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Daily Scan: China rules the markets, even on a day off
Capital Markets
<p>Updated throughout the day</p> <p>September 2</p> <p>Good morning.  We present you with the China edition of the Daily Scan. These days, China rules the U.S. and European markets almost more than local data. That should make for an interesting Federal Reserve policy meeting later this month. Still, it is jobs' weeks and let's gather up some energy to pay attention to what's going on in our own back yard. U.S. stocks were climbing their way back up Wednesday morning after falling Tuesday. The Dow and Nasdaq both gained about 1% by midday. The S&amp;P 500 climbed 0.76%. The initial ADP report shows that businesses added 190,000 jobs in August, falling short of the expectations of 215,000 jobs added. Factory orders are up for the second straight month, boosting manufacturing 0.4%. Crude oil inventories grew by 4.7 million barrels last week. U.S. crude imports were up by 656,000 barrels/day. Also on the calendar: the Fed's Beige Book report on how different economic districts are faring (2 p.m.).</p> <p>Here’s what else you need to know:</p> <p>Chinese naval ships off Alaskan coast. Three Chinese combat ships, a replenishment vessel, and an amphibious ship moving toward the Aleutian Islands. It's the first time Chinese ships have been spotted in the area. Wall Street Journal</p> <p>Hillz wins Puerto Rican support. New York City Council Speaker Melissa Mark-Viverito has endorsed Clinton for president, ahead of Clinton's first trip to Puerto Rico this weekend. Clinton supports the island declaring bankruptcy and restructuring its $58 million debt. CNN</p> <p>Obama winning Iran deal. Maryland Democratic Senator Barbara Mikulski is backing President Obama's nuclear deal with Iran. Mikulski is the 34th vote, making it impossible for the GOP to kill the deal in Congress. Politico</p> <p>Lego is world's biggest toy maker. The Danish Lego had a 23% sales increase for the first half of 2015, while Mattel was hit with a 5% drop. "The Lego Movie" as well as special sets for Star Wars, Jurassic Park, and others have boosted the toy maker to world domination. Financial Times (paywall)</p> <p>Trouble ahead? China cracks down on "grey market" margin lending. Beijing is putting the kibosh on the non-bank market, estimated to be 1 trillion yuan ($160 billion). The goal may be to stop stock manipulation but the result could be a liquidity crisis. Reuters (h/t Quartz)</p> <p>Beijing wouldn't let the stock market rain on its parade. That parade, of course, has long been in the making to mark the end of World War II. A stock market slump just wouldn't do. So Beijing worked its magic, turning a 4.7% collase on the Shanghai Composite into a 0.2% barely-there loss. Ditto the more volatile Shenzhen Composite, which trimmed its 4.8% drop to down 1.98%. Hong Kong’s Hang Seng Index and Japan’s Nikkei Average meanwhile, slipped 1.18% and 0.39% respectively.</p> <p>China sharpens the competition to the World Bank. Sources say the Asian Infrastructure Investment Bank will not ask borrowers to privatize or deregulate -- unlike the World Bank. The White </p>
Daily Scan: Chinese shares trim losses; S&P 500 futures on the rise
Capital Markets
<p>Updated throughout the day</p> <p>September 2</p> <p>Good evening everyone. Despite a rough and tumble ride to the finish, there was just no way Beijing would let the stock market rain on their parade. The Shanghai Composite closed down 0.2% after falling as much as 4.7% earlier in the day while the Shenzhen Composite trimmed its 4.8% drop to finish the session down 1.98%. Hong Kong’s Hang Seng Index and Japan’s Nikkei Average meanwhile, slipped 1.18% and 0.39% respectively.</p> <p>Here’s how the major European markets are faring:</p> <p> CAC 40: -0.11%<br /> FTSE 100: -0.01%<br /> DAX: -0.09%</p> <p>With Europe retracing losses, the futures market is signaling an upbeat open for the U.S. S&amp;P 500 minis are currently trading 0.61% higher, while contracts on the Dow as well as the Nasdaq point to a 0.58% and 0.63% climb at the open respectively. The upcoming ADP employment change and QoQ labor costs could easily throw a monkey wrench to that rally though.