Wednesday August 9 Daily Market Primer
- Stocks down
- Volatility up
- NK tension
- Disney drops Netflix
US
stocks fell yesterday and the VIX jumped up 11% in reaction to
President Trump’s comments on North Korea at about 3:30 pm Eastern.
Vacationing traders can’t be happy. Even so, the market didn’t move much
with the Dow down 32 and S&P down .2%. The President’s comments followed a
WaPo report that NK has developed a miniaturized nuclear warhead that
could fit into missiles. Oil fell yesterday but is rebounding
today. Asian and European markets are down, presumably over the tension
with North Korea.
TV
watching will get more complicated in the future, with Disney making a big
move into distributing their own content by announcing a phase out of their
partnership with Netflix during the earnings announcement. Both
stocks were down about 3%. It’s a fairly slow news day, lets hope it
stays that way.
Here’s
the news:
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President Donald Trump’s warning that North Korea’s nuclear
threats would be met with “fire fury, and, frankly, power the likes
of which this world has never seen,” is rippling across markets
around the world. The North Korean army reacted to the statement by
announcing it’s examining operational plans for a strike on Guam, a
U.S.-controlled island 2,200 miles south east of Pyongyang. Rhetoric aside,
Trump’s options for striking Kim Jong Un’s regime are probably quite limited.
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Global markets switched to risk-off mode, with gold,
bonds and the yen all rising. Overnight in Asia, the MSCI Asia
Pacific Index slid
0.4 percent, while Japan’s Topix index dropped 1.1 percent as the yen
rallied. In Europe, the Stoxx 600 Index was 0.9 percent lower
at 5:30 a.m. Eastern Time, and the euro was trading at $1.1750. The yield on
10-year U.S. Treasuries eased to 2.24 percent, S&P 500 futures
were down 0.4
percent and gold was trading at $1268.50.
Hot Bonds
British
American Tobacco Plc pulled off the second-largest bond deal of the year
to refinance its buyout of Reynolds American Inc., a $17.25 billion deal
in eight parts. The longest bonds offered, 30-year debt, priced at 170 basis
points over Treasuries. The proceeds will be used to refinance BAT’s 42
billion-pound ($55 billion) buyout of Reynolds, a deal that will propel BAT
to the top position in tobacco-related products globally.
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South African President Jacob Zuma survived a
no-confidence motion in parliament, despite more than two dozen members
of his own party voting against him. The rand dropped after the results, and
was extending those loses today, with the currency trading at 13.4465 to the dollar
by 5:35 a.m. In Kenya, the opposition presidential candidate Raila
Odinga has rejected
preliminary election results showing a commanding lead for President
Uhuru Kenyatta.
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Data from China showed producer price gains were holding steady
despite a recent surge in commodity prices. Policy makers in the country have
their eyes elsewhere at the moment, however, as belated efforts to tackle the
country’s “original
sin” of household and corporate debt kick off. Authorities are looking to
outside investors to help them with the mountain of debt,
with China Chengtong Holdings Group Ltd., an asset manager mandated to
rescue struggling state-owned enterprises, making its debut in global bond markets this
week. The other problem facing planners is the scheduling of the Communist Party
Congress, which means there isn’t likely to be a year-end increase in spending
to keep the economy growing at the current pace.
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Walt Disney Co. said it would stop selling movies
to Netflix Inc. and begin offering movies and ESPN sports programming
directly to consumers via two new streaming services. Shares in both
companies fell more
than three percent in extended trading. Disney’s chief executive
officer Bob Iger said that cutting out third parties was an “opportunity to reach
the consumer directly.”
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North Korea threatens a missile strike on Guam. North Korea's
military announced it was considering a strike on Guam just hours after
President Donald Trump said he'd respond to more North Korean threats on the US
with "fire and fury" unlike the world had ever seen.
Stock
markets around the world are lower. Japan's Nikkei
(-1.29%) led the decline in Asia, and Germany's DAX (-1.26%) trails in Europe.
The S&P 500 is set to open down 0.24% near 2,475.
Safety trades are gaining some momentum. The Japanese yen is
stronger by 0.47% at 109.81 against the dollar, while gold is up 0.49% at
$1,267 an ounce and the US 10-year yield is down 2 basis points at 2.24%.
China's inflation remains weak. Consumer prices in
China rose 1.4% year-over-year in July, missing the 1.5% gain that economists
were anticipating.
