The Daily Prophet: Stocks May Have Found Their New Leaders

Connecting the dots in global markets.

Just as many pundits are starting to worry about continued gains in the stock market after the recent pullback in the shares of Facebook,, Netflix, Google's parent Alphabet, Microsoft and Apple, a new group of leaders is starting to emerge.

Stocks having anything to do with health care, pharmaceuticals or biotech are soaring following the release of Senate Republicans’ bill to repeal and replace Obamacare. The S&P 500 Health Care Facilities Index rose the most since March, or 2.27 percent. The iShares U.S. Healthcare exchange-traded fund has risen every day this week to mark its best four-day gain since just before the U.S. elections. Deep cuts in health spending and insurance subsidies in a House bill passed last month raised concern hospitals would bear the brunt of reductions, according to Bloomberg News' Justin Mattingly. A draft version of the Senate bill indicates spending on Medicaid, one of the biggest sources of government health care expense, would be cut more slowly than under the House version.

“Health insurers and hospitals are likely reacting to the provisions in the Senate bill that add more money to stabilize the state insurance exchanges and, relative to the House bill, seeks to increase the number of insured Americans in the coming years,” said Bloomberg Intelligence analyst Brian Rye. Senator Rand Paul of Kentucky said he and three other conservative Republicans -- Ted Cruz of Texas, Ron Johnson of Wisconsin and Mike Lee of Utah -- oppose the version released Thursday and intend to negotiate as a team to improve it. For the measure to clear the Senate, Republicans can only afford to lose two GOP votes amid unanimous Democratic opposition. 

One of the big surprises this year in markets has been the dollar's lackluster performance. Instead of appreciating as many anticipated, the Bloomberg Dollar Spot Index has fallen 5.44 percent, including another decline Thursday, as optimism fades that President Donald Trump will be able to push through pro-growth fiscal stimulus measures anytime soon. To the strategists at Barclays, the greenback's struggles may be just beginning. They say that the cyclical divergence that helped the dollar over the past five years has likely peaked, not only because of the European recovery, but also because the U.S. business cycle is more advanced than in Europe. Traders are betting the Fed will raise rates just once more this year, after two hikes in the first half of 2017. Meanwhile, its decision to set out some details about reducing its balance sheet may add to speculation the European Central Bank and the Bank of Japan will consider reducing asset purchases, according to Bloomberg News' Chikako Mogi and Hiroko Komiya. “With the Fed already neutralizing policy, talk of tapering surrounding the ECB and the BOJ puts monetary policy direction in alignment," said Junya Tanase, chief foreign-exchange strategist at JPMorgan in Tokyo. "This lays the ground for the euro and the yen to strengthen against the dollar.” 

While the oil plunge has grabbed the headlines recently, it’s the market for below investment grade corporate bonds that’s seeing the biggest repercussions as hedging surges, according to Bloomberg News' Cecile Vannucci. The cost of protecting against volatility in the iShares iBoxx $ High-Yield Corporate Bond exchange-traded fund has jumped 35 percent the past two days, the most among asset classes, to a one-month high. The volume of put options on the ETF hit the highest level since December 2015 this week, and the fund had its biggest daily outflows in seven weeks. Investors snubbed a new bond sale from Charter Communications, forcing the company to withdraw the planned $1.5 billion offering late Wednesday. The problem wasn’t finding buyers, but rather that the company was unable to get lower yields, said a person with knowledge of the matter, who asked not to be named because the deal is private, according to Bloomberg News' Molly Smith and Claire Boston. The company was seeking a yield of about 4.75 percent on the 10.5-year bond transaction. Investors briefed on the transaction said the telecom provider was unwilling to pay more.

If international investors needed a reminder of the dangers lurking in China’s stock market, they got a big one on Thursday. Less than 36 hours after MSCI Inc. said China’s domestic shares would join its benchmark indexes, a selloff in companies owned by two of the nation’s richest people sent shock waves through the market, according to Bloomberg News' Amanda Wang, Jeanny Yu and Kana Nishizawa. The Shenzhen Composite Index dropped 1.3 percent in the last hour of trading, erasing a gain of 0.2 percent. As the declines accelerated, traders pointed to multiple rumors before media including Caixin and Bloomberg News reported that Chinese regulators had asked some banks to provide information on overseas loans to companies including billionaire Wang Jianlin’s Dalian Wanda Group Co. and billionaire Guo Guangchang’s Fosun International. "Foreign investors who are investing in China may request a higher return on equity to hedge such political risk," said Banny Lam, managing director and head of research at CEB International Investment. Attention on China’s internal politics has intensified before a key party congress later this year when the next generation of Communist Party leaders will be chosen.

While everyone in the commodities market watches oil's descent, zinc is quietly staging an impressive rally, climbing to a two-month high. Thursday's move higher came as a spike in orders to withdraw the metal from the London Metal Exchange took freely available inventories on the bourse to the lowest since 2008. Zinc for delivery in three months rose 2.3 percent to settle at $2,700 a ton in London, the highest since April 6. The volume of on-warrant stock on the LME sank 28 percent to 103,725 metric tons on Thursday -- the largest one-day drop in data going back to 1997 -- after an order to withdraw metal from warehouses in New Orleans, the largest storage point for zinc, according to Bloomberg News' Mark Burton. The cancellation of stock adds to mounting evidence that the market is twisting into a deficit that could drive prices higher. Demand has been a cause for concern recently, but supply constraints could still help to lift zinc toward $3,000 a ton, said Xiao Fu, head of global commodities strategy at BOCI Global Commodities UK. A recent rally in steel products in China has also raised hopes of rebounding demand for zinc in galvanizing, the largest application for the metal.

It has been a good year so far for euro zone markets. The STOXX Europe 600 is one of the better performing equity markets. The Bloomberg Euro Index is headed for its first annual increase since 2013. The Bloomberg Barclays Euro Aggregate Bond Index is starting to gain some traction. Some of that has to do with reduced political risk and some has to do with an improving economy. A key piece of data comes Friday with the Markit Eurozone manufacturing PMI. The index has soared to 57 from last year's low of 51.2 in February. The median estimate of economists surveyed by Bloomberg is for a June reading of 56.8, which is still pretty strong and suggests to the economists at Royal Bank of Canada that the economic momentum seen in the first quarter carried over into the second quarter.

If you’d like to get The Daily Prophet in e-mail form, right in your inbox, please subscribe to this link. Thanks!


Bond Traders Are Relying on Wishful Thinking: Charles Lieberman

Fed's Labor Market Assumptions Don't Make Much Sense: Tim Duy

China Gets in the MSCI. Now Comes the Hard Part: David Millhouse

MSCI Forgets All Its Doubts About China: Christopher Balding

Bank of England Has Growing Policy Dilemma: Mohamed A. El-Erian

Bloomberg Prophets Professionals offering actionable insights on markets, the economy and monetary policy. Contributors may have a stake in the areas they write about.

    To contact the author of this story:
    Robert Burgess at

    To contact the editor responsible for this story:
    Max Berley at

    Before it's here, it's on the Bloomberg Terminal.