Wednesday April; 26 Daily Market Primer

•         Stocks surged
•         NAS 6K
•         Tax reform baked in
•        Earnings strong

Global stocks surged for a second day on the anticipation of tax reform, which followed the French election relief rally on Monday, and strong Q1 earnings this week.   The S&P climbed .6% and the Dow over 1%, while the NASDAQ moved up .7% and crossed 6000 for the first time, while the VIX is back down below 11.  The Dollar rose and treasuries dropped slightly, while WTI is hovering around $50.  Asian markets rose, but Europe mostly fell, and S&P futures are slightly negative, perhaps indicating that the market has already fully discounted today’s tax plan reveal, the main points of which have been widely discussed for the last 24 hours.  The plan is expected to cut the top corporate tax rate to 15% and set a 10% levy for repatriation of overseas profits.   Its worth noting that many companies avoid paying the top tax rates now.

	LAST	CHANGE	% CHANGE
DJIA	20,996.12	232.23	1.12%
Nasdaq	6,025.49	41.67	0.70%
S&P 500	2,388.61	14.46	0.61%
Russell 2000	1,411.08	13.13	0.94%
Global Dow	2,735.40	-2.21	-0.08%
Stoxx Europe 600	387.05	0.14	0.04%
Nikkei 225	19,289.43	210.10	1.10%
UK: FTSE 100	7,270.13	-5.51	-0.08%
CBOE Volatility	10.66	-0.18	-1.66%
Australia: S&P/ASX 200	5,912.00	40.20	0.68%
China: Shanghai Composite	3,140.85	6.28	0.20%
Hong Kong: Hang Seng	24,578.43	122.49	0.50%
Europe Dow	1,711.89	1.95	0.63%
India: S&P BSE Sensex	30,133.35	190.11	0.11%
France: CAC 40	5,276.75	-1.13	-0.02%
Germany: DAX	12,450.37	-16.67	-0.13%
Italy: FTSE MIB	20,707.39	-98.13	-0.47%
Spain: IBEX 35	10,725.10	-58.00	-0.54%
U.S. 3 Month	0.82	-0/32
U.S. 2 Year	1.301	-1/32
U.S. 5 Year	1.865	-1/32
U.S. 10 Year	2.339	-1/32
U.S. 30 Year	2.993	-3/32
Germany 2 Year	-0.692	1/32
Germany 10 Year	0.367	3/32
Crude Oil	49.23	-0.33	-0.67%
Brent Crude	51.75	-0.35	-0.67%
Natural Gas	3.214	0.049	1.55%
S&P GSCI	382.43	-1.14	-0.30%
E-mini S&P 500	2383.5	-1.5	-0.06%

Global banks are popular with investors again, with rates and spreads rising, so it’s a good time to raise money, and Credit Suisse is doing just that, with a $4 billion rights offering following a good quarter.  There are lots of earnings announcements, with Pepsi beating on revenue and profit, and Boeing beating on profit, and Twitter beat expectations and reported 6% monthly active users, and the stock jumped 11% in the pre-market.   

Here’s the news:

Bringing it back home

President Donald Trump's tax plans include a proposal for a one-time levy of 10 percent on the more than $2.6 trillion in earnings U.S. companies hold offshore, according to a White House official familiar with the plan. The president's move to cut the corporation tax to 15 percent in the U.S. is being seen as an opening gambit in negotiations, rather than a red line, by economists as the drop in receipts would boost the deficit too much to be sustainable. Elsewhere, the U.S. Navy flotilla sailing toward the Korean peninsula is missing one key component: The ability to shoot down Kim Jong Un’s ballistic missiles. 

Credit Suisse, Stanchart

Credit Suisse Group AG will raise 4 billion francs ($4.03 billion) in a rights offering, saying it has abandoned plans to IPO its Swiss Universal Bank. The company posted profits of 596 million francs for the first quarter, well ahead of analyst expectations. Shares in Credit Suisse gained 2.8 percent by 5:40 a.m. Eastern Time in Zurich trading. Standard Chartered Plc also beat expectations for the first quarter, reporting underlying pretax profit of $1.05 billion. Shares added 2.7 percent by 5:43 a.m. in London trading. 

Brexit moves

International banks are getting serious about moving to Frankfurt ahead of the U.K.'s exit from the European Union, according to property brokers in Germany's financial capital. Estimates on the number of financial jobs London will lose post-Brexit range from 4,000 to 232,000. European Commission President Jean-Claude Juncker and chief negotiator Michel Barnier will be in the British capital today for their first talks with Minister Theresa May since she triggered the start of Brexit negotiations. 

Markets quiet

Overnight, the MSCI Asia Pacific Index advanced 0.5 percent, while Japan's Topix index climbed 1.2 percent, extending its longest rally of the year. In Europe, the Stoxx 600 Index was 0.1 percent higher at 5:50 a.m. as utility company earnings disappointed. S&P 500 futures were broadly unchanged. 

