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15Jul2016 Pre-Market Commentary: US Markets Set For Moderately Higher, But Volatile Opening, Chinese GDP Higher, Fed To Keep Rates On Hold, Crude Prices Climbing

Written by Gary

US stock future indexes are flat (SPY +0.2%) and indicators point to a green opening, followed by a lower consolidation. Volatility in the crude, US dollar and US major indexes points to an exciting session for the traders. WTI crude has climbed into the 46's.

Here is the current market situation from CNN Money

European markets are lower today with shares in France off the most. The CAC 40 is down 0.45% while Germany's DAX is off 0.27% and London's FTSE 100 is lower by 0.19%.

What Is Moving the Markets

Here are the headlines moving the markets.

Global stocks at eight-month high, France attack subdues Europe

LONDON (Reuters) - Reassuring Chinese data lifted world stocks to an eight-month high on Friday though Europe ended an otherwise strong week subdued after an attack by a gunman at the wheel of a truck in the south of France killed at least 84 people.

Federal Reserve policymakers signal no rush to raise U.S. rates

ST. LOUIS (Reuters) - Three Federal Reserve policymakers on Thursday expressed the view that there was no hurry to raise U.S. interest rates in the wake of the UK decision to leave the European Union, despite signs that the U.S. economy is near full employment.

FTC determines Herbalife not a pyramid scheme: CNBC

(Reuters) - Herbalife Ltd is expected to announce a settlement with the Federal Trade Commission, under which the regulatory body has determined that the weight-loss products maker is not a pyramid scheme, CNBC tweeted, citing Dow Jones.

Citigroup's quarterly profit falls 14 percent, less than indicated

(Reuters) - Citigroup Inc reported a 14 percent fall in quarterly profit, much smaller than the 25 percent drop Chief Executive Michael Corbat had warned of early in June.

Government spending steadies China's economy in second-quarter but risks grow

BEIJING (Reuters) - China's economy grew slightly faster than expected in the second quarter as a government spending spree and housing boom boosted industrial activity, but a slump in private investment growth is pointing to a loss of momentum later in the year.

Wells Fargo's quarterly profit falls 3.5 percent

(Reuters) - Wells Fargo & Co , the No. 1 U.S. bank by market value, reported a 3.5 percent fall in quarterly profit as it set aside more money to cover potential loan losses.

Singapore Exchange's securities market reopens after disruption

SINGAPORE (Reuters) - Trading in the Singapore securities market resumed on Friday after the fourth major interruption on the exchange in the past two years, piling pressure on CEO Loh Boon Chye as he tries to rejuvenate a bourse facing stiff competition in the region.

Oil falls on persistent glut fears, China data supports

LONDON (Reuters) - Crude futures dipped toward $47 a barrel on Friday on concerns that a persistent global glut of crude oil and refined products will impede any price recovery.

Japan may be on route for a "soft" form of helicopter money

TOKYO (Reuters) - Japanese policymakers, who won't go as far as funding government spending through direct debt monetization, might pursue a mix of aggressive fiscal and monetary expansion to battle deflation, say sources familiar with the matter.

"Helicopter Money" Won't Fix What's Broken

Submitted by Charles Hugh-Smith via OfTwoMinds blog,

Creating "free money" to support bloated bureaucracies and corrupt cartels only makes the underlying problems worse.

The mere mention of helicopter money has intoxicated global stock markets, which have soared on the rumor of Japanese helicopter money. But as I explained in Why Helicopter Money Won't Push Stocks Higher, central banks funding fiscal spending (i.e. helicopter money) will only have a weak and entirely indirect effect on profits or stock market valuations.

The problem with helicopter money is that it cannot fix what's broken in the economy--and even worse, it perpetuates every inefficient, corrupt, bloated and unsustainable system in the status quo. As I explain in my book Why Our Status Quo Failed and Is Beyond Reform, the problem isn't lack of fiscal spending or stimulus; the problem is the primary systems of the status quo have failed and cannot be fixed with central bank easy money.

In effect, helicopter money feeds the perverse incentives that have crippled our economy and society. Rather than be forced to choose priorities and rid centralized systems of wasteful corruption, bloat and graft that siphon off wealth and destroy productivity, helicopter money enables the continuation of all the inefficient, corrupt, bloated and unsustainable systems that make up the status quo.

No sacrifices ...

Ackman Crushed: Herbalife Soars 14% After FTC Concludes "Not A Pyramid Scheme"

Two years after Bill Ackman unleashed the longest presentation in the world and battled Carl Icahn over his "take it to the grave" short position in Herbalife, it seems the hedge fund manager just got a death blow from The FTC:



And HLF is soaring 14% in the pre-market.