The South African rand is weakening after Zuma survives a
no-confidence vote. The currency has fallen by about 2% to 13.4750 per dollar
following the news South African President Jacob Zuma survived a vote of no
confidence that was conducted by secret ballot.
Disney is ditching Netflix. The entertainment
giant said it would end its agreement to release new movies for streaming on
Netflix, starting with 2019 titles, and that it was working on its own ESPN
streaming service. The news came alongside Disney's mixed quarterly results.
Fossil is crashing after giving a brutal sales forecast. Shares of the
watchmaker crashed by as much as 24% in extended trading Tuesday after the
company said it expected revenue to fall by as much as 8.5% in 2017 after
previously forecasting that the measure would contract no more than 6%.
Jeff Gundlach is paying close attention to the 10-year. "One way or
another, it's going to have to break," Gundlach, the cofounder and CEO of
DoubleLine Capital, told CNBC. "I think it'll break to the upside. If it
happens, that will introduce volatility into the market."
Earnings reports keep
coming. Mylan
and Wendy's report ahead of the opening bell, while 21st Century Fox releases
its quarterly results after markets close.
US economic data is
moderate. Productivity
and unit labor costs are due out at 8:30 a.m. ET before wholesale inventories
crosses the wires at 10 a.m. ET.
War of Words
President Trump bluntly warned North Korea not to make any further threats against the U.S., saying they “will be met with fire and fury like the world has never seen.” Within hours, Pyongyang responded by threatening to attack a U.S. military base on the Pacific island of Guam. The president’s comments reflect the administration’s concerns about the progress of North Korea’s nuclear-weapons program and the secretive regime’s unwillingness to put it up for negotiation. The remarks were also likely aimed at spurring China to help enforce new United Nations economic sanctions against North Korea. The Trump administration has also been increasing pressure on Southeast Asian countries to cooperate on sanctions enforcement by shutting down North Korean front companies. The rising tensions rattled markets: Following the president’s comments, the Dow Jones Industrial Average posted its first daily loss since July 24. Overnight, Asian and European markets fell.
President Trump bluntly warned North Korea not to make any further threats against the U.S., saying they “will be met with fire and fury like the world has never seen.” Within hours, Pyongyang responded by threatening to attack a U.S. military base on the Pacific island of Guam. The president’s comments reflect the administration’s concerns about the progress of North Korea’s nuclear-weapons program and the secretive regime’s unwillingness to put it up for negotiation. The remarks were also likely aimed at spurring China to help enforce new United Nations economic sanctions against North Korea. The Trump administration has also been increasing pressure on Southeast Asian countries to cooperate on sanctions enforcement by shutting down North Korean front companies. The rising tensions rattled markets: Following the president’s comments, the Dow Jones Industrial Average posted its first daily loss since July 24. Overnight, Asian and European markets fell.
Google Gap
Google found itself at the center of a firestorm after it dismissed a male employee who wrote a divisive internal memo critiquing the Alphabet unit’s diversity push and suggesting differences between men and women explain some of the hiring gap. Critics said Google had squelched free speech by firing the man, while others said his views showed that the search giant’s diversity policies were needed. The memo’s author, software engineer James Damore, has said he is exploring “all possible legal remedies,” but experts say he is likely to face significant hurdles. The uproar highlights a paradox: Google encourages open discussion in principle but faced a backlash over the memo internally. “There’s no unfettered right for employees to say whatever they want without facing repercussions from their company,” said Daniel A. Schwartz, employment law partner at Shipman & Goodwin. However, diversity experts say Google, which has built its business on the tenets of free speech, may have missed an opportunity to demonstrate its commitment to a broad notion of diversity that includes people with different political points of view.
Google found itself at the center of a firestorm after it dismissed a male employee who wrote a divisive internal memo critiquing the Alphabet unit’s diversity push and suggesting differences between men and women explain some of the hiring gap. Critics said Google had squelched free speech by firing the man, while others said his views showed that the search giant’s diversity policies were needed. The memo’s author, software engineer James Damore, has said he is exploring “all possible legal remedies,” but experts say he is likely to face significant hurdles. The uproar highlights a paradox: Google encourages open discussion in principle but faced a backlash over the memo internally. “There’s no unfettered right for employees to say whatever they want without facing repercussions from their company,” said Daniel A. Schwartz, employment law partner at Shipman & Goodwin. However, diversity experts say Google, which has built its business on the tenets of free speech, may have missed an opportunity to demonstrate its commitment to a broad notion of diversity that includes people with different political points of view.
