Thursday March 9 Daily Market Primer

•   Stocks dropped, oil dropped more
•  “Super Mario” Draghi stays the course
•     China PPI + 7.8%
•     Debt ceiling drama is back

US stocks dropped as oil tanked, dragging energy shares and the indices down, with West Texas Intermediate down 5.4% yesterday and trading below $50 this morning, on news that US supplies are higher than expected.  This is despite widely reported strong compliance with the supply agreement by OPEC and non-OPEC countries.   Government yields continue to climb after the Fed convinced the market of a March rate hike last week, with the 10 year at 2.55%.   Stocks are down almost everywhere on Thursday, with Hong Kong falling over 1%, China and India down .7%, and European markets down in the .5% range.  US futures are down slightly.

	LAST	CHANGE	% CHANGE
DJIA	20,855.73	-69.03	-0.33%
Nasdaq	5,837.55	3.62	0.06%
S&P 500	2,362.98	-5.41	-0.23%
Russell 2000	1,366.04	-8.84	-0.64%
Global Dow	2,649.71	-11.66	-0.44%
Stoxx Europe 600	373.71	-1.52	-0.41%
Nikkei 225	19,318.58	64.55	0.34%
UK: FTSE 100	7,275.73	-58.88	-0.80%
CBOE Volatility	12.00	0.55	4.80%
Australia: S&P/ASX 200	5,741.20	-18.50	-0.32%
China: Shanghai Composite	3,216.75	-23.92	-0.74%
Hong Kong: Hang Seng	23,501.56	-280.71	-1.18%
Europe Dow	1,602.19	-10.83	0.09%
India: S&P BSE Sensex	28,929.13	27.19	-0.67%
France: CAC 40	4,942.57	-17.91	-0.36%
Germany: DAX	11,933.68	-33.63	-0.28%
Italy: FTSE MIB	19,387.54	-94.85	-0.49%
Spain: IBEX 35	9,893.80	43.30	0.44%
U.S. 3 Month	0.729	-0/32
U.S. 2 Year	1.359	0/32
U.S. 5 Year	2.093	0/32
U.S. 10 Year	2.561	0/32
U.S. 30 Year	3.152	-1/32
Germany 2 Year	-0.871	7/32
Germany 10 Year	0.377	-2/32
Crude Oil	49.05	-1.23	-2.45%
Brent Crude	51.92	-1.19	-2.24%
Natural Gas	3.01	0.029	0.97%
S&P GSCI	380.76	-6.09	-1.57%
E-mini S&P 500	2360.25	-3.75	-0.16%

Mario Draghi is on TV right now discussing European monetary policy.  He is sticking with the ECB stimulus in spite of recent increases in inflation.  Germany has been urging the ECB to ease up on the big QE program as the economy and inflation pick up.   He just said he expects headline inflation to remain around 2%, but its lower if you back out volatile energy prices.  China’s producer prices surged 7.8%, in February, a clear sign of global reflation.  This is a big jump, but just a little higher than the expected 7.7%.  

Is China getting to hot?  Not according a note published this morning from Evercore ISI’s China expert Don Stratzheim:

“Feb inflation data suggest that the recent rise is not dangerous.  The Feb CPI was +.8% y/y, vs. our estimate of 1.6%, weighted down by Food component due to a super  high base last year and a cheaper Fed vs. Jan in 2017.  And China’s PPI for Feb was 7.8% y/y, vs. our estimate of 7.7%” 

Debt ceiling drama is back, since the last congressional suspension of the debt ceiling ends on March 15.   This has happened before, and the US lost it’s AAA credit rating by S&P in August 2011 as a result of a debt ceiling showdown.  So I’ll be taking next week off (just kidding).

Here’s the news:

ECB day

At 7:45 a.m Eastern Time the European Central Bank will announce its latest monetary policy decision, with President Mario Draghi expected to defend the bank's easing policies at the press conference starting 45 minutes later. With no changes in interest rates likely, investors will be keeping an eye on the inflation forecast update which is due, and looking for confirmation of the abandonment of some crisis-era policy instruments.

Oil below $50

West Texas Intermediate for April delivery continued its tumble this morning, falling as low as $49.20 a barrel by 5:15 a.m. after dropping 5.4 percent in yesterday's trade. At an energy conference in Houston, billionaire shale oilman Harold Hamm warned that the U.S. industry could kill the oil market if it embarks on another spending binge. The increasing threat from U.S. production is leaving OPEC members unsure as to what to do next.

Nearly bear

Yesterday's surprisingly strong ADP employment report pushed 10-year U.S. Treasury yields to the highest level since December, and market-implied odds of a rate hike from the Federal Reserve next week to 100 percent. The yield, at 2.57 percent by 5:30 a.m., is almost in reach of the 2.6 percent mark which bond-market veteran Bill Gross said would signal the start of a bear market -- should it hold on a weekly basis.

Markets slip

Overnight, the MSCI Asia Pacific Index fell 0.4 percent, while Japan's Topix index added 0.3 percent as the yen weakened for a third day against the dollar. In Europe, the Stoxx 600 Index was 0.3 percent lower at 5:39 a.m. as investors awaited the ECB decision. U.S. equity futures were also slipping, setting the market up for its fourth straight day of declines.

