Tuesday, July 4, 2017

TUESDAY 7/4/17; July 4th Independence Day; US Markets Closed; Nasdaq Data Feed Problems; RBA Rate Decision; North Korea Missile Launch and Turmoil Ahead of G20 Summit

US markets are closed today as Americans celebrate Independence Day which commemorates the adoption of the Declaration of Independence 241 years ago in 1776.

As Asia traders prepare for the day ahead, there is a problem with the data feeds from major providers. Problems are first noted on the Google and Yahoo financial platforms and also appear on Bloomberg terminals. Tech stocks are printing erratic numbers. The quote for AAPL is down -14%. GOOGL is listed as down -86%. AMZN -87%. MSFT +80%. All four tech bigwigs are showing the same price at 123.47. It is obvious the numbers are way out of whack.

The Nasdaq says test data and other information was provided to the third party financial sites that then went ahead and fed the data through the system. Google is quick to criticize the Nasdaq and unequivocally states that the exchange provided inaccurate information and the third parties are not at fault. Fingers are pointing in all directions. The Nasdaq works to resolve the situation which is remedied in short order. Nasdaq admits that incorrect data was distributed to the third parties.

The flash crash events, fat finger trades and computer glitches continue in global stock, bond and currency markets with regular frequency. The eBook “Flash Crashes, Fat Fingers and Computer Glitches, Oh My!” by K E Stone details the troubling flash crash and flash spike events since the major flash crash on May 6, 2010.

South Korea misses on inflation data. The CPI is down -0.1% month-on-month. Aussie and Asia futures point to a positive open for stocks. Nikkei Index futures are up +0.1% and ASX 200 futures gain +0.6%. Australia is set for a strong bounce recovering from yesterday’s losses.

S&P -2. Dow -4. Nasdaq -4. Euro 1.1368. The yen weakens which will send the NIKK higher. Dollar/yen 113.36. Pound 1.2943. Dollar/yuan 6.8003. Aussie dollar 0.7660.

WTIC oil 47.04. Brent oil 49.68. Natty 2.96. Gold 1222. Silver 16.13. Copper 2.689.

US Treasury yields are not trading today due to the holiday; 2-year 1.41%, 5-year 1.93%, 10-year 2.35%, 30-year 2.87%.

Fed Funds futures indicate a zero percent expectation for a July rate hike. There is a 22% chance for a September hike, 24% chance for November and 54% chance for December. About one-half of market participants believe the Federal Reserve will provide another rate hike before year end. This flies in the face of Chair Yellen that continues touting at least one more hike this year. Bond traders are not buying what Yellen is selling. The chair is boxed-in and likely believes that she must continue sending rates higher to build ammunition for a coming recession regardless of the economic data (she will not tell you this). Yellen is recovering today after a couple days in a London hospital due to a urinary tract infection.

China warns the US that tensions are increasing in the Pacific theater. China claims they are working towards finding a solution to the North Korea problem but you can never trust a communist. Where do you think North Korea gets its parts and supplies for missiles? Of course from China. The commies stick together.

China says they have laid out a proposal to solve the North Korea crisis. The Beijing leaders want the United States to end military maneuvers in the Pacific rim in exchange for North Korea no long conducting tests for its nuclear program. The plan is a non-starter from the United States perspective and will be perceived as China continuing to play baby games.

When President Trump and President XI had the weekend meeting at the Mar-a-Lago Resort in Florida, USA, in April, there were smiles and handshakes all around. Trump gave Xi 100 days to find a solution to the North Korea issue and this deadline will expire on 7/15/17 only 11 days away. The trouble, and perhaps military activity, may ramp up dramatically in the back half of July. The US must stop North Korea’s aggression whether China cooperates, or not.

Aussie and Asia stocks begin trading higher as the futures indicate. NIKK +0.6%. Topix +0.5%. Australia pops higher. ASX 200 +1.3%. KOSPI +0.1%.