</p> <p>Here’s what else you need to know:</p> <p>“I am not sorry,” says North Korea. The hermit state has denied  Seoul’s claims that Pyongyang’s recent expression of “regret” after a marathon negotiations amounted to an apology for a land-mine explosion that maimed two South Korean soldiers. Japan Times</p> <p>U.K. construction hits longest growth period. The U.K.’s construction sector notched up its 90th month of growth today as the Markit/CIPS UK Construction PMI came in at 57.3 for August. The reading is slightly higher than July’s 57.1 showing and, as Markit notes, is well above the 50 threshold separating contraction from expansion. Markit</p> <p>Argentina calls for the head of HSBC chief. Argentina's central bank has ordered HSBC to replace its chief executive in the country within 24 hours, accusing the bank of failing to prevent tax evasion and money laundering. The bank was accused of helping clients hide money in Swiss bank accounts. BBC</p> <p>Streaming service Netflix launches in Japan. Netflix has partnered with Japanese mobile carrier SoftBank in a joint bid to tap some 36 million households with high-speed Internet access as part of global push. Channel News Asia</p> <p>Australian GDP growth falls. A slowdown in Australia’s mining and construction sectors dragged the June quarter’s GDP growth down to 0.2%, a substantial decline compared to last year’s 2% climb. A drop in exports also played a hand in the fall, though domestic final demand as well as the nation’s financial, transport, and health industries all helped buoy GDP from sinking lower. Australian Bureau of Statistics</p> <p> Thailand arrests “main” bombing suspect. Police hunting those responsible for the shrine bombing that killed 20 people in central Bangkok two weeks ago arrested a second foreign suspect on Tuesday, Prime Minister Prayuth Chan-ocha describes the man as the main person in the bombing. South China Morning Post (paywall)</p>
Russian ETFs best performer in a very rough and tough August; commodities outperform stocks
Capital Markets
<p>This just in from Bespoke Investment:</p> <p>Russian ETFs edged down just 0.88% in August, outperforming other emerging market ETFs by a wide margin. Australia, China, Hong Kong, India, Brazil -- those ETFs all sank more than 10%</p> <p>Surprise, surprise, surprise: Oil ($USO) gained 1.92% in August after roaring back to life the last three days of the month. The S&amp;P 500 ($SPY) sank 6.10%.</p> <p>&nbsp;</p>
Daily Scan: Global markets slide; officer killed in Chicago
Capital Markets
<p>Updated throughout the day</p> <p>September 1</p> <p>Good evening,</p> <p>China continues to roil the markets: U.S. markets closed about 3% lower all around. The Dow lost 2.8%, after falling 2% right at the open. The S&amp;P 500 fell 3% and the Nasdaq dropped 2.9%. Oil slid about 8%, but continues to float just above $45/barrel. Car sales are bit more robust than expected and are likely to maintain their 17 million annualized pace for the fourth month in a row. The manufacturing orders report was a disappointment, still expanding but less than expected at 51.1%.</p> <p>Here's what else you need to know:</p> <p>Police officer fatally shot near Chicago. The Lake County officer was killed Tuesday morning while pursuing three suspects on foot. Police are currently looking for the suspects. CNN</p> <p>Kentucky clerk continues to defy court. Rowan County Clerk Kim Davis is refusing to issue marriage licences to same-sex couples, citing "God's authority" over the U.S. Supreme Court. Two gay and two straight couples filed a federal lawsuit against Davis in July after she refused to issue any marriage licenses. Davis may face fines if held in contempt of court. Reuters</p> <p>Pope Francis wants to forgive abortions. The pope announced Tuesday that all priests can absolve Catholics of the sin of abortion during the upcoming Extraordinary Jubilee Year of Mercy. The holy year, beginning December 8, is meant to focus on spiritual renewal. Only bishops have traditionally held the authority to forgive the gravest sins, including abortion, but in the past they have sometimes shared that power with priests. The pope's announcement doesn't give a pass on abortion for Catholics, but instead offers the opportunity of forgiveness and a change of heart in the Church. TIME</p> <p>Netflix ends relationship with Epix. The streaming service decided not to renew a deal with film distributor Epix, effecting pulling top movies including Hunger Games and Transformers. Netflix says it wants to focus more on exclusive content. Hulu is snapping up the Epix films for its