Is US Benefiting From Europe's Turmoil?
U.S. futures up. Europe mostly up as well...huh? It's odd that volumes were weak yesterday on the first trading day of the quarter, which normally sees some inflows. Maybe it's because Europe was closed yesterday?
That may be the story: Money is coming into the U.S. from other parts of the world.
That seems to be the case with exchange-traded funds. The global ETF industry saw record first-quarter inflows, according to BlackRock. Investors piled into stock funds, which accounted for 93 percent of inflows.
Developed market stock funds pulled in big money, while demand for emerging market stocks sank. Still no clear sign of any "Great Rotation" out of bonds and into stocks. Bond funds garnered $11.6 billion in the first quarter, notching an eighth consecutive quarter with inflows of at least $10 billion.
1) Nasdaq OMX Group acquires electronic bond trading firm eSpeed from BGC Partners for $750 million (plus $484 million in a complex tax shield). Why? Because Nasdaq—and all exchanges—desperately need to diversify their business mix. Because the stock business is awful (low volumes, low volatility, low margins, low listing fees) and even the derivatives business does not have the growth levels it had, say, six or seven years ago.
So they have to buy new businesses. They recently bought the Thomson Reuters investor relations business for $390 million, now they have spent another $750 million (mostly debt) for eSpeed.
At least there's growth potential. eSpeed has the dominant market share in the electronic trading of Treasuys, and the leading technology platform.
The theory is pretty simple: 1) the U.S. will continue to issue Treasurys at a torrid pace; 2) as the Federal Reserve slows its buying of Treasurys there will be more trading volume from the public; and 3) there is some hope that they can broaden the platform to trade other fixed-income products.
Nasdaq's chief, Bob Greifeld, appeared on CNBC this morning and said the deal would be accretive in 2013, but some analysts lowered earnings per share estimates. It remains an open question how they are going to address the significant debt they are taking on. Will they reduce the buyback? If so, that should reduce earnings.
One final point: It appears this was a privately negotiated deal—NYSE Euronext was not even approached. Why wasn't it shopped around?
2) What can Kuroda say? The Nikkei in Japan is down again today (1.1 percent, now down over 3 percent in the last two days) ahead of the Bank of Japan (BOJ) meeting tomorrow. I noted last week that the great trade of 2012—short the yen—is looking a little long in the tooth as traders are wondering what incoming BOJ chief Haruhiko Kuroda could possibly say or do that has not been anticipated by the markets.
Yes he will be buying debt—big time—but that is long anticipated. A much bigger level of purchases (4 trillion yen or more a month) or purchasing more longer-dated bonds...up to 30 years...as well as very specific wording that the BOJ will continue zero rates until two percent inflation has been attained are the three most widely mentioned "surprises."
The yen, after weakening in almost a straight line from October through mid-March, has been showing signs of a bottom recently.
3) Health insurers rocket higher pre-market after the government said it will up the Medicare Advantage payment rate after opposition mounted from members of Congress and the health insurance industry. The Centers for Medicare & Medicaid Services said yesterday it will increase the rate by 3.3 percent next year, reversing a 2.3 percent cut announced in February. Humana jumps 10 percent and UnitedHealth climbs four percent, set to open at a 52-week high.
Bottom line: The worst fears of the HMO business have not been realized. The draconian rate cuts are not happening. Some analysts have speculated that the Medicare Advantage is now one of the politically protected entitlement programs in Washington.
—By CNBC's Bob Pisani