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29Jan2018 Pre-Market Commentary: Wall Street Lower As Investors Brace For Busy Week, SP 500 Down -0.2 Percent, Expect A Market Correction In The Coming Months Says Goldman

Written by Gary

US stock market index futures are pointing to moderately lower opening (SPY -0.2%). The market is however, expected to continue its record-setting run.

Here is the current market situation from CNN Money

European markets are mixed today. The FTSE 100 is up 0.14% while the CAC 40 gains 0.05%. The DAX is off 0.13%.

What Is Moving the Markets

Here are the headlines moving the markets.

Futures lower as investors brace for busy week

(Reuters) - U.S. stock index futures were slightly lower on Monday, pulling back from record levels seen last week, and as investors brace for a busy week ahead.

U.S. authorities due to make arrests in futures 'spoofing' probe: sources

WASHINGTON (Reuters) - U.S. authorities were set to arrest several people on Monday in connection with a federal investigation into so-called spoofing and manipulation in the U.S. futures market by three European banks, three people with direct knowledge of the matter told Reuters.

Sanofi beats Novo to buy Ablynx for $4.8 billion in biotech M&A boom

PARIS/LONDON (Reuters) - French drugmaker Sanofi has agreed to buy Belgian biotech company Ablynx for 3.9 billion euros ($4.8 billion), beating Novo Nordisk and marking its second big deal this month after buying Bioverativ.

JAB-controlled Keurig to buy Pepper Snapple to form beverage giant

(Reuters) - K-cup maker Keurig Green Mountain Inc will buy soda maker Dr Pepper Snapple Group Inc to form a beverage company with $11 billion in annual revenue.

Trump security team sees building U.S. 5G network as option

WASHINGTON (Reuters) - President Donald Trump's national security team is looking at options to counter the threat of China spying on U.S. phone calls that include the government building a super-fast 5G wireless network, a senior administration official said on Sunday.

Hung out to dry twice, Tennessee city stumped by Trump's washer tariffs

CLARKSVILLE, Tenn. (Reuters) - When President Donald Trump imposed steep tariffs on imported washing machines last week it was a "Not Again" moment for officials in this north Tennessee city that has lost jobs to an international trade dispute before.

Japan raps Coincheck, orders broader checks after $530 million cryptocurrency theft

TOKYO (Reuters) - Japanese authorities said on Monday they would investigate all cryptocurrency exchanges in the country for security gaps and ordered Coincheck to lift its standards after hackers stole $530 million worth of digital money from the Tokyo-based exchange in one of the world's biggest cyberheists.

Shares in Prince Alwaleed's firm soar, but banks remain cautious

DUBAI (Reuters) - Prince Alwaleed bin Talal's freedom has sent shares of his flagship company soaring, but banks will remain cautious about dealing with his company until they have more clarity about the circumstances of his release from a corruption probe.

Avon shareholders call for sale, shares rise

(Reuters) - A group of shareholders of Avon Products Inc led by activist investor Shah Capital has called for the cosmetics maker to explore strategic alternatives, including a possible sale.

Hillary Clinton Mocks Trump In Tasteless Grammys Sketch

Considering that President Trump declared himself "not a feminist" earlier this week, it's unsurprising that the president was savagely mocked at the Grammy Awards this year - an event that, like the Golden Globes, was dominated by #MeToo.

But perhaps the most galling attack on the president came in a sketch featuring late-night host James Corden and a handful of celebrities - including Hillary Clinton, who was recently exposed for protecting a sexual harasser - reading passages from Michael Wolff's controversial "Fire and Fury" book.

Other guests during the segment included John Legend, Cardi B, Snoop Dogg and Cher.

Following Clinton's reading, Corden shouted 'That's it - that's the one!'

However, rapper Cardi B's reaction may have unintentionally touched on the truth about Wolff's book: That many of the scandalous details were exaggerations or fabrications. She stopped mid-sentence and exclaimed "why am I reading this sh*t? I can't believe this."

Donald Trump Jr., Nikki Haley and a handful of other Trump associates lashed out at the Grammy's for politicizing the awards:

I have always loved the Grammys but to have artists read the Fire and Fury book killed it. Don't ruin great music with trash. Some of us love music without the politics thrown in it.

— Nikki Haley (@nikkihaley) January 29, 2018

Traders Arrested In Futures Spoofing Probe

In a shocking development - shocking because as everyone obviously knows market are never rigged or manipulated - late on Friday Reuters reported that the CFTC was set to announce it has fined European lenders UBS, HSBC and Deutsche Bank millions of dollars each for "spoofing" and manipulation in the U.S. futures market.

The enforcement action by the U.S. derivatives regulator was said to be the result of a multi-agency investigation that also involved the Department of Justice and the FBI - the first of its kind for the CFTC.

