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[Markets] Stock market worst skid in 2 weeks amid weak economic results; Nasdaq snaps 8-session win streak The S&P 500 on Thursday marked its worst decline since early February and the Nasdaq snapped an eight-session win streak, as a batch of disappointing manufacturing and housing data unsettled investors. However, the market remains in an uptrend, for now as talks between the U.S. and China progress and the Federal Reserve appears to be in a wait-and-see posture. The Dow Jones Industrial Average fell 104 points, or 0.4%, to reach 25,851, the S&P 500 index fell 0.4% to 2,774, while the Nasdaq Composite Index gave up 0.4% to end at 7,459, ending a string of wins for the technology-heavy index at eight. The day's losses were the worst for the S&P 500 and the Nasdaq since Feb. 7, according to FactSet data. Poor data underpinned much of the dour sentiment on the Street. Durable-goods orders rose by 1.2% in December, below the 1.4% expected by economists, according to a MarketWatch poll. Outside of orders for airplanes and automobiles, orders rose just 0.1%. Meanwhile, a key measure of business investment, known as core orders, slipped 0.7% in December. Manufacturing activity declined in the Philadelphia area, constituting Pennsylvania, Delaware and New Jersey in February, for the first time since May of 2016, according to the Philly Fed manufacturing index. The index fell to a seasonally adjusted reading of -4.1 from 17 in January. Meanwhile, a reading for existing home sales fell 1.2% in January to a seasonally adjusted annual rate of 4.94 million homes, the National Association of Realtors. It marks the third straight month of declines. Published:2/21/2019 3:17:44 PM
[Markets] Coca-Cola raises dividend, sets new stock buyback program Coca-Cola Co. said Thursday it will raise its dividend by 2.6% and has set a new program to repurchase up to 150 million shares. The new quarterly dividend of 40 cents a share, up from 39 cents, will be payable April 1 to shareholders of record on March 15. The beverage giant's stock rose 0.8% in morning trade. At current prices, the new annual dividend rate implies a dividend yield of 3.52%, compared with the yield for the SPDR Consumer Staples Select Sector ETF of 2.83% and the implied yield for the Dow Jones Industrial Average of 2.09%, according to FactSet. Coke said the new buyback program will go into effect when the current program for 500 million shares, announced in October 2012, is completed. The new program would represent about 3.5% of the shares outstanding. Coke's stock has lost 6.7% over the past three months, while the consumer staples ETF has slipped 0.1% and the Dow has gained 5.7%. Published:2/21/2019 10:46:43 AM
[Markets] Johnson & Johnson's stock falls to lead Dow losers after being subpoenaed by DOJ, SEC Shares of Johnson & Johnson fell 1.4% in morning trade Thursday, enough to lead the Dow Jones Industrial Average's losers, after the consumer products and drug maker disclosed it received federal inquiries related to the safety of its baby powder. The company said in its 10-K filing with the Securities and Exchange Commission that it received subpoenas from the Senate Committee on Health, Education, Labor and Pensions, the Department of Justice and the SEC to produce documents regarding liability suits. The stock's price decline was shaving about 13 points off the Dow's price, which was down 82 points with 22 of 30 components losing ground. Published:2/21/2019 9:16:47 AM
[Markets] Stock market stumbles out the gate as Philly Fed index post first negative reading in 3 years U.S. stock benchmarks opened lower Thursday as investors awaited the start of a fresh round of talks on trade between the U.S. and China and as a mixed bag of data, with a focus on the first negative reading of Philadelphia-area manufacturing activity since 2016, caused a pause in buying. The Dow Jones Industrial Average edged 52 points, or 0.2%, at 25,885, while the S&P 500 index edged 0.3% lower at 2,776, and the Nasdaq Composite Index fell 0.3% at 7,469. Drawing the most attention in the morning was apparent weakness in manufacturing, with a reading of Philadelphia-area performance, known as the Philly Fed index, in February dropping sharply in to negative territory. The index fell to a seasonally adjusted reading of -4.1 from 17 in the prior month, marking the first negative read since May of 2016 and falling below expectations for 14, based on a survey of economists polled by Econoday. Minutes from the Federal Reserve on Wednesday also appeared to signal a central bank in pause mode, but some signs of a split in how members of the Fed viewed the outlook for the economy may be stoking some anxiety. Meanwhile, current U.S.-China trade negotiations remained in focus after President Donald Trump signaled he would be flexible on the March 1 deadline for an agreement. Midlevel U.S. and Chinese negotiators having been holding meetings this week. Published:2/21/2019 8:46:27 AM
[Markets] Stocks Set to Open Lower, With Trade Talks and Fed in Mind SECTORFOCUS BLOG Slipping. Stocks looked set to open lower on Thursday, with Dow Jones Industrial Average futures off 0.2% and the S&P 500 and Nasdaq Composite were 0.3% lower ahead of the open. Although the White House signaled that it would be flexible about the looming March 1 tariff deadline, investors are weighing U. Published:2/21/2019 8:16:59 AM
[Markets] Global Stocks Pause After Recent Climb U.S. stocks were set to make cautious gains Thursday, despite downbeat sessions elsewhere, as investors awaited fresh economic data and the latest round of U.S.-China trade talks. Futures put the Dow Jones Industrial Average and S&P 500 both up 0.2% and Nasdaq-100 futures 0.3% higher. Bunge, Kraft Heinz, Caesars Entertainment and Baidu will also be in focus with the companies due to report earnings. Published:2/21/2019 7:20:07 AM
[Markets] Norwegian Cruise's stock surges after earnings beat, upbeat outlook Shares of Norwegian Cruise Line Holdings Ltd. ran up 5.2% in premarket trade Thursday, after the cruise ship operator beat fourth-quarter profit expectations and provided an upbeat outlook. Net income rose to $154.6 million, or 70 cents a share, from $98.8 million, or 43 cents a share, a year ago. Excluding non-recurring items, adjusted EPS increased to 85 cents from 68 cents, above the FactSet consensus of 79 cents. Revenue rose 10.5% to $1.38 billion, just shy of the FactSet consensus of $1.39 billion, as passenger ticket revenue grew 15% to $958.4 million to beat expectations of $931.3 million while onboard and other revenue increased 1.6% to $422.8 million to miss expectations of $463.7 million. Net yield on a reported basis rose 4.2%, above the FactSet consensus of 3.9%. Norwegian expects 2019 adjusted EPS of $5.20 to $5.30, above the FactSet consensus of $5.15. The stock has rallied 7.1% over the past three months while the Dow Jones Industrial Average has gained 6.1%. Published:2/21/2019 6:45:21 AM
[Markets] Market Rally Fizzles As New Front Breaks Out In Global Trade War

Another strong overnight market rally, built on the back of - what else - trade deal optimism, fizzled with US futures paring gains, European stocks edging lower and Asian shares rising as initial optimism was dented following more revelations that for all pompous talk, and now multiple MoUs, the trade war is actually escalating behind the scenes.

Europe's Stoxx 600 Index drifted lower, weighed down by bank shares as individual companies including Centrica and shipping giant Maersk also underperformed after disappointing earnings. Over in the US, futures on all three main indexes levitated higher following Fed minutes that merely added to dovish sentiment, after a late Wednesday report that negotiators are working on multiple memorandums of understanding that would form the basis of a final trade deal; however the latest trade deal optimism - which has now become a daily joke as the market now prices in a successful outcome to the trade war every single day - faded, Chinese stocks dropped the yuan pared an advance and the Aussie plunged after a report that China’s Dalian port banned coal imports from Australia while Westpac, called for two RBA rate cuts this year.

The Aussie was last trading at $0.7105, down 0.8 percent on the day but it was not the only one struggling. The Kiwi dollar got  bundled down 0.5 percent and the euro had given back its early gains to stand at $1.1320. The slide in the Aussie dollar had helped its share market close at a six-month high. Japan’s Nikkei had ended 0.1% stronger too and though Chinese shares sagged, the “offshore” yuan firmed to its strongest level since July on the trade hopes.

MSCI’s main Asia-Pacific index rose to a 4-1/2 month high, lifted by the initial, more optimistic trade reports, while generally ignoring the new trade war between Australia and China.

As noted earlier, the reported banning of Australian coal imports at the Chinese port of Dalian is seen as a sign that Beijing is flexing its economic muscles and warning nations not to bar its next-generation, 5G wireless technology or Huawei for that matter. The indefinite coal restrictions started this month and are part of an overall plan to cap imports into the customs region this year, Reuters reported, citing an unnamed Dalian Port official.

How China blocking Australian exports is conducive to a trade deal is beyond any rational thinking person, however, since algos are neither, they merely digested the "optimistic" headlines and futures are still higher, but fading gains fast.

In any case, the "steady" progress toward a trade agreement between the world’s biggest economies - one which could take years sending the S&P above 3,000 on "optimism" a deal is coming any moment, could give further impetus to a risk rally with the MSCI world index up about 15 percent since Christmas Day. But the new front in the global spat, this time between China and Australia, risks denting investor sentiment before concrete progress is seen in Washington.

Meanwhile, the global economic picture is going from bad to abysmal, with manufacturing PMIs in Germany, Japan and the Eurozone all now officially in contraction, i.e. recession, territory.

“The euro zone economy remained close to stagnation in February. The general picture remained one of a more subdued business environment than seen throughout much of last year,” Chris Williamson, IHS Markit’s chief business economist said. Williamson said the results pointed to first-quarter euro zone growth of just 0.1 percent, below the latest Reuters poll estimate for 0.4 percent. They come soon after the European Central Bank ended its more than 2.6 trillion euro asset purchase stimulus program.

Elsewhere, Treasuries drifted lower with the 10Y yield rising 3bps to 2.67% while European bonds were mixed and the euro fluctuated.

Today's trading session follows a muted day in the markets yesterday, following a FOMC Minutes release that had something in it for everyone: the overall tone of Fed rhetoric should “help to keep financial markets relatively steady as we head toward the weekend, all in the context of the recent risk asset roller coaster that has resulted from overly hawkish miscommunication from the Fed late last year, followed in January by an apparent overly-dovish policy U-turn,” Simon Ballard, a macro strategist at First Abu Dhabi Bank, wrote in a note.

In other FX, the dollar relinquished an Asia-session advance as the pound reversed losses amid growing Brexit optimism, only to tumble after an official said a deal was not coming. Sterling also shrugged off Fitch putting its UK credit rating on a formal downgrade warning amid uncertainty about whether the country’s parliament will be able to agree a transition deal before next month’s planned Brexit date.

Europe’s common currency swung between gains and losses and euro-area bonds traded mixed amid concerns over a slump in manufacturing in the region. Treasuries traded in the red, while European stocks were mixed and U.S. futures pointed to a higher open.

In the commodity market, crude prices rose more than 1 percent on Wednesday to their highest in 2019 on hopes that oil markets will balance later this year. U.S. crude was last up 0.3 percent, or 17 cents, at $57.33 per barrel. Brent was 0.1 percent, or 5 cents, higher at $67.13.

Initial jobless claims, durable goods orders and Markit PMI data are due. Scheduled earnings include Intuit and Hormel Foods

Market Snapshot

  • S&P 500 futures up 0.1% to 2,790.25
  • STOXX Europe 600 down 0.06% to 371.23
  • MXAP up 0.2% to 159.07
  • MXAPJ up 0.3% to 521.17
  • Nikkei up 0.2% to 21,464.23
  • Topix unchanged at 1,613.50
  • Hang Seng Index up 0.4% to 28,629.92
  • Shanghai Composite down 0.3% to 2,751.80
  • Sensex up 0.4% to 35,908.47
  • Australia S&P/ASX 200 up 0.7% to 6,139.25
  • Kospi down 0.05% to 2,228.66
  • German 10Y yield rose 1.0 bps to 0.11%
  • Euro down 0.04% to $1.1333
  • Brent Futures down 0.09% to $67.02/bbl
  • Italian 10Y yield rose 7.0 bps to 2.499%
  • Spanish 10Y yield fell 1.5 bps to 1.185%
  • Gold spot down 0.3% to $1,334.15
  • U.S. Dollar Index up 0.1% to 96.56

Top Overnight News

  • The reported banning of Australian coal imports at the Chinese port of Dalian is maybe a sign that Beijing is flexing its economic muscles and warning nations not to bar its next- generation wireless technology. The indefinite coal restrictions started this month and are part of an overall plan to cap imports into the customs region this year, Reuters reported, citing an unnamed Dalian Port official.
  • U.S. and Chinese negotiators are working on multiple memorandums of understanding that would form the basis of a final trade deal, according to a person briefed on the talks. The MoUs would cover areas including agriculture, non-tariff barriers, services, technology transfer and intellectual property, said the person, who asked not to be identified because the discussions are private
  • U.K.’s Hammond said deadline pressure in the Brexit talks was helping officials to make progress and British lawmakers could vote on a revised deal next week. He said there were positive signs coming from Brussels that the EU is moving its position and giving ground on the Irish border backstop, and it was “significant” that the EU is now promising “guarantees” that the contentious backstop will be temporary
  • In a sign of the challenge that U.K. Prime Minister Theresa May faces next week, as many as 15 government ministers are debating voting against her Brexit strategy and then challenging her to fire them in next week’s planned ballots, three people familiar with the matter said. The senior officials want to back a cross- party effort to stop Britain crashing out of the EU without a deal

Asian equity markets eventually traded mostly higher with the region supported by US-China trade hopes after reports that negotiators were drafting MOUs on key structural issues and are looking at a list of measures to address the trade imbalance. This helped the region shake off the early cautious tone brought on by another marginal performance of their US counterparts and a mixed-perceived FOMC minutes. ASX 200 (+0.7%) was underpinned by strength in Financials as well as outperformance in Consumer Discretionary after Wesfarmers shares rallied post-earnings, while the trade hopes inspired a turnaround for the Nikkei 225 (+0.2%) which was initially dampened by currency effects and after Nikkei Manufacturing PMI data slipped into contraction territory for the 1st time since August 2016. Elsewhere, the KOSPI (+0.1%) lagged with index heavyweight Samsung Electronics lacklustre after it unveiled its ground-breaking foldable smartphone which comes with an eye-watering price of nearly USD 2000, while Hang Seng (+0.4%) and Shanghai Comp. (-0.3%) were also initially choppy before the trade-related optimism provided a rising tide across the region. Finally, 10yr JGBs found support from the early cautious tone and after disappointing Nikkei Manufacturing PMI data, but then reversed course as risk sentiment improved and after weaker results in the enhanced liquidity auction for longer-dated bonds.

Top Asian News

  • Top PC Maker Lenovo Gains Most in a Decade as Turnaround Sticks
  • Goldman Says Asian Funds Positioned All Wrong for 2019’s Rally
  • Hong Kong Monetary Authority Chief Norman Chan to Retire Oct. 1

Major European indices are mixed [Euro Stoxx 50 +0.1%] in spite of the firmer trade seen in Asia following reports that negotiators are drafting MOU’s. The FTSE 100 (-0.6%) is underperforming its peers, weighed on by BAE Systems (-7.0%) and Centrica (-11.8%) following earnings for both Co’s; additional downward pressure is applied by Anglo American (-0.1%) after earnings and Glencore (-1.5%) who are in the red following a tax demand and mine production cut. Sectors are mixed, with some mild outperformance in consumer discretionaries. Other notable movers include Bouygues (+3.4%) near the top of the Stoxx 600 as their FY profit came in above the prior. Also performing well after earnings are Barclays (+0.2%), with the Co. stating they are considering additional returns which include buybacks. Of note are Maersk (-9.6%) in the red after stating that 2019 guidance is subject to considerable uncertainty from trade risks, also the Co. and Maersk Drilling are to trade separately from April 4th.

Top European News

  • Telecoms Trail in Europe as Results From Heavyweights Fall Flat
  • European Banks Caught Between Nordic Contagion and Barclays Joy
  • Just Eat Drops on Report Uber Eats Eyes U.K. Marketplace Service

In FX, it was a really rough night for the Antipodean Dollars, and especially the Aud that failed to glean any lasting benefit from a robust if not stellar January jobs report, as Westpac delivered an extremely dovish RBA outlook with not just one, but two rate cuts pencilled in for this year (August and November). Aud/Usd recoiled from just over 0.7200 in response and then reversed even more sharply on headlines reporting that China was blocking coal imports as several ports including the main Dalian hub, hitting lows under 0.7100. Meanwhile, Aud/Nzd fell from around 1.0490 to circa 1.0400, but is holding above the base as Nzd/Usd suffers knock-on losses towards 0.6800 vs 0.6875 at one stage.

  • CAD/CHF/EUR - All on a softer footing vs the Greenback, as the DXY recovers from its post-FOMC minutes lows and with the overall take from the release not as dovish as many anticipated or were positioned for (end of balance sheet reduction by end 2019 favoured by most, but prospect of further rate normalisation this year left on the table) – index straddling 96.500 vs 96.390 at one stage. The Loonie is close to the bottom of a 1.3207-1.3163 range, while the Franc is back below parity, albeit just, and the single currency is pivoting 1.1350 amidst mixed Eurozone flash PMIs, volatile trade on stops and near term technical with some hefty option expiries also thrown in for good measure. Specifically, 1.1365, 1.1371-73 represent resistance, with the latter zone incorporating Wednesday’s high and the 30 DMA, while 1.2 bn rolls off at the 1.1300 strike and almost 3 bn at 1.1400.
  • GBP/JPY - Relative G10 outperformers as Cable holds firmly above 1.3000, after a few wobbles, and not far from overnight peaks just over 1.3100 following a record UK public finance haul in January, a well received 2057 Gilt auction and comments from Chancellor Hammond suggesting the EU is showing some willingness to budge on the Irish backstop. Meanwhile, the Jpy has pared some losses within a 110.60-87 range in wake of another drop in the PBoC’s mid-point Usd/Cny fixing rate.
  • NOK/SEK - The Scandi Crowns are both back under pressure, with Eur/Nok nudging above 9.7900 against the backdrop of stagnating oil prices and a somewhat disappointing Norwegian energy investment report, while Eur/Sek has rebounded to 10.6000+ from around 10.5600 following the IMF’s annual report that revealed a downward revision to Sweden’s 2019 GDP forecast and urged the Riksbank to hold off from another repo rate hike.

In commodities, Brent (+0.1%) and WTI (+0.5%) prices are largely unchanged after a mixed overnight session, with both Brent and WTI trading within a narrow USD 1/bbl range. Yesterday’s delayed API release showed a crude oil inventories build of 1.26mln barrels, although this was less than the expectation for a 3.1mln barrel build. EIA’s delayed weekly report is to be published later today where expectations are for a crude stock build of 3.1mln, which would make it the fifth consecutive week of builds. Elsewhere, reports show that Venezuela are paying large premiums for Russian and European fuel imports due to a limited number of available sellers, following US sanctions against PDVSA. Gold (-0.2%) is weaker after trading largely sideways overnight, with the yellow metal approaching the bottom of its USD 10/oz range. Elsewhere, Barrick Gold have outlined a deal reached with the Tanzania government, which features a USD 300mln payment, regarding disputes with Acacia Mining. Separately, China’s northern Dalian port bans imports of Australian coal and are to cap overall imports for the year at 12mln tonnes; this ban follows other Chinese ports taking 40 days to clear Australian coal. China's Dalian customs bans Australian coal imports indefinitely and sets 12mln tons overall coal import quota for this year, according to sources.

Looking at the day ahead, we get the delayed December durable and capital goods orders data which should help to further sharpen Q4 GDP expectations. The consensus expects a +0.3% mom pickup in core durable goods orders and +0.2% mom core capex orders reading. Also due out is the October Philly Fed survey which will be worth watching for a mid-quarter update on the factor sector. The consensus expects a 3pt decline to +14.0. Away from that we’ll also get the latest weekly initial jobless claims print – where the four-week moving average has ticked up in recent weeks – the flash February PMIs, January leading index and January existing home sales. Other than data, we’ll also hear from more central bank speakers with the ECB’s Praet due to speak this morning and afternoon, and the Fed’s Bostic this afternoon. The ECB is also due to publish the accounts of the January meeting while EU trade ministers are due to meet. Today also see’s China’s Vice Premier Liu He join trade talks in Washington with Lighthizer and Mnuchin.