Directionless oil

A barrel of West Texas Intermediate for June delivery was trading at $49.52 as of 5:55 a.m. amid conflicting signs on whether U.S. stockpiles are retreating. Today's Energy Information Administration report is expected to show a drop of 1.75 million barrels, which would jar with yesterday's American Petroleum Institute data which saw crude supplies increase by 897,000 barrels.

Trump will introduce his tax plan. The plan, which could slash corporate taxes to as low as 15%, is expected to be a broad outline and will most likely include provisions for infrastructure spending and a tax credit for childcare, according to Politico's Nancy Cook and Ben White.
The Nasdaq tops 6,000 for the first time. The tech-heavy index put in its first close above the 6,000 level on Tuesday, and it is now up 11.9% in 2017.
Fed rate-hike odds are soaring. World Interest Rate Probability data provided by Bloomberg shows a 72.6% chance the Federal Reserve will raise rates in June or sooner. That's up from 43.7% one week ago.
UK government debt is at its lowest level since the financial crisis. The government's debt load has fallen by 20 billion pounds over the past year to 52 billion pounds, the lowest since before the 2008 financial crisis, The Times says, citing data from the Office for National Statistics.
Credit Suisse is raising cash. Switzerland's second-largest bank said in a statement on Wednesday it would raise about 4 billion Swiss francs ($4 billion) by offering new shares to investors.
The owner of Ugg boots is up for sale. Decker Outdoors announced it was exploring strategic alternatives, including a sale, that have the "potential to unlock further value" for shareholders.
Chipotle's sales grow for the first time since the E. coli crisis. Same-store sales, or sales at restaurants open for at least one year, rose 17.8% year-on-year (versus 15.5% forecast) after a 29.7% drop a year earlier. Both revenue and earnings were also ahead of estimates.
US Steel is tanking after reporting an unexpected loss. US Steel shares are down by 17% before the opening bell after the company reported an adjusted loss of $0.83 a share versus the Wall Street expectation of a gain of $0.35. Revenue was also light, coming in at $2.73 billion versus expectations of $2.95 billion.
Stock markets around the world trade mixed. Japan's Nikkei (+1.1%) led the gains in Asia, and Germany's DAX (-0.1%) is slipping in Europe. The S&P 500 is set to open up 0.1% near 2,391.

Earnings reporting is heavy. Anthem, Boeing, Northrop Grumman, PepsiCo, and Twitter are among the names reporting ahead of the opening bell, while Buffalo Wild Wings releases its quarterly results after markets close.

Tax Relief
President Trump plans to unveil a proposal to cut corporate taxes on U.S. companies’ foreign profits and slash the top tax rate on “pass-through” businesses to 15% from 39.6%, according to White House officials. Most U.S. businesses are pass-throughs, so called because their income and deductions pass through to their owners’ returns. They include many small businesses, but also large global law firms, hedge funds and Mr. Trump’s own real estate and branding businesses. The president also plans to include a tax break for child-care expenses, similar to the one he proposed during the campaign at the urging of his daughter Ivanka. By restating core pieces of his campaign-trail plan, Mr. Trump is trying to frame the tax debate in Congress. But parts of his plan clash with House Republicans’ ideas, and the party is embarking on the enormous task of trying to rewrite the tax code.

Onward and Upward
The Nasdaq Composite raced past the 6000 level for the first time yesterday, pushing the benchmark MSCI International World Price Index to an all-time high. Results of the French election propelled shares higher Monday and Tuesday, while anticipation of Mr. Trump’s tax plans have fueled analyst expectations about the benefits of lower rates on corporate earnings. Nasdaq’s milestone—reached 17 years after it hit 5000 during the dot-com era—came amid a broad rally turbocharged by earnings from bellwether companies including Caterpillar and McDonald’s and surging technology shares. The tech sector has flourished more under Mr. Trump than any other industry, save banking, despite Silicon Valley’s wariness over his election, writes our columnist Greg Ip. But the market ebullience didn’t extend to all corners. Analysts warn that bonds and commodities are sending less-upbeat signals.

Hard Line
Mr. Trump told aides to toughen a State Department letter that declared Iran in compliance with a landmark nuclear deal, senior U.S. officials involved in a policy review said. According to these officials, top White House advisers said the initial letter was too soft because it ignored Tehran’s destabilizing activities in the Middle East and support for regional terrorist groups. Mr. Trump personally weighed in on the redrafting of the letter, and told Secretary of State Rex Tillerson to follow up the next day with a strident public message that the new administration was planning a policy shift toward Iran, putting the nuclear deal in play. The episode highlights divisions between Mr. Trump’s hard-line position on Iran and the approach taken by some career diplomats and European allies.

