Tuesday March 21 Daily Market Primer

•          Stocks plateaued
•          French election heats up
•         Fed Speak week 2
•         US dominates Forbes rich list

I forgot to say “Happy first day of Spring” yesterday, so there you go.  US stocks plateaued Monday, with the S&P down .2% and the Dow down just .04%, as Chicago Fed President Charles Evans discussed the Fed’s path for normalization of interest rates, suggesting that two or three more hikes may happen this year.   The market is non-pulsed, with the VIX back down to 11, and the 10 year below 2.5%. Emerging market stocks rallied.   Overseas stock markets are mostly up, and US equity futures are pointing up slightly.

	LAST	CHANGE	% CHANGE
DJIA	20,905.86	-8.76	-0.04%
Nasdaq	5,901.53	0.53	0.01%
S&P 500	2,373.47	-4.78	-0.20%
Russell 2000	1,384.10	-7.43	-0.53%
Global Dow	2,710.93	7.58	0.28%
Stoxx Europe 600	377.78	-0.54	-0.14%
Nikkei 225	19,455.88	-65.71	-0.34%
UK: FTSE 100	7,415.36	-14.45	-0.19%
CBOE Volatility	11.14	-0.14	-1.24%
Australia: S&P/ASX 200	5,774.60	-4.30	-0.07%
China: Shanghai Composite	3,261.61	10.80	0.33%
Hong Kong: Hang Seng	24,593.12	91.13	0.37%
Europe Dow	1,672.93	9.21	-0.11%
India: S&P BSE Sensex	29,485.45	-33.29	0.55%
France: CAC 40	5,024.20	12.04	0.24%
Germany: DAX	12,055.94	3.04	0.03%
Italy: FTSE MIB	20,160.68	192.13	0.96%
Spain: IBEX 35	10,279.10	65.10	0.64%
U.S. 3 Month	0.759	0/32
U.S. 2 Year	1.301	0/32
U.S. 5 Year	2.01	-4/32
U.S. 10 Year	2.49	-8/32
U.S. 30 Year	3.096	-12/32
Germany 2 Year	-0.732	-3/32
Germany 10 Year	0.475	-11/32
Crude Oil	48.54	0.32	0.66%
Brent Crude	51.96	0.34	0.66%
Natural Gas	3.12	0.022	0.71%
S&P GSCI	383.35	1.19	0.31%
E-mini S&P 500	2374.25	4	0.17%

The French presidential election is heating up as the candidates had their first debate, with moderate Emmanuel Marcon seen as winning.  UK inflation came it at 2.3%, above the BOE’s target rate of 2%.  Theresa  May will trigger Brexit on March 29 after the way was cleared by Parliament.  Remember the process will take at least two  years.  FBI Director Comey testified to Congress yesterday and continued to stir the political pot, saying there is no evidence of wiretapping and uncharacteristically admitting that there is an ongoing investigation of Russian interference in the US election.   Its another Fed Speak week, with Charles Evans and William Dudley yesterday, and the Kansas City, Boston, and Cleveland Fed presidents all giving speeches today.   The last article discusses Neel Kashkari’s dissenting vote on last week’s Fed rate hike.  And, the Forbes richest list is out, with Gates, Buffet, and Bezos on top.

Here’s the news:

French debate

The euro traded above $1.08 this morning after the independent, centrist candidate Emmanuel Macron came out on top in the first debate between the main contenders to be the next president of France. Markets unwound hedges against French election risks following the debate, with yields on short-dated German notes rising to the highest level in six weeks.

U.K. inflation

Inflation in the U.K. was 2.3 percent in the year through February, ahead of both economists' estimates and the Bank of England's 2 percent target. The pound climbed to $1.2462 after the data were released. The British government announced yesterday that Prime Minister Theresa May would trigger Article 50 of the Lisbon Treaty on March 29 and initiate the two-year negotiation process for leaving the European Union.

Comey testimony

In testimony to Congress yesterday FBI Director James Comey confirmed that the bureau is investigating allegations of Russian interference in November's presidential election, and established that there was no evidence to substantiate the president’s charge that his predecessor had wiretapped him. In Washington, the battle over healthcare rages on as Republican leaders make changes to the proposed bill designed to win over House conservatives, who insist there are still not enough votes to pass the measure.

Markets mixed

Overnight, the MSCI Asia Pacific index rose less than 0.1 percent while Japan's Topix index closed 0.2 percent lower in its first session of the week. In Europe, the Stoxx 600 index was broadly unchanged at 5:45 a.m. Eastern Time with financials among the best performers. U.S. market futures were higher.

