Tuesday March 4 Daily Market Primer

•         Stocks fell
•         Car sales crack
•         TSLA>F
•         Health care redux?

US stocks fell slightly yesterday after car sales disappointed.  The South African rand dropped for the seventh day as S&P downgraded the countries debt to junk.  The March Fed minutes are due out tomorrow, and on Friday its time for the March nonfarm payrolls number.  Global stocks are mostly down and the S&P E-Mini future doesn’t look good for the open, at -.4%.

	LAST	CHANGE	% CHANGE
DJIA	20,650.21	-13.01	-0.06%
Nasdaq	5,894.68	-17.06	-0.29%
S&P 500	2,358.84	-3.88	-0.16%
Russell 2000	1,369.67	-16.25	-1.17%
Global Dow	2,681.60	-2.65	-0.10%
Stoxx Europe 600	381.75	0.61	0.16%
Nikkei 225	18,810.25	-172.98	-0.91%
UK: FTSE 100	7,312.42	29.73	0.41%
CBOE Volatility	13.06	0.69	5.58%
Australia: S&P/ASX 200	5,856.60	-16.10	-0.27%
China: Shanghai Composite	3,222.51	12.28	0.38%
Hong Kong: Hang Seng	24,261.48	149.89	0.62%
Europe Dow	1,645.36	-21.99	0.98%
India: S&P BSE Sensex	29,910.22	289.72	-1.32%
France: CAC 40	5,078.04	-7.87	-0.15%
Germany: DAX	12,234.37	-22.83	-0.19%
Italy: FTSE MIB	20,140.26	-102.62	-0.51%
Spain: IBEX 35	10,276.50	-48.80	-0.47%
U.S. 3 Month	0.792	1/32
U.S. 2 Year	1.242	-1/32
U.S. 5 Year	1.86	-1/32
U.S. 10 Year	2.327	-1/32
U.S. 30 Year	2.966	-8/32
Germany 2 Year	-0.814	1/32
Germany 10 Year	0.247	10/32
Crude Oil	50.53	0.29	0.58%
Brent Crude	53.5	0.38	0.72%
Natural Gas	3.149	0.021	0.67%
S&P GSCI	387.12	1.52	0.39%
E-mini S&P 500	2345.75	-10.25	-0.44%

Car sales are usually pretty routine monthly economic statistic, but not yesterday, as the data showed unexpectedly large drops for Ford, GM, and Fiat Chrysler, which were all off 3 -4% for the month.  This is counter to recent data that has confirmed strong economic growth, and could add to the hard data (cars sales, etc.) vs soft data (economic surveys) debate.  Meanwhile, Tesla reported on Sunday that they made 25,000 cars in the first quarter, and didn’t disappoint for a change, and the stock rose 7%, which prompted Elon Musk to taunt short sellers on Twitter.  Mr. Musk better hope the price stays high, since he has hundreds of millions in personal loans secured by Tesla stock.  The media can’t stop talking about how the market cap of Tesla passed Ford yesterday (last story).  And, Bloomberg reports that the Trump administration is considering another run at health care legislation (Health care reborn, below).

Here’s the news:

Warning sign

Yesterday's disappointing U.S. auto sales numbers risk ending a period of calm in markets that has seen the CBOE Volatility Index fall to its lowest quarterly average since 2006. While stocks finished Monday's session only slightly lower, the fortunes of the wider market have historically been tied to those of the big automakers. The collapse in car demand is also likely to put pressure on President Donald Trump's factory jobs policy.

South Africa junked

S&P Ratings downgraded South Africa's credit rating to junk yesterday following President Jacob Zuma's decision to fire his finance minister last week. The loss of investment grade status for the first time in 17 years saw a sell-off in the rand, which was trading at 13.8272 to the U.S. dollar by 5:32 a.m. Eastern Time. Should either of the two remaining rating agencies that still have the country at investment grade reduce their designations to junk, it would increase the pressure on the economy and the president, as it could lead to forced selling of bonds.

Health care reborn

President Donald Trump's White House is pushing House Republicans to sign on to a new version of the recently abandoned health-care bill. While GOP lawmakers see little room on the calendar to hold another vote this month as a two-week recess begins Friday, some close to Trump think it could happen as early as this week. One Trump policy that has been implemented is a crack down on the H-1B visas which channels thousands of skilled overseas workers to companies across the technology industry.