In Australia, banks move higher ahead of the RBA decision. Magellan Financial gains +1.4%. ANZ +1.8%. Commonwealth Bank +1.4%. Westpac +3%. NAB +2.7%. Aussie dollar 0.7666.

US futures are mixed. US stock and bond markets are closed until tomorrow. S&P +1. Dow +11. Nasdaq -6.

OPEC crude production is at the highest level of the year. Oil will likely end its eight-day winning streak that is the longest rally in five years. Larger oil supplies will dampen prices.

WTIC oil is down -0.3% to 46.95 under the 47 level. Brent oil drops -0.3% to 49.52. Natty 2.96. Gold 1224. Silver 16.17. Copper 2.6885.

Euro 1.1373. Dollar/yen 113.34. Pound 1.2947. Dollar/yuan 6.8003. Aussie dollar 0.7666.

Qatar delivers a written response to the demands from the Saudi block via letter. The UAE says a letter is not yet received. None of the parties will disclose what is in the letter. The Qatari situation where Saudi Arabia and other Arab nations are imposing sanctions will likely continue for many weeks, perhaps months. The Saudi block wants Qatar to become more proactive in handling terrorism.

In Australia, the RBA decides to maintain the current key rate at 1.5% as expected. The central bank remains neutral concerning monetary policy and does not jump on the hawkish bandwagon that several other central banks are touting. The Aussie dollar dips from 0.7678 to 0.7615 on the news. The Reserve Bank of Australia’s comments is viewed as less hawkish than expected (more dovish) hence the Aussie dollar leaks lower.

North Korea launches a missile the communists claim is an ICBM (which would be capable of reaching the United States). If true, it marks a serious escalation of the North Korea problem. The US must not permit the rogue communist nation to develop and acquire missiles to reach the US since they could be equipped with nuclear warheads. North Korea boasts that it can hit targets with its missiles anywhere in the world.

The North Korean missile lands in the ocean in Japan’s exclusive economic zone (EEZ) A nation’s exclusive economic zone is a 200 mile (322 km) distance out from the coast line. The South Korea KOSPI Index trades jumpy and then begins sinking lower for the remainder of the session.

North Korea launching a missile on the United States July 4th Independence Day holiday is a direct slap to America’s face. President Trump is turning up the heat on China President Xi ahead of the G20 summit on Friday and Saturday. Trump proclaims, “End this nonsense once and for all.”

China’s non-starter proposal for the US to stop military maneuvers in the Pacific rim in exchange for North Korea to cease all nuclear missile development and testing is folly. North Korea launches today’s missile to poke its big brother China, as well as the United States, in the eye. Communist China needs to get a handle on its little communist brother. President Xi is in Moscow, Russia, visiting President Putin.

Carmakers are mixed. In Japan, Toyota gains +1.9% and Nissan +2%. In South Korea, Hyundai sinks -3.1% on disappointing sales numbers released yesterday and Kia Motors is down -1% in sympathy. Petroleum company Idemitsu Kosan crashes -11% on news of offering a secondary (stock dilution).

The US dollar index moves from 96.30 to 96.04 overnight. Euro 1.1357. WTIC oil 46.98. Brent oil 49.56.

The North Korea missile launch creates negativity in the Pacific theater with stocks rolling over to the downside across the board except for the land down under that rallies strong. The NIKK ends the session down -0.1% to 20033. The SPASX200 gains a big +1.8% to 5784. The Aussie banking sector is up a big +2.2%. The KOSPI drops -0.6% to 2381 and sinks lower after the North Korea missile launch. The SSEC sinks -0.4% to 3183. The HSI is beaten -1.5% to 25389.

India stocks trade lower. The Nifty is down 13 points to 9602. The BSE Sensex loses 40 points, -0.2%, to 31180. European index futures point to a half-percent loss for the major indexes at the opening bell.

S&P -3. Dow -24. Nasdaq -17. Euro 1.1363. The yen strengthens after the North Korea missile launch as traders chase into the perceived safe haven. Dollar/yen 112.83. Pound 1.2954. Dollar/yuan 6.7969. Aussie dollar 0.7618.

