOJ decision. The MSCI Emerging Markets Index is up over 2 percent since the decision. Oil has gained about 2 percent. In Europe, the Stoxx 600 Index was 0.6 percent higher at 5:46 a.m. as concerns about political instability waned.  After rallying yesterday, U.S. stocks futures are pointing to a higher open.

Budget cuts

Almost every federal agency would be hit in historically deep budget cuts proposed by President Donald Trump. Spending reductions would hit medical research and the Environmental Protection Agency particularly hard as the president seeks to boost defense spending. Another flagship Trump policy was dealt a blow as courts in Hawaii and Maryland blocked the second iteration of his travel ban.

Dutch center holds

Yesterday's election in the Netherlands did not produce the expected lurch to the far right, with Geert Wilder's Freedom Party winning 20 seats in the 150 seat parliament, with more than 90 percent of the votes counted. Prime Minister Mark Rutte’s Liberals, who won 33 seats, must now seek partners to form a coalition government. The euro reached a one-month high, while French and Italian bonds rallied following the result.

Central bank week continues

Following yesterday's Fed rate hike, the overnight hold from the Bank of Japan and rate increase from the People's Bank of China, it is the turn of European central banks to announce their decisions today. Already this morning there have been holds from Norway's central bank, and Switzerland's -- a decision that came with a warning about the strength of the currency. At 8:00 a.m. Eastern Time, the Bank of England will announce its decision, with expectations for rates to be kept unchanged, despite faster inflation in the U.K.

Resource investment

China's sovereign wealth fund and its largest energy company are in talks with Saudi Arabia about an investment in the Saudi Aramco IPO, according to people with knowledge of the matter. There is still no date, or location, for the listing of the company, which is not expected until 2018. Elsewhere, Indian mining billionaire Anil Agarwal plans to buy as much as 2 billion pounds ($2.4 billion) of Anglo American Plc shares in the market, building a stake of about 13 percent of the company's stock. Shares in Anglo rallied as much as 10 percent in London trading this morning.

The next big test for the global stocks rally is U.S. fiscal policy. Janet Yellen made an unsettling admission about the economy. The Federal Reserve raised its benchmark interest rate by 25 basis points to a range of 0.75% to 1.00% at Wednesday's meeting, making for the third rate hike since the financial crisis. But in her accompanying press conference, Yellen said, "The data have not notably strengthened." The Dutch election deals a blow to populism. Prime Minister Mark Rutte's ruling People's Party for Freedom and Democracy is projected to win 33 seats in Wednesday's election, 13 more than populist leader Geert Wilders' party. Japan kept policy on hold. In a 7-2 vote, the Bank of Japan held its key rate at -0.1% and pledged to target a 10-year Japanese government bond yield of 0%. "With regard to the outlook, Japan's economy is likely to turn to a moderate expansion," the BOJ said in its statement. Oil's bounce continues. West Texas Intermediate crude oil trades up 1% at $49.32 a barrel after data released by the International Energy Agency on Wednesday showed US crude stockpiles fell for the first time in 10 weeks. Oil gained more than 2% on Wednesday. Tesla is raising cash. The automaker announced it would raise $1.15 billion mostly through the sale of common stock ($250 million) and convertible senior notes ($750 million). Tesla CEO Elon Musk will also buy more shares. Oracle's cloud business had a huge quarter. The business-software maker announced better-than-expected adjusted revenue and profit, helped by sales at its cloud business surging 62% to $1.19 billion, Reuters reports. GoPro announces more layoffs. The action camera maker announced it was eliminating 270 jobs in a second round of layoffs in three months. "We now expect to deliver revenue in the upper end of our guidance range of between $190 million and $210 million," CEO Nick Woodman said in a statement. Canada Goose prices its IPO. The winter-apparel maker known for its coyote-fur-lined coats priced its initial public offering at 17 Canadian dollars ($12.78) a share, above the range of 14 to 16 Canadian dollars that Wall Street was expecting. Shares will trade under the ticker GOOS. Stock markets around the world are higher. Hong Kong's Hang Seng (+2.1%) led the overnight advance, and Germany's DAX (+1%) paces the gains in Europe. The S&P 500 is set to open up 0.2% near 2,391. US economic data remains heavy. Housing starts, building permits, initial claims, and the Philly Fed will all be released at 8:30 a.m. ET before Jolts Job Openings cross the wires at 10 a.m. ET. The US 10-year yield is up 4 basis points at 2.53%. Restrained Again A federal judge in Hawaii issued a nationwide temporary restraining order Wednesday that bars implementation of President Trump’s revised executive order on immigration and refugees, a significant legal blow to the president’s renewed bid to restrict U.S. entry for people from six Muslim-majority countries. The ruling came just hours before the new ban was slated to take effect at 12:01 a.m. Thursday. Mr. Trump made several changes to his travel restrictions after courts last month faulted his original executive order, but U.S. District Judge Derrick Watson said none of the alterations fixed a central problem: Mr. Trump was likely engaged in unconstitutional religious discrimination, the judge said, citing Mr. Trump’s campaign statements. The ruling isn’t a final determination of the executive order’s underlying legality, but rather a finding that the challengers are likely to ultimately prevail in the courts. Nudging Toward Normal The Federal Reserve said Wednesday it would raise short-term interest rates and keep lifting them this year, moving the central bank into a new, more aggressive phase of draining easy money from the financial system as the economy improves. Officials said they would raise their benchmark federal-funds rate by a quarter percentage point to a range between 0.75% and 1%, and penciled in two more increases this year. “The simple message is the economy’s doing well,” Fed Chairwoman Janet Yellen said, though she was careful to note that the Fed hadn’t significantly changed its forecasts for economic growth, unemployment or inflation, despite expecting continued improvement. Markets welcomed the news, which sent stocks and bond prices higher. Meanwhile, a key bank metric suggests caution: new data show loan growth is slowing, raising questions about whether investors’ expectations will be realized. Russia’s Other Hackers Federal authorities said Wednesday that Russian government spies were behind Yahoo’s notorious 2014 security breach, stealing information about more than a half billion online accounts, including those used by U.S. military officials and by employees of firms in banking, finance and transportation. The Justice Department announced the indictments of two officers of Russia’s Federal Security Service, alleging they directed and paid for the illegal collection of information in the U.S. and abroad. The case is expected to escalate tensions between the U.S. and Russia over cybercrime and espionage. Authorities said the two agents worked with indicted co-conspirators to hack into Yahoo computer systems and used information stolen from Yahoo to target other email providers, including Google. The man who seems most likely to face prosecution is a 22-year-old Canadian resident who bragged online about dropping out of high school to pursue an internet career that apparently enabled him to live luxuriously.