US Event Calendar

  • 8:30am: Philadelphia Fed Business Outlook, est. 14, prior 17
  • 8:30am: Initial Jobless Claims, est. 228,235, prior 239,000; Continuing Claims, est. 1.74m, prior 1.77m
  • 8:30am: Durable Goods Orders, est. 1.7%, prior 0.7%; Durables Ex Transportation, est. 0.25%, prior -0.4%
  • 8:30am: Cap Goods Orders Nondef Ex Air, est. 0.2%, prior -0.6%; Cap Goods Ship Nondef Ex Air, est. 0.0%, prior -0.2%
  • 9:45am: Markit US Manufacturing PMI, est. 54.8, prior 54.9; Markit US Services PMI, est. 54.3, prior 54.2
  • 10am: Existing Home Sales, est. 5m, prior 4.99m; Existing Home Sales MoM, est. 0.2%, prior -6.4%

DB's Jim Reid concludes the overnight wrap

Ahead of today’s important flash PMIs (preview later), I was in Frankfurt last night for a macro dinner and it’s fair to say that whilst nervous, most investors thought the pain trade was a further tightening of spreads and higher equity markets - in-line with my thought. In a show of hands no-one thought we’d get a hard Brexit and the vast majority thought we’d get some kind of supportive US-China trade deal in the coming weeks. So that’s the bias of views. There was less certainty beyond the next few months but some who previously were worried about the US cycle, like me, were a little less pessimistic about 2020 now due to the Fed 180 degree pivot in 2019. A lot of the conversation was taken up by the bubbling momentum of socialism in US politics. I think this could be a huge topic as we hit the primaries ahead of the 2020 election. So it’s something I’m going to write about in more depth soon.

Politics remains highly changeable at a global level and in an otherwise quiet week it’s the reshuffling of UK political lines which is proving to be the most interesting story at the moment. Yesterday’s news that three Conservative MPs had quit to join a new Independent Parliamentary Group might not have an immediate direct Brexit read-through but it does mean that May is becoming perilously close to losing her majority, especially with one of the defectors – Heidi Allen – saying that she expects more Tories to quit. This means the medium term risk of a new election is surely rising even if the gang of three made it clear that they would likely support the government outside of Brexit votes. Yesterday’s YouGov poll – while a little less meaningful at this stage and covering Feb 18-19 just before the Tory defections - put support for the Tories at 38% versus 26% for Labour. This is a remarkable collapse for the opposition party and only a small decline for the Tories. Whatever you think of Tory party tactics and handling of Brexit there is only one party that is pursuing Brexit as per the voter mandate and I think they are keeping support for them high because of this. Back to the poll and the new Independent Group scored 14%, followed by the Lib Dems at 7%. Could this be the start of a significant change in UK politics like the en Marche movement in France? The problem for them is that the U.K. has a constituency system and is “first past the post”. Indeed in the UK, winning a vote share in the low-20s has not historically been high enough to make much progress in Parliament. In 2010 the Lib Dems got 23% of the vote but fewer than 10% of the seats in Parliament. In 1983 the SDP-Liberal Alliance got 25% of the vote but didn't even manage 5% of the seats. Indeed at a general election people usually vote tactically and unless a party can win, voters will often vote for one of the two main parties to ensure the one they don’t want to win has a better chance of losing. So a long road ahead for a centrist movement but unusual things are happening all over the world.

The pound took a roundtrip yesterday, initially depreciating -0.38% versus the dollar on the above resignations, before reversing to trade +0.36% stronger on possibly positive Brexit stories. Spain’s Foreign Minister Josep Borrell told reporters that “I think the accord is being hammered out now,” helping the pound to jump higher. His office subsequently walked back those comments, and the currency ultimately ended the session close to flat. There were also reports that the EU would want the UK Parliament to formally vote on any new agreement before the EU leaders considered it themselves. This would be new sequencing, which could indicate a subtle shift in positions that might allow a breakthrough, though it’s also an indictment of May’s inability to make promises given her fractured caucus. Elsewhere, the UK PM May and the EU President Juncker released a joint statement post their meeting saying that they discussed which guarantees could be given to underline once more the "temporary nature" of the Irish border backstop while adding that they have tasked chief Brexit negotiators of both sides - EU’s Michel Barnier and UK’s Stephen Barclay - with considering role for "alternative arrangements" in replacing backstop in future. They also discussed on any amendments that could be made to the political declaration consistent with their respective positions. In the meantime, yesterday Fitch placed the UK’s AA long term rating on a negative watch citing the “heightened uncertainty over the outcome of the Brexit process.”

Markets are a lot less complicated than Brexit at the moment with incremental positive returns the name of the game for now. That was the case last night even after the FOMC minutes with the S&P 500, DOW and NASDAQ turning in gains of +0.19%, +0.24% and +0.03% respectively. Treasuries closed around +1bp higher across maturities and the 2s10s yield curve remains steady at 14bps. HY spreads were -4bps in the US and the dollar also closed flat on the session.

Just on the minutes, the main highlights were confirmation that the FOMC is likely to end its balance sheet runoff later this year and a reaffirmation that rate hikes remain on hold for now. Due to a snow storm in Washington, DC, reporters did not receive embargoed access to the minutes before the official release, so the details trickled out as everyone read through the details. The market reaction was somewhat more muddled than usual, with the S&P 500 dropping -0.38% in the 20 minutes after the release but subsequently fully retracing. Perhaps investors initially focused on hawkish excerpts like “participants continued to view a sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee's symmetric 2 percent objective as the most likely outcomes over the next few years.” However, the minutes also said that "maintaining the current target range for the federal funds rate for a time posed few risks at this point" which suggests no imminent change in policy and “almost all participants thought that it would be desirable to announce before too long a plan to stop reducing the Federal Reserve's asset holdings later this year.” That’s a very clear confirmation that we should expect a formal announcement and an end to the balance sheet runoff by year-end.

Meanwhile, overnight Bloomberg reported that the US and Chinese negotiators are working on multiple memorandums (6 in total as per Reuters) of understanding that would form the basis of a final trade deal and the MoUs are likely to cover areas including agriculture, non-tariff barriers, services, technology transfer and intellectual property. The report also added that the enforcement mechanism for the MoUs remains unclear as of now, but would likely be a threat of re-imposition of tariffs if conditions aren’t met and also indicated that China’s Vice Premier Liu He is likely to meet with President Trump on Friday. As a reminder China Vice Premier Liu He is set to meet Lighthizer and Mnuchin today. Elsewhere, President Trump reiterated his threat to impose tariffs on cars imported from the EU if the US can’t reach a trade deal with the EU. He said that “If we don’t make the deal we’ll do the tariffs. We’re trying to make a deal. They’re very tough to make a deal with, the EU.”

Asian markets pared losses on the above positive US-China trade headlines and are heading higher. The Nikkei (+0.49%), Hang Seng (+0.53%) and Shanghai Comp (+0.36%) are all up while the Kospi (-0.06%) is trading flattish. China’s onshore yuan also rose (+0.39%) on positive trade headlines to 6.6950, highest since July 2018. Elsewhere, futures on the S&P 500 are up +0.31% while 10y treasury yields are up +1.9bps this morning. In terms of overnight data releases, and a bit worrying ahead of today’s other flash numbers, Japan’s preliminary February manufacturing PMI was in contractionary territory at 48.5 (vs. 50.3 last month) for the first time since September 2016. The subindex for production fell to 47.0 (vs. 49.4 last month), indicating that actual output declined further. Joe Hayes, an economist at IHS Markit, said that “unless service sector activity can offset manufacturing weakness, the chance of Japan entering a recession in 2019 looks set to rise.”

In Europe, the STOXX 600 rallied +0.67% yesterday, closing above its 200-day moving average for the first time since September. Bunds were little changed and BTPs weakened a further +7.1bps after the ECB’s Praet confirmed that while the ECB will discuss a new TLTRO, it’s unclear that a decision will actually be made. Along with Lane and Rehn, that is 3 senior figures who have suggested that a new TLTRO might not come as soon as the next ECB meeting on March 7.

In other news from yesterday , the US Trade Representative Lighthizer is to testify about China trade matters before the House Ways and Means Committee on February 27th according to CNBC. As for the S232 report, it was interesting to note yesterday’s Politico report which suggested that there are rising calls for the White House to release the report with a source suggesting that it does find a threat and recommends tariffs of up to 25%. Despite those rumours, automaker stocks rallied +2.30% and +1.08% in Europe and the US, respectively.

Moving on. While it’s not been the most exciting of weeks in markets this week we do have the flash February PMIs to look forward to today in Europe. A reminder that we’ve seen the composite Euro Area PMI decline in 10 of the last 12 months to a five-and-a-half year low of 51.0 in January. The consensus is for a very modest pick-up to 51.1 this month. The services reading is expected to rise to 51.3 (from 51.2) however the manufacturing reading is expected to slide a little further, to 50.3 from 50.5 in January. That print has fallen in 12 of the last 13 months and last month hit the lowest since November 2014. As for the country level data, there will be plenty of focus on the data out of France given the recent slide with only a modest pick-up in the composite to 48.9 expected (from 48.2 in January). Germany’s composite reading is expected to nudge down slightly to 52.0 from 52.1.

Back to yesterday, where in EM land it was a bit of a roundabout session for South African assets following the release of the latest budget deficit forecasts. The Rand weakened as much as -2.28% at one stage and bonds blew wider with the National Treasury forecasting a budget deficit of 4.5% for the year starting April 1 which would be the widest since 2010. Growth rates were also cut, however the announcement of an operational overhaul of Eskom and discussions about privatising part of the transmission business helped assets to pretty much fully recover by the end of play. Wider EM FX was flat yesterday while the MSCI EM index finished +0.57%.

Looking at the day ahead, this morning we’ll get the final January CPI revisions in Germany and France, as well as February confidence indicators in the latter. The PMIs are out just after that before we can get a look at January public finances data in the UK. Over in the US this afternoon we’re due to get the delayed December durable and capital goods orders data which should help to further sharpen Q4 GDP expectations. The consensus expects a +0.3% mom pickup in core durable goods orders and +0.2% mom core capex orders reading. Also due out is the October Philly Fed survey which will be worth watching for a mid-quarter update on the factor sector. The consensus expects a 3pt decline to +14.0. Away from that we’ll also get the latest weekly initial jobless claims print – where the four-week moving average has ticked up in recent weeks – the flash February PMIs, January leading index and January existing home sales. Other than data, we’ll also hear from more central bank speakers with the ECB’s Praet due to speak this morning and afternoon, and the Fed’s Bostic this afternoon. The ECB is also due to publish the accounts of the January meeting while EU trade ministers are due to meet. Today also see’s China’s Vice Premier Liu He join trade talks in Washington with Lighthizer and Mnuchin.

Published:2/21/2019 6:45:21 AM
[Markets] US Market Indexes Close With Another Day of Gains Wednesday Dow Jones gains 0.24% Published:2/20/2019 5:43:53 PM
[Markets] US STOCKS SNAPSHOT-Wall St ends higher after Fed minutes U.S. stocks ended higher on Wednesday as the release of the Federal Reserve's minutes from its January meeting showed policymakers thought pausing on U.S. interest rate hikes posed little risk. The Dow ... Published:2/20/2019 3:11:52 PM
[Markets] Stock-market breadth is more bullish than Dow and S&P gains imply Stock-market breadth is more bullish than Dow and S&P gains imply Published:2/20/2019 11:11:04 AM
[Markets] Stock market fights for flight as Wall Street awaits minutes from the Fed's big policy pivot U.S. stocks on Wednesday saw a subdued open as investors awaited minutes from the Federal Reserve's rate-setting meeting last month that led to a major reversal in policy for the central bank. Developments in trade remained on investors' radar as talks between Beijing and Washington continue. President Trump said that the U.S. may not increase tariffs on some $200 billion to 25% from 10% in Chinese goods as scheduled on March 2, saying the negotiating deadline is "not a magical date." The Dow Jones Industrial Average traded up 16 points, or less than 0.1%, at 25,904, the S&P 500 index edged lower by less than a point at 2,779, while the Nasdaq Composite Index advanced more firmly, compared against its equity benchmark peers, up 0.2% at 7,500. An eighth straight gain for the Nasdaq would match its longest win streak since a period ended Aug. 9. Fears that the Fed, run by Chairman Jerome Powell, was raising interest rates too quickly roiled markets last year 2018, but the Fed changed its tune at the start of 2019, citing crosscurrents exemplified by one of the worst December returns for stocks in years. In corporate news, CVS Health Corp. shares were lower after its quarterly results disappointed Wall Street. Shares of Tesla Inc. were in focus after another the electric car maker announced that its general counsel, Dane Butsinkas was leaving the firm. Looking ahead, the Federal Open Market Committee's minutes will be released at 2 p.m. Eastern Time. Published:2/20/2019 9:10:16 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens flat as investors assess U.S.-China trade talks U.S. stocks opened little changed on Wednesday, after a handful of downbeat earnings reports, while investors weighed the latest developments in trade talks between the United States and China. The Dow ... Published:2/20/2019 8:43:13 AM
[Markets] Global Stocks Hit 4 Month High As US Futures Drop Ahead Of Fed Minutes; Yuan Soars

World stocks hit a four-month high on - what else - hopes of progress in trade talks between the United States and China, even as US equity futures drifted lower, offsetting a rise in European and Asian stocks as traders awaited the release of minutes from the latest Fed meeting. The dollar snapped a 4-day losing streak while the yuan jumped after a Bloomberg report that Trump is asking China to keep its currency stable (and hence less market-determined).

The bullish mood was boosted after Donald Trump said negotiations with China were going well and suggested he was open to extending the deadline to complete them beyond March 1 which is anything but "magical."

European automakers led an advance in the Stoxx 600 Index, which erased Tuesday’s drop, even as miner Glencore fell on lower-than-expected earnings, while Lloyds rose after it unveiled a 1.75 billion pounds ($2.3 billion) buyback plan. UK. grocer J Sainsbury plunged on antitrust objections to its planned takeover of Walmart’s Asda.

Meanwhile, European banks continued to be pressured by expectations that the ECB will restart a program to provide long-term cheap loans, or TLTROs, to banks to boost a faltering economy, depressing yields, while on Monday the BOJ flagged its readiness to ease further.

Earlier, the MSCI index of Asia-Pacific ex-Japan rose as much as 1.1% to mark its highest levels since Oct. 2. Hong Kong’s Hang Seng gained as much as 1.3 percent to six-month highs, while Korea’s Kospi and Taiwan’s index recovered to levels last seen in early October. Japan’s Nikkei added 0.6 percent to two-month highs.

Boosted by fresh dovish sentiment, emerging-market stocks and currencies jumped the most in three weeks amid optimism that trade negotiations between Washington and Beijing will lead to a deal. The South African rand and Turkish lira bucked the rally.

The yuan led the advance among developing markets, bolstering its Asian peers, after Bloomberg reported that the U.S. is asking China to keep the value of its currency stable as part of the negotiations. The onshore Yuan strengthened as much as 439 pips on Wed to close at 6.7236/USD, its biggest intra-day gain in more than a month, and the highest since the end of Jan, and the biggest rise since Jan 10th. The offshore yuan was last trading at 6.7265 after rising as high as 7.164.

And speaking of China's currency, Premier Li said that China has not and will not change monetary policy; will not resort to 'flood-like' stimulus. RRR cut in January reflected that there is sufficient room for cuts, adding that increasing bill financing and short-term loans may create the potential for risks.

Elsewhere in FX, the dollar snapped a four-day losing streak before the release of Fed January minutes, rising 0.2 percent against the yen after Japan recorded its biggest annual drop in exports in January for more than two years, and on recent dovish Bank of Japan signals.

The pound slipped as Prime Minister Theresa May headed back to Brussels in a last-ditch attempt to save her Brexit deal and as three Conservatives quit to join a new party, while the euro lacked a clear sense of direction after ECB’s Praet said a decision on TLTROs may not be made at the March meeting. The rand dropped before Finance Minister Tito Mboweni’s budget speech on Wednesday.

In rates, European bonds mostly edged up, but Italian notes fell while US Treasuries were unchanged after some mixed trading earlier.

In the latest Brexit news, PM May is reportedly to present the EU with fresh legal proposals to break the Irish backstop deadlock and which will hopefully convince Brexiteers to support her deal. In related news, a spokesperson said PM May and Brexit Ministers updated cabinet on Brexit and that the UK is still looking to reopen the withdrawal agreement. Meanwhile, in a shocking development, UK Tory MPs Heidi Allen, Anna Soubry and Sarah Wollaston have resigned from the Conservative Party and joined the Independent Group; talkRadio's Kempsell confirms, with the news sending cable to session lows.

GBP

Prior to this, ITV's Peston tweets that if, as he expects, four Tory MPs quit the party today to become independent, PM May's minority government will become even more of a minority, with less grips on the Commons, so a general election moves nearer.

Finally, UK Chancellor Hammond said a no-deal Brexit would be mutual calamity for UK and EU, while he also noted that the most urgent task is to reach an agreement that will protect trading relationship with EU. Furthermore, Hammond said the Malthouse initiative is a valuable effort to allay backstop concerns in the future but added that EU will not consider a replacement to the backstop now.

Looking at key trading catalysts, Bloomberg notes that as the U.S. and China continuing tough negotiations toward a trade deal, focus has shifted to a key campaign promise made by President Donald Trump, namely addressing Beijing’s periodic devaluation of the yuan. Investors will also be preoccupied by the release of minutes from the Federal Reserve later on Wednesday and from the European Central Bank a day later, and they’ll have a glut of German data to contend with toward the end of the week.

“At the start of the year with the upshoot in equities, everything was sort of moving together,” Peter Borish, chief strategist at Quad Capital LLC, told Bloomberg TV in New York. “We are now starting to not see that and that is always the first sign of warning signals in the market place that it might be getting ready for a correction.”

Elsewhere, oil prices hovered near 2019 highs, supported by OPEC-led supply cuts and U.S. sanctions on Iran and Venezuela, but further gains were capped by soaring U.S. production and expectations of an economic slowdown. International Brent crude futures stood at $66.30 per barrel, having hit a three-month high of $66.83 per barrel earlier this week. Gold traded at the highest since April and palladium soared to a record as a shortage started to bite.

Expected data include mortgage applications and FOMC minutes. Analog Devices, CVS, Synopsys and Cheesecake Factory are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.1% to 2,775.50
  • STOXX Europe 600 up 0.2% to 369.58
  • MXAP up 0.8% to 158.66
  • MXAPJ up 1.1% to 519.33
  • Nikkei up 0.6% to 21,431.49
  • Topix up 0.4% to 1,613.47
  • Hang Seng Index up 1% to 28,514.05
  • Shanghai Composite up 0.2% to 2,761.22
  • Sensex up 1% to 35,688.98
  • Australia S&P/ASX 200 down 0.2% to 6,096.49
  • Kospi up 1.1% to 2,229.76
  • German 10Y yield fell 0.7 bps to 0.098%
  • Euro up 0.1% to $1.1353
  • Italian 10Y yield rose 2.2 bps to 2.429%
  • Spanish 10Y yield fell 0.5 bps to 1.203%
  • Brent futures down 0.5% to $66.13/bbl
  • Gold spot up 0.3% to $1,345.24
  • U.S. Dollar Index little changed to 96.56

Top Overnight News from Bloomberg

  • The U.S. is said to have asked China to keep its currency stable as part of a new trade deal, a move aimed at discouraging officials in Beijing from devaluing the yuan to offset the impact of American tariffs. That request is at odds with years of global pressure on China, from the Group of 20 economies in particular, to move toward a free-floating currency
  • British government sees Theresa May’s meeting on Wednesday with EC President Juncker in Brussels as a crucial chance to get legally binding changes to the so- called Irish border backstop
  • Joan Ryan becomes the eighth U.K. Labour MP to quit the party, accusing Leader Jeremy Corbyn of “presiding over a culture of anti-Jewish racism and hatred of Israel,” according to a tweet from the lawmaker
  • Corbyn’s closest ally Shadow Chancellor John McDonnell, says the Labour leader must listen to critics x
  • Theresa May faces many problems as she tries to nail down a divorce agreement with the European Union but one looms over them all: pro-Brexit Tories do not trust her.
  • Japanese exports fell in January as shipments to China tumbled, adding to signs slowing global demand is weighing on the export-dependent economy
  • President Trump said he is no rush to conclude a nuclear deal with North Korean leader Kim Jong Un because he has a strong relationship with the North Korean leader and U.S. sanctions against the country remain in place
  • ECB officials will discuss new long-term loans for banks shortly, even though it’s unclear yet whether a decision will be taken, according to Executive Board member Peter Praet
  • The British government sees May’s meeting on Wednesday with European Commission President Jean-Claude Juncker as a crucial chance to get legally binding changes to the so-called Irish border backstop, which has proved the biggest obstacle to getting a Brexit deal
  • Indonesia’s finance ministry is studying various forms of incentives for sovereign bond holders, including lower tax for those holding the securities for a longer period

Asian stocks traded somewhat indecisively following the cautious gains seen on Wall St. ahead of this week’s key events including FOMC minutes and US-China trade talks. ASX 200 (-0.2%) and Nikkei 225 (+0.6%) were mixed with Australia dragged lower by continued underperformance in Consumer Staples after Woolworth shares slumped more than 5% post-earnings, while Tokyo stocks were propped up as the impact of a weaker currency eclipsed the concerns from the steepest decline in Japanese Exports for more than 2 years. Elsewhere, Hang Seng (+1.0%) and Shanghai Comp. (+0.2%) were also varied as the mainland lagged despite the PBoC announcement of its first liquidity injection since before the Lunar New Year, as the amount was a relatively paltry CNY 20bln and with participants also kept tentative ahead of upcoming senior level trade discussions between US and China. Finally, 10yr JGBs were subdued with price action contained by an indecisive risk tone in the region and after having recently hit resistance at 153.00, while the absence of the BoJ in the market also contributed to the lacklustre trade.