WTIC 46.95. Brent oil 49.52. Natty 2.97. Gold gains 5 points, +0.5%, to 1226. Silver 16.08. Copper 2.673.

At 3:00 AM EST (8 AM London; 9 AM Frankfurt), European indexes begin trading lower as the futures indicate. DAX -0.5%. CAC -0.6%. FTSE -0.5%. Greece AEX -0.4%. The financial sector leads lower down -0.5%. Industials and consumer staples are each down -0.4%. Consumer discretionary stocks dip -0.2%.

Banks trade lower. Banco Santader is down -1.3% despite saying the takeover of the two troubled banks (that were stripped of the bad loans that will place taxpayers on the hook) will not have a material impact on earnings. HSBC falls -0.666%.

Miners trade lower. Anglo American sinks -3%. Rio Tinto drops -1.8%. Specialty chemical maker Clariant gains +2.7% as the deal with Huntsman stalls. EDP rallies +3.4%. EDF sinks -2.5%. Kindred -3.1%. Drug maker Stada Arzneimittel rallies +3%. There is a lot of M&A chatter this morning. Online payment services company Worldpay jumps +6.66%.

DAX -0.3%. CAC -0.4%. FTSE -0.4%. SMI -0.2%. OMX -0.3%. S&P +1. Dow -23. Nasdaq -11. The VIX is not trading.

Euro 1.1370. Euro/yen 128.36. Dollar/yen 112.90. Pound 1.2956. Euro/pound 0.8776. Mexican peso 18.1869. Canadian dollar 1.2979. Dollar/yuan 6.7965. Indian rupee 64.78. Aussie dollar 0.7614.

UK 10-year gilt yield 1.25%. France 10-year yield 0.83%. German 10-year bund yield 0.47%. Japan 10-year yield 0.08%.

Sweden’s Riksbank says it is less likely to cut the repo rate. Sweden is retreating from its easing bias. The global central bankers are colluding to hint at a slow and steady rise in interest rates. The perceived hawkishness by central bankers may be a major policy mistake in the offing.

At 3:40 AM EST (8:40 AM London; 9:40 AM Central Europe), markets are recovering off the lows in thin trading. DAX -0.1%. CAC -0.1%. FTSE -0.3%. S&P +4. Dow +9. Nasdaq +6. Russell +1. The Nifty turns positive up 10 points to 9625.

WTIC oil 46.95. Brent oil 49.51. Natural gas 2.97. Gold 1225. Silver 16.09. Copper is down -0.7% to 2.673.

The European trading session is quiet. The merger and acquisition talk and investment bank activism in stocks such as Worldpay, as well as the North Korea missile launch, dominate the water cooler discussions. JPM confirms that it is in discussions with Worldpay to unlock value. Worldpay explodes +17% higher.

UK Chancellor Hammond urges British politicians to work together in handling the Brexit situation. The UK is taking a more conciliatory tone with the EU as Brexit negotiations will continue for many months, perhaps years, ahead. The UK quits rate (the pace at which employees quit their jobs since they are comfortable in finding a new job or in starting a business) is falling each month reflecting that the huddled masses have serious concerns about the economy.

One of Fed Chair Yellens favorite statistics is the quits rate in the JOLTS Report each month. The US quits rate was increasing for many months but has trailed off and staggers sideways the last few months.

At 5:18 AM EST (10:18 AM London), DAX -0.2%. CAC -0.1%. FTSE -0.1%. MIB -0.2%. IBEX -0.3%. PSI -0.1%. Italy leads lower. India’s Nifty gains 22 points, +0.2%, to 9637.

S&P +6. Dow +19. Nasdaq +16. Russell +2. WTIC oil is down -0.3% at 46.91. Brent oil 49.50. Natural gas 2.97. Gold 1224. Silver 16.09. Copper 2.68.