The lone dissenter from the Fed's rate move is worried about inequality.

Wall Street keeps faith in oil recovery even as prices drop.

Steve Cohen is trying to teach computers to think like top traders.

Luxury car buff 'Mr. Karim' at center of Russia Yahoo hack.

May shows weak hand in run-up to Bexit with tax hike retraction.

Hans Rosling, population prophet: Five final thoughts. Trump Budget Seeks Big Cuts to Environment, Arts, Foreign Aid Republicans Explore Changes to Health-Care Plan As Trump Targets Nafta, Car Industry Aims to Roll With the Changes Google, Facebook Build a Data Highway to Asia—Financed by a Chinese Developer Dutch Voters Rebuff Anti-Immigration Candidate Brazil on Tenterhooks Over List of Politicians Subject to Investigation The Fed Raised Rates. Don’t Expect the Same for Your Bank Deposits Fed Rate Path Looms Over China’s Central Bank Investors bet $9.6bn on a fall in bond prices Value of short positions against three BlackRock ETFs has increased significantly

After yesterday's Federal Reserve decision, there was green everywhere you looked. Stocks, gold, oil, copper, emerging markets, sovereign bonds, corporate bonds ... it was all up.  GAL, an exchange-traded fund that encompasses a broad portfolio of asset classes around the world, had its best one day gain since June 28, 2016. So does this mean the Fed re-stoked the vaunted reflation trade that everyone's talking about? Perhaps. But when one thinks of reflation, one doesn't typically think of interest rates on Treasuries diving, which is what happened yesterday. For example, 10-year yields moved from 2.6 percent to 2.5 percent over the course of the day, while five-year real interest rates also fell notably after the decision, going back into negative territory. Again, that doesn't exactly scream reflation. (It's also worth pointing out that five-year real rates peaked mid-December and have been mostly sliding since then, even as equities started the year at such a blistering pace). So perhaps 'reflation' isn't the word we're looking for now, or even recently, to describe what we've seen this year. But what's a better term for it? Send me an email to jweisenthal@bloomberg.net if you have any thoughts.

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