Tuesday March 14 Daily Market Primer

•         Stocks mixed
•          UK passes Brexit
•         Ackman folds
•          Merkel vs. Trump

US stocks were mixed Monday, as the Dow fell by a few points, the S&P was “unched”, and the NASDAQ was up .2%.  Treasuries fell, pushing the US 10 year up above 2.60% as the market discounts the highly anticipated March rate hike, and the dollar weakened.  The biggest snow storm of the season is bearing down on the East Coast and may slow trading today.

	LAST	CHANGE	% CHANGE
DJIA	20,881.48	-21.50	-0.10%
Nasdaq	5,875.78	14.06	0.24%
S&P 500	2,373.47	0.87	0.04%
Russell 2000	1,370.28	5.02	0.37%
Global Dow	2,671.51	-5.26	-0.20%
Stoxx Europe 600	373.71	-1.52	-0.41%
Nikkei 225	19,609.50	-24.25	-0.12%
UK: FTSE 100	7,383.44	16.36	0.22%
CBOE Volatility	11.48	-0.18	-1.54%
Australia: S&P/ASX 200	5,759.10	1.80	0.03%
China: Shanghai Composite	3,239.33	2.30	0.07%
Hong Kong: Hang Seng	23,827.95	-1.72	-0.01%
Europe Dow	1,630.10	-2.58	1.71%
India: S&P BSE Sensex	29,442.63	496.40	-0.16%
France: CAC 40	4,986.41	-13.19	-0.26%
Germany: DAX	11,979.71	-10.32	-0.09%
Italy: FTSE MIB	19,652.39	-54.56	-0.28%
Spain: IBEX 35	9,935.90	-60.00	-0.60%
U.S. 3 Month	0.775	1/32
U.S. 2 Year	1.38	0/32
U.S. 5 Year	2.137	1/32
U.S. 10 Year	2.623	1/32
U.S. 30 Year	3.209	0/32
Germany 2 Year	-0.799	-1/32
Germany 10 Year	0.482	-4/32
Crude Oil	48.73	0.33	0.68%
Brent Crude	51.78	0.43	0.84%
Natural Gas	3.114	0.007	0.23%
S&P GSCI	379.43	1.16	0.31%
E-mini S&P 500	2368	-3.75	-0.16%

  

The UK Parliament passed the Brexit bill yesterday, which allows PM Theresa May to trigger Article 50, which she will reportedly do this month.  This is one less uncertainty regarding Brexit.  Hedge fund maven Bill Ackman sold his Valeant stake, after spending the last two years publicly defending the company and trying to turning it around, realizing an estimated $2.3 billion loss.  Ouch. Valeant became the poster boy for both pharmaceutical industry ills and crowded hedge fund trades during the Ackman era.   Angela Merkel was due to meet with President Trump this week, but postponed her trip because of the storm.  To see how this relationship is viewed outside the US, you can read this short piece in the FT:  http://bit.ly/MerkelVsTrump, which quotes political consultant Ian Bremmer as saying that “Nobody is now is leader of the free world, but if there were one, it would be Merkel”.   And, the March Fed meeting starts today (not tomorrow as I wrote yesterday).  Here’s the news: May gets approval

The U.K. Parliament has passed legislation allowing Prime Minister Theresa May to invoke Article 50 of the Lisbon Treaty, with two officials familiar with her plans saying she will use that clause to trigger Brexit negotiations by the end of the month. Scotland's First Minister Nicola Sturgeon threw a spanner in the works when she called for a second Scottish independence referendum to be held by the spring of 2019. The pound, which had proved resilient yesterday, is selling off this morning, and was trading at $1.2143 by 5:20 a.m. Eastern Time.

Fed meeting begins

The two-day Federal Reserve meeting kicks off in Washington later today, with the bank widely expected to announce an interest-rate increase when its decision is published tomorrow afternoon. Economists expect the path for rates to include three hikes this year. While the market seems prepared for that, attention is starting to turn to how the Fed will unwind its $4.5 trillion balance sheet.

Snow day

The mid-Atlantic and northeastern United States is being hit by a winter storm that's expected to bring as much as 20 inches of snow to New York City. Airlines have cancelled thousands of flights, with schools also closed across the region. The massive disruptions, coupled with the Fed decision tomorrow may make for a quiet day in markets today.

Markets slip

Overnight the MSCI Asia Pacific Index dropped 0.1 percent, while Japan's Topic Index closed 0.2 percent lower. In Europe, the Stoxx 600 Index was 0.3 percent lower at 5:47 a.m. on the eve of the Dutch election. U.S. stock-market futures pointed to a lower open.