Top Asian News

  • Zhenjiang Said to Be Mulled for Local Debt Resolution Test Unit
  • Hong Kong to Take Back Part of Biggest Golf Course for Homes
  • Baht Reaches Highest Since 2013 Amid Broader Dollar Weakness
  • India’s Giant IT Industry Rode a Rally in Global Tech Spending

Major indices in Europe have somewhat waned off earlier highs [Euro Stoxx 50 Unch] following a relatively indecisive Asia-Pac session. Sectors are mixed with outperformance in industrials given the price action in the base metal complex, while energy names marginally lag their peers. In terms of notable movers, Sainsbury’s (-16.4%) shares plumbed the depths after the supermarket was dealt a blow by the UK CMA, which stated that the proposed Sainsbury’s-Asda has extensive competition concerns, whilst adding that the two companies will have to shut a significant number of stores or face rejection. The companies now have until 13th March to respond to the CMA's findings, with a final report by the CMA to be issued by 30th April. Elsewhere, Swedbank (-11.1%) has become the latest financial institute embroiled in the Danske Bank (-1.0%) money laundering scandal, following reports of the Co. being linked to USD 4.3bln in illicit transfers. Finally, regarding earnings-driven stocks, Glencore (-0.5%) gave up initial gains as indices came off highs, while Lloyds (+3.9%) maintained its positive at the top of the FTSE amid a GBP 1.75bln share buyback programme alongside a dividend hike.

Top European News

  • Brexit Jobs Boom Has a Flip Side That’s Holding the Economy Back
  • Lloyds Unveils $2.3 Billion Buyback Ahead of U.K. Turmoil
  • Glencore Plans New Buyback as Trading Profit Disappoints
  • Daimler Joins Jumbo Euro Corporate-Bond Rush as Spreads Tumble

In FX, the Greenback has regained some poise after its relatively pronounced downturn late yesterday amidst uncharacteristically dovish comments from Fed’s Mester regarding balance sheet run-offs, as she intimated a willingness to back an end to QT by or even before the end of 2019, albeit keeping options open for a 25 bp hike later this year. However, the index remains depressed and not far off sub-96.500 lows in anticipation that the upcoming FOMC minutes will reiterate the shift in policy guidance to a pause in normalisation and patience before any further adjustments.

  • AUD/JPY/NZD/GBP - All on the backfoot vs the Usd, or paring gains to be more precise, as Aud/Usd eases back towards 0.7150 from circa 0.7175 at best in wake of moderately softer than forecast Q4 Aussie wage data overnight. Meanwhile, a bigger than expected Japanese trade deficit due to the worst export showing since October 2016 compounded post-BoJ Governor Kuroda Jpy weakness as it slips a bit further towards 111.00, but again could glean some traction from option expiry interest given 1.1 bn rolling off between 110.75-85 at the NY cut. Indeed, the Kiwi and Pound are marginally underperforming as Nzd/Usd hovers near the bottom end of a 0.6885-63 range and the Aud/Nzd cross consolidates recovery gains above 1.0400, while Cable runs out of steam ahead of 1.3100 having spiked from sub-1.2900 through 1.3000 in double quick time on Tuesday and topping out around 1.3075 ahead of today’s UK PM May-EU Juncker showdown later today.
  • CAD/EUR - The Loonie continues to reap the most from pre-Fed minutes US Dollar defensive positioning and remains close to multi-week peaks above 1.3200 even though crude prices have encountered more offers/resistance around 2019 highs, while the single currency has formed a firmer base over 1.1300 having closed above a 1.1313 Fib and now eyeing another resistance level at 1.1362 for a stronger bullish technical signal.
  • EM - Contrasting performances for the Yuan and Rand, as the former draws momentum from a stronger PBoC fix, fresh liquidity and positivity surrounding US-China trade talks to test 6.7200 levels vs the Usd, but pre-budget jitters hit the latter with the Zar down to 14.1500 at one stage.

In commodities, Brent (-0.4%) and WTI (-0.3%) prices are subdued after being rangebound throughout the Asia session where WTI reached 2019 highs of USD 56.39.bbl, as markets await today’s FOMC minutes and the beginning of high-level US-China trade talks tomorrow with USTR Lighthizer. The EIA forecasts that US total shale regions oil production will average 8.3938mln barrels in March, which is 84mln barrels above February’s estimate of 8.31mln barrels. Separately, there have been reports of a fire at a PDVSA crude pumping station, which has a 300k BPD capacity; although, as details surrounding the fire are sparse the impact on production is currently unclear. Looking ahead, API’s weekly inventory numbers are to be released today due to the US market holiday on Monday, market expectations are that US crude oil inventories increased over the prior week by 3.1mln barrels. Note, some abnormality may be observed today in WTI trading due to the expiration of the March WTO contract. Gold (+0.1%) is trading within a thin USD 5/oz range, as the yellow metal follows cautiousness seen in the dollar ahead of today’s FOMC. Elsewhere, spot-Palladium has convincingly moved above the USD 1500/oz level reaching USD 1504.46/oz; as the metals 7-month rally, which has been driven by a supply shortage, continues. Separately, German inspection frim TUV SUD has stated that it will no longer certify Vale owned tailings dams, following a Vale owned dam bursting last month.

Looking at the day ahead now, while there’s no data due in the US, we will get the FOMC meeting minutes from the January meeting. Expect the minutes to shed more light on how the Fed’s domestic and global growth outlook may be evolving and the lens through which the Committee may view incoming inflation data in the near term. Expect some focus on the balance sheet normalisation program too, which may reiterate Brainard’s view that the Fed will likely end the roll-off of maturing securities by year-end. Away from that, we’re due to hear from the ECB’s Praet this morning and Fed’s Kaplan this evening, while the US-China trade meetings and meeting between UK PM May and EC’s Juncker should also be a big focus for the market.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -3.7%
  • 2pm: FOMC Meeting Minutes

DB's Jim Reid concludes the overnight wrap

Last month I highlighted the strange occurrence where over the course of a week my Spotify account was seemingly hacked as obscure French/Moroccan music was mysteriously added to my library. If you missed that one you can review it here . Well today it’s our turn to hack into your Spotify account as DB has just launched a new podcast series called Podzept. We have a selection of articles at our launch including one from me on “What the history of populism can teach us today”. They are available on Spotify, Apple Podcast and Stitcher. Feel free to search for Deutsche Bank Research, Podzept or simply follow the links to these sites on this page http://www.dbresearch.com/podzept . We’d be interested to hear from readers (and listeners) whether this is an interesting medium on which to receive research. On public sites like this there is a regulatory restriction on the type of research we can provide so the EMR is at this stage unlikely to be a candidate. However if there is large enough demand for it we’ll look into how we might be able to do it in the future. So all thoughts on whether some research works as a podcast are welcome.

Markets are quiet this week so no excuse to not download Podzept. Nevertheless, one gets the sense that we are all on tenterhooks to a certain degree, waiting for what could be major developments on trade and the now infamous S232 report on autos and US national security. One of our US economists Justin Weidner did some digging last night into the timeline from last year’s 232 steel report. That report was submitted to the President on January 11th, but was not released to the public (in its redacted form) until February 16th. The President subsequently made a determination on March 8. So if history repeats itself it would suggest that (official) details about the 232 auto report won’t come out until mid-March, or whenever they are done redacting the private information.

However, history may not repeat itself but it’s interesting that Mr Trump has yet to make any comments (even via tweets). This could mean one of three things; a) the above timeline is reasonable, b) the results are market friendly, c) Mr Trump and the administration are being careful not to escalate trade tensions at such a delicate stage of the China talks. Unfortunately, I’ve no idea which is closest to reality but it feels like we’re all now constantly looking over our shoulder with this report lurking on someone’s desk somewhere. It’s very important as with European growth so low it could be the straw that breaks the camel’s back in terms of a recession if it goes the wrong way.

On the other main trade front, news flow has the potential to pick up pace with meetings continuing between the US and China today. Mnuchin and Lighthizer will then join talks with China Vice-Premier Liu He again tomorrow. After Europe closed last night, headlines emerged that the US is asking China to keep the yuan stable as part of the negotiations between the world’s two largest economies to ensure devaluations aren’t used to offset tariff increases. The same article on Bloomberg suggested the two countries are discussing how to address currency policy in a “Memorandum of Understanding” that would form the basis of a deal that ultimately will have to be approved by Mr Trump and Xi Jinping. On the positive side, this story hints that talks are progressing. However, later in the session, top White House economist Kevin Hassett told reporters that there is still a lot of progress to make. The overall feeling is that it is 1 step forward, three-quarters of a step back at the moment. So positive momentum but still fragile. Before we review markets, the other main event today is the latest FOMC minutes. See the day ahead at the end for a preview of what to expect.

Steady incremental US positivity seems to be the theme at the moment with Europe a little more in limbo. Last night the S&P 500, DOW and NASDAQ closed +0.15%, +0.03% and +0.19% respectively. The retail sector outperformed, gaining +0.65%, largely thanks to a bumper earnings report from Walmart (+2.21%), which showed their best holiday season performance in a decade. The report from the world’s largest retail store provided some comfort after last week’s terrible retail sales report for December, as it looks increasingly likely that the poor data was an aberration. Commodity markets were also in focus, as the S&P 500 materials index was the best performing major subindex on the day, up +0.58%. Copper (+2.63%) and gold (+1.07%) both rallied, helping mining firms, aided by the weaker dollar which depreciated -0.41%. Gold hit a 10-month high and is now within 2 percentage points of its highest level in 5 years.

Prior to this, Europe had reversed much of the good progress made on Monday with the STOXX 600 ending -0.22%. High yield spreads closed +3bps wider in the US and flat in Europe, while in bond markets both Treasuries (-2.9bps) and Bunds (-0.4bps) firmed up a bit, which was in contrast to BTPs, which sold-off +2.3bps. Disappointing data (more on that below) appeared to be the catalyst.

Overnight in Asia, markets are trading mixed with the Nikkei (+0.38%), Hang Seng (+0.66%) and Kospi (+0.90%) all up while the Shanghai Comp (-0.15%) is heading lower in directionless trading. China’s onshore yuan is up +0.56% this morning likely on the story above that the US are demanding that China keep its currency stable. However, most EM currencies are generally trading strong against the greenback this morning. Elsewhere, futures on the S&P 500 (-0.07%) are trading flattish. In terms of data, Japan’s January trade balance was released overnight with exports declining -8.4% yoy (vs. -5.7% yoy expected) and imports at -0.6% yoy (vs. -3.5% yoy expected) leading to an adjusted trade balance of JPY -370.0bn (vs. JPY -150.7bn expected). The data highlighted that Japan’s exports have now declined for two months in a row for the first time since 2016 and sent the Japanese yen weaker (-0.18%).

Meanwhile, the latest on Brexit is that UK PM May is due to meet with EC President Juncker in Brussels this evening at 5.30pm GMT in what was being billed as a “significant” meeting according to the UK Government yesterday. Bloomberg quoted a source as saying that the meeting is expected to be a “stock-take” of the progress both sides have made ahead of Attorney General Cox potentially setting out his legal position on the backstop tomorrow. Yesterday, we got reaffirmation that the EU will not reopen the withdrawal agreement with the UK and will not accept a time limit on the Irish backstop. So, little sign of any softening of the EU approach, which isn’t a great surprise given next week’s parliamentary vote, which is still targeted for before February 27th. Sterling rallied +1.08% last night for its best session since November, when it rallied +1.93% on positive Brexit momentum and a broadly weaker dollar.

As for other snippets of news, ECB Vice-President Guindos continued the mantra of a more dovish way of thinking between the ECB Council, saying yesterday that policy makers are analysing the slowdown and have a large range of tools to respond with, which includes changing the language on forward guidance. Guindos did add that this wouldn’t happen before a “thorough analysis”. Elsewhere, over in the US, we learned that Bernie Sanders was seeking to run for the 2020 Democratic presidential nomination. Expect there to be more and more newsflow picking up ahead of the next presidential election with tax policy in particular becoming more of talking point. Yesterday, Bloomberg ran a story concerning Elizabeth Warren’s proposal for a universal child care plan funded by a tax on the ultra-wealthy. This higher-tax agenda from the left looks set to run a lot further.

Finally, in terms of the data that was out yesterday, in the UK we saw the unemployment rate hold steady in December at 4.0% as expected, while headline wages missed slightly (+3.4% 3m/yoy vs. +3.5% expected), albeit offset by an in-line core wages reading (+3.4% 3m/yoy). The data was largely in line with BoE forecasts and continues to underscore the divergence between soft survey data and the firming labour market. In Germany, the headline February ZEW survey reading disappointed at +15.0 (vs. +20.0 expected). That represented a drop of 12.6pts from January. Meanwhile, in Italy, as noted at the top, both industrial sales (-7.3% yoy from +0.5% previously) and orders (-5.3% yoy from -2.2% previously) data was very soft.

In the US, the only noteworthy data release was the NAHB home builders market index, which rose +4pts to 62, its biggest jump since 2017 and a potential signal that the real estate sector is bottoming out. A reading above 50 indicates that more builders view conditions as good than poor. The S&P 500 homebuilders index outperformed yesterday, gaining +0.79%.

On the Fedspeak front, NY Fed President Williams said that it would take “a different outlook either for growth or inflation” for him to support additional rate hikes. This isn’t a huge surprise given his previous comments, but it does further solidify the view that policy is on hold for now unless there is a major upside or downside surprise. Cleveland Fed President Mester said that she supports ending the balance sheet runoff by year-end, endorsing the view articulated by Governor Brainard last week. This is certainly a topic that will be discussed more this year, and maybe in the FOMC minutes due later today.

Looking at the day ahead now, the early release this morning comes from Germany with the January PPI report. Later this morning we’ll get the February CBI survey in the UK before the February consumer confidence reading for the Euro Area is out this afternoon. While there’s no data due in the US, we will get the FOMC meeting minutes from the January meeting. Our US economists expect the minutes to shed more light on how the Fed’s domestic and global growth outlook may be evolving and the lens through which the Committee may view incoming inflation data in the near term. Expect some focus on the balance sheet normalisation program too, which our colleagues expect to reiterate Brainard’s view that the Fed will likely end the roll-off of maturing securities by year-end. Away from that, we’re due to hear from the ECB’s Praet this morning and Fed’s Kaplan this evening, while the US-China trade meetings and meeting between UK PM May and EC’s Juncker should also be a big focus for the market.

Published:2/20/2019 6:40:35 AM
[Markets] Dow futures point to slightly lower open amid US-China trade talks; Fed minutes due At around 3:00 a.m. ET, Dow Jones Industrial Average futures were 19 points lower, indicating a negative open of more than 21 points. Futures on the S&P and Nasdaq were both seen little changed from the previous session. The Federal Reserve is expected to publish minutes from its January policy-setting meeting on Wednesday. Published:2/20/2019 2:40:49 AM
[Markets] The Uncertainty Hiding In The Recent Market "Rally"

Via Birch Gold Group,

If you look at the Dow year-to-date, you might think the market has rallied fairly well for the start of 2019. You might even think the uncertainty from 2018 was accounted for to some degree.

But not so fast. According to a recent report, Liz Ann-Sonders from Charles Schwab highlighted concerns about an imminent earnings recession.

Ann-Sonders said that an earnings recession – two straight quarters of year-over-year profit declines – is possible. It’s just not “something that the market is forecasting right now.”

She attributed the possibility of this recession to waning effects from last-year’s tax cuts. And over at MarketWatch, Mike Wilson from Morgan Stanley says their earnings recession call is playing out “faster than we thought.”

He also “downgraded S&P 500’s earnings-per-share growth target for the year to 1% from 4.3% and warned of a looming earnings recession.”

Ann-Sonders added more fuel to the fire by highlighting China as a second “wild-card” inside the recent rally:

Sonders and her team pointed out in a report released earlier this month that many big US companies, including paint maker PPG (PPG), chip giant Texas Instruments (TXN) and auto parts supplier Lear (LEA), have cited weakening demand in China on their recent earnings conference calls.

John Butters of FactSet Research provided more insight into what may be a historically “sputtering” market rally:

As of Feb. 8, with 66% of S&P 500 components having announced results, fourth-quarter earnings rose 13.3%. If this holds, it will be the first quarter that the index has not posted an increase of 20%…

So it appears the tax cuts that helped last year’s earnings aren’t going to help this year’s earnings. It also seems like Q4 earnings could be spinning tires in the mud.

Wilson finished the MarketWatch piece by expecting a “full-year decline of about 3.5% in S&P earnings.”

So even if Wall Street optimists are beating the “It’s a rally!” drum, the sound may not be as loud as they claim.

Take Off the Rose-Colored Glasses – And Uncertainty Still Looms

The Dow may have risen 2,000 points to start this year, but it lost over 5,000 points last year between October 3 and December 24.

And if you examine this year’s rise, the “slope” actually seems fairly flat, almost like the market is struggling to recover (see YTD chart below):

So the Dow is recovering, but the momentum may not be enough to sustain a rally much longer. And the S&P average level is flat compared to last year (at 2,745 for this year according to MarketWatch).

Nothing much has changed since last quarter of 2018, either.

You still have trade war concerns and economic slowdowns in Europe and China.

And even though Federal Reserve Chair Powell has slowed short-term rate hikes, according to an article from MarketWatch, he doesn’t control the longer-term rates (emphasis ours):

… most economists say the key figure in finance is the rate on 10-year Treasury notes, which he doesn’t control. That rate on Dec. 31: 2.69%. Today it’s 2.69%.

To add fuel to the fire, a recent paper from Cambria research surprisingly suggests that some of the biggest “gain” days took place during bear markets.

So this rally might actually be a “black swan” for this bear market. One thing is certain - market uncertainty still hides amongst the market hype.

Don’t Let “Hidden” Uncertainty Ruin Your Retirement Plans

The impact of the recent rally on optimistic investors is telling. Who knows what could happen in any renewed trade war talks, prolonged earnings recession, or other downturn.

It just goes to show that market volatility still operates in the background. And at some point, it’ll take over. After all, that’s what happened in 2008.

Don’t let a volatile market that seems to obscure reality hit your retirement the way it did to so many people in our last recession. Start taking action to protect your savings.

Having a diversified portfolio with assets known for their protection during uncertain times such as gold and silver is a strategic way to protect your retirement.