Reuters also reported that the fines for UBS and Deutsche Bank would be north of ten million, while the fine for HSBC will be slightly less than that. Spoofing, as a reminder, involves placing bids to buy or offers to sell futures contracts with the intent to cancel them before execution. By creating an illusion of demand, spoofers can influence prices to benefit their market positions. Spoofing is what Navinder Sarao was criminally accused of doing when he singlehandedly launched the May 2010 flash crash, for which he is now imprisoned.

And yes, spoofing is a criminal offense under a provision implemented as part of the 2010 Dodd-Frank financial reform.

* * *

Following the Reuters report, many asked why Sarao was arrested and jailed, while major banks caught spoofing and manipulating futures will get away with paying a fine that is a tiny fraction of how much they made from rigging markets in the first place.

Well, it appears that someone else is going to jail after all, because as Reuters followed up this morning, US authorities were set to arrest several people on Monday as part of the spoofing and manipulation probe. The individuals who are set to be perp walked, were previously emp ...

Merger Monday: Keurig Green Mountain Buys Dr Pepper Snapple

It's Merger Monday time: Dr Pepper Snapple Group and Keurig Green Mountain announced that the two companies will merge to create Keurig Dr Pepper, "a new beverage company of scale with a portfolio of iconic consumer brands and unrivaled distribution capability to reach virtually every point-of-sale in North America."

The merger will combine such brands as Dr Pepper, 7UP, Snapple, A&W, Mott's and Sunkist with coffee brand Green Mountain Coffee Roasters and the Keurig single-serve coffee system, as well as more than 75 owned, licensed and partner brands in the Keurig system.

Under the terms of the agreement, which has been unanimously approved by the Dr Pepper Snapple Board of Directors, Dr Pepper Snapple shareholders will receive $103.75 per share in a special cash dividend and retain 13% of the combined company, for a total consideration around $135, or a 40% premium to the Friday close of DPS.

Some more transaction details via Bloomberg:

Dr Pepper holders to get $103.75/shr in special cash div

Dr Pepper Snapple expects to pay its 1Q ordinary course dividend of 58c-shr

KDP anticipates total net debt at closing to be about $16.6b and it anticipates maintaining an investment grade rating

Keurig shareholders will hold 87% and Dr Pepper Snapple shareholders will hold 13% of the combined company

Upon closing of the transaction, JAB will be the controlling shareholder, Mondelez International to hold about 13-14% stake in the combined company

JPM, BofAML, GS have provided committed financing for the transaction

According to the press release, Keurig Dr Pepper will have pro forma combined 2017 annual revenues of about $11 billion.

Why the deal?

The company believes its complementary portfolio, access to high-growth segments of the beverage industry and shareholder value-focused managemen ...

Goldman: "Expect A Market Correction In The Coming Months"

While there are reasons to be bullish on global equities in 2018 and bear market risks are low, a correction is becoming increasingly likely, Goldman's equity strategist Peter Oppenheimer writes in an overnight note, repeating our observation from Friday that this has been the strongest start for global equity markets in any year since the infamous 1987.

As Goldman notes, this "melt-up" has occurred despite the already strong returns last year. The S&P 500 had its second-highest risk-adjusted returns in more than 50 years and MSCI World ($) had its second-highest risk-adjusted returns since the index began in 1970. More concerning, at least for the risk-party folks, is that te year-to-date sharp rise in equity returns has also continued even as bond markets are experiencing sharp risk-adjusted losses.

Confirming that a major market move lower is likely imminent - something Bank of America cautioned on Friday - the Goldman Bull/bBar Market Risk Indicator is at elevated levels - in fact at the same level it was before the dot com and credit bubble crash - though, Goldman adds in an attempt to mitigate growing fears, "the continuation of low core inflation and easy monetary policy suggests a correction is more likely than a bear market." And while monetary policy may be easy now, is getting tighter by the day...

Can Apple Find Enough Customers Willing to Pay Up?

Investors anxiously await Apple's second-quarter forecast, as the company needs iPhone sales to remain strong in order to hit Wall Street's current prediction of overall revenue growing 19% this fiscal year.

Dollar's Drop Fuels a Fire That's Already Raging

The decline in the U.S. dollar in 2017 accompanied stronger global growth, in particular in Europe, and spurred risk appetite nearly everywhere.

China's Big Car Makers Are Driving at Different Speeds

The contrasting fortunes of Great Wall Motor and Geely show the once-booming market is no longer lifting all at once.

Jeff Reeves's Strength in Numbers: Invest in 5 megatrends that can pay off without a bull market in stocks

Jeff Reeves singles out five powerful changes in the global economy that investors can profit from.

Economic Report: Consumer spending hits 6-year high as Americans cut savings to 12-year low

Consumer spending climbed 0.4% in December, capping off the biggest increase in household buying since 2011. But households has to slash savings to the lowest level to 2015 to help pay for everything.

Outside the Box: HP and Lenovo can be surprising winners from the boom in mining bitcoin and other cryptocurrencies

The skyrocketing price of graphic cards and system memory is bad news for the large market of do-it-yourself consumers and PC gamers.

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