Euro 1.1344. Euro/yen 128.47. Dollar/yen 113.25. Pound 1.3006. Euro/pound 0.8781. Mexican peso 18.2053. Canadian dollar 1.3008. Dollar/yuan 6.8015. Indian rupee 64.76. Aussie dollar slips under 0.76 to 0.7592. USD 96.25.

In the States, New Jersey and Massachusetts reach  budget agreements so all government services are back on line and state parks reopened for the holiday.

In India, the Nifty finishes down 2 points, call it flat, at 9613. The BSE Sensex finishes flat at 31210.

S&P +4. Dow +6. Nasdaq +22. Russell -2. Euro 1.1347. Dollar/yen 113.16. Sterling 1.2939. USD 96.26.

Russia and China issue a joint statement saying the US and South Korea should cease any military maneuvers in the Pacific rim and North Korea should freeze its nuclear program. Forget the communists. Of course China and Russia want the United States out of the Pacific theater. China wants to continue building military bases on disputed islands in the South China Sea while providing missile parts and technology to North Korea.

Russia is agreeable to any action that pokes a finger in Uncle Sam’s eye. Major global leaders are busy posturing ahead of the G20 summit later this week. Russia and the United States announce plans for Putin and Trump to meet on Friday. North Korea will be a major point of discussion at the G20.

Television commentators say the US should be cautious on how it talks to China since they do not appreciate aggressive language or bullying tactics from the West. This docile and timid approach to China is left over from former President Obama’s weak and feckless foreign policy for the last eight years. Of course China and Russia want to continue using the United States as a doormat.

The West would be far better served to not care one iota about what China thinks. China needs to get a handle on its communist little brother North Korea and the deranged tin-pot dictator Kim Jong-un before the situation spins out of control. The Pacific theater is likely headed towards military conflict.

In Italy, the 5.4 billion euros ($4.6 billion) Monte dei Paschi si Siena bank rescue receives European Union approval. Bad loans will be transferred into a special fund. Of course they will. One of the requirements by the EU is that the bank is solvent and this is accomplished by simply making the bad paper go away into a vehicle where the taxpayers will ultimately be on the hook.

As part of the restructuring, BMPS will focus on small and mid-sized companies and retail customers. Further details on the bank bailout will be released later today and tomorrow. The central bankers are the market. Interestingly, the ECB’s balance sheet has doubled since July 2014.

Europe moves towards the closing bell with basic resources and insurance stocks leading higher and utilities and telecom stocks lower.

DAX -0.1%. CAC -0.2%. FTSE +0.1%. MIB -0.2%. IBEX -0.1%. PSI -0.2%. SMI -0.2%. OMX -0.3%.

Euro 1.1343. Euro/yen 128.45. Dollar/yen 113.24. Pound 1.2922. Euro/pound 0.8778. Indian rupee 64.74. Mexican peso 18.2479. Canadian dollar 1.2957. Dollar/yuan 6.8011. USD 96.33.

WTIC oil is marginally positive at 47.18 back above 47. Brent oil 49.76. Natty 2.97. Gold 1223. Silver 16.03. Copper 2.681.

European indexes finish lower sans Italy. The DAX ends down -0.3% to 12437. The CAC is down -0.4% to 5175. The FTSE finishes down -0.3% to 7357. The MIB gains +0.1% to 21031. The IBEX is down -0.4% at 10567. The PSI finishes flat at 5181.

In the States, Loup Ventures tech analyst Gene Munster continues touting Apple as the best thing since sliced bread. Munster proclaims that AAPL will print more new all-time highs through year end. Munster cites a 160 to 170 price target for AAPL predicting about a +10% gain ahead. Munster concedes that a pullback may occur along the way but these will be buying opportunities. AAPL stock remains up +24% so far this year including the recent -7% pullback. The future is so bright you have to wear shades.

The state of Illinois approves a $5 billion tax increase ending the budget stalemate. Illinois will likely avert further credit downgrades, for now, staving off the wolf at the door.

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