Published:2/19/2019 7:07:17 PM
[Markets] Stock Market At Session Highs As Walmart Earnings Fuel Dow Jones Key market indexes were trading near session highs Tuesday, powered by a pair of Dow Jones stocks as well as big-cap tech names. Published:2/19/2019 2:37:00 PM
[Markets] Dow led by Walmart and Walgreens as it joins S&P, Nasdaq in positive territory Dow led by Walmart and Walgreens as it joins S&P, Nasdaq in positive territory Published:2/19/2019 11:35:02 AM
[Markets] Wall Street opens lower as U.S.-China trade talks resume (Reuters) - U.S. stocks opened lower on Tuesday after rallying strongly last week, as investors focused on the latest round of trade talks between the United States and China. The Dow Jones Industrial ... Published:2/19/2019 9:04:51 AM
[Markets] McDonald's stock gains after Stephens upgrades to bullish rating, boosts price target Shares of McDonald's Corp. rose 0.9% in premarket trade Tuesday, after Stephens analyst Will Slabaugh turned bullish on the fast-food giant, citing the belief that the core U.S. business is accelerating while the stock continues to underperform. Slabaugh upgraded McDonald's to overweight, after being at equal weight since April 2018, and boosted his price target to $200 from $180. Slabaugh said investor sentiment has flipped from "loved" to "concerned" after the company reported fourth-quarter results. "After re-examining our model, we believe we appropriately adjust for such headwinds to the point of conservatism if [comparable-store sales] growth is as strong as we suspect," Slabaugh wrote in a note to clients. "With expectations fairly low and what we believe is a better-than-expected top line, we believe [McDonald's stock] is set to work from these levels." The stock has slumped 3.6% over the past three months, while the Dow Jones Industrial Average has gained 3.5%. Published:2/19/2019 8:35:13 AM
[Markets] Trump: Dow 'would be down 10,000 points' had 'the opposition' won in 2016 Trump: Dow 'would be down 10,000 points' had 'the opposition' won in 2016 Published:2/19/2019 8:08:32 AM
[Markets] Walmart's post-earnings share jump will trim Dow's losses by about 30 points Walmart's post-earnings share jump will trim Dow's losses by about 30 points Published:2/19/2019 7:33:04 AM
[Markets] Walmart's stock surge to reduce Dow's losses by about 30 points Shares of Walmart Inc. shot up in premarket trade Tuesday after the discount retail giant reported fiscal fourth-quarter results and raised its dividend, with the implied price gain providing a 30-points boost to the Dow Jones Industrial Average's price. But that wasn't enough to lift Dow futures into positive territory, as they were still down about 59 points. A gain in Walmart's stock Tuesday would be the sixth straight, the longest win streak since the 7-day stretch ending Nov. 9, 2018. The stock was on track for the best 6-day performance--up 9.2%--since it ran up 9.9% during the six days ending Aug. 17, 2018. Published:2/19/2019 7:02:27 AM
[Markets] "Sea Of Red" As Global Rally Reverses; Banks Drag Europe Lower

While the US was closed for President's Day holiday, the European rally sputtered on Monday ignoring a renewed surge higher in Chinese stocks following a record credit injection, and on Tuesday a "sea of red" in global markets has returned, as US equity futures slumped dragged lower by European banks following a mixed session in Asia as investors appear unable to go for even one day without fresh "hope" on US-China trade talks, while the dollar climbed, snapping a three-day decline, and Treasuries edged up before U.S.-China trade talks resume in Washington.

Global markets were struggling for direction after a slow start to the week and with a fresh round of Sino-U.S. trade talks, this time in Washington, being held later, as stocks traders were largely happy to keep their powder dry.

Europe's Stoxx 600 retreated after two days of gains, led lower by banks following disappointing earnings from HSBC Holdings, while weak macro data has sent increasingly dovish signals from the region’s central bank. HSBC - Europe’s biggest bank - saw its shares tumble as it missed forecasts due to slowing growth in its two home markets of China and Britain. HSBC’s U.K. shares follow their Hong Kong peers lower after worse-than-expected results, with the stock sliding as much as 4.6% and the biggest decliner on the FTSE 100 Index. The Stoxx 600 Banks index down as much as 1.7%, with banks the worst performing industry group on Tuesday.

The results spoke to a wider problem for European banks, which are struggling to return to growth after a decade of post-crisis restructuring due to a worsening global economic outlook.

In addition to poor earnings from Europe's largest bank, the sector is facing is facing additional headwinds due to receding hopes for any quick interest-rate rise after ECB chief economist Peter Praet said officials could push back plans to raise rates as a first response against a deeper downturn

Automakers were also under pressure as the European Union vowed prompt retaliation if the U.S. imposes tariffs on imported vehicles.

Earlier in the session, Bank of Japan Governor Haruhiko Kuroda unexpectedly told parliament the central bank would consider extra monetary easing if required, helping lift the Topix index and send the yen lower, even as shares in China were little changed as equities in Hong Kong dropped after Monday's blockbuster gains. Japan’s Nikkei nudged up 0.1 percent after holding flat for most of the day.  Australian shares climbed 0.3 percent to a 4-1/2 month peak, after gaining over 8 percent so far this year, partly on expectations the central bank could ease policy to temper pressure on growth. Chinese shares slipped into the red though after surging in the previous session, with the blue-chip index off 0.2 percent.

China Vice Premier Liu He will visit Washington for trade talks on February 21st-22nd, while there were comments from White House Press Secretary Sanders that trade meetings with China in Washington D.C. will begin today and that higher-level talks which will be led by USTR Lighthizer are to begin on Thursday. Furthermore, trade talks are said to focus on needed structural changes in China which impact trade, as well as China's pledge to buy a substantial amount of goods and services from the US.

Despite today's muted action, Chinese shares have risen rapidly so far this month, with MSCI’s China A shares index up 6.5%, by far the best performance among major markets despite China’s weakening economy. Additionally, investors are now seen returning to riskier asset markets after the U.S. Federal Reserve signalled earlier this year it could halt rate hikes in light of U.S. economic softness.

“In the last week, it seems like global central banks have started a possible process of monetary easing,” Bank of America-Merrill Lynch strategist Ajay Singh Kapur said in a note. “If so, this would be very positive for Asia/EM stocks,” Kapur said.

Across the Pacific, contracts on the Nasdaq, Dow and S&P 500 edged lower as traders kick their heels before the next round of trade talks between America and China. Italian bonds fell while most European notes climbed.

With earnings season coming to an end, the latest minutes from the FOMC and ECB due this week and U.S. President Donald Trump weighing an extension of the deadline for a trade deal with China, investors have plenty to digest. Uncertainty over the outlook for global growth hangs over everything, and traders will be hoping for some good news from the world’s two largest economies when talks resume in Washington on Tuesday.

“There is a recession coming,” Steen Jakobsen, the chief economist at Saxo Bank said in an interview on Bloomberg Television with Anna Edwards. He reckons markets are too optimistic on a trade deal between the U.S. and China. “There will by some Pyrrhic victory for the two sides to claim and extend the timeline, but in terms of material impact, no,” he said.

Overnight, President Trump said US is seeking a peaceful transition of power in Venezuela but added that all options are open.

EU Commission President Juncker said Trump gave his word there wouldn't be tariffs on European cars for the time being; if Trump breaks the promise, EU will break its promise to buy more soy and LNG; according to Stuttgarter Zeitung. European Commission President Juncker says if UK requested extension of talks, no one in Europe would oppose it; adds he has no timeframe for length of extension.

In FX, the Bloomberg Dollar Spot Index climbed, snapping a three-day decline, and Treasuries edged up before U.S.-China trade talks resume in Washington. The euro broke a tight range and dropped as much as 0.3% to 1.1276 after more talk of ultra-cheap ECB bank loans, as the Bloomberg dollar index index climbed to fresh day high. The Australian dollar swung to a loss after the nation’s central bank reaffirmed mounting concerns over consumer spending.

The pound followed suit as Margaritis Schinas, a spokesman for the European Commission, said the EU won’t reopen the U.K.’s withdrawal agreement and won’t accept a time limit on the Irish border backstop despite a report that showed U.K. wages were growing at their fastest pace in a decade. The yen had slipped to 110.70 per dollar after Japan’s central bank governor had said it could redeploy stimulus if the yen’s relative strength this year hurt the economy and inflation prospects.

“Stokkie (dollar vs Swedish crown) is off to the races,” said TD Securities’ head of global research, Richard Kelly. “You had especially weak inflation and as you see (from the yen and euro) it comes against this backdrop of central banks becoming more dovish again,” although he also said that bond markets has seen far less reaction to the Swedish data.

In commodities, oil prices were mixed, with Brent futures off 29 cents at $66.21, although that was not far from Monday’s $66.83 which was the highest since mid-November. U.S. crude futures added 21 cents to $55.8. The precious metals market was more animated, with palladium surging to a record high of $1,471.0 per ounce as stricter emissions standards are seen increasing demand for the auto catalyst metal. Gold held around $1,323.66 per ounce after earlier rising to a near 10-month high of $1,327.64 too.

Expected data include NAHB Housing Market Index. Ecolab and Walmart are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures down 0.2% to 2,772.50
  • STOXX Europe 600 down 0.4% to 368.32
  • MXAP down 0.1% to 157.11
  • MXAPJ down 0.3% to 512.60
  • Nikkei up 0.1% to 21,302.65
  • Topix up 0.3% to 1,606.52
  • Hang Seng Index down 0.4% to 28,228.13
  • Shanghai Composite up 0.05% to 2,755.65
  • Sensex down 0.3% to 35,394.88
  • Australia S&P/ASX 200 up 0.3% to 6,106.88
  • Kospi down 0.2% to 2,205.63
  • German 10Y yield fell 1.9 bps to 0.091%
  • Euro down 0.03% to $1.1308
  • Italian 10Y yield fell 3.2 bps to 2.407%
  • Spanish 10Y yield fell 1.5 bps to 1.212%
  • Brent futures down 0.4% to $66.26/bbl
  • Gold spot up 0.2% to $1,329.52
  • U.S. Dollar Index little changed at 96.90

Top Overnight News

  • U.K. and European officials are working on a new legal text for the most contentious part of the Brexit deal, but time is running out for Prime Minister Theresa May to persuade a fracturing Parliament to unite behind her plan
  • Italy’s bonds are enjoying a period of relative calm while Spanish politics hogs peripheral euro-area headlines. But the market’s sense of stability looks increasingly fragile as risks mount with the economy in recession, a widening budget deficit and the threat of a rating downgrade
  • The European Central Bank’s chief economist added to the chorus of policy makers signaling concern on the economic slowdown, saying officials could push back plans to raise interest rates as a first response against a deeper downturn
  • Chinese and U.S. trade negotiators will start the next round of talks this week in Washington, after discussions in Beijing last week that President Donald Trump called "very productive."

Asian stocks were mixed as the region struggled for firm direction following yesterday’s rally and after a non-existent lead from the US which was shut for President’s Day. ASX 200 (+0.3%) was positive with the index led higher by outperformance in the tech and financials sectors, although consumer staples and healthcare were on the other end of the spectrum amid losses in Coles and Blackmores due to weak earnings. Elsewhere, Nikkei 225 (+0.1%) just about remained afloat with price action largely reflecting jittery trade in the domestic currency, while Hang Seng (-0.4%) and Shanghai Comp. (U/C) were indecisive as focus remained on US-China trade discussions which will resume today before the higher level talks on Thursday, and with some disappointment from a miss on HSBC earnings. Finally, 10yr JGBs were initially softer amid a pullback from the prior day’s gains and with demand suppressed by the mild upside across stocks, although prices later recovered after firmer results at the 20yr JGB auction. China Vice Premier Liu He will visit Washington for trade talks on February 21st-22nd, while there were comments from White House Press Secretary Sanders that trade meetings with China in Washington D.C. will begin today and that higher-level talks which will be led by USTR Lighthizer are to begin on Thursday. Furthermore, trade talks are said to focus on needed structural changes in China which impact trade, as well as China's pledge to buy a substantial amount of goods and services from the US

Top Asian News

  • PBOC Rate Cut Bets Have China Analysts Asking ‘Which Rate?’
  • Kaisa Group Dollar Bonds Rally to Highest Level in Nine Months

Major European indices are mostly lower after trading choppily this morning, taking the lead from a directionless Asia session [Euro Stoxx 50 -0.6%]. The FTSE 100 (-0.6%) is weighed on by poor performance in HSBC (-4.0%) following their earnings; the Dax (-0.2%) is outperforming its peers bolstered by Wirecard (+4.5%) and Heidelberg Cement (+3.4%) following Bafin prohibiting new/extending shorts yesterday and a Q4 revenue beat respectively. Sectors are broadly in the red, with some underperformance in banking names, weighed on by the aforementioned HSBC who carry around a 2% Stoxx 600 weighting; and are the largest banking component. Other notable movers include, Danone (-0.7%) who are in the red in-spite of a beat on their sales, with some analysts highlighting weaker than expected margins. Automakers, such as Volkswagen (-0.9%) and Daimler (-1.0%) are in negative territory after EU Commission President Juncker stating that US President Trump gave his word that there wouldn’t be tariffs on European cars for the time being; alongside the EU agreeing to cut new truck CO2 emission levels by 30% before 2030.

Top European News

  • U.K. Wage Growth Fastest Since 2008 Amid Labor Shortages
  • VW Wins Appeal in German Suit Over Diesel Emissions Scanda
  • Danske Bank Watchdogs Get Drawn Deeper Into European Probe
  • Sweden’s Krona Slumps Most in Eight Months After Inflation Slows
  • Siemens, Fortum Join Europe’s Jumbo Corporate Bond-Deal Dash

In FX, the Swedish Crown has slumped in wake of much softer than expected inflation data, and a slump in housing starts that together raise valid question marks over the Riksbank’s relatively confident outlook on the domestic economy and CPI/CPIF remaining close to target. On that note, Governor Ingves is due to speak later today and will get a chance to comment, as Eur/Sek spikes from sub-10.5000 through several chart resistance levels and only a whisker away from offers said to be lined up at 10.6000.

  • AUD/NZD - Very volatile trade overnight on the back of latest RBA minutes that initially underpinned the Aud on confirmation of no likelihood of a change in policy rates for some time (so no ease in the offing), but then underlined the shift to a more neutral stance and highlighted significant risks to the economic outlook. Aud/Usd retreated swiftly in response and is currently holding just above 0.7100, while the Kiwi has been dragged down in sympathy as the cross remains just above 1.0400, with Nzd/Usd hovering around 0.6825 vs just a few pips short of 0.6900 on Monday.
  • JPY/CAD - The next worst G10 performers, as Usd/Jpy grinds back up into a higher range and closer to 111.00 again amidst dovish rhetoric if not firm or official guidance from BoJ Governor Kuroda (mulling more accommodation if Jpy strength weighs on growth and hampers efforts to achieve the 2% inflation target, which has already proved extremely elusive of course). The headline pair is now probing 110.80, but could be held back by decent option expiry interest at 110.60 (1 bn). Meanwhile, the Loonie remains anchored around 1.3250 vs its US counterpart, eyeing crude to see whether prices push further ahead or consolidate around 2019 peaks.
  • GBP/EUR/CHF - All narrowly mixed and pretty flat vs the Dollar that has edged up from yesterday’s lows (DXY close to 97.000 at one stage), with Cable maintaining 1.2900+ status, albeit just, awaiting more Brexit developments/headlines following a solid if not quite as upbeat as forecast UK labour market report. Similarly, the single currency is clinging to 1.1300 and showing resilience in the face of yet more dire Italian data, perhaps drawing a degree of encouragement from a more mixed ZEW survey, while the Franc is still chipping away at recent losses and inching through 1.0050 after a wider Swiss trade surplus.
  • EM - More depreciation for the likes of the Rand and Lira, but the pressure and spotlight may switch somewhat to the Real later given political jitters due to the dismissal of a key aide to President Bolsonaro and potential adverse repercussions for pension reform. For reference, Usd/Brl settled around 3.7330 on Monday.

In commodities, the energy complex is ultimately flat-to-lower on the day thus far, with WTI (+1.0%) little changed net-net after missing a price settlement yesterday due to the President’s Day holiday over in the States. The holiday has also delayed the release of the API weekly inventory release by a day. In terms of macro themes for the complex, eyes remain on whether the OPEC-led supply curbs will ultimately ease glut concerns against the backdrop of 5 consecutive weeks of record-high US crude output. Furthermore, sources stated today that Saudi are mulling diminishing exports of Arab extra-light crude to the Asia region from March. The sourc es added that the move has improved demand in Abu-Dhabi’s Murban and Das in Asia’s spot market. Elsewhere, spot gold (+0.2%) is on the front foot and hovers near 10-month highs despite a rise in the USD as demand for the yellow metal grows ahead of the widely-anticipated dovish FOMC minutes tomorrow. Meanwhile, Shanghai aluminium fell following Malaysia announcing it will not extend a prohibition on mining bauxite when it expires on March 31st, with some noting it’ll potentially reduce costs in the aluminium supply chain for China.

US Event Calendar

  • 8:50am: Fed’s Mester Speaks on Economic Outlook and Monetary Policy
  • 10am: NAHB Housing Market Index, est. 59, prior 58

DB's Jim Reid concludes the overnight wrap

With US markets shut, it’s been a predictably quiet last 24 hours. One of the few talking points yesterday though was the differing views on whether or not the US government would be forced to make public the results of the S232 report on the investigation of the national security risk posed by imported cars. There appears to be differing opinions on if the government has to make the findings public with some confusion around the legal language. With US markets open again today though, if the government is forced to make the findings public then in theory we would find out today, although Axios did quote a source yesterday as saying that "the White House was in favour of keeping the findings private so that Trump could have it in his back pocket as a threat". So it remains up in the air.

In any case Trump had 90 days from receiving the report to decide on whether or not to take further action. His Twitter account has so far remained dormant on the subject too which is perhaps a positive sign right now insofar as not wanting to raise tensions across the pond. The only comment we’ve heard from the European Commission was Juncker saying in an interview with Germany’s Stuttgarter Nachrichten that “Trump gave me his word that there won’t be car tariffs for the time being” and that “I regard this promise as reliable”. He also said that “should he break his word we won’t feel bound to our promise either to buy more US soy and liquid gas”. We’ve heard a similar comment from Japan’s economy minister Motegi, who said that the US won’t apply higher tariffs on imports of Japanese cars and auto parts so long as negotiations toward a trade deal continue. One to watch.

Speaking of tariffs and trade, White House Spokeswoman Sanders said overnight that the US-China trade negotiations are set to begin today while, China’s Commerce Ministry released a statement saying that China’s Vice Premier Liu He will travel to DC on February 21-22 for meetings with Lighthizer and Mnuchin. In the meantime, Steve Censky, the US Department of Agriculture’s deputy secretary, said yesterday that talks are picking up pace ahead of the March 1 deadline, "but we still have ways to go."

As for markets, well bourses in Asia have been a bit directionless overnight with the Nikkei (+0.21%) up while the Hang Seng (-0.36%), Shanghai Comp (-0.21%) and Kospi (-0.13%) are down having erased earlier gains. Elsewhere, futures on the S&P 500 (-0.01%) are trading flat. Meanwhile there’s been some focus on the BoJ where Governor Kuroda sounded a touch dovish in his address to parliament, saying that the BoJ will consider extra easing to hit price targets if needed while adding that additional easing could also be considered due to moves in the Japanese yen if they impact economy and prices. However, he added that all decisions will be taken after carefully examining policy benefits and costs. JGBs have rallied a bit after the comments, and are now trading at -0.035%. The Yen is back to flat after trading a bit stronger in the early going.

Those moves follow a low-volume inspired but mildly positive day for risk assets in Europe yesterday. The STOXX 600 initially spent an hour or so in the morning trading in and out of the red but eventually closed up +0.23% for its fifth daily gain in the last six days. That also means that the index is now up +9.52% for 2019 so far which is the best start to a year since 2015 and in fact the fifth best – out of 33 - since the index started back in 1987. As for other markets yesterday, the DAX (-0.01%) lagged a bit further behind however European Banks (+0.91%) continue to reap the rewards from Friday’s TLTRO comments. That’s now +5.25% from the Friday morning lows for the index while Greek Banks were up +6.20% yesterday and the most since early December after Greece’s government submitted a plan to the Commission to speed up bad-loan disposals.

There was also a marginal outperformance for the FTSE MIB (+0.58%) and IBEX (+0.35%) while the same was true in bond markets where 10y BTPs closed 3.1bps lower and Bunds 0.7bps higher – with little follow through from the ECB Governing Council member Villeory’s comments about a “significant” slowdown of the European economy. That puts the spread between the two at 266bps and the lowest in two weeks. Post Villeroy’s comments we also heard from Praet who added that “if the Euro Area economy were to slow more sharply, we could adapt our forward guidance on interest rates and this could be complemented by other measures”. Praet also called TLTROs a “very useful tool” in the past.

Elsewhere in markets, HY credit spreads finished 4.4bps tighter in Europe which now makes them 65bps tight from the January wides. Speaking of credit, yesterday we published a short note looking at trends around liquidity premiums in the EUR and USD HY markets. See this link for the full report.

In other news, here in the UK it was a better day for Sterling (+0.27%). That seemed to partly reflect the Times article suggesting that progress was being made on legally binding assurances on the Irish backstop, albeit one that was light on specifics. Less relevant but nonetheless headline grabbing all the same was the announcement of 7 MP resignations from the Labour party yesterday. The resignations are unlikely to have much of a read-through from a Brexit perspective however there is the possibility for wider ramifications insofar as it may reduce Corbyn’s chances of receiving a majority at the next general election.

Before we wrap up, a quick mention that yesterday we published a report that forecasts CAPE valuations for US and European stock markets. CAPE is set to drop significantly this year as 2009’s terrible earnings roll-off, however, several factors are coalescing that could pull down earnings from their historically-high levels. That means CAPE may not fall as much as the market expects. See the report here .