Fed speaker week

There are a raft of Federal Reserve officials speaking this week. This morning, Fed Bank of New York President William Dudley gave a talk at a forum on banking standards in London, in which he was critical of Wells Fargo & Co. but made no mention of monetary policy. At 12:00 p.m. the Kansas City Fed's Esther George gives an address, with Cleveland Fed President Loretta Mester due at 6:00 p.m. President of the Boston Fed, Eric Rosengren, is due to make a speech in Indonesia at 9:45 p.m. Eastern Time. UK inflation surpasses the Bank of England's target. Consumer prices jumped 2.3% in February, surpassing the Bank of England's 2% target for the first time in almost 3 1/2 years. Back at its February meeting, the BOE warned of "further substantial increases" in inflation "over the coming months" as a result of the pound's drop following the Brexit vote. France's first presidential debate is in the books. Centrist Emmanuel Macron attacked far-right candidate Marine Le Pen on all fronts but was unable to inflict any "mortal wounds," the BBC says. The Eurogroup's president may be on the way out. Jeroen Dijsselbloem's fate as Eurogroup head will be determined by his peers over the coming months after his party suffered big losses in the Dutch election, Reuters says. His term is scheduled to end in January. Crude oil is on track to snap its losing streak. West Texas Intermediate crude oil trades up 0.8% at $48.62 a barrel and is on pace for its first gain in four days. WTI lost about 2% during its skid. Deutsche Bank is facing more fines. Bloomberg reports that the bank is facing fines from the Federal Reserve and New York’s Department of Financial Services for its conduct in the foreign-exchange market. WeWork raises cash. The office-leasing startup scored a $300 million investment from Softbank and is expected to receive another $2.7 billion from SoftBank's Vision Fund, The Wall Street Journal reports. Bill Gates is the richest person in the world. Gates ($86 billion), Warren Buffett ($77.1 billion), and Jeff Bezos ($72.8 billion) topped Forbes' list of the richest people. President Donald Trump is worth $3.5 billion, according to Forbes. Stock markets around the world trade mixed. Hong Kong's Hang Seng (+0.4%) led in Asia, and Britain's FTSE (-0.2%) lags in Europe. The S&P 500 is set to open higher by 0.2% near 2,379. Earnings reporting picks back up. General Mills and Lennar report ahead of the opening bell, while FedEx and Nike release their quarterly results after markets close. Fed speak is heavy. New York's Dudley, Kansas City's George, Cleveland's Esther, and Boston's Rosengren will all be speaking on Tuesday. The Bureau on the Case FBI Director James Comey said publicly for the first time Monday that the agency is investigating whether members of President Trump’s 2016 campaign collaborated with the Russian government to influence the presidential election. His announcement divulged an active FBI investigation, a rare step by the head of the nation’s largest law-enforcement agency, and all the more extraordinary given that it directly affects the current president. Mr. Comey also used his appearance before the House Intelligence Committee to reject Mr. Trump’s allegation on Twitter that former President Obama wiretapped him during the campaign. Republicans at the hearing sought to direct attention to the cascade of leaks against Mr. Trump from the intelligence community. But so far, at least, it is the president’s credibility that seems most challenged. The Apple of His Eye SoftBank has scrapped a planned $100 million investment in a smartphone startup founded by the creator of Google’s Android software, partly because of the Japanese telecom giant’s increasingly close relationship with Apple. The planned investment would have valued the startup, Essential Products, at $1 billion. The offer banked on the pedigree of Essential founder Andy Rubin, who sold his previous startup, Android, to Google in 2005, then helped turn its software into the world’s most used smartphone operating system. The episode is a window into the unpredictable investing style of SoftBank Chief Executive Masayoshi Son, who is set to enhance his position as one of the tech industry’s most powerful investors with his $100 billion tech-focused Vision Fund. In January, Apple said it would invest $1 billion in the fund. Shell Bet Royal Dutch Shell is trying to reinvent its business with a concept that sounds oxymoronic: budget deep-water drilling. Facing low oil prices for the foreseeable future, Shell is learning to rein in costs and squeeze more production out of big offshore platforms by using drilling techniques pioneered on land. The world’s second-largest publicly traded energy company wants to make new deep-water projects cheaper and faster, especially in Brazil, where it acquired a bevy of offshore prospects as part of its $50 billion purchase of BG last year. It is a strategy born of necessity. With onshore shale oil flooding the market, Shell executives aren’t sure when crude, currently around $50 a barrel, will fetch more again. To win its high-stakes bet, Shell is shaking up its corporate culture. UK reportedly to formally begin Brexit process next week May (Matt Cardy/Getty Images) UK Prime Minister Theresa May will formally begin the Brexit process March 29, sources said. The move has prompted investment banks to make concrete plans to shift some operations out of London, with Dublin and Frankfurt, Germany, emerging as popular alternative venues. Bloomberg (20 Mar.),  Reuters (20 Mar.),  Financial Times (tiered subscription model) (19 Mar.)  UBS to face criminal fraud trial in France UBS Group will be tried on tax fraud charges by a French court, a case that could result in a fine of as much as €4.9 billion, after settlement negotiations with French authorities failed. The bank, which is accused of helping wealthy clients to dodge taxes, says it disagrees with the charges and intends to defend itself in court. Bloomberg (20 Mar.),  Reuters (20 Mar.)  Technical glitch hits NYSE Arca NYSE Arca, which is owned by Intercontinental Exchange, is examining closing prices after a technical problem prevented some symbols from completing the market-closing auction Monday. The Wall Street Journal (tiered subscription model) (20 Mar.),  Reuters (20 Mar.),  Bloomberg (21 Mar.)  Seng Indexes, Hong Kong's primary index compiler, plans to make public as early as August the changes it will make to its 23-year-old H-shares index. The company is considering adding red chips, the shares of companies owned by the Chinese government that trade in Hong Kong, and P-chips, shares of privately owned Chinese companies incorporated outside China, often in Bermuda, the British Virgin Islands and the Cayman Islands, to its Hang Seng China Enterprises Index. South China Morning Post (Hong Kong) (20 Mar.)  ECB policy prompts questions from Bundesbank chief Weidmann (Adam Berry/Getty Images) Bundesbank President Jens Weidmann says the European Central Bank's expansive monetary stance is still appropriate, but the German central bank chief also suggests it may be time to consider ending the stance. "One can absolutely ask the question of whether the ECB governing council shouldn't slowly consider an exit from very loose monetary policy," Weidmann said. Reuters (20 Mar.),  The Wall Street Journal (tiered subscription model) (20 Mar.)  Singapore regulator warns about robo-adviser collapse The growing popularity of robo-advisers raises the risk of contagion if the failure of one automated online financial advice platform spreads quickly to other algorithm-driven service providers, said Ravi Menon, a managing director of the Monetary Authority of Singapore. "This could present systemic risk if investors seek to withdraw their investments in securities through fire sales," he said. ABC (Australia) (20 Mar.),  Survey delves into commission-, fee-based accounts Nearly 60% of investors who work with a financial professional through a commission-based account are likely to take their business to another firm if forced to switch to a fee-only account, a survey by J.D. Power found. At the same time, the survey found that clients with fee-based accounts are generally happier with what they are paying financial firms than those under commission-based accounts.  Financial-Planning.com (20 Mar.)

