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16Dec2016 Pre-Market Commentary: Wall Street To Open Higher, US Dollar Slipping, US Homebuilding Fell More Than Expected

Written by Gary

U.S. stock futures pointed to a fractionally higher open this morning (SPY +0.2%) in what was expected to be a session with few references. Gold prices have bounced off the previous session's ten-month lows, crude prices are moving higher and the US dollar is sliding as investors take profits.


Here is the current market situation from CNN Money

European markets are higher today with shares in France leading the region. The CAC 40 is up 0.36% while Germany's DAX is up 0.24% and London's FTSE 100 is up 0.13%.

What Is Moving the Markets

Here are the headlines moving the markets.

U.S. housing starts tumble from nine-year high

WASHINGTON, (Reuters) - U.S. homebuilding fell more than expected in November, tumbling from a nine-year high as construction activity declined broadly.

Post-Fed dollar rally steadies, stocks level near highs

LONDON (Reuters) - The dollar's post-Federal Reserve rally steadied on Friday and European shares traded near 11-month highs as investors adjusted their portfolios before year-end to face the prospect of a faster-than-expected pace of U.S. rate hikes next year.

Battered euro and yen recover after dollar surge

LONDON (Reuters) - The euro, yen and pound all recovered some ground against the dollar on Friday after slides of 3 percent or more in reaction to the Federal Reserve's steer on U.S. interest rates next year.

Sky's not the limit for European media mergers

LONDON (Reuters) - Rupert Murdoch's bid for Britain's Sky is expected to drive traditional European media players to do their own deals to attain the scale they need to compete with online platforms like Netflix for increasingly costly programs.

Linde Praxair deal has higher chance this time: IG Metall

MUNICH (Reuters) - Germany's Linde and United States rival Praxair's latest attempt to strike a deal has a higher chance of success thanks to extensive assurances about preserving German sites, a top German union representative told Reuters.

Yahoo under scrutiny after latest hack, Verizon seeks new deal terms

NEW YORK (Reuters) - Yahoo Inc came under renewed scrutiny by federal investigators and lawmakers on Thursday after disclosing the largest known data breach in history, prompting Verizon Communications Inc to demand better terms for its planned purchase of Yahoo's internet business.

'Trump trade' drives ninth biggest weekly rush to stocks: BAML

LONDON (Reuters) - Global equity funds received $21 billion in the past week - their ninth-biggest inflow ever - as investors embraced the 'Trump trade', while money flowed out of bonds for seventh week in a row, Bank of America Merrill Lynch said on Friday.

Oil rises on signs of producers' compliance with output cuts

LONDON (Reuters) - Oil rose on Friday, edging closer to new 17-month highs as producers showed signs of adhering to a global deal to reduce output.

Ten non-EU financial centers authorized to do business in the EU

BRUSSELS (Reuters) - The European Union has authorized a batch of countries outside the bloc to offer clearing and trading of securities to EU firms, under a regime that Britain may also have to use after Brexit.

Head For The Bunkers?

Authored by Carl Bildt, originally posted at Project Syndicate,

In August 2015, I tweeted that if Donald Trump were to be elected President of the United States, we would have to "head for the bunkers."

A Trump presidency was considered highly unlikely back then; but here we are. And while heading for the bunkers might not be the most appropriate response (yet), where we are is undoubtedly a more dangerous world.

Nearly two years ago, former US National Security Adviser and Secretary of State Henry Kissinger warned the Senate Armed Services Committee that, "as we look around the world, we encounter upheaval and conflict." As Kissinger observed at the time, "the United States has not faced a more diverse and complex array of crises since the end of the Second World War."

And what seemed true from the perspective of Washington, DC, was doubly so from a European perspective. To put it plainly, Europe feels as though it were surrounded by a ring of fire, from the revisionist and revanchist Russia in the east, to the multiple meltdowns in the Middle East and North Africa in the south.

Since the spring of 2014, when Russia started fueling the conflict in Donbas and other parts of Eastern Ukraine, ten thousand people have died there, and another two million have been displaced. And, of course, these figures pale in comparison to the humanitarian disasters in Syria, Libya, and Yemen.

Now, NATO is planning to deploy troops to Northeast Poland and the three Baltic States - Estonia, Latvia, and Lithuania - while the European Union struggles to manage continuous refugee flows and exert control over its external borders.

Moreover, the security threat from Russia has promp ...

China Suffers Failed Treasury Bill Auction

One day after China's regulator halted trading in bond futures for the first time ever, Beijing suffered another catalytic bond-market event overnight when it failed to sell all the Treasury Bills on auction Friday, for the first time in almost 18 months, as bids fell short of minimum requirements, according to traders required to bid at the auction.