To the day ahead now, which this morning kicks off here in the UK with December and January employment stats due out. The consensus expects a small one-tenth of a percent pick up in earnings to +3.4% while the unemployment rate is expected to hold steady at 4.0%. Shortly after that we get December construction output data for the Euro Area before the February ZEW survey is due in Germany. In the US, the only data due out this afternoon is the February NAHB housing market index reading. Away from that we’ve got the first Fed speaker of the week when Mester speaks this afternoon on the economic outlook and monetary policy. The ECB’s Guindos and Praet are also due to speak at separate events today while the EU general affairs council gathers to discuss the 2019 budget and March summit agenda.

 

Published:2/19/2019 6:35:14 AM
[Markets] Walmart boosts dividend by 2% Walmart Inc. said Tuesday it will raise its annual dividend by 2% to $2.12 a share, from $2.08 a share. The first quarterly dividend of the new annual rate will be payable April 1 to shareholders of record on March 15. Based on Friday's stock closing price of $99.99, the new dividend implies a dividend yield of 2.12%, compared with the implied yields for the SPDR S&P Retail ETF of 1.37% and for the Dow Jones Industrial Average of 2.09%. The discount retail giant also reported fiscal fourth-quarter results that beat expectations. The stock, which shot up 4.5% in premarket trade, has tacked on 3.3% over the past three months, while the retail ETF has lost 0.4% and the Dow has gained 3.5%. Published:2/19/2019 6:35:14 AM
[Markets] The CTAs Are About To Stop Buying: What Happens Next

Following the December plunge, the S&P has staged one of the most vicious snapback rallies in history, rising for 8 consecutive weeks, most bizarrely without either institutional or retail investors actually buying this unprecedented short squeeze/buyback-driven rally which has seen near constant ETF selling even as the S&P has soared...

... which culminated with what may be capitulatory buying last Friday, when the Dow soared 444 points due to the Street’s positive reaction to the so-called progress of the Sino-US trade talks and the large-scale liquidity injection in January by Chinese authorities. At the same time, Nomura’s gauge of equity market sentiment in US and global markets has returned to positive territory for the first time since last October. Since some investors, whose scope is not only short-term but also medium- and long-term, may be aware of the potential risk of NOT holding US equities, it seems a “panic buying” mood, with purchases by investors who had been lagging the broader market, has accelerated according to Nomura .

Yet even though the US equity market is expected to edge higher in the short-run with the help of some buying inertia - which is basically Marko Kolanovic's entire (latest) bullish thesis, Nomura warns that "a sense of overheating in the markets’ upward momentum is rising at the same time and thus a cooling-off phase is likely forthcoming."

Specifically, according to Nomura's quant team, based on past behavior of systematic trend following algos, the Japanese bank expects CTAs to preventatively take profits on long positions sporadically starting around 26 February.

In addition, looking at technicals-based historical price patterns when the S&P500 breaches above its 200-day simple moving average (SMA) while its 20-day SMA is below 200-day SMA as in the present case – suggest a similar conclusion where S&P500 is likely to make shallow dips before heading higher.

Of course, since in this "market", where only central planning and central bankers matter, predicting what actually happens next - and being accountable for one's forecast - is the fastest way to getting a pink slip, Nomura was quick to hedge, adding that considering the resilience of current market sentiment and the market-friendly stance of Fed and the Chinese authorities, "the next price correction of S&P500 will likely be healthy and not a very severe one."

Nomura's conclusion: a drop may be coming, but don't forget to BTFD, to wit: "We believe as a short-term trading strategy of buying on dips from end-February to beginning-March targeting a subsequent return-reversal is attractive. In the past, S&P500 has experienced a long-lasting rising trend after the 20-SMA exceeded 200-SMA"

Published:2/18/2019 7:03:25 PM
[Markets] The VC Bubble Just Burst: Soft Bank's Top 2 Investors Complain About Overpayment For Tech Companies

After venture capital spending hit an all-time high in 2018, evidence that the VC bubble may finally be about to burst has continued to mount, just as some of Silicon Valley's most overvalued tech darlings have been preparing for their long-anticipated public offerings.

And in the latest sign that Silicon Valley's latest crop of unicorns could be headed for a brutal "down round", the Wall Street Journal reported on Monday that the two biggest backers of Soft Bank's $100 billion Vision Fund (the Japanese telecoms conglomerate/VC giant and the Bay Area tech scene's most reliable marginal investor) have been complaining about the high valuations at which it has invested in some of its holdings.

In addition to being one of Uber's largest shareholders, with a $9.3 billion stake, the Vision Fund has also invested in WeWork, dog-walking service Wag, GM Cruise and DoorDash among its investments, according to ReCode.

Masayoshi

Masayoshi Son

The backers in question are Saudi Arabia's Public Investment Fund and Abu Dhabi’s Mubadala Investment Co, who together have contributed roughly two-thirds of the Vision Fund's capital. Should they balk at the relationship, it could spell trouble for any deals that the fund has planned, because according to the most recent reports, Vision has only deployed about $60 billion of its $100 billion in capital, and reportedly has about 20 deals in the pipeline.

While Soft Bank's chairman Masayoshi Son and the Saudis have maintained a cordial relationship, at least in public, the reports of the Saudis dissatisfaction with the Son and his management style isn't all that surprising. The FT reported earlier this year that Soft Bank had abruptly scaled back plans to increase its stake in WeWork by $16 billion. The fund ended up investing another $2 billion, one-eighth of the originally planned investment.

Apparently, the WeWork investment wasn't the only deal to collapse in recent months. Plans for Soft Bank to increase its investment in Hong Kong-based AI startup SenseTime in a joint $1 billion investment with Mubadala.

Soft Bank had invested several hundred million dollars into SenseTime last fall, bringing the company’s valuation to about $7.7 billion, according to people familiar with the deal. The Vision Fund then considered making a joint $1 billion investment with Mubadala in SenseTime, as part of a potential fundraising round that could value the company at $10 billion, according to people familiar with the matter.

The deal never came together after Mubadala backed away in recent weeks, people familiar with the matter said. The fund balked at what it considered a high valuation target, a person briefed on the matter said.

Some Vision Fund employees also considered the valuation to be high, some of the people said. SenseTime rival Megvii Technology Inc. is currently raising funds at a $3.5 billion valuation, according to people familiar with the matter.

SenseTime and Mubadala said they weren’t aware of any potential co-investment by the Vision Fund and Mubadala, and SenseTime said it never launched a $1 billion financing round at a valuation of $10 billion.

In addition to the fund's investment strategy, its backers are also growing suspicious of a practice that's peculiar to the Vision Fund: Soft Bank's strategy of investing in companies first, then transferring the stakes to Vision Fund. The fund's backers are reportedly worried that Soft Bank is trying to take advantage of high valuations to realize gains for itself at the expense of Vision's investors.

One person familiar with the Middle East investors’ thinking expressed concerns about whether Soft Bank was taking advantage of high tech valuations to crystallize gains at the expense of PIF and Mubadala. Soft Bank has transferred, sold or is planning to sell to the Vision Fund at least $26.3 billion worth of stakes in companies that it originally purchased for around $24.9 billion during the past few years, according to company filings.

Soft Bank’s transfers include a stake in Chinese car-hailing giant Didi Chuxing Technology Co., which it bought for $5.9 billion and has agreed to sell to the Vision Fund for $6.8 billion, and a stake in Indian hotel-booking site OYO Hotels, which it transferred to the Vision Fund last year for double the $100 million it paid in 2015.

The issue isn’t necessarily the premium over Soft Bank’s cost for the investments; it is that the company is buying and transferring stakes while the market is high, potentially setting the fund up for losses.

Another complaint is that Soft Bank has been inadvertently ballooning valuations by leading large financing rounds...

In some cases, Soft Bank itself has contributed to rising valuations by leading massive fundraising rounds. In OYO’s case, Soft Bank or its Vision Fund have led increasingly large financing rounds, culminating in a recently closed $1 billion investment, which pushed the startup’s valuation to around $5 billion, according to people familiar with the matter. That is 13 times as high as when Soft Bank first invested in 2015, according to investment data tracker Dow Jones VentureSource.

...And concerns about Masayoshi Son's increasingly autocratic investment style have also been cropping up.

Concerns about valuation of the fund’s investments are closely linked to concerns about its investment process, in particular the power wielded by Mr. Son. In recent weeks, Mr. Son overruled objections from partners within Soft Bank to a Vision Fund investment valued at as much as $1.5 billion into Chehaoduo Group, a Chinese online car-trading platform, according to people familiar with the matter. Chehaoduo was accused of fraud in recent weeks by a competitor.

A spokeswoman for Chehaoduo pointed to a statement from January that denied the accusations. Mr. Son told The Wall Street Journal that Soft Bank had conducted its own due diligence and found the accusations groundless.

The investment would value Chehaoduo at $8.5 billion, according to a person familiar with the deal. One of the company’s competitors, Nasdaq-listed Uxin Ltd., has a market capitalization of $1.18 billion, while another, Hong Kong-listed Yixin Group Ltd., is valued at $1.75 billion.

Perhaps, after Chamath Palihapitiya, the Silicon Valley investor behind Social Capital, warned that venture investments had become like a "Ponzi Scheme", more of the Valley's biggest backers are having second thoughts about the high valuations to which they have so blithely contributed in recent years.

If true, this could have repercussions across a broad range of markets, from Silicon Valley real-estate to the tech sector, particularly as the next round of hot unicorn IPOs approaches.

Published:2/18/2019 1:04:41 PM
[Markets] Earnings Watch: After long weekend, Walmart highlights a short week of earnings A short week on Wall Street brings a fairly light earnings slate, with one huge Dow component arriving at an anxious time for the retail sector.
Published:2/15/2019 7:43:14 PM
[Markets] Nomi Prins: Get Used To "The Powell Put"

Authored by Nomi Prins via The Daily Reckoning,

In the land of the Federal Reserve and its market-manipulating mechanisms, there’s now an unofficial market term called the “Powell Put” or the “Powell Pivot.”

It is in direct reference to Fed chairman Jerome Powell. Before he became chairman, Wall Street referred to prior heads’ policies with terms like the “Greenspan Put” the “Bernanke Put” and the “Yellen Put.”

In layman’s terms, what the term means is that if the markets fall by too much, the Fed will swoop in and try to save the day, the month, or the year. A “put” in options terminology is insurance against a drop in prices. Nowadays, the “Powell Put” is the market’s insurance that the Fed will act to stimulate the markets if necessary.

Markets had been waiting for it to materialize. But Powell had previously talked about the need to raise rates to give the Fed “enough ammunition to fight the next crisis.” The size of the Fed’s balance sheet would also have to be reduced enough to provide it enough room to grow if needed.

Markets began to worry the Powell Put might never materialize when he raised interest rates in December, when the market was in the middle of a severe correction (that nearly culminated in a bear market). He also said the balance sheet reductions, or quantitative tightening, would run on “autopilot.”

Markets tanked on his comments. But then on Jan. 4, after stocks fell nearly 20%, the “Powell Put” finally materialized.

In comments addressing the American Economic Association, Powell said he was “prepared to adjust policy quickly and flexibly.”

And about the balance sheet reduction policy that was on autopilot in November, he said

“We wouldn’t hesitate to change it.

Powell has subsequently emphasized the need for “patience.” The Dow has continued to rally behind his newfound dovishness. In fact, this January was the best January in 30 years. If the rally continues, the market could soon be testing its early October highs.

What this means is that the Fed isn’t going to raise rates anytime soon. As my colleague Jim Rickards has explained, “patience” isn’t just a word. It’s a signal to markets that the Fed will not be raising rates anytime soon, and that it will give them notice when it is.

The Fed is also unlikely to reduce the size of its balance sheet in a bold way, as long as economic headwinds from around the world continue. That in turn, means dark money will remain available to boost markets.

There are two main ways the Federal Reserve can unleash dark money into the financial system. One is by keeping interest rates (or the cost of money) low or at zero percent. The other is through quantitative easing (QE) or bond-purchasing, where the Fed creates money electronically and uses it to give to banks to buy Treasury or mortgage bonds from them.

Reducing the cost of money, or interest rates to zero, was done for the first time by the Fed in the wake of the financial crisis. The Fed did this supposedly as an emergency measure to inject money into the system because banks had stopped lending. In addition, QE was enacted because interest rate policy wasn’t effective enough. Again, supposedly, it was supposed to be an emergency measure.

But we saw how the stock market reacted when Powell said QT would run on autopilot. Now the Fed is ready to finalize plans that would leave the balance sheet at a much higher level than it previously envisioned. Again, that means additional support for markets.

In the latest development, as Brian Maher discussed in yesterday’sDaily Reckoning, Federal Reserve Bank of San Francisco President Mary Daly suggests that the Fed could decide to use its balance sheet as a routine part of how it guides the economy, not just as a last-ditch measure to deploy in emergencies.

That means what was once supposed to be an emergency measure could become just another regular policy tool if normal interest rate policy isn’t enough to stimulate a non-responsive economy. We’ll have to wait and see if this idea gains traction within the Fed. Either way, reducing the balance sheet to “normal” levels is no longer a priority for the Fed.

But it’s not just the Fed that is putting additional tightening on hold. Central banks around the globe have been re-calibrating their policies to reflect the weaker economic environment.

As one Wall Street Journal article recently reported, “Central bankers have geared their messages toward pausing on tightening steps rather than imminently launching new stimulus.”

Central banks from South Korea, Malaysia, Indonesia and Canada, who all raised rates last year, are now questioning such plans. The Bank of Japan and European Central Bank also indicated last week that their negative rates are here to stay for the foreseeable future.

The truth is it’s all about the $21 trillion of dark money fabricated by, and dispersed from, the world’s major central banks. The volatility periods, including last year’s nearly 20% correction, are related to the fear that dark money supplies will go away.

These factors will keep sparking intermittent fear and volatility this year — but dark money collusion will not be going anywhere. While there will be some minor rate hikes here and there, and mild tweaking of massive asset books, the overall story will remain the same. You should expect major central banks to end the year, on average, with asset books in total size right where they started.

Once again, that means dark money will continue to be available to markets.

The fact is, dark money is the #1 secret life force of today’s rigged financial markets. It drives whole markets up and down. It’s the reason for today’s financial bubbles.

On Wall Street, knowledge of and access to dark money means trillions of dollars per year flowing in and around global stock, bond and derivatives markets.

I learned this firsthand from my career on Wall Street. My first full year working on Wall Street was in 1987. I wasn’t talking about “dark money” or central bank collusion back then. I was just starting out.

Eventually, I would uncover how the dark money system works, how it has corrupted our financial system and encouraged greed to the point of crisis like in 2008. When I moved abroad to create and run the analytics department at Bear Stearns London as senior managing director, I got my first look at how dark money flows and its effects cross borders.

That dark money goes to the biggest private banks and financial institutions first. From there, it spreads out in seemingly infinite directions affecting different financial assets in different ways.

Yet these dark money flows stretch around the world according to a pattern of power, influence and, of course, wealth for select groups. To be a part of the dark money elite means to have control over many.

These is not built upon conspiracy theories. To the contrary, alliances make perfect sense and operate publicly. Even better, their exclusive dealings and the consequences that follow are foreseeable — but only if you understand how the system works and follow the dark money flows.

Dark money rules the world, and it could keep the bull market running longer than most people expect, even though the eventual turnaround could be ugly.

Published:2/15/2019 5:43:17 PM
[Markets] Stocks Close Higher Friday With Spending Deal and National Emergency Declaration Dow Jones gains 1.74% Published:2/15/2019 3:47:06 PM
[Markets] Dow ends up over 400 points, notching 8th straight week of gains Dow ends up over 400 points, notching 8th straight week of gains Published:2/15/2019 3:13:44 PM
[Markets] "Goldilocks, My A$$" - Stocks Soar As Economic Data Crashes Most Since 2011

2019 is off to the best start to a year since 1991 for the S&P 500...

As Earnings expectations have their worst 3-month drop in four years...

And macro data collapses...

That is the biggest weekly collapse in US Macro data since June 2011...

So, Stocks are back near record highs, earnings expectations have collapsed to 6-month lows and US Macroeconomic data is the weakest in 18 months (and crashing)...

*  *  *

Very mixed week for Chinese stocks with tech/small cap-heavy CHINEXT soaring and mega cap SSE50 almost unchanged...

And China's CSI-300 broke back below its 200DMA...

European markets were all higher on the week, led by Italy up 4.5%...

 

All major US equity indices surged this week - for the 8th straight week...

 

After 4 days with a drop in the last 30 mins of trading, today saw the late-day buying-panic reappear...

 

Futures show the craziness better as markets went vertical at the cash open but Dow (up) and Nasdaq (down) diverged notably...

Dow futs closed over 600 points higher than the overnight lows on the shittiest week's macro-economic data in 8 years!! "Goldilocks, my ass" as one veteran trader said.

S&P managed to break above its 200DMA but Nasdaq could not...

 

Shorts were squeezed higher for the 7th day in row...

 

And Buybacks dominated once again...

 

AAPL traded down on the day after Buffett reduced his exposure...(and so did AMZN amid all the NY chaos)

 

Toymakers were trounced...

 

Small Caps are the year's best performer - up over 16% YTD... (Dow, S&P up over 10%)

 

VIX tumbled to a 14 handle and credit spreads collapsed on the week...

 

And before we leave equityland, here is the S&P 500 Low Volatility ETF!!!

 

While stocks soared, bonds were nto playing along (again)...

 

Treasury yields rose modestly on the week (with the long-end outperforming)...heavy calendar early in the week drove rates higher

 

Sending the yield curve notably flatter once again...

 

And 30Y Yield closed back below 3.00%...

 

The dollar dipped for the second day in a row but ended higher on the week...

 

China came back from its weeklong new year holiday, but the Yuan went nowhere...

 

Ether and Litecoin managed gains on the week with small losses for Bitcoin...

 

Despite dollar gains on the week, crude and gold both made gains...

 

It's been quite ride for oil prices...

 

Gold was modestly higher against the dollar on the week, but notably stringer against the Yuan - strongest since 2016


Finally, as Bloomberg's Ye Xie notes, by one measure, the S&P 500 is on track for the second best quarter in history.

The S&P has gained 22 days this year as of yesterday, or 71% of the trading sessions. If this pattern holds, it'll be the best three-month period since second quarter of 1955, when the SPX jumped 12% and closed up 26% on the year.

Probably nothing to worry about...

But if there's nothing to worry about, why did The Fed signal its extreme dovishness and why did the world's central banks suddenly restart the printing press?

Bonus Chart: Cheap, it ain't!!

Published:2/15/2019 3:13:44 PM
[Markets] Dow Rises Solidly as Trade Talks Between U.S. and China to Resume Next Week The Dow Jones Industrial Average rose Friday after the blue-chip index declined in the previous session, snapping a four-day winning streak. fourth-quarter earnings largely were in line with analysts' forecasts, but the soda and snacks maker said 2019 earnings would fall as the company boosts investments in some of its key consumer products. rose 1.82% after the chip company posted stronger-than-expected fourth-quarter earnings and said sales for its current financial year would top forecasts as key markets in China recover from their current slump. Published:2/15/2019 3:13:44 PM
[Markets] Dow Rises Solidly as U.S. and China Officials to Meet for Further Trade Talks The Dow Jones Industrial Average rose Friday after the blue-chip index declined in the previous session, snapping a four-day winning streak. fourth-quarter earnings largely were in line with analysts' forecasts, but the soda and snacks maker said 2019 earnings would fall as the company boosts investments in some of its key consumer products. rose 3.3% after the chip company posted stronger-than-expected fourth-quarter earnings and said sales for its current financial year would top forecasts as key markets in China recover from their current slump. Published:2/15/2019 10:40:59 AM
[Politics] Consumer Spending Update: Economic Confidence Rebounds to 2018 Highs

With the five-week government shutdown behind us, the Dow Jones Industrial Average working its way back up to October’s all-time high and the unemployment rate still near record lows, consumers are smiling once again.

The Rasmussen Reports Economic Index climbed to 135.9 in February, up six points from last month and in line with findings from the end of 2018 prior to the shutdown.

(Want a free daily e-mail update? If it's in the news, it's in our polls). Rasmussen Reports updates are also available on Twitter or Facebook.   

The survey of 1,500 American Adults was conducted on February 3-4, 2019 by Rasmussen Reports. The margin of sampling error is +/- 2.5 percentage points with a 95% level of confidence. Field work for all Rasmussen Reports surveys is conducted by Pulse Opinion Research, LLC. See methodology.