Hogg out

Bank of England Deputy Governor Charlotte Hogg resigned from her post this morning after U.K. lawmakers on a Treasury committee said she didn’t meet the standards required for the position. She had come under pressure for the non-disclosure of the fact her brother works at Barclays Plc., which the BOE regulates. Her resignation means that once Kristin Forbes leaves at the end of June to MIT, there will be no women in the monetary policy-making levels of the U.K.'s central bank. The CBO's findings on 'Trumpcare' are out. The Congressional Budget Office says the House GOP plan to replace Obamacare would shrink the federal budget deficit by more than $300 billion over the next decade and cause as many as 24 million people to lose their health insurance. The Fed begins a 2-day meeting. Markets are pricing in a 100% probability of a 25-basis-point interest-rate hike by the US Federal Reserve when the meeting concludes Wednesday, according to Bloomberg World Interest Rate Probability data. Traders will be paying close attention to the Fed's dot plot, or path for interest-rate hikes. Brexit is coming. UK Prime Minister Theresa May has been granted the power to trigger Article 50; however, she's not expected to begin the formal process of the UK's exit from the European Union until the end of the month. The British pound is down 0.7% at 1.2131 versus the dollar. China's retail sales grew at their slowest pace in 11 years. National Bureau of Statistics data released Tuesday showed retail sales climbed 9.5% versus a year ago in January and February, making for their smallest increase since 2006. Auto sales, however, were facing a tough comparison because of last year's subsidy on new small-engine cars. Bill Ackman folds on Valeant. Ackman's Pershing Square will sell its entire 27.2-million-share stake in Valeant, saying in a statement: "At its current market value, the Valeant position represented 1.5% to 3% of the various Pershing Square funds; however, the investment required a disproportionately large amount of time and resources. As a result, we elected to sell our investment and realize a large tax loss which will enable us to dedicate more time to our other portfolio companies and new investment opportunities." Shares of Valeant are down nearly 14% ahead of the opening bell. Verizon tried to cut its Yahoo purchase price by $925 million. Verizon and Yahoo eventually agreed to reduce the price to $4.48 billion, or $350 million less than the original deal, Reuters says. Toshiba missed its earnings deadline — again. Shares of Toshiba slid 8% after the company missed the deadline to report its third-quarter earnings. It was granted a one-month extension, however, as it continues to iron out the problems at its US nuclear unit, Reuters reports. Volkswagen's core brand struggles. The German automaker reported earnings from its VW brand of 1.9 billion euros ($2.02 billion), down 11.1% versus a year ago, as it continues to deal with the fallout from its emissions scandal. Revenue for 2016 slipped 0.8% to 105.7 billion euros. US economic data is light. PPI will be released at 8:30 a.m. ET. Stock markets around the world are mixed. Japan's Nikkei (+0.1%) eked out a gain in Asia, and France's CAC (-0.2%) lags in Europe. The S&P 500 is set to open little changed near 2,373. Republicans’ Health Arithmetic The number of Americans without health insurance would grow by 24 million over the next decade under a House Republican proposal to replace most of the Affordable Care Act, according to a nonpartisan report that is likely to complicate GOP lawmakers’ efforts to unite around the plan. The Congressional Budget Office projections were disputed by the bill’s backers, but rattled some centrist Senate Republicans who have said they won’t support legislation that leaves a large number of people without coverage. President Trump campaigned on a pledge to cover all Americans. The CBO also projected the legislation would reduce the federal deficit by $337 billion over the next decade and initially cause premiums to be higher than under current law, though by 2026 they would be lower. See how the House GOP plan compares to the ACA here. Autonomous Autos Chip maker Intel has agreed to buy Israeli car-camera pioneer Mobileye for $15.3 billion—one of its biggest acquisitions ever—in the latest Silicon Valley bet on a vision of cars as turbocharged computers on wheels. The purchase would give Intel a widely used technology in the rapidly emerging business of computer-assisted driving, as well as Mobileye’s customer relationships with auto makers including GM, Volkswagen and Honda. Having largely missed the smartphone revolution, Intel is paying 62 times forward earnings—all its offshore cash and then some—to join the accelerating autonomous-vehicle race, which has sparked bidding wars for companies that specialize in self-driving gear or software. Air War We report that Mr. Trump has given the CIA secret authority to conduct drone strikes against suspected terrorists, changing the Obama administration’s policy of limiting the spy agency’s paramilitary role—and reopening a CIA-Pentagon turf war. The new authority, not previously disclosed, represents a significant departure from the practice that had become standard by the end of former President Barack Obama’s tenure: The CIA used drones and other intelligence resources to locate suspected terrorists but left the actual strikes to the military. The agency first used its new authority in late February on a senior al Qaeda leader in Syria, U.S. officials said.

Vista to pay $3.6B for Canadian fintech DH Vista Equity Partners will acquire Canadian financial-technology company DH for $3.6 billion, take it private and combine it with UK software firm Misys, one of Vista's portfolio companies. Misys had planned to go public last year in London but canceled the deal. Reuters (13 Mar.)  JPMorgan moves to phase out IRA commissions As part of its move to stop paying advisers commissions on individual retirement accounts, JPMorgan Chase has begun notifying wealth-management clients their accounts may be shifted from advisers to a self-directed online platform. The company said it is making the change to comply with the Labor Department's fiduciary rule, which is set to take effect in April, though the Trump administration is reviewing it.  Reuters (13 Mar.),  The Wall Street Journal (tiered subscription model) (13 Mar.)  Guggenheim readies multifactor-strategy equity ETF Guggenheim Investments has filed with the Securities and Exchange Commission for an exchange-traded fund investing in large-cap equities based on multifactor methodology. The Guggenheim Multi-Factor Large Cap ETF would pick investments from the Standard & Poor's 500 index.  ETF.com (13 Mar.)

Why Robert Shiller is worried about the rally. Investors are betting against Trump's trade war.

India's sliding bond risk shows Asia is a haven from the Fed.

OPEC's best signal of success no longer looks so promising...

...While oil executives are confident the future is bright.

These Fed officials give the best policy signal.

By most traditional measures, President Donald Trump is underwater in his job approval rating. According to RealClearPolitics's average of the polls, his disapproval rating stands at 49.7 percent while his approval rating is at 44.3 percent. But these numbers don't totally square with other datapoints. Most measures of consumer confidence or sentiment have surged and stayed elevated since the election. On that note, Bloomberg Intelligence Chief Economist Michael McDonough came across some fascinating data from the University of Michigan Consumer Sentiment Survey. In February, an unprecedented 28 percent of respondents provided unsolicited positive commentary about economic policies coming out of Washington. As you can see in the chart below, this is a staggering break from the last 40 years. So while Trump's approval ratings overall are mediocre, from an economic standpoint, there's plenty of evidence of a big surge in optimism.

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