As BBG reported overnight, the Ministry of Finance sold only 9.57 billion yuan ($1.38 billion) of 182-day bills in a planned 10 billion yuan sale, and 10.85 billion yuan of 91-day notes in a planned 12 billion yuan sale, according to a statement from the bond clearing house. What is notable, is that the Bills on offer paid a hefty yield: the 182-day bills sold for 2.9565%, while the 91-day bills sold for 2.8991%.

In other words mainland bond traders are concerned that short-term China rates could spike substantially in the next 3-6 months.

The failed auction comes despite the December 2014 adoption of a "primary dealer" system which includes 50 banks and which are required to bid at debt sales. On Friday, more than one of China's dealers did not do as mandated, leading to the unexpected outcome.

In an amusing comment shared yesterday by the WSJ, Hao Hong, co-head of research at Bocom International said that "People woke up to the fact that the bond bubble is too large. The bond market in China is under severe pressure, across the board." Today's event confirmed his observation.

The auction failure has come amid a debt selloff that has surprised investors, and which many dubbed as indicative of the bursting of the Chinese bond bubble after China's 10-year sovereign yield plunged the most on record Thursday, leading to ...

"Trump Trade" Leads To Ninth Biggest Weekly Inflow To Equities, More Bad News For Active Managers

The Great Rotation continued for one more week today with global equity funds receiving $21 billion in inflows in the past week according to Bank of America, the ninth-biggest inflow ever, as investors rushed into 'Trump trade', while money flowed out of bonds for seventh week in a row. The EPFR-based report showed overall equity inflows of $63 billion since Donald Trump's U.S. presidential election win on Nov. 8, offsetting somewhat the $151 billion in outflows observed from January to October.

The bulk of the inflows, or $18.5 billion, went into U.S. stocks, although European and emerging equity funds also benefited from inflows of $700 million and $1 billion respectively.

However, for yet one more week news for the "active managed" community was negative: of the $20.7 billion in equity inflows, $31 billion was in the form of ETFs, which meant another $10 billion in outflows from mutual funds and other active vehicles.

BofA's Michael Hartnett added that the "risk rally is broadening" and "this week sees rising inflows to laggards ...Europe ($0.7bn), Emerging Markets ($1bn), High Yield bonds ($4.7bn)." As Reuters observes, materials, financial, energy and industrial firms have seen the biggest boost since Trump's victory, with ETF holdings of materials assets up 25 percent and more than a fifth for financials.

Meanwhile, bond funds, however, saw a $4.4 billion outflow for their longest losing streak in three years, while gold lost $700 million. Emerging debt funds lost $1.2 billion for their sixth week of outflows.

Confirming the enthusiasm for reflation trades, almost $5 billion moved into junk bonds, the most in nine months, while inflation-linked securities, TIPS, received $300 million for their 25th week of inflow out of 27.

Here are the details:

Asset Class Flows < ...

Frontrunning: December 16



The narrative continues this time from Reuters: Putin turned election hacks in Trump's favor: officials (Reuters)

Russian Special Forces Key to Aleppo Victory (WSJ)

Dollar Hits Speed Bump in Fed-Driven Rally; Bonds Stem Declines (BBG)

Battered euro and yen recover after dollar surge (Reuters)

Wall Street's 2017 Forecasts Are Doomed If Trump Doesn't Follow Through On Campaign Promises (BBG)

Yahoo's Password Move May Put Verizon Deal at Risk (WSJ)

China's Wanxiang gets approval to produce Karma electric cars (Reuters)

RNC Security Foiled Russian Hackers (WSJ)

China Plans Prudent, Neutral Monetary Policy for Next Year (BBG)

China holds first live-fire drills with aircraft carrier, warships (Reuters)

Valeant's 2016 Has Been All Pain, No Gain (

Tesla Could Lose Lead in Electric Cars to Big Automakers

It is always tempting to frame competition in the car industry as a race. But making a killer product matters more than crossing the finishing line first.

Nintendo Loses First Round of Super Mario iPhone Launch

Super Mario's debut on the iPhone sent Nintendo shares lower. A different mobile revenue strategy may help.

The Trump Trade: Stocks' Biggest Postelection Rally Ever

On the doorstep of Dow 20000, this rally has achieved another more meaningful market milestone. The Dow's 8% gain in the five weeks after Donald Trump's victory is the biggest surge following any U.S. presidential election in history.

Outside the Box: Social impact investing is an alternative way to do good

Social impact funds provide market-rate and below-market-rate investments in fields with pressing social needs. It might make a venture capital-type investment in a new curriculum for at-risk preschoolers or a low-cost loan for a charter school.

Need to Know: Here's where contrarian investors plan to make their money in 2017

Contrarian investors will be toasting a pretty great 2017, as they got it right with a call for commodities to rebound. Here's their plan for 2017 and whether or not it might be the best or the worst plan for the year ahead.

Economic Report: Housing starts slide in November from multi-year highs as recovery remains fitful

Builders broke ground on fewer homes and applied for fewer permits, but the pace of construction in 2016 is still slightly above last year's.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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