Published:2/15/2019 10:40:59 AM
[Markets] U.S. and China made 'important progress' in trade talks: Xinhua The U.S. and China have made "important progress for the current stage" of their trade negotiations after Chinese President Xi Jinping met with U.S. Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin in Beijing Friday, the state-run Xinhua reported. President Xi referred to the U.S.-China relationship as among the most important partnerships in the world and therefore, the two countries should maintain healthy and stable ties, according to the Chinese government's official media agency. Xi also said his country is ready to resolve its trade differences with the U.S. through cooperation and reach a deal that is acceptable to both sides. U.S. and Chinese negotiators are scheduled to meet again next week in Washington D.C. in a bid to hammer out an agreement ahead of the March 1 deadline. After the date, the U.S. has warned that it could further raise tariffs on Chinese imports although in recent days President Donald Trump has indicated that a grace period is possible if negotiations go well. U.S. stocks rallied on optimism over the bilateral talks with the S&P 500 rising 0.8% to 2,767, the Dow Jones Industrial Average gaining 1.2% to 25,752 and the Nasdaq adding 0.5% to 7,460. Published:2/15/2019 10:10:53 AM
[Markets] The Glitch Who Stole Christmas

Submitted by Michael Every of RaboBank,

What a difference a day makes. Twenty-four little hours. Yesterday we were kicking our heels. Now anyone who was still clinging to the belief that we are in market business as usual should be kicking themselves instead.

First, US December retail sales collapsed the most since 2009at -1.2% m/m (expected 0.1%) and -1.7% for the control group (expected 0.4%). Of course, this head-long fall took place at the same time as a polar vortex was freezing the country, and as the government shut-down was in place, including the people who were supposed to be collating these data. Near-term reaction is that fears over a synchronised global slowdown/recession have shot up; but it would seem very likely that these numbers are going to be very heavily revised at some point and look far less scary. Larry Kudlow called it a “glitch”. For once he might be right.

[ZH: no "glitch" comment today from Kudlow as Industrial Production plunged? We guess a 500 point ramp in the Dow off overnight lows will fix that]

Then we got news that will have shocked (shocked, I say!) all those expecting good news from the US-China trade talks. We heard that if the can were to be kicked, and it’s still an ‘if’, then the term would be extended for 60 days, not 90. So deflation even in that figure. But then we had reports that, surprise surprise, the US and China remain “far apart” on reform demands. Yes, it seems that USTR Lighthizer, who understands China Inc. like the back of his hand, is insisting on Beijing stopping subsidies for SOEs and genuinely opening up the economy. That is simply not going to happen, as we keep saying. It’s literally like asking the US to embrace socialism tomorrow. And, yes, in both countries there are constituencies who would prefer more markets and more socialism, respectively, but in neither case are they near the levers of power.

One of those constituencies, one could quip, is New York, which has successfully cancelled Christmas for all those who were banking onAmazon building its HQ2 in Long Island: that plan is now offafter a local political backlash. At the same time one can also quip that mind-bogglingly wealthy Amazon will now have to find someone else to fund its market socialism, and New York can spend the USD3bn “incentive” on things like preventing the subway falling apart.

But back to China. The news we heard about pushing for real reforms, which everyone involved as made clear since the start, does not suggest the White House is going to simply blink and sign (it genuinely pains me to type this yet again) a more-soy-and-gas-and-US-agri deal.

Neither does the Bloomberg headline today that 6 out 10 surveyed CEOs see US tariffs on China as helping them. “But that’s not how tariffs work!” I can hear some spluttering. Well, yes it can be; it just isn’t how textbooks written by economists who have never run a business --hey, I’m one too but at least I recognise that fact-- teach it. If you shut out heavily-subsidised foreign competition how can that hurt you, unless you rely solely on their inputs…in which case, as the Bloomberg survey shows, supply chains will shift – and they are shifting. So there are obviously losers….and more winners, perhaps, if those CEOs know their own businesses better than economists do. Of course, the other hypothetical argument is that shutting out foreign competition reduces US productivity because it allows local monopolies to develop; but will the average US widget maker rapidly grow to the point where it can demand USD3bn from New York City to move its HQ there?

Also not suggesting a trade deal looms is that Trump is allegedly days away from banning all Chinese telco products in the US completely via executive order. On which note, Beijing is said to want to deal with the Huawei CFO as a side issue: but isn’t this a matter for the courts?

Further saying the same thing on US-China trade is that on Sunday Trump will have a report on his desk arguing in favour of 25% tariffs on EU auto and auto-part imports in the name of “national security”. Can that really be claimed as national security? It depends how you define it. If you mean “retaining all the highest-paid/value-added jobs” in a mercantilist sense, then it’s a no-brainer the answer is yes. Which is also why Europe, where GDP grew a mighty 0.2% q/q in Q4, wants to keep them. I wonder if one can draw a line from that national security issue to Vice-President Pence in Warsaw demanding the EU line up behind US sanctions on Iran?

Finally, but by no means least, we are not going to get a US government shutdown tomorrow. Trump is going to sign a stop-gap spending bill; but he is also going to declare a national emergency and build the wall anyway. And on that front markets need to wonder both what a constitutional crisis in the US looks like, and if that looks like a man who is going to fold on China. These are murky constitutional waters Trump is sailing the US into. Wall aside, once a precedent is established here I am sure “emergencies” will be popping up more frequently, just as previous presidents leaned on executive orders that were not originally envisioned by the constitution. There’s also no guarantee Congress will allow the move to stand. But if it does, Trump is emboldened; and if it doesn’t, he needs to look tough somewhere else with bipartisan support. And that’s China, folks.

Over in the UK things are also sailing into uncharted waters and looking tough, but with no bipartisan support. The government suffered another humiliating Parliamentary defeat last night, and although the vote itself was not really important, the political symbolism was. The EU can see that the Tory party is hopelessly split, and that the only way to get a Brexit deal through Parliament is cross-bench; and that isn’t going to happen. This matters hugely because the existing Withdrawal Agreement needs to be amended to have any hope of passing – and yet from the EU perspective they now have even less incentive to blink and do so given that PM May looks too weak to use the lifeline if it were even offered. GBP didn’t react much to the vote, but arguably should have.

Published:2/15/2019 9:41:13 AM
[Markets] Dow jumps 200 points at open, set to end week with a flourish as U.S.-China talks show progress U.S. stock indexes on Friday rose firmly higher as investors focused on continued progress in trade negotiations between China and the U.S. in the final day of its weeklong round of discussions. The Dow Jones Industrial Average rose 213 points, or 0.8%, at 25,648, the S&P 500 index advanced by 0.6% at 2,762, while those for the Nasdaq Composite Index climbed 0.6% to 7,470. For the week, the Dow was on pace for a 1.3% rise, the S&P a 1.4% advance, while the Nasdaq was set to gain 1.8%, as of Thursday's close. U.S.-China trade talks wrapped up Friday in Beijing, with reports negotiators remained deadlocked over key issues, but were set to extend their discussions in to next week in Washington - viewed as a sign that both sides were eager to reach a deal ahead of March deadline. Published:2/15/2019 8:43:23 AM
[Markets] Stock Futures Edge Up As Tech, Marijuana Stocks Rally Stock futures angled higher Friday as easing China trade war and U.S. government shutdown tensions buoyed markets, while early earnings results were mixed. Dow Jones futures firmed up to trade 0.2% above fair value. Nasdaq futures shook off early losses and rose 0.1%. S&P 500 futures also trade 0.1% higher. Positive earnings sent IBD 50 stock SS&C Technologies[ticker symb=SSNC] surging... Published:2/15/2019 7:24:16 AM
[Markets] Deere’s Earnings Miss, Rising Bullishness, and More Things To Know for Friday Deere’s earnings fell short of forecasts. Trade conflicts are weighing on farmers minds, but U.S. and Chinese officials are still talking. Today, the Dow looks to make it seven straight winning weeks as investors move into the long weekend. Published:2/15/2019 7:10:35 AM
[Markets] Global Markets: Fall in U.S. retail sales dampens world stock market rally The steepest decline in U.S. retail sales since 2009 in December halted a broad rally in world stock markets on Thursday and pushed investors into the safety of government bonds. On Wall Street, the Dow Jones Industrial Average fell 103.88 points, or 0.41 percent, to 25,439.39, the S&P 500 lost 7.3 points, or 0.27 percent, to 2,745.73 and the Nasdaq Composite added 6.58 points, or 0.09 percent, to 7,426.96. The drop in retail spending in the world's largest economy heightened investor fears of a global slowdown. Published:2/15/2019 4:39:47 AM
[Markets] Rubio One-Ups Sanders And Schumer With Plan To Curb Corporate Buybacks

For better or worse, Republican Senator and one-time presidential candidate Marco Rubio isn't about to let the Democrats own the fight to curtail one of the most flagrant examples of post-crisis corporate excess. And if he can carve out a niche for himself that might one day help him credibly pitch himself as a populist firebrand, much like the man who went on to claim the presidency after defeating him in the Republican primary, well, that sounds to us like a win-win.

To that end, the senator from Florida on Tuesday unveiled a proposal to limit corporate buybacks. Unlike a plan pitched by Bernie Sanders and Chuck Schumer earlier this month, Rubio's plan would seek to end preferential tax treatment of share buybacks, by decreeing that any money spent on buybacks would be considered - for tax purposes - a dividend paid to shareholders, even if individual investors didn't actually part with any stock.

According to CNBC, the plan calls for every shareholder to receive an imputed portion of the funds equivalent to the percentage of company stock they own, which, of course, isn't the same thing as directly handing capital to shareholders (it simply changes the tax rate that the company buying back the shares would pay).

Rubio

Ultimately, Rubio hopes that these changes would discourage companies from buying back stock. Those companies that continued to buy back shares would help contribute to higher revenues by increasing the funds that can be taxed, while also raising the rate at which this money can be taxed. Any tax revenue generated by these changes could then be used to encourage more capital investment, Rubio said. As part of the proposal, Rubio would make a provision in the tax law that allows companies to deduct capital investment permanent (that provision is currently set to expire in 2022).

But before lawmakers take their next steps toward regulating how and when companies should return excess capital to shareholders, they might want to take a look at a column recently published by WSJ's "Intelligent Investor" that expounds a concept called "the bladder theory."

Overall, however, buybacks (and dividends) return excess capital to investors who are free to spend or reinvest it wherever it is most needed.

By requiring companies to hang onto their capital instead of paying it out, Congress might - perhaps - encourage them to invest more in workers and communities.

But the law most likely to govern here is the Law of Unintended Consequences.

The history of investment by corporate managers with oodles of cash on their hands isn’t encouraging. Hugh Liedtke, the late chief executive of Pennzoil, reportedly liked to quip that he believed in "the bladder theory:" Companies should pay out as much cash as possible, so managers couldn’t piss all the money away.

That companies bought back a record $1 trillion worth of stock last year while employers like GM slashed jobs and closed factories has stoked criticisms of the Trump tax cuts, but as the gulf between the rich and the poor grows ever more wide (a phenomenon for which we can thank the Federal Reserve and other large global central banks) it's worth wondering: facing a simmering backlash to one of the most persistent marginal bids in the market place, have investors already become too complacent about proposals like Rubio's?

We ask only because the Dow soared more than 350 points on Tuesday, suggesting that, even as Rubio added a bipartisan flavor to the nascent movement to curb buybacks, investors aren't taking these proposals too seriously - at least not yet.

Published:2/12/2019 7:27:48 PM
[Markets] The Wall Street Journal: Moonves, other CBS execs accused of insider trading in shareholder suit Several current and former CBS Corp. executives engaged in insider trading in advance of sexual-harassment allegations against former Chairman and Chief Executive Leslie Moonves becoming public, according to a shareholder lawsuit seeking class-action status against the company.
Published:2/12/2019 6:57:11 PM
[Markets] GLOBAL MARKETS-World stock markets rally on hopes for U.S.-China trade deal Signs that the United States and China might reach an agreement in trade talks and news of a tentative deal to avoid another government shutdown in Washington helped push world stock markets and bond yields broadly higher Tuesday. On Wall Street, the Dow Jones Industrial Average rose 372.65 points, or 1.49 percent, to 25,425.76, the S&P 500 gained 34.93 points, or 1.29 percent, to 2,744.73 and the Nasdaq Composite added 106.71 points, or 1.46 percent, to 7,414.62. U.S. and Chinese officials expressed hopes that the new round of talks, which began in Beijing on Monday, would bring them closer to easing their nearly year-long trade war. Published:2/12/2019 3:24:25 PM
[Markets] Dow ends up 370 points on trade hopes, tentative deal to avoid shutdown Dow ends up 370 points on trade hopes, tentative deal to avoid shutdown Published:2/12/2019 3:06:05 PM
[Markets] Dow Rises as Shutdown Avoided, Trump Could Let Deadline for China Tariffs Pass The Dow Jones Industrial Average traded sharply higher Tuesday after U.S. lawmakers reached a tentative deal that would avoid another government shutdown, and there were signs of progress on a U.S. trade deal with China. posted stronger-than-expected fourth-quarter profit but said its financial statements for 2016 and 2017 would have to be restated because of accounting errors related to income taxes. Stocks were rising Tuesday, Feb. 12, after lawmakers in Washington reached a tentative deal that would avoid another government shutdown later this week. Published:2/12/2019 11:55:09 AM
[Markets] Stocks Jump as Tentative Deal Is Reached to Avoid Government Shutdown The Dow Jones Industrial Average rises after U.S. lawmakers reach a tentative deal to avoid another government shutdown. Published:2/12/2019 8:53:16 AM
[Markets] Dow industrials up 200 points early Tuesday as shutdown worries recede Dow industrials up 200 points early Tuesday as shutdown worries recede Published:2/12/2019 8:53:16 AM
[Markets] Markets Jump, Wall Of Worry Crumbles As Tentative Wall Deal Reached

It's a sea of green in equity markets from Asia to Europe, with U.S. futures sharply higher following late Monday news of a tentative deal among American lawmakers to avert another government shutdown, while optimism about US-China trade talks rose after administration officials hinted at a meeting between Trump and Chinese President Xi "soon".

In the key overnight news, US Senator Shelby said an agreement in principle was reached on shutdown talks and that staff will work on the deal. Senator Shelby also commented that he hopes the White House will back the deal and that the border bill will have some money for a barrier, while US Rep. Lowey said staff could work out the full details of border security deal by Wednesday. US congressional aides said the tentative US border security deal provides $1.375bln to build 55 miles of border fence but does not contain any funds for a border wall and does not include Democrats’ demand for capping number of immigrant detention beds

Meanwhile, President Trump said "we are going to make great deals on trade" and don't want China to have a hard time. President Trump also commented that we probably have some good news regarding border deal but added he didn’t know what they meant regarding progress and affirmed the US would build the wall anyway.

All this was taken quite well by traders, and Tokyo’s Nikkei set the tone with its best day of the year so far, surging 2.6% as the yen tumbled to 2018 lows, while Europe wasted little time in trying to lift the STOXX 600 back to the two-month high it set last week, led by carmakers. Germany’s DAX jumped more than 1.2% after rising 1% on Monday, and Paris and Milan were up 0.8%, while London’s FTSE approached a four-month peak despite ongoing Brexit uncertainty.

Earlier in Asia, MSCI’s broadest index of Asia-Pacific shares outside Japan edged up 0.3%. Shanghai rose 0.7% South Korea’s KOSPI climbed 0.5 percent and Australian shares gained 0.3 percent. The Nikkei rallied though, shooting up 2.6% after closing on Friday at its lowest level since early January after a market holiday on Monday. With the yen sliding again, shares of exporters such as automakers and machinery makers led the charge. Separately, Deutsche Bank noted it was 20 years since Japan cut interest rates to zero, something now standard in large parts of Europe.

Japan's 10-year bond yields remained in negative territory even after the central bank cut purchases of some longer-dated bonds for the first time since July in a regular operation. The BOJ has sought to taper its purchases while focusing on yield targets rather than quantitative easing. Nissan reported worse-than-expected results.

The dollar hovered at a two-month high and was fractionally higher on the day, its 9th consecutive daily increase, and the Australian dollar also gained (more below). The yen and Swiss franc dipped while U.S. Treasury and German bund yields edged up as investors jettisoned safe havens after U.S. lawmakers said they reached an “agreement in principle” on border security funding that would avert a second government shutdown. The Trump administration said the president still wants to meet China’s Xi Jinping in an effort to end the trade war.

“We have had two bits of relatively good news overnight - optimism about the U.S. shutdown not resuming and optimism about a trade deal,” said Societe Generale strategist Kit Juckes. “Equities are higher, bond yields are a little bit higher, yen and Swiss franc weakest overnight of the major currencies so it’s sort of risk-on rules OK!”

According to Juckes there was now a 75% chance that a hike of U.S. tariffs on Chinese goods at the start of March will be avoided and a 95% chance that another U.S. government shutdown will be dodged. Those odds were boosted late on Monday when as we reported U.S. lawmakers reached a tentative deal on border security funding, though aides cautioned that it did not contain the $5.7 billion President Donald Trump wants to build a wall on the Mexican border, and the president has yet to opine on whether the deal is agreeable.

“The trade talks are key,” Putnam's Jason Vaillancourt told Bloomberg TV. “If we can get a little bit of those growth engines starting to level out around the world, whether it be Japan or Europe, and just bottom out, then I think that will go a long ways to putting a base under risky assets.”

The developments were good enough for S&P 500 e-mini futures to rise 0.7%, however, pointing to a solid start on Wall Street later after a choppy day on Monday.

Meanwhile, U.S. and Chinese officials expressed hopes the new round of talks, which began in Beijing on Monday, would bring them closer to easing their months-long trade war which would see the tariffs on $200 BN worth of Chinese goods rise from 10% to 25%. “There will be no winner in a trade war. So at some point they will likely strike a deal,” said Mutsumi Kagawa, chief global strategist at Rakuten Securities in Tokyo.

In fx, the dollar was mixed but held on to recent gains, having risen for eight straight sessions against a basket of six major currencies until Monday, its longest rally in two years. Although the Fed's dovish turn dented the dollar earlier this month, analysts - who were generally expecting a slump in the dollar only to be wrongfooted once again - noted the U.S. currency still has the highest yield among major peers and that the Fed continues to shrink its balance sheet.

“The dollar is the market’s pet currency at present regardless of whether concerns about the global economy are on the rise,” currency strategists at Commerzbank said in a note.

Elsewhere, the Swiss franc was the worst performer; the yen fell to the lowest this year and Treasuries declined across the curve in the wake of the tentative deal on border security funding; the news that President Trump still wants to meet China’s Xi Jinping to help end the trade war also added to the moves. The euro dropped as much as 0.2% to 1.1258, a three-month low, before erasing losses; offers extend to 1.1350 and are part of fresh short interest, according to traders. The Swedish krona led Group- of-10 gains while the Norwegian krone and the Canadian dollar got some tailwind from rising oil prices.

Elsewhere, Brent crude rose after its lowest close in more than a week. Emerging markets shares climbed and their currencies edged higher. The pound held steady as U.K. Prime Minister Theresa May prepared to update lawmakers on the progress  — or lack thereof — of Brexit talks with the EU. The offshore yuan strengthened for the first time in five days.