Twice as Nice
Second breakfast, long enjoyed by Hobbits and Europeans, is catching on in America as harried consumers fit meals around workouts, jobs and commutes. The trend, which seems to have caught the food industry by surprise, has boosted sales of frozen breakfast entrees by 24% and frozen breakfast sandwiches by 30% over the past five years. Restaurants and food makers are responding with new offerings, many of which are smaller, savory and more conveniently packaged. Proponents argue that by staving off hunger, second breakfast leads to better food choices throughout the day. But enthusiasts should be mindful of how those meals fit into their overall consumption, says Weight Watchers Chief Scientific Officer Gary Foster.

Twice as Nice
Second breakfast, long enjoyed by Hobbits and Europeans, is catching on in America as harried consumers fit meals around workouts, jobs and commutes. The trend, which seems to have caught the food industry by surprise, has boosted sales of frozen breakfast entrees by 24% and frozen breakfast sandwiches by 30% over the past five years. Restaurants and food makers are responding with new offerings, many of which are smaller, savory and more conveniently packaged. Proponents argue that by staving off hunger, second breakfast leads to better food choices throughout the day. But enthusiasts should be mindful of how those meals fit into their overall consumption, says Weight Watchers Chief Scientific Officer Gary Foster.

Trump's 15% tax plan reportedly goes beyond companies

Trump (Pool/Getty Images)

President Donald Trump's proposal to cut the corporate tax rate to 15% extends beyond companies to cover partnerships and proprietorships that are taxed through parts of the tax code that apply to individuals, sources say. The proposal reportedly does not mention a border-adjustment tax.

The New York Times (free-article access for SmartBrief readers) (25 Apr.),  Reuters (25 Apr.),  Bloomberg (25 Apr.) 

 

Read opinions from the Annual UVA Investing Conference on the future of the global economy and the potential impact of President Donald Trump    Market Integrity Insights (30 Dec.) 

Analysis: Factors other than Brexit to hit London hard

The UK's withdrawal from the EU likely won't hurt London's financial sector as much as some people think, but other factors, including automation, low investment returns and pressure to reduce expenses, will cause more pain, according to this analysis.  The Wall Street Journal (tiered subscription model) (24 Apr.) 

Bond ETF sales surge to quarterly record

During the first quarter, investors poured a record $44.5 billion into bond exchange-traded funds, according to BlackRock's iShares. The previous record for bond ETF inflows was $42.5 billion in Q1 of 2016.  Reuters (25 Apr.) 

Direxion unfreezes creations for gold-miners ETF

Direxion has resumed creations for its Daily Junior Gold Miners Index Bull 3X Shares exchange-traded fund. The fund manager froze creations because of a shortage of investments that expose investors to the MVIS Global Junior Gold Miners Index.  ETF.com (25 Apr.),  Barron's (free content) (25 Apr.) 

·         There's a huge disagreement between stocks and bonds.

·         Populists taking power tends to be good for stocks.

·         One third of Europeans are happy to ditch cash.

·         Bears are circling the Hong Kong dollar.

·         The electric car boom is so real even oil companies say it's coming.

·         Renaissance Technologies is good at making money, and billionaires. 

·         Coal is dead.

·         Threads of Confidence Emerge in a Former Textile Town
Federal Judge Says Trump’s Order on Sanctuary Cities Is Likely Unconstitutional

·         Inside Turkey’s Irregular Referendum
EU Hopes to Increase Dialogue With Moscow but Obstacles Remain

·         Rising Home Prices Raise Concerns of Overheating

Retailers’ Call Centers Bring Life to Dead Mall Space

Yesterday on TV we had the chance to sit down with Jan Hatzius, the chief economist at Goldman Sachs Group Inc., and one of sharpest minds on Wall Street. Around the 21-minute mark I asked what will cause the next recession, and what, if anything, concerns him about the U.S. economy right now. He says the risk of recession is quite low for 2017 and 2018, and he sees a "relative lack of big financial imbalances" the likes of which you usually see before a decline in economic output. A lack of financial imbalances would definitely constitute good news, if true (leverage often finds a way to hide). In the meantime, economic imbalances seem to be showing up in other ways. So far in 2017, the Nasdaq Composite Index is up nearly 12 percent versus a gain of 6.7 percent for the S&P 500. One company, Amazon.com Inc., is helping to destroy a retail business model that's been around for decades. The storefronts of Manhattan are increasingly vacant. The top five companies in the S&P 500 are all tech, and there's a sense that the 'network effect' of the biggest tech companies -- like Facebook and Amazon -- is so powerful that few contenders can break through. Now, this isn't the type of trend that might precede a recession or a financial crisis. But it does feel like a slow-burn structural imbalance with ramifications that aren't fully understood.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, ETF.com, Barron’s