Markets slip

Overnight, the MSCI Asia Pacific Index fell 0.3 percent, while Japan's Topix index dropped 0.8 percent as the yen climbed against the dollar, adding to pressure on automakers. In Europe, the Stoxx 600 Index was 0.1 percent lower at 5:45 a.m. while London's FTSE 100 showed small gains as the pound slid. U.S. futures were also weaker.

Hard or soft?

Eco-data, that is. This week should provide investors with some answers as to whether the U.S. economic boom in survey-based "soft" data is going to be reflected in the "hard" numbers. With auto sales already disappointing, survey data that has been bullish for the economy could face further scorn should Friday's jobs figures not reflect the glowing outlook. At 10:00 a.m. this morning factory orders data will be released with final February durable goods numbers due at the same time. The GOP is working on a new healthcare bill. Vice President Mike Pence and two top White House officials met with members of the House Freedom Caucus on Monday in hopes of reviving plans to repeal and replace Obamacare, the Associated Press reports. Global debt hits an eye-watering $215 trillion. Global debt held by households, governments, financials, and nonfinancial corporates soared by more than $70 trillion over the past decade to a record $215 trillion, or 325% of global gross domestic product, according to data released by the Institute of International Finance. Saudi Aramco might be worth half of what the Saudis say it is. An in-depth report from the Financial Times, using valuations from previous shares sales by British Petroleum and Brazil's Petrobras, says the correct valuation should be no more than $1.1 trillion, about half of the $2 trillion cited by Saudi officials. The Reserve Bank of Australia sounds the alarm. The Reserve Bank of Australia held its key rate at 1.50%, as expected, but warned, "Growth in household borrowing, largely to purchase housing, continues to outpace growth in household income." Gold is at its best level since November. The precious metal trades up 0.4% at $1,259 an ounce, its highest since November 10, two days after President Donald Trump won the election. Verizon is changing the names of AOL and Yahoo after they merge. Verizon will change the name of the combined company to Oath after the completion of its Yahoo acquisition, which is scheduled to take place during the second quarter. Tesla is now bigger than Ford. Tesla's market cap reached $47.77 billion on Monday, overtaking Ford's ($44.70 billion) for the first time. Kate Spade needs more time to think about Coach's bid. The handbag and accessory maker needs a few more weeks to think about last week's undisclosed bid made by Coach, Reuters reports, citing three people speaking on the condition of anonymity. If a sale does happen, it could be below the current valuation of $2.9 billion. Stock markets around the world are lower. Japan's Nikkei (-0.9%) lagged in Asia, and Spain's IBEX (-1.3%) trails in Europe. The S&P 500 is set to open down 0.2% near 2,358. US economic data picks up. The trade balance will be released at 8:30 a.m. ET before factory orders and durable-goods orders cross the wires at 10 a.m. ET. The US 10-year yield is higher by 1 basis point at 2.33%. Nuclear Showdown Senate Democrats on Monday assembled enough votes to mount a filibuster that would block consideration of President Trump’s nominee to the Supreme Court, setting up a fight that could reshape the way the chamber considers future nominees to the court. The Senate Judiciary Committee advanced Judge Neil Gorsuch’s nomination on a straight party-line vote, but 41 Senate Democrats said they would vote “no” later this week on a procedural motion to end debate and bring the nomination to a final vote. That is enough to keep Judge Gorsuch from advancing in the 100-member body, where Republicans control 52 seats but need 60 votes to end debate. If that happens, Republicans are expected to hold a vote to eliminate that requirement for Supreme Court nominees—a rule change known as the “nuclear option.” The Yuan and Only As Chinese President Xi Jinping prepares to head to the U.S. this week, there’s a new twist in the persistent argument that Beijing is keeping its currency artificially low against the dollar. The yuan has recently been rising. The gains have been small—the currency is up 1% against the dollar this year—but began shortly before Mr. Trump was inaugurated. The rise could complicate a central criticism that he has leveled against China: that it is manipulating its currency downward at the expense of the U.S. to bolster exports and its economy. Since Mr. Trump took office, Chinese authorities have relied on capital controls and a broadly weakening dollar to keep the yuan in a narrow range against the U.S. currency. Messrs. Trump and Xi are due to meet Thursday. Electric Shock Elon Musk has steered past Henry Ford in the minds of investors, the latest sign of a seismic shift in the auto industry. Tesla, the upstart Silicon Valley electric-car maker run by Mr. Musk, has overtaken Ford, the automotive pioneer that is exactly 100 years older, as the second-largest U.S. auto maker by stock-market value. Shares in Tesla were up 7.3% Monday, pushing its market capitalization to $48.7 billion, above Ford’s roughly $45.5 billion. Wall Street has soured on blue-chip auto stocks as discounts to sell vehicles soar and inventories balloon, fearful that established players are headed into another one of the prolonged downturns that have plagued the boom-and-bust car business. We explain why Tesla is among the few companies showing the potential to defy that cycle. North Korea linked to N.Y. Fed digital heist Cybersecurity company Kaspersky Lab has linked North Korea with Lazarus, a hacking group held responsible for exploiting the Bangladeshi central bank's account at the Federal Reserve Bank of New York to steal $81 million. Computer logs show a server used by the group to infiltrate the account has connected briefly with a computer in North Korea.  The Wall Street Journal (tiered subscription model) (03 Apr.)  Appetite for M&A surges in Europe, US A significant number of major merger and acquisition deals have been announced this year in Europe and the US, with several more in the offing, as corporations take confidence from returning economic stability and positive growth forecasts. However, China's involvement in M&A in Europe plunged in the first quarter due to government moves to curb investment outflows. The Wall Street Journal (tiered subscription model) (02 Apr.)  Firms experiment with blockchain for syndicated loans A group of 19 major banks and buy-side firms says it has completed a successful experiment that employs blockchain technology proof-of-concept to offer syndicated loans. The announcement reflects a growing interest in the speed and savings that blockchain can offer. Business Insider (03 Apr.)  Strength of Chinese bond market rally raises flags Chinese bond markets are outperforming equities, raising doubts in the long-term stability of the rally. Capital controls and state-directed decisions introduce distortions that make translating market moves challenging. Financial Times (tiered subscription model) (03 Apr.)  European unemployment falls to 8-year low Draghi (Hannelore Foerster/Getty Images) Unemployment in the eurozone fell to 9.5% in February, the lowest level since May 2009, while factory growth in March rose to its highest level since 2011, according to the EU's statistics office. European Central Bank President Mario Draghi attributes the improvements to the ECB's bond-buying scheme. Bloomberg (03 Apr.)  House puts overhaul of Dodd-Frank on hold McHenry (Saul Loeb/AFP/Getty Images) Any legislation to revise the Dodd-Frank Act likely will wait until summer as delays in health care and tax reform have shifted the schedule for the House, says US Rep. Patrick McHenry. There is "no question" the House can "pass a major change to financial-services law," McHenry said. The Wall Street Journal (tiered subscription model) (03 Apr.)