Market Snapshot

  • S&P 500 futures up 0.7% to 2,727.50
  • STOXX Europe 600 up 0.6% to 363.16
  • MXAP up 0.9% to 156.07
  • MXAPJ up 0.3% to 513.09
  • Nikkei up 2.6% to 20,864.21
  • Topix up 2.2% to 1,572.60
  • Hang Seng Index up 0.1% to 28,171.33
  • Shanghai Composite up 0.7% to 2,671.89
  • Sensex down 0.7% to 36,144.54
  • Australia S&P/ASX 200 up 0.3% to 6,079.08
  • Kospi up 0.5% to 2,190.47
  • German 10Y yield rose 0.8 bps to 0.128%
  • Euro down 0.04% to $1.1272
  • Italian 10Y yield fell 5.7 bps to 2.539%
  • Spanish 10Y yield fell 1.0 bps to 1.232%
  • Brent futures up 0.8% to $62.01/bbl
  • Gold spot up 0.4% to $1,312.82
  • U.S. Dollar Index little changed at 97.08

Top overnight news

  • The Trump administration said the U.S. president still wants to meet China’s Xi Jinping in an effort to end the trade war, a sign of optimism as negotiators from the world’s two-biggest economies start their latest round of talks this week
  • Congressional negotiators reached a tentative deal on border security that would give President Donald Trump far less money than he’d demanded for new barriers and would avert another government shutdown
  • Mark Carney may give some color Tuesday on what lies ahead after enduring the worst year of growth since he arrived at the Bank of England
  • U.K. Prime Minister Theresa May will address lawmakers in the House of Commons on Tuesday as she seeks more time to renegotiate her Brexit deal with the European Union
  • The Bank of Japan offered to buy 180 billion yen ($1.6 billion) of securities maturing in 10-to-25 years, versus 200 billion yen at its previous operation. The last reduction in this zone was in July
  • After raising interest rates late last year, Sweden’s central bank now has little choice other than to wait for a better economic outlook before pushing ahead with its long-awaited tightening cycle.
  • European Union member states are considering a possible joint response to cyber attacks allegedly conducted by a Chinese state-linked hacker group after the U.K. presented evidence last month about network infiltration, according to people familiar with the matter
  • ECB officials shouldn’t overreact to individual points of incoming data when setting monetary policy as the current environment is highly uncertain, Executive Board candidate Philip Lane said
  • Qatar is weighing plans to tap international bond markets as the gas-rich nation seeks to cement its status as a regular issuer, according to three people with knowledge of the matter

Asian equity markets traded mostly higher amid growing optimism regarding US-China trade talks and hopes of averting a government shutdown, as negotiators were said to have reached an agreement in principle in which the border bill will include some funds for a barrier. ASX 200 (+0.3%) and Nikkei 225 (+2.6%) were positive with outperformance in the Japanese benchmark on return from the extended weekend as exporters were underpinned by favourable currency moves, although Toshiba was the notable laggard after it confirmed reports it could reduce FY profit guidance by half. Elsewhere, Shanghai Comp. (+0.7%) and Hang Seng (Unch.) were kept afloat but with upside limited by indecision as participants await the outcome of trade discussions and after the PBoC refrained from open market operations which resulted to a daily net drain of CNY 100bln. Finally, 10yr JGBs were lower amid outperformance of Tokyo stock markets and following a reduction of the BoJ’s Rinban amounts in which it lowered its purchases of 10yr-25yr JGBs by JPY 20bln. PBoC skipped open market operations for a net daily drain of CNY 100bln.

Top Asian News

  • BOJ Cuts Purchases of 10-to-25 Year Bonds First Time Since July
  • Abe Says Japan Wants Apology for South Korean Remarks on Emperor
  • Court Freezes China Minsheng Stake in Valuable Shanghai Land
  • Xiaomi, Meituan Among Dual-Class Stocks to Join MSCI Indexes

All major European indices are in the green [Euro Stoxx 50 +1.0%], continuing from the optimism seen in Asia overnight on US-China trade and the potential for averting a US government shutdown. Sectors are also all in the green, with some slight outperformance in material names. The Dax (+1.2%) is marginally outperforming its peers, in spite of being weighed upon by index heavyweight Thyssenkrupp (-1.9%) who are down following earnings where the Co. confirmed their outlook, but stated that economic and political uncertainties are increasing. Other notable movers include, Michelin (+11.6%) who are at the top of the Stoxx 600 following their earnings, with Continental (+4.1%) higher in sympathy. Towards the bottom of the Stoxx 600 are Tui (-3.1%) following their earnings. Separately, Kering (+2.4%) were in the red following their earnings, in spite of Gucci’s operating margin reaching a record 39.5% by end of 2018; although Co. shares have now drifted higher into positive territory.

Top European News

  • Thyssenkrupp Profit Plunge Adds to German Industrial Blues
  • Michelin Jumps as Outgoing CEO Strikes Optimistic Tone on Profit

In FX, the dollar remains bid in wake of reports that a deal has been struck in principle to avoid another US Government shutdown ahead of Friday’s funding deadline, while the US trade envoy has arrived in Beijing amidst heightened prospects of forging an agreement in time for the next tranche of import tariffs due on March 1st. The index just off a marginal new multi-week peak of 97.209, with the Dollar extending gains vs most G10 rivals.

  • CHF/JPY - Another broad upturn in risk appetite has hit the safe havens hardest, understandably, with the Franc slipping closer towards yesterday’s overnight flash crash lows at 1.0091 vs 1.0095, and Usd/Jpy climbing to fresh 2019 highs circa 110.65 having breached 110.50 and the peak from 31st December last year just a pip or so below. Rebounding US Treasury yields are also impacting, and with no Japanese exporter supply anticipated before 111.00 where barrier defence offers are also expected, technical impulses could be more influential in the short term given a key Fib level and the 55 DMA in close proximity (110.54 and 110.59 respectively).
  • NZD/GBP/EUR - Also conceding further ground to the Usd, with the Kiwi retesting support around the 100 DMA (0.6725) ahead of Wednesday’s RBNZ policy meeting that is widely forecast to culminate in a dovish hold (see our headline feed and/or research suite for a full preview of the event. Meanwhile, the Pound remains blighted by Brexit risk and related economic repercussions, as Cable teeters just above 1.2800 and a slightly deeper post-UK data low around 1.2834, with bids seen at 1.2820 and the 55 DMA at 1.2810. The single currency is consolidating off a fresh ytd base of 1.1258, but looking more prone to heavier losses while under 1.1300 and given little in the way of chart support ahead of the 2018 low (1.1216) apart from 1.1234.
  • AUD/CAD - Defying the overall trend and both firmer vs their US counterpart, the Aud has rebounded firmly above 0.7050 and 1.0500 vs the Nzd with the aid of a more encouraging NAB business survey vs much weaker than forecast housing loans data. Meanwhile, the Loonie has drawn support from a rebound in crude prices and pared losses from 1.3300+ to circa 1.3270.
  • EM - Some respite for regional currencies against the backdrop of improved risk sentiment, and with the Rand also relieved to hear that Eskom is hoping to end power cuts by the end of the week – Usd/Zar back down below 13.8000.

In commodities, Brent (+1.7%) and WTI (+1.5%) prices are comfortably in the green and above USD 62/bbl and USD 53/bbl respectively after Saudi Arabia posited that crude production in March is set to be 500k below their OPEC+ cut target at 9.8mln BPD. Support has also been offered by the optimistic risk tone after positive comments pertaining to US-China trade and a deal to prevent the US Government from shutting down again; as USTR Lighthizer arrived in Beijing this morning. OPEC are to publish their monthly oil market report today, where 2019 world oil demand was forecast to grow at 1.29mln BPD. In addition, the EIA are to release their Short-Term Energy Outlook; which previously forecast US oil output to average 12.1mln BBL and 12.9mln BBL in 2019 and 2020 respectively. Gold (+0.4%) has strengthened somewhat this morning, breaking from the subdued price action seen overnight as the dollar remained firm; the yellow metal is now trading towards the top of its USD 10/oz range. Elsewhere, reports indicate that Vale knew the Brazil dam which collapsed last month was more than twice as likely to fail than the maximum allowed risk level from internal guidelines.

Looking at the day ahead, there are no releases of note in Europe this morning while the only data due in the US is the January NFIB small business optimism reading and December JOLTS survey. Revisions to the PPI data will also likely warrant attention. Away from all that it is a busier day for central bank speak with the ECB’s Lane, Weidmann and Nowotny all speaking at separate events this morning. The BoE’s Carney is then speaking shortly after lunchtime in London at an event on the global economy and risks to the outlook. Later this evening the Fed’s Powell is due to speak at 5.45pm GMT albeit about economic development and rural poverty, so an unlikely venue for monetary policy guidance. The Fed’s Mester does however speak on the topic of the economic outlook and monetary policy at 11.30pm GMT while the ECB’s Lautenschlaeger speaks at the same time, albeit at a different event. Away from that Euro Area finance ministers are due to gather in Brussels and the monthly OPEC report is due.

US Event Calendar

  • 6am: NFIB Small Business Optimism, actual 101.2, est. 103, prior 104.4
  • 10am: JOLTS Job Openings, est. 6,846, prior 6,888
  • Revisions: Producer Price Index

DB's Jim Reid concludes the overnight wrap

It might go under the radar but today is a bit of a landmark anniversary of sorts for financial markets. It’s the 20-year anniversary of the Bank of Japan cutting rates to 0% and the start of two decades of extreme monetary policy which the country has never been able to sustainably lift out from. A sobering template for Europe to worry about. Japan also kick started what became a more mainstream form of monetary policy post the GFC around the world. For economic historians Japan is really a fascinating case. If you took a snapshot of the nation’s finances and demographics today with no previous knowledge of the country’s journey over the last 30 years since its asset bubble burst, you would wonder how the country isn’t in a constant crisis. Debt to GDP is the highest in the developed world at 236%. The BoJ holds around 43% of all JGBs. Core prices in Japan are also virtually identical to where they were 20 years ago and 10yr JGBs have fallen from 2.21% to -0.03% over this period. Nevertheless, Japan is an example of how long a crisis can be averted for under extreme measures. It also highlights how perceptions can be turned on their heads. Yesterday we found this quote from The Economist 20-years ago: "Without fiscal discipline, say Bank of Japan officials, the government risks losing control of public spending, inviting hyperinflation in the world's second-biggest economy." So, an unhappy anniversary today in many respects but it’s also noticeable that after 20 years of high fiscal spending the Japanese don’t have populism. Maybe that’s a message for Europe.

To the present where the last 24 hours hasn’t been anywhere near as exciting as the BoJ that historic day 20 years ago. Case in point, the intraday range on the S&P 500 yesterday for example was just 0.53%, the third smallest of the year, and trading volumes were 20% below their 100-day average. The good news is that there are a number of potential catalysts to make things more interesting bubbling away in the background, however just not quite in danger of spilling over right now. That of course includes the US-China trade meetings this week, another Brexit session in Parliament, and some potentially significant data which really kick starts from tomorrow with US CPI.

Anyway back to markets where the S&P 500 closed a fairly uninspiring +0.07% yesterday. The NASDAQ (+0.13%) was a touch stronger if you’re looking for a shining light while the DOW (-0.21%) lagged behind. It wasn’t a lot more interesting in Europe prior to this where the STOXX 600 may have closed +0.85% but the reality was that it was just catching up to the late Friday rally on Wall Street last week. High yield credit wasn’t all that different where spreads in the US finished -2bps tighter while in bond land, Bund yields backed up +3.3bps to close at 0.117% - and therefore partially undoing some of last week’s rally which saw Bunds fall to as low as 0.076% at one stage and the lowest since October 2016. Treasuries (+1.9bps) were similarly weak (and are up another +2.7bps overnight – more on that below) while the curve – which has remained firmly rooted in a 14-20bps range all year – was flat at 16.6bps.

Meanwhile, in oil markets both WTI (-0.59%) and Brent (-0.95%) sold-off after Reuters reported that a draft document for a OPEC and non-OPEC cooperation charter avoided any mention of prices, market share and production cuts.The document also suggested that OPEC and Russia will discuss creating a mechanism (i.e. no formal body) rather than an organization when they meet in April. Not helping oil was the stronger Greenback with the Dollar index rallying another +0.43%. That means the Dollar has now strengthened for 8 consecutive sessions which is the longest run since February 2017.

In terms of actual news flow yesterday, the latest on the standoff in Washington is that a tentative deal has been reached by congressional negotiators, albeit for far less funding than Trump had sought and without confirmation from Trump yet that he will support it. Bloomberg reported that the lawmakers have agreed on all seven bills with the plan including $1.375bn for new border fencing. That compares to $5.7bn that Trump had wanted. Trump later commented at a political rally that “just so you know, we’re building the wall anyway”.

Nevertheless, the tentative agreement has lifted markets overnight with the Hang Seng (+0.16%), Shanghai Comp (+0.72%) and Kospi (+0.55%) all higher while the Nikkei (+2.64%) has really taken off after markets re-opened and post a couple of weak days for the Yen. The CNY (+0.07%) is stable following the big slide yesterday while S&P 500 futures are up +0.51%. In other news, the BoJ trimmed its purchases of JGBs in the 10-25y bucket to JPY180 bn (vs. JPY200 bn previously) at today’s regular operation. They did a similar thing in July and the move comes after yields on super-long bonds fell to lowest since late 2016 on Friday.

Meanwhile there’s really nothing material to report from the US-China trade talks so far with meetings continuing overnight in Beijing. At the margin the tone remains positive though with White House adviser Kellyanne Conway saying yesterday that “President Trump wants to meet with President Xi very soon” and that “this President wants a deal”. On a related note, it was interesting to read that the Commerce Department is likely to release a final report over the coming days (on the investigation under Section 232) which declares that imported vehicles and auto parts are a threat to national security. Tariffs are said to be an option for the President to consider under the investigation, and there will be a 90 day window for him to decide whether and how to implement them. One to watch.

In Europe, Germany’s SPD party approved pension and labour law reform proposals, which would boost social spending. The proposals included an extension to unemployment benefits, a higher minimum wage, and enhanced pensions. The plan will not be implemented in the current coalition, but it could function as part of an electoral platform if the SPD decides to abandon the government and push for new elections after its planned review later this year. Over at the ECB, Ireland’s Philip Lane was officially nominated to be the ECB’s next Chief Economist which was as expected.

In other news, there was some brief volatility in Spanish assets yesterday however it turned out to be more noise than substance. The IBEX sold-off as much as 0.80% from the highs and 10y Spanish Bonds were nearly 4bps off the lows at one stage after Efe news agency reported that PM Sanchez was considering calling snap elections for April 14th. The story was later rebuffed and Spanish assets quickly reversed the moves however this does come in a week when the government needs to get its budget passed when it goes to a vote in parliament tomorrow and the trial of the Catalan separatists who led the 2017 push for independence begins today. Spanish bond yields closed +0.7bps higher yesterday and the IBEX +0.90%.

Elsewhere, there wasn’t much in the way of new Brexit news yesterday – aside from comments from Barnier which didn’t offer anything that we didn’t already know – however we did get confirmation that PM May will present a “neutral” motion to parliament today, having previously been scheduled for tomorrow.It’s expected that May will be asking for more time over negotiations with the EU. The suggestion is that she will offer parliament the right to vote on other Brexit options by the end of February but will not commit to bringing her deal back before then. Labour in return is expected to push for an amendment that requires any final vote on the deal by February. The vote on May’s motion and any amendments will likely be on Thursday.

Staying with the UK, yesterday’s preliminary Q4 GDP print was even more disappointing than feared, coming in at just +0.2% qoq (vs. +0.3% expected). That means the annual rate has now fallen two-tenths to +1.3% yoy and so matching the six-year lows of Q1 last year. The December monthly reading actually dropped -0.4% mom compared to expectations for no change. It’s worth noting that the breakdown of the Q4 reading revealed that business investment contracted again, and therefore meaning it has contracted for a fourth consecutive quarter – the longest since the financial crisis. Sterling closed -0.69% yesterday, albeit wasn’t the worst performing G10 currency which went to the Norwegian Krone (-0.91%), as it sold off in tandem with oil.

There wasn’t any data out in the US yesterday however we did receive the CPI revisions. Importantly though there was no change to core CPI on a year-on-year basis at 2.21%.Our US economists did however make the point that the January 2018 reading was downgraded from 0.35% mom to 0.30%. Importantly this makes for easier base effects and a lower hurdle for keeping the annual rate near recent levels. A reminder that we get the January CPI report in the US tomorrow.

Finally to the day ahead,which is incredibly sparse for data. Indeed there are no releases of note in Europe this morning while the only data due in the US is the January NFIB small business optimism reading and December JOLTS survey. Revisions to the PPI data will also likely warrant attention. Away from all that it is a busier day for central bank speak with the ECB’s Lane, Weidmann and Nowotny all speaking at separate events this morning. The BoE’s Carney is then speaking shortly after lunchtime in London at an event on the global economy and risks to the outlook. Later this evening the Fed’s Powell is due to speak at 5.45pm GMT albeit about economic development and rural poverty, so an unlikely venue for monetary policy guidance. The Fed’s Mester does however speak on the topic of the economic outlook and monetary policy at 11.30pm GMT while the ECB’s Lautenschlaeger speaks at the same time, albeit at a different event. Away from that Euro Area finance ministers are due to gather in Brussels and the monthly OPEC report is due.

Published:2/12/2019 6:23:35 AM
[Markets] Stocks Extend Gains as US Lawmakers Reach Deal to Avoid Government Shutdown Global stocks trade firmly higher as investors cheer positive signals from U.S.-China trade talks and a tentative deal to avoid a second U.S. government shutdown. Global oil prices edge higher, but remain range-bound amid the offsetting influence of record U.S. production, OPEC cuts and slowing global growth. U.S. equity futures suggest a triple digit gain for the Dow ahead of earnings from Activision Blizzard, Under Armour and Molson Coors. Published:2/12/2019 3:21:08 AM
[Markets] Dow Slips 52 Points Because Nobody Knows How Trade Talks With China Will Go The Dow Jones Industrial Average slipped 0.2% to close at 25,053.11. The S&P 500 added 0.07%, to end at 2709.80, and the Nasdaq Composite gained 0.13% to close at 7307.90. Published:2/11/2019 4:57:54 PM
[Markets] Dow ends lower for fourth session as U.S.-China trade talks resume Dow ends lower for fourth session as U.S.-China trade talks resume Published:2/11/2019 3:52:01 PM
[Markets] Dollar Jumps, Yuan Dumps, Dow Slumps As Chinese Return To Work

The Lunar New Year celebrations are over - China was up... Europe was up... But The Dow closed down - is that even allowed?

 

Chinese traders returned from their week-long vacation and played catch up to global stocks, with tech-heavy CHINEXT soaring 3.5%...

 

Having drifted lower during the lunar new year celebrations, Offshore Yuan spiked at the open, but then plunged as the day wore on...

 

European markets surged out of the gate after China's gains...

 

US equities surged overnight as Europe opened then dumped it all back as the US cash markets opened...Futures show the late-Friday-close panic-buying gains evaporated...

 

In cash markets, Trannies soared, Nasdaq and S&P struggled all day and The Dow was red...

 

"Most Shorted" stocks were squeezed again - erasing the drop from last Thursday

 

S&P is holding just above its 100DMA...

 

Equity and credit protection costs were higher on the day but faded (improved) into the close...

 

Treasury yields ended the day higher, despite equity weakness (and dollar gains)...

Chatter of a huge investment grade calendar likely prompted the marginal weakness in bonds as rate-locks set

However, 30Y held just below 3.00%...

 

The dollar index surged by the most in 3 months for its 8th daily gain in a row into the green for 2019 - the longest win streak since Jan 2016...

This is the biggest 8-day gain in the dollar since June 2018.

The last few times that the dollar has surged at this pace, things reversed rather quickly...

 

Ugly day for cable today...

 

Emerging Market FX was hammered also...

 

In cryptos, Litecoin continues to rise (admittedly with plenty of vol) along with Ethereum...Bitcoin was deadstick...

 

Commodities and Bonds have already started to reject the rampant buying panic in stocks...

 

Commodities were all lower on the strong dollar but gold dropped the least...

 

Magical comeback in WTI rescued it from a $51 handle...

 

Gold was down on the day as the dollar spiked but the precious metal managed to bounce...

 

As the dollar has surged back into the green for 2019, Platinum has been punished most (but Palladium remains the best performer of the year)...

 

Finally, we note that the fun-durr-mentals are not getting any better...

Even The Fed's model is starting to signal recession looms...