The real bubble is in inflation expectations.

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The wonder material that may make spray-on solar cells a reality.

Of goosebumps and central counterparty default funds. Cities Restore Lost Streets, Local Charm After Razing Failed Malls Google to Simplify YouTube Advertiser Controls Amid Outcry Over Extremist Videos California’s Wet Winter Points to Some Sorry-Looking Salads Team Trump Meets a Messy World North Korea Has Doubled Size of Uranium-Enrichment Facility, IAEA Chief Says NYSE Arca Suffers Glitch During Closing Auction The Fed Is Stuck in the Past With Its Forecasts of the Future

If you haven't done so yet, go read Neel Kashkari's post on Medium about why he dissented against hiking rates at last week's Fed decision. The Minneapolis Fed President (who became a public figure when he took a role in the TARP program to bail out the banks) walked through his complete thinking about the economy and the stance of monetary policy right now. There's no use reiterating all the points here, but what's notable is how clear his writing and logic is. For a Fed that's been so interested in figuring out how to communicate its ideas more clearly to the public, Kashkari offers a way forward. There are a number of moving pieces in his argument, but the gist is offered in the attached chart (and which he reiterated in an interview on BloombergTV) which is that it The Fed's 2 percent inflation target looks a lot more like a ceiling than it does a true target. If it were a target, he says, then the Fed would be just as comfortable with a modest overshoot as it was with an undershoot, and it wouldn't be tapping the breaks with core inflation where it is. When asked why the Fed has consistently overestimated the pace of future inflation in the post-crisis period, Kashkari said that "mean reversion is the religion of the Fed," which is just a great line. Anyway, definitely read his piece and watch his interview on Bloomberg TV (which was expertly conducted by Jonathan Ferro, Alix Steel, and Matt Boesler) for a great (and most importantly clear) discussion on the U.S. economy and monetary policy.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, FT, SCMP, ABC (Aus)