Nuveen launches ETF buying 1- to 5-year bonds Nuveen has brought to NYSE Arca an exchange-traded fund that buys investment-grade bonds maturing in one to five years. The NuShares Enhanced Yield 1-5 Year US Aggregate Bond ETF selects fixed-income securities from the Bank of America Merrill Lynch 1-5 Year US Broad Market Index.  Bloomberg (03 Apr.)  CalSTRS Buys First Social Bond $5 million investment will finance women-owned enterprises and projects for low-income communities. Uncovering the secret history of Wall Street's largest oil trade.

Wage stagnation in the U.S. may not be as bad as you think.

Hedge fund bulls breathe new life into the world's hottest currency.

The student debt overhang is pushing down U.S. rates, Dudley says.

Wells Fargo told to rehire whistle-blower, pay $4.5 million.

Israeli soldiers got caught by a social media honey trap.

Sure, Atlanta can fix its freeway — or build a ramp to jump it.

Yesterday the market capitalization of Tesla Inc. surpassed that of Ford Motor Co., and so of course that got people screaming about how Tesla was overvalued and in a bubble and so forth. On Tesla's big day its CEO Elon Musk even taunted the skeptics, tweeting: "Stormy weather in Shortville..." He tweeted that jibe once before, in April 2013, and the stock is up about six-fold since then. For some reason yesterday I was reminded of the time that Netflix Inc. CEO Reed Hastings wrote a post on Seeking Alpha in December 2010 about how hedge-fund manager Whitney Tilson should cover a Netflix short position that he had, "now." It seemed pretty weird at the time for him to write that, and I probably thought it was a big red flag. But Netflix shares are over five times higher since Hastings wrote that, so the CEO was right! It all goes to show how hard it is to call bubbles. Whether you're looking at traditional metrics or CEO behavior, you can go broke pretty fast shorting stocks you think are overvalued. So how do you really identify a bubble? It's funny you asked, since that was the topic of the latest Odd Lots podcast. Tracy Alloway and I talked to Harvard Business School Professor Robin Greenwood about the characteristics that all stock-market bubbles have in common. It's still hard to make money shorting them, but his guidelines will at least help know when you're looking at one.

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