Reflation, trade

China's producer prices surged 7.8 percent in February, the fastest pace since 2008 and a jump which lifts the outlook for global reflation. That global reflation will only work if China can still trade globally, which is something policymakers in Beijing seem to be getting increasingly concerned about. A Ministry of Commerce spokesman warned that, should the U.S. decide it is not bound by World Trade Organization decisions, "we would even fall into the same old traps such as the trade war in the 1930s." Oil tumbles below $50. West Texas Intermediate crude oil plunged more than 5% on Wednesday after Department of Energy data showed US inventories swelled to a record-high 528.4 million barrels. That selling has continued Thursday, with WTI down another 1.9% at $49.33 a barrel, its lowest since the end of November. The ECB meets. The European Central Bank is expected to hold its key interest rate unchanged at 0.00% at Thursday's meeting. The decision will cross the wires at 7:45 a.m. ET. China's inflation picture is mixed. Data released by the National Bureau of Statistics showed consumer prices in China rose 0.8% year-over-year, making for the slowest increase since January 2015. Producer prices soared 7.7% YoY, the biggest increase since September 2008. Australia has never had this many homes for rent. CoreLogic says, "The number of rental advertisements over the past year grew 8.7% higher for houses and 9.3% higher for units (apartments)," to 362,708 and 287,233 respectively, the most on record. Traders are certain the Fed will hike rates in March. World Interest Rate Probability data provided by Bloomberg shows a 100% chance the Federal Reserve will raise its key interest rate by 25 basis points to a range of 0.75% to 1.00% at the conclusion of its March 14-15 meeting. The 'trial of the century' begins in South Korea. Samsung head Jay Y. Lee denies all charges against him in a corruption scandal that has already caused the impeachment of South Korean President Park Geun-hye, Reuters reports. Radio Shack's operator files for bankruptcy protection. General Wireless Operations bought Radio Shack in 2015 when it filed for bankruptcy; now it has filed for Chapter 11 reorganization, Reuters reports. Stock markets around the world are lower. Hong Kong's Hang Seng (-1.2%) paced the decline in Asia, and Britain's FTSE (-0.7%) trails in Europe. The S&P 500 is on track to open lower by 0.1% near 2,361. Earnings reporting is light. Staples reports ahead of the opening bell. US economic data trickles out. Initial jobless claims will cross the wires at 8:30 a.m. ET. The US 10-year yield is unchanged at 2.56%. Poll: Macron front-runner for French president Centrist politician Emmanuel Macron is expected to draw more votes than right-wing candidate Marine Le Pen in the first round of the French presidential election, then go on to win decisively in the runoff, a Harris Interactive poll shows. The first round will give Macron 26% of the vote and Le Pen 25%, according to the poll.  Reuters (09 Mar.)  SEC nominee Clayton would face Wall Street conflicts Jay Clayton, President Donald Trump's nominee to head the Securities and Exchange Commission, has represented many high-profile Wall Street firms as a lawyer at Sullivan & Cromwell. Should Clayton be confirmed by the Senate, he will have to recuse himself from SEC involvement with past clients or the law firm for a year and divest assets that could pose a conflict of interest.  Bloomberg (08 Mar.),

Family offices becoming more popular

Family offices managing money for millionaires and billionaires are becoming a more important part of investing in the US, often taking clients and capital from traditional investment banks and private equity funds, in response to rising fees that often produce feeble performance or outright losses. Because they aren't required to register with regulators or report to them, family offices can do business without attracting much attention. The Wall Street Journal (tiered subscription model)

The European Central Bank's stimulus scheme will likely remain in place for the time being, as President Mario Draghi appears unconvinced that the recent inflation rise across the eurozone will prove sustainable. With a wide divergence of national inflation rates, some analysts contend that the overall trend could wane this year.

Bloomberg (08 Mar.), 

Global X launches infrastructure ETF

Global X has brought to Bats Global Markets an exchange-traded fund that invests in the equities of companies that design, build and produce materials for infrastructure projects. The Global X US Infrastructure Development ETF tracks the Indxx US Infrastructure Development Index. ETF.com (08 Mar.), 

A freakish calm surrounds the eight-year bull market.

Manhattan rents decline for apartments of every size.

Gold is on its worst run since October.

Germans really, really love the euro.

French voters are angry and optimistic at the same time.

Enter Berlusconi: A man, a ban, and his plan to restore the lira.

Seven charts that show the search for yield is still very much alive.

It's not entirely obvious how much investors really care about the healthcare reform debate. Excluding people who focus on health-related stocks, investors mostly seem to care about the debate insofar as it affects the timing of legislation on taxes, infrastructure, and regulatory rollback, or what Mohamed El-Erian calls the "trifecta." But perhaps the debate itself -- not just the timing -- is important to investors. Ross Douthat has a brilliant column at the New York Times about why healthcare is so hard for Republicans to do. His argument is that it's much more than the trickiness of healthcare policy itself, but also that the Republican party is in a state of transition. Jimmy Carter, he notes, had huge Democratic majorities during his administration, but couldn't get anything done due to the party's state of transition. The GOP is in a similar process of change, from a libertarian-inflected version of conservatism to a more nationalist one. This tension has arguably produced a bill that is being criticized by all sides of the healthcare debate and not really satisfying anyone. The upshot for investors is that this could be a harbinger of the next four years as ideological divisions within the GOP making it harder than people realize to pass anything big. Of course, that might not be bad news. Obama didn't really get anything done for the last six years of his administration and those were awesome years for investors. Read Douthat's column and ponder what this administration will ultimately be able to accomplish.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, ETF.com