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What Happened to Post-Debate Push? Oil Prices Appeared To, That’s What.

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September 27, 2016

(Tuesday Market Open) It’s still unclear who the American people will elect as president in November after last night’s first presidential debate or even if voters learned anything new, but the market reaction during the debate and immediately afterward appeared to show that investors may have liked what they saw.

Stocks rallied abroad but fell flat in the early going after crude-oil prices lost their gusto. After swelling by 3% on Monday, West Texas Intermediate (CLX6) futures were crawling back toward $45 a barrel apparently on talk that both Iran and Saudi Arabia played down expectations of a production freeze or cut at tomorrow’s meeting with oil players. Ahead of the open, CLX6 was hovering in the $44.76, down 2.5%.

It was the banking sector that appeared to tank Monday’s session, what may underscore something we’ve noted before about how the well-being of the financial sector may often feed markets.

The markets turned lower yesterday amid news that Germany’s biggest bank, Deutsche Bank, could be in need of fresh capital to settle residential mortgage-bond sales litigation with the U.S. Justice Department to the tune of $14 billion. Shares of Deutsche Bank, traded on the Frankfurt exchange, fell to their lowest point in at least two decades while global bank shares tumbled, according to the Wall Street Journal, and were lower yet today.

The bank, which last week said it had “no intent to settle these potential civil claims anywhere near the number cited,” according to the New York Times, also denied reports that it had sought a bailout from the German government. “Nevertheless, there seems to be little doubt now that, whatever size the punishment, the bank will be forced to seek a cash infusion—be it from investors or some other source,” according to the NYT.

The S&P Index (SPX) retreated 0.86%, weighed down by a 1.5% fall in the financial index and a 2.24% pullback in the bank index—its deepest drop since the Brexit vote in July. That marked the second day of weakness, with the SPX now down 2% from its record peak in May and trading back in the narrow range that it broke out of last week. The index is still 5% ahead year to date.

Also on the losing side were shares of Pfizer (PFE) after the drug maker called it quits on its earlier decision to split the company into two, one on its patent-protected drugs and the other on its older products that are no longer under the patent umbrella. (See below.)

The Dow Jones Industrials (DJIA) and the Nasdaq Composite (COMP6) also stumbled, each losing just under 1% with decliners outpacing advancers ahead of what some market watchers billed as the Super Bowl of presidential debates. (Some 100 million people were expected to watch, which, if the number proves accurate, would be about 11.9 million fewer than those who saw the Super Bowl in February, according to CBS Sports.)

Not surprisingly, Wall Street’s so-called “fear gauge,” the VIX, notched its biggest percentage gain in two weeks, jumping 17.89% on the session.

S&P 500

FIGURE 1: WHAT HAPPENED?

The S&P 500 (SPX), plotted here through Monday's close on the TD Ameritrade thinkorswim® platform,  lost the momentum it had late last week, and fell into that tight range at the 2,140 level again. Data source: Standard & Poor’s. For illustrative purposes only. Past performance does not guarantee future results.

Where’s the Fed? Nope, Federal Reserve members are not taking another week off. They’re out in full force this week, beating the band on their individual dovish or hawkish perspectives on when the time would be most ripe to step up interest rates. But as Diane Swonk, economist and founder of DS Economics notes, “Fed speakers compete with debate ‘Super Bowl.’

“The battle between presidential candidates Hillary Clinton and Donald Trump is likely to overshadow the controversy in monetary policy circles, which is the widening gap between members of the Federal Reserve Open Market Committee (FOMC),” she said in a note to clients Monday. “It has been a long time since the FOMC was so divided and fundamentally uncertain about the timing of the next policy steps. Members happened to choose this week to air their dirty laundry, the same week as the first one-on-one debate between the two major candidates for president so the impact may be muted.” Can the Fed be silenced?

Remember that last week’s Fed vote to keep interest rates put was 7-3, with Kansas City governor Esther L. George dissenting again, joined by Loretta J. Mester, president and chief executive of the Federal Reserve Bank of Cleveland, and Eric Rosengren, president and chief executive of the Federal Reserve Bank of Boston, each of whom preferred an aggressive hike of .50% to .75%.

Pfizer Split No More. One of the world’s largest maker of cancer drugs and vaccines, as well as a medicine cabinet full of other drugs and vaccines, is taking its foot off the pedal of a two-year drive to separate its patent-protected brands off from its low-growth generics.   

After an “extensive evaluation,” the company said in a press release, it decided the “best structure” was to keep the company whole. It said it no longer felt a divide-and-conquer approach would unlock the “trapped value question,” according to the release.

“We believe that by operating two separate and autonomous units within Pfizer we are already accessing many of the potential benefits of a split—sharper focus, increased accountability, and a greater sense of urgency— while also retaining the operational strength, efficiency and financial flexibility of operating as a single company,” Chief Executive Ian Read said in the release. 

So How Old Are You Google? Many of us are reluctant to tell our true age, but why would that be the case for Google, a division of Alphabet (GOOG)? Hard to say, but a number of press reports in Europe and the U.S. this morning raise the question as the search-engine behemoth celebrates what apparently is its umpteenth birthday with an animated Google doodle.

It’s a “G” partygoer, donning a pink hat that blows up a long, skinny balloon and molds it into the last end of its name with “oogle” before all float away amid confetti and other balloons. Google says it’s celebrating its 18th birthday, which history may not be in total agreement, according to reports. Though Google has used Sept. 27 as its birth date for the last 10 years (it was Sept. 8 in 2003 and Sept. 7 in 2004, and Sept. 26 in 2005), The Independent, a British online newspaper, claims Google has reveled in at least six 18th birthdays already.

Google, itself, has acknowledge that it’s not even sure when the real date is. But in 2006, Google said it opened its doors in September 1998, giving it a year but though the company still appeared to be adjustable on the precise date, according to another British newspaper, The Mirror. “The exact date when we celebrate our birthday has moved around over the years, depending on when people feel like having cake,” Google said then, the paper reported.

On Sept. 27, 2013, when Google was celebrating its 15th year of “birth,” the site wrote this: “Still, while there’re some differing opinions about when to bust out the candles and cake, one fun fact is that our first doodle was posted even before Google was officially incorporated (Aug.30, 1998, vs. Sept. 4, 1998).” Wait, what date?

“With a company that’s got fun as deeply embedded in its DNA as Google, it seems fitting that any function would be a real bash, if you will,” Google noted. OK then, happy birthday to Google. Maybe.

Good Trading,
JJ
@TDAJJKinahan

Economic Calendar

FIGURE 2: THIS WEEK'S ECONOMIC CALENDAR

Source: Briefing.com

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