Tomorrowland
Walt Disney just became Hollywood’s biggest cord-cutter. The company plans to start two online streaming services to offer its sports, movies and television programming directly to consumers. As part of the strategy, Disney—which owns Marvel Studios, Pixar Animation and the “Star Wars” franchise—said it would pull its movies from Netflix. Shares of the streaming-video company fell in after-hours trading following the announcement. Disney’s plan represents a gamble that in the long run it will be more lucrative for the company to sell its entertainment directly to audiences, rather than through services that offer large, upfront payments but also serve as gatekeepers to consumers. It also presents a damning evaluation of the traditional cable system, where cord-cutting has already weakened providers and caused revenue declines in Disney’s own cable-networks division, which includes ESPN.
Walt Disney just became Hollywood’s biggest cord-cutter. The company plans to start two online streaming services to offer its sports, movies and television programming directly to consumers. As part of the strategy, Disney—which owns Marvel Studios, Pixar Animation and the “Star Wars” franchise—said it would pull its movies from Netflix. Shares of the streaming-video company fell in after-hours trading following the announcement. Disney’s plan represents a gamble that in the long run it will be more lucrative for the company to sell its entertainment directly to audiences, rather than through services that offer large, upfront payments but also serve as gatekeepers to consumers. It also presents a damning evaluation of the traditional cable system, where cord-cutting has already weakened providers and caused revenue declines in Disney’s own cable-networks division, which includes ESPN.
Despite the US withdrawal from
Trans-Pacific Partnership talks, 11 remaining nations are ready to press ahead
with negotiations to finalize and implement the trade agreement, Australian
Trade Minister Steve Ciobo said. Australia will host a meeting this month of
senior trade negotiators to keep work on the deal moving forward, he said. Nikkei Asian Review (Japan) (tiered subscription model)
SoftBank's $100 billion Vision Fund
has almost finalized a deal to invest $1 billion in Fanatics, an online sports
apparel retailer that has licensing deals with the National Football League and
Major League Baseball, a person familiar with the transaction said. Terms of
the deal would value Fanatics at about $4.5 billion. Recode (08 Aug.), The Wall Street Journal (tiered subscription model) (08
Aug.)
IShares has decreased expense ratios
for eight bond exchange-traded funds and three environmental, social and
governance ETFs. All of those ETFs have $1 billion or less in assets under
management. ETF (08 Aug.)
Investors looking for reasons to sell Asia stocks now have plenty.
New study says aging populations will drive higher interest rates.
Musk revs up bond buyers by selling them debt with a dream.
What European
CFOs are saying about the threat of a strong euro.
U.K.’s self-sufficiency in food is at the lowest in decades.
How fired Google engineer went from intern to pariah.
Dark matter may be trapped in all the black holes.
Quants’
appetite for data is giving banks indigestion
Uber Plans to Wind Down U.S. Car-Leasing Business
Bill Ford Thinks His Company Lacks Vision—and That He Can Fix It
Bill Ford Thinks His Company Lacks Vision—and That He Can Fix It
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“Correlation doesn't imply causation, but it does waggle its
eyebrows suggestively and gesture furtively while mouthing ‘look over
there,’” a certain
cartoonist once said. So. Look over there ↓. Yesterday, Bloomberg
Intelligence analyst Eric Balchunas pointed
to the correlation between the internet's rise and the stunning growth in
ETFs. Michael Kitces, meanwhile, has suggested
the web’s ability to disseminate information about active management fees
and performance has enabled and encouraged investors to seek out ETFs as a
cheaper and better alternative to traditional funds. Are we overthinking it?
A far simpler explanation is that the internet has given us access to
online brokerage accounts and gotten us very used to the notion of buying
things with the click of a button. (Some exposure to U.S. agriculture? Real
estate? Levered VIX futures?
Click.) It’s nice to think that people are poring over high-quality sources
to find the best funds for their portfolios -- just like it’s nice to think
that Twitter is always an outlet for rational discussion, or that no one has
ever impulse-bought a silly product on Amazon just because they saw an ad for
it. But the the argument completely ignores the downsides of the internet and
its ability to amplify the worst aspects of human nature, as well as the
best.
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Source:
Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Nikkei Asian Review, Recode, ETF.com
posted by Rich Barnett @ 7:40 AM
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