subscribers instead. BBC</p> <p>Calpers, Calstrs want to separate Bank of America's CEO and Chairman roles. The two giant California pensions announced Monday that they would join shareholders in opposing the bylaw change that would allow Brian Moynihan to hold both roles in the company. Calpers and Calstrs, the two largest U.S. public pensions, hold a total of 63.6 million Bank of America shares, less than 1% of the total shares outstanding. Wall Street Journal</p> <p>U.S. to sanction Chinese hackers. The White House is reportedly creating sanctions against Chinese individuals and companies as U.S. tech firms – and the government itself – worry about the growing threat of China’s cyber-espionage. Financial Times </p> <p>UN confirms Palmyra temple destruction. A satellite</p>
If you need to reduce risk, do it now
Capital Markets
<p>The single most important thing for investors to understand here is how current market conditions differ from those that existed through the majority of the market advance of recent years. The difference isn’t valuations. On measures that are best correlated with actual subsequent 10-year S&amp;P 500 total returns, the market has advanced from strenuous, to extreme, to obscene overvaluation, largely without consequence.<br /> The difference is that investor risk-preferences have shifted from risk-seeking to risk-aversion. That may not be obvious, but in market cycles across history, the best measure of investor risk preferences is the behavior of market internals, as measured by the uniformity or divergence of market action across a wide range of individual stocks, industries, sectors, and security types, including debt securities of varying creditworthiness.<br /> Our observations on that are not new at all. Extreme overvaluation coupled with deterioration in market internals was the same set of features that allowed us to avoid the 2000-2002 and 2007-2009 market collapses. Given our success in prior cycles, why did we stumble in the advancing half of this one? The fact is that in 2009, I insisted on stress-testing our methods of classifying market return/risk profiles against Depression-era data, setting off a sequence of inadvertent but related challenges in the recent cycle, which we fully addressed last year. I’ve detailed the central lessons in nearly every weekly comment since mid-2014. The full narrative is detailed in our 2015 Annual Report. As I observed in the accompanying letter:<br /> If there is a single lesson to be learned from the period since 2009, it is not a lesson about the irrelevance of valuations, nor about the omnipotence of the Federal Reserve. Rather, it is a lesson about the importance of investor attitudes toward risk, and the effectiveness of measuring those preferences directly through the broad uniformity or divergence of individual stocks, industries, sectors, and security types. In prior market cycles, the emergence of extremely overvalued, overbought, overbullish conditions was typically accompanied or closely followed by deterioration in market internals. In the face of Fed induced yield-seeking speculation, one needed to wait until market internals deteriorated explicitly. When rich valuations are coupled with deterioration in market internals, overvaluation that previously seemed irrelevant has often transformed into sudden and vertical market losses.</p> <p>If you review my concerns in recent years, prior to mid-2014, you’ll notice that they focused on the extreme nature of the “overvalued, overbought, overbullish syndrome” that had emerged. Examining these syndromes across history, these overextended conditions were typically accompanied or quickly followed by deterioration in market internals, and then by vertical air-pockets, panics or crashes. Because of that regularity (which was picked up by the methods that emerged from our stress-testing efforts), we shifted immediately to a defensive outlook when those overvalued, overbought, overbullish syndromes emerged. The problem, in this cycle, was that the Fed aggressively and intentionally encouraged persistent yield-seeking speculation regardless of valuation extremes. One needed to wait until market internals deteriorated explicitly before taking a hard-negative outlook on the market – a requirement (“overlay”) that we imposed on our methods last year.<br /> It may not be obvious that investor risk-preferences have shifted toward risk aversion. It’s </p>