Well above any entry levels for Ackman's short...

As Bloomberg report:

Herbalife, FTC expected to announce settlement today, DJ said, citing people familiar.

HLF to pay $200m over claims of misrepresentations

HLF agrees to change some business practices

Settlement requires HLF to prove retail sales

HLF up 15% premkt

HLF short interest 21% of float: Markit

The U.S. Federal Trade Commission has determined Herbalife is not a pyramid scheme, according to a report by Dow Jones, citing sources.

Under the settlement with regulators, Herbalife is expected to pay $200 million over claims of misrepresentation, Dow Jones said. The company also agreed to change some of its business practices and will have to prove its retail sales numbers are accurat ...

BofA: "Monday Is When The Bears Capitulated", Now Stampeding Into Equities

Bank of America's Michael Hartnett (who has been bearish throughout the recent central-bank inspired rally, as have been most professional investors), looks at the latest EPFR fund flows data,and concludes that Monday is when the bears finally capitulated.

The flow summary:

Monday (7/11) saw the largest HY inflows on record ($2.1bn - Chart 1), the largest equity ETF inflows since Dec'15 ($6.4bn) and the largest bank loan inflows in almost 3 years ($0.4bn)...the day when bears capitulated into risk assets

Weekly flows: largest equity inflows in 9 months ($11bn), chunky $10bn bond inflows and inflows to precious metals in 25 of past 27 weeks ($0.8bn)...investors have shunned equity funds YTD ($123bn outflows) but are now stampeding into the asset class for fear of missing out

Equity flow highlights: largest inflows to US equity funds since Sep'15; largest inflows to EM equity funds since Mar'16; but notably, European equity funds recorded the largest redemptions on record ($5.8bn)...laggard not catching a bid

Bond flow highlights: 2nd largest inflows to EM debt funds on record; largest HY inflows since Mar'16; 19 straight weeks of IG mania

BofAML Bull & Bear Indicator triggered a contrarian "buy" signal for risk assets two weeks ago when sentiment fell to an "extreme bearish" reading of 1.6. Latest reading is 1.8 (Chart 2)...more tactical upside ahead.

And the details:

Equities: $10.8bn inflows (largest since Oct'15) ...

How Did China's GDP Beat? By "Shoveling A Stunning Amount Of Cash Into The Economy"

As reported last night, China pleasantly surprised watchers when it reported its latest data dump, including a stronger than expected 6.7% Q2 GDP print and unchanged from the previous quarter, which beat across the board with the exception. The reason for the beat: a buoyant property market and government stimulus boosted demand for factory output. On the other hand, fixed-asset investment, traditionally the biggest driver of Chinese growth, and which includes both infrastructure and manufacturing investment, grew at only 9%, its slowest pace since 2000 in the first six months and down from 9.6 per cent in the year to May.

"The most important data point in today's release is private investment, which accounts for 62 per cent of total investment but continues to see zero growth in June." Larry Hu, China economist at Macquarie Securities. "Whether private investment can turn round in the coming months is the key to the Chinese economy in the second half."

Breaking down the GDP components, we find that investment contributed only 2.5% points to GDP growth in the first half, down from 2.9% last year, while the consumption contribution rose from 4.2% to 4.9%. This, of course, is a number which can not be indenepdently verified from the traditionally opaque and data-fudging National Bureau of Statistics.

To be sure, as Capital Economics said last night, China GDP should be taken with a grain of salt given the political nature of the data and pressure to meet official 6.5%-7.0% growth target. China's economy probably only expanded 4.5% in 2Q rather than official figure of 6.7%.

More worrying was that n ...

Brexit Won't Spark a Wave of European Airline Consolidation

London-listed Wizz Air is now a cheaper target for Lufthansa, but a takeover is no sure bet.

China Economy Tilts Further in Wrong Direction

The pressure for Beijing to do more to prop up growth only seems to increase.

Viacom's Infighting Opened Door to Chinese Bid

Viacom's move to strike a deal with Wanda for Paramount may be a way for its embattled CEO to get the upper hand.

Economic Report: U.S. retail sales rise jump 0.6% in June

Sales at U.S. retailers rose 0.6% in June, led by a surge in spending at home-and-garden centers and online stores, the government said Friday.

Economic Report: Empire state index softens in July

The Empire State general business conditions index fell to 0.6 in July from 6 in June, the New York Fed said Friday.

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