Published:2/11/2019 3:20:32 PM
[Markets] Stocks Mixed Ahead of U.S.-China Trade Talks; Healthcare Sector Weighs on Dow The Dow Jones Industrial Average turned lower on Monday as U.S. trade talks with China were set to resume. posted stronger-than-expected fourth-quarter earnings and boosted its 2019 dividend target to $2 a share. was up 2.3% after Canaccord Genuity lifted its recommendation on the stock to buy from hold and raised its price target to $450 from $330. Published:2/11/2019 3:20:32 PM
[Markets] Dow transports surge as Norfolk and Avis stocks account for half the gains The Dow Jones Transportation Average surged 111 points, or 1.1%, in afternoon trade Monday, as rallies in shares of Avis Budget Group Inc., Norfolk Southern Corp. and airlines helped the index buck the weakness seen in the Dow Jones Industrial Average . Avis's stock ran up 8.6% after Goldman Sachs swung to being bullish from bearish on the car rental company, as the headwinds facing the company and industry are believed to be already priced into the stock. Norfolk's stock hiked up 3.9% after the railroad company presented its strategic plan at its investor and financial analyst conference, saying it expects revenue growth at a compound annual rate of 5% through 2021, a dividend payout ratio of 33% and continued share repurchases. The price gains of both stocks added a combined 55 points to the Dow transports' price. Meanwhile, the shares of all six airline components were trading higher, and added a combined 22 points to the index. Meanwhile, the Dow industrials was down 56 points. Published:2/11/2019 1:50:22 PM
[Markets] Dow Moves Lower in Cautious Trading as U.S.-China Trade Talks Resume The Dow Jones Industrial Average turned lower on Monday as U.S. trade talks with China were set to resume. posted stronger-than-expected fourth-quarter earnings and boosted its 2019 dividend target to $2 a share. was up 2.6% after Canaccord Genuity lifted its recommendation on the stock to buy from hold and raised its price target to $450 from $330. Published:2/11/2019 10:48:28 AM
[Markets] Dow Turns Lower in Cautious Trading as U.S.-China Trade Talks Resume The Dow Jones Industrial Average turned lower on Monday as U.S. trade talks with China were set to resume. posted stronger-than-expected fourth-quarter earnings and boosted its 2019 dividend target to $2 a share. was up 3.2% after Canaccord Genuity lifted its recommendation on the stock to buy from hold and raised its price target to $450 from $330. Published:2/11/2019 9:46:41 AM
[Markets] Stocks Open Higher, Dow Jones Goes For 8; Tesla Upgraded Tesla was out front early Monday as stocks climbed and the Dow Jones industrials aimed for an eighth weekly gain, but some serious deadlines loom. Published:2/11/2019 8:50:05 AM
[Markets] Nvidia Stock Sinks and 4 More Monday Morning Movers SECTORFOCUS BLOG Moving Up. Investors are looking at the new week with an optimistic eye: Dow Jones Industrial Average futures were up 0.4% in recent trading. Trade is once again in the spotlight, as the U. Published:2/11/2019 8:23:13 AM
[Markets] Boeing's stock rallies after J.P. Morgan raises price target to $450 Shares of Boeing Co. rallied 1.1% in premarket trade Monday, after J.P. Morgan raised its price target on the aerospace and defense giant, citing an improved free cash flow (FCF) outlook. The stock's implied price gain would add about 30 points to the Dow Jones Industrial Average's price; Dow futures were up 114 points. Analyst Seth Seifman lifted his stock price to $450, which is 11% above Friday's closing price of $404.91, while reiterating the overweight rating he's had since July 2017. Seifman said after he "sliced and diced" Boeing's 10-K annual report filing with the Securities and Exchange Commission, he raised is 2020 FCF estimate to $16.3 billion, or $30 a share. "Boeing is among the companies best positioned to benefit from positive aero fundamentals, and the company is consciously trying to shape the industry to capture more value for itself, which could mean strong relative performance and potential upside to estimates," Seifman wrote in a note to clients. "Finally, while sentiment has improved, we do not believe BA is 'over-owned.'" The stock has rallied 9.6% over the past three months, while the Dow has slipped 3.4%. Published:2/11/2019 7:48:59 AM
[Markets] These 7 Iconic U.S. Companies Are Making a Comeback. Call Them the Dinos of the Dow. The Dogs of the Dow stock-picking theory based on buying cheap stocks in the blue-chip benchmark. We created the Dinosaurs of the Dow, six former (and one current) Dow components that have surged to start 2019. Published:2/11/2019 4:16:10 AM
[Markets] The Dow Goes Nowhere as January Rally Hits Wall of Worry U.S. stocks headed lower—the blue-chip Dow industrials lost 1.1% at the weakest point—only to regain most of the lost ground in late-afternoon trading. The main market indexes ended the week essentially where they began it. Published:2/8/2019 5:01:05 PM
[Markets] Dow closes off session low; S&P 500, Nasdaq eke out gains Dow closes off session low; S&P 500, Nasdaq eke out gains Published:2/8/2019 3:29:50 PM
[Markets] After going up for six straight weeks, the stock market comeback is on hold – here's why The Dow and S&P 500 indexes each climbed over 7 percent in the past six weeks but the rally in U.S. stocks has paused. The Dow Jones Industrial Average is headed for its first negative week of 2019 and there a few key reasons why the stock market's recent rally has slowed. Published:2/8/2019 11:30:31 AM
[Markets] Dow industrials slip below 25,000 level in early going Friday Dow industrials slip below 25,000 level in early going Friday Published:2/8/2019 9:29:18 AM
[Markets] Dow loses 25,000 foothold in morning trade with 200-point skid lower The Dow Jones Industrial Average on Friday headed firmly lower for a third straight session, with declines deepening in early action, amid growing concerns about global growth and troubles forging a U.S.-China trade agreement. The Dow was down 210 points, or 0.8%, at 24,955, most recently, with a sixth weekly gain in jeopardy for the blue-chip index. Meanwhile, the S&P 500 index declined 0.7% to reach 2,687, while the Nasdaq Composite Index traded 0.7% lower at 7,234. All three main stock benchmarks were on the verge of putting in their longest losing streaks of 2019, three straight sessions. Trade-war jitters remain a central issue for investors, after President Donald Trump confirmed reports that he had no plans to meet with Chinese President Xi Jinping before a March 1 trade-deal deadline. Published:2/8/2019 9:29:18 AM
[Markets] Walmart launches home brand, MoDRN Walmart Inc. announced Friday that it has launched a home brand, MoDRN, on its e-commerce site. Over the past year, the retail giant says it has seen a 35% increase in the number of visits to its home goods page, with customers spending more time on that site. The new collection includes 650 items fashioned in Retro Glam, Refined Industrial and Scandinavian Minimal styles. Sofas range in price from $700 to $899, beds from $599 to $649 and $20 to $60 to barware. Walmart shares have slipped 3.3% over the past year while the Dow Jones Industrial Average has gained nearly 5% during the period. Published:2/8/2019 7:33:01 AM
[Markets] The Dow Looks Set to Drop Friday Because the U.S. and China Appear Far From a Trade Deal STOCKSTOWATCHTODAY BLOG 6:45 a.m. The Dow Jones Industrial Average appears set to for a lower open amid renewed trade and growth fears. Dow futures have declined 96 points, or 0.4%, while S&P 500 futures have fallen 0. Published:2/8/2019 6:28:39 AM
[Markets] Buying the Dow Stocks With the Highest Dividends Is a Winning Strategy Time to check in on some old friends: the dogs of the Dow. The “dogs” are just the 10 stocks with the highest dividend yields in the 122-year-old Dow Jones Industrial Average, which these days include (VZ) (ticker: VZ), (IBM) (IBM) and (PFE) (PFE). It is an old stock-picking strategy grounded in the idea that you can make more money by buying cheap stocks than you can buying expensive stocks. Published:2/8/2019 4:32:48 AM
[Markets] Dow futures fall more than 100 points amid concerns over trade, growth At around 3:05 a.m. ET, Dow futures slipped 103 points, indicating a negative open of more than 108 points. Futures on the S&P and Nasdaq were also seen relatively downbeat. Market focus is largely attuned to global trade developments, after President Donald Trump said he did not plan to meet with Chinese President Xi Jinping before a March 1 deadline to reach a deal. Published:2/8/2019 2:28:41 AM
[Markets] The Dow Tumbled 221 Points Because Risk Was Always There The Dow Jones Industrial Average fell 0.87% to end at 25,169.53. The S&P 500 lost 0.94% to close at 2706.05, and the Nasdaq Composite tumbled 1.18% to end at 7288.35. Published:2/7/2019 4:27:01 PM
[Markets] Stock market ends firmly lower as trade-war, global-growth fears rattle Wall Street U.S. stock benchmarks on Thursday finished the session firmly lower -- but off the worst levels of the session -- as worries about sluggish growth outside of the U.S. and diminishing expectations for a quick resolution to a U.S.-China trade spat, buffeted markets. The Dow Jones Industrial Average ended 220 points, or 0.9%, lower at 25,169, on a preliminary basis. The blue-chip gauge had been down by as many as 390 points at Thursday's lows, amid reports that President Donald Trump and China's Xi Jinping wouldn't meet before a March 1 trade deadline, suggesting that a deal between the world's largest economies on trade may not be finalized before that date. Earlier, White House Adviser Larry Kudlow, during a Fox Business news interview, late-morning Thursday said the two countries remained far apart in their negotiations. The S&P 500 index declined 0.9% at 2,706, while the Nasdaq Composite Index shed 1.2% to close at 7,288, on a preliminary basis. A round of weak data from the European Union underscored concerns that slowing growth in China has impacted Europe, fueling concerns about a slowing global economy. German industrial production unexpectedly fell by 0.4% in December from the month before, reinforcing concerns over the health of the eurozone's largest economy. Meanwhile, the European Commission cut its growth forecast for the shared currency bloc. In corporate news, Twitter shares finished the day down by 9.8% after it offered a downbeat outlook for the coming quarter and said it will stop offering monthly user metrics. Published:2/7/2019 3:24:47 PM
[Markets] Dow down 230 points after Kudlow remarks on progress of China trade talks Dow down 230 points after Kudlow remarks on progress of China trade talks Published:2/7/2019 10:23:20 AM
[Markets] Dow falls 250 points, hits session low as Kudlow says 'sizable distance' remains in China-U.S. trade talks U.S. stock benchmarks traded at session lows late-morning Thursday after White House Adviser Larry Kudlow said a "sizable distance" remains between the U.S. and China in protracted trade negotiations. President Donald Trump's national economic council director on Wednesday made his comments during an interview with Fox Business Network. Kudlow said previous talks covered "a tremendous amount of ground" but said enforcement will be very important, as well as technological and structural issues. The Dow Jones Industrial Average was trading down 253 points, or 1%, at 25,142, the S&P 500 index declined by 1.1% at 2,702, while the Nasdaq Composite Index retreated by 1.2% at 7,288. Trade disagreements between Beijing and Washington have been among the most crucial headwinds for the stock market in the past several months. Published:2/7/2019 10:23:20 AM
[Markets] Stocks Fall as Global Slowdown Concerns Are Renewed on Weak Eurozone Forecast The Dow Jones Industrial Average tumbled Thursday as concerns over slowing global growth pushed equities lower. agreed to merge in a $66 billion all-stock deal that will create the sixth-biggest commercial bank in the United States. posted stronger-than-expected fourth-quarter earnings but said expenses would rise notably in 2019. Published:2/7/2019 9:57:39 AM
[Markets] Stock Futures Slide; 2 Stocks Top Buy Points In Premarket Trading Stock futures fell as the Dow Jones industrials geared for a 150-point drop in premarket trading Thursday, but Chipotle and Match Group eyed buy points. Published:2/7/2019 7:22:37 AM
[Markets] Global Stocks Slide As Dollar Spikes, Italian Bonds Tumble

The amazing post-Christmas/PPT/Trump rally appears to finally be over.

US traders walked in to a sight that brought in painful memories from December: a sea of red in global markets as stocks in Europe fell alongside S&P futures following a mixed session in Asia where India's central bank joined the global easing bandwagon with a surprise rate cut. Italian bond prices tumbled after the European Commission confirmed yesterday's media reports when it slashed growth forecasts for the euro region’s major economies, while dollar scored its longest winning streak since a hot run in early October that helped set off a wave of global bear markets.

Poor earnings and weak data out of Germany ensured Europe’s main bourses started lower and kept MSCI’s index of world stocks heading for only its second two-day run of falls of the year so far.  Europe's Stoxx 600 Index tumbled, dragged down by automakers and banks as sharply lower trading revenue from Societe Generale countered positive results from UniCredit and DNB.

The euro weakened and bunds rose after the European Commission warned in their dour growth forecast that Brexit and the slowdown in China threaten to make the region’s outlook even worse, slashing Euro area growth to 1.3%, while Italy's 2019 GDP forecast was cut from 1.2% to just 0.2%, barely above recession territory, and putting the country's controversial deficit forecast in joepardy.

As a reminder, Italy agreed a deficit target of 2.04 percent in December, averting a major fall-out with the EU, though this was based on a growth assumption of 1.0 percent. Slowing growth in Italy could make it harder for the country to remain within EU rules. As a result of the downgrade, Italian 10Y yields popped higher, rising near 2019 highs, which is notable because when the report first hit yesterday, markets were largely oblivious and instead were congratulating themselves on the 5x oversubscribed Italian 30Y bond that priced yesterday tighter than expected. Today is the hangover.

However, Benjamin Schroeder, rates strategist at ING, said he did not expect the EU to demand more fiscal tightening from Italy, should its forecasts be reduced. “The EU has another thing to deal with — Brexit — and the other thing is do you want to infuse the campaign ahead of the parliamentary elections with this topic.”

European banks reversed initial gains after the EC cut its growth forecasts for the region’s major economies. The Stoxx 600 Banks Index is down 0.9% as of 11:48am CET, having earlier risen as much as 0.5%. Biggest fallers are Raiffeisen and Commerzbank, both -3.3%. Italian banks trimmed earlier gains of as much as 2.7%, with the FTSE Italia All-Share Banks Index still up 0.2%. UniCredit raises 2% after 4Q earnings that exceeded plans for cost cutting and improving asset quality. London’s FTSE was the only major bourse clinging to positive territory.

Adding insult to European injury, the euro slumped to $1.1330 following the latest dismal report out of Berlin as Germany reported its fourth consecutive drop in industrial output, which declined -0.4% in December, far below the 0.7% increase expected, and down -3.9% YoY: "Another day, another piece of terrible German data. EUR/USD risks a move to $1.1300," said ING’s chief EMEA FX and interest rate strategist, Petr Krpata.

Futures on the S&P 500, Dow and Nasdaq indexes all slipped. In Japan, shares fell amid a raft of corporate earnings, although SoftBank surged 18% on plans for its biggest-ever buyback. China and Hong Kong markets are shut.

Earlier, MSCI’s broadest index of Asia-Pacific shares outside Japan added 0.1% as it rose to its highest since early October, rising steadily since early January as the Fed capitulated to markets and changed its tune and emerging markets have surged more broadly after a torrid 2018. Australia’s benchmark stock index jumped 1.2 percent amid expectations of easy monetary policy after the country’s central bank chief shifted away from his previous tightening bias. Japan’s Nikkei slipped 0.6 percent though and the caution quickly spread to Europe.

Treasuries climbed with the dollar, which advanced for a sixth day as Federal Reserve Chairman Jerome Powell gave a brief but positive assessment of the economy and several of the world’s central banks put their tightening plans on hold. 

Elsewhere the pound was struggling near $1.29 again ahead of a Bank of England meeting, while gloomy jobs data saw New Zealand’s dollar suffer a similar flop as its Australian counterpart had seen the previous day. The kiwi slid to $0.6744, losing nearly 2 percent in the past 24 hours, as investors wagered on the risk of a cut in interest rates there. The country’s central bank holds its first meeting of the year next week.

The next major trigger for markets will more likely be any breakthrough in the U.S.-Sino tariff talks when the two sides meet in Beijing next week.  Probably more pressing though for the U.S. markets is the threat of another government shutdown, Nick Twidale, an analyst at Rakuten Securities Australia said. “With both sides of the house standing firm on the contentious border wall issue at present and the deadline approaching swiftly on Feb 15 we could be back where we were just a few weeks ago.”

The broad dollar gains put pressure on gold, which eased to $1,303.96 per ounce, slipping further from last week’s top of $1,326.30. Oil prices eased too after U.S. crude inventories rose and as production levels in the country held at record levels. Brent crude futures slipped 23 cents to $62.46. U.S. crude eased 19 cents to $53.82 a barrel.

Expected data include jobless claims. Fiat Chrysler, Kellogg, Philip Morris, T-Mobile, and Twitter are among companies reporting earnings.

Market Snapshots

  • S&P 500 futures down 0.5% to 2,716.25
  • STOXX Europe 600 down 0.2% to 364.70
  • MXAP down 0.3% to 156.49
  • MXAPJ up 0.07% to 514.12
  • Nikkei down 0.6% to 20,751.28
  • Topix down 0.8% to 1,569.03
  • Hang Seng Index up 0.2% to 27,990.21
  • Shanghai Composite up 1.3% to 2,618.23
  • Sensex up 0.2% to 37,051.70
  • Australia S&P/ASX 200 up 1.1% to 6,092.46
  • Kospi unchanged at 2,203.42
  • German 10Y yield fell 0.7 bps to 0.155%
  • Euro down 0.2% to $1.1345
  • Italian 10Y yield rose 6.4 bps to 2.499%
  • Spanish 10Y yield fell 1.3 bps to 1.244%
  • Brent futures down 0.2% to $62.58/bbl
  • Gold spot little changed at $1,306.71
  • U.S. Dollar Index up 0.2% to 96.59

Top Overnight News

  • President Trump underscored his desire to reduce the trade gap with China in his State of the Union speech Tuesday, yet the deficit is on track to balloon again as a solid economy boosts American demand for imports
  • The top Democrat working on a border- security deal to avoid another government shutdown said lawmakers should be able to reach a bipartisan agreement by the end of this week
  • Former Fed Chair Janet Yellen said the central bank must rely on incoming economic data to determine if its next policy move will be up or down, while likening the current moment to 2016 when she kept rates on hold almost all year
  • Oil resumed its drop as rising U.S. production and concern over the outlook for the global economy countered a decline in American fuel inventories
  • The European Commission slashed its growth forecasts for all the euro region’s major economies from Germany to Italy and warned that Brexit and the slowdown in China threaten to make the outlook even worse
  • German industrial output unexpectedly declined for a fourth month in December, feeding concerns that temporary setbacks in Europe’s largest economy may prove more protracted
  • India’s central bank unexpectedly cut the benchmark interest rate and dumped its hawkish stance, as slowing inflation allowed policy makers room to support the government in spurring economic growth

Asian equity markets were somewhat mixed with the region cautious following the subdued performance on Wall St, where all majors posted mild losses and the S&P 500 snapped a 5-day win streak. Nikkei 225 (-0.6%) was negative with sentiment dampened by a firmer currency and as participants digested a slew of earnings, although the index was not short of success stories as Mazda was buoyed after an upward revision to guidance and SoftBank surged over 17% on higher profits and the announcement of a JPY 600bln buyback. Elsewhere, KOSPI (Unch) traded indecisively and struggled to maintain the early exuberant tone on return from the Lunar New Year holidays, while ASX 200 (+1.1%) outperformed its peers with broad-based gains as sentiment continued to get a lift from RBA Governor Lowe’s recent dovish shift to a more evenly balanced view on rates. Finally, 10yr JGBS failed to benefit from the risk averse tone in Japan with demand kept subdued amid a similar picture seen in T-notes, while firmer results at today’s 30yr JGB auction were also ineffective in spurring prices. Italy's industry minister has denied reports that the government will ban China's Huawei and ZTE from it's 5G plans; adding that there is no evidence that Huawei presents a threat to national security

Top Asian News

  • India’s New Central Bank Chief Delivers Surprise Rate Cut
  • Australia Bank Probe Claims Biggest Victim as NAB Chief Quits
  • A Rare Hostile Takeover Bid in Japan Signals Changing Times
  • Philippines Keeps Key Rate Unchanged as Inflation Nears Target

All major European equities kicked off the day in the red [Euro Stoxx 50 -0.8%], taking the lead from the softer performance seen on Wall Street; losses extended as the risk-averse sentiment intensified following the European Commission’s cut to Eurozone GDP and inflation forecasts. The FTSE 100 (-0.1%) is less impacted amid currency effects. Sectors are mixed with some underperformance seen in telecom names and some outperformance in healthcare.  Towards the bottom of the Stoxx 600 are Tui (-16.7%) following the Co. cutting profit outlook due to sector headwinds.  Separately, Publicis (-12.4%) are down following Q4 revenue growth coming in below expectations; pressuring WPP (-6.2%) and Prosiebensat (-3.1%) in sympathy.

Top European News

  • Vestas Expects Margins to Tighten Even as Turbine Sales Grow
  • Thomas Cook to Weigh Options for Airline Unit After Losses
  • Total Profit Beats Estimates as Output Growth Accelerates
  • Norway Wealth Fund Steps Up Voting Against CEO Pay Packages
  • European Output Gauges Decline, Feeding Doubts Over Rebound

In FX, the Kiwi has dropped to the bottom of the G10 pile on the back of a relatively bleak NZ jobs report overnight, as employment growth almost dried up in Q4 and the unemployment rate rose more than expected. Nzd/Usd is now hovering around 0.6750 and in danger of testing support just ahead of 0.6700 having lost grip of the 0.6900 and 0.6800 handles in very short order, while the Aud/Nzd cross has snapped back above 1.0500 from close to 1.0400 only yesterday even though the Aussie continues to weaken independently on the RBA shift from a tightening to neutral bias, with Aud/Usd pivoting 0.7100 and edging closer to bids/tech support circa 0.7075.

  • EUR/CAD/GBP – All extending losses vs the Greenback as well, and the single currency blighted by more weak Eurozone data, confirmation of downside economic risks via the latest ECB monthly bulletin and GDP/inflation downgrades from the EU Commission. Eur/Usd has now filled bids at 1.1350, with bears targeting the 1.1320 level next for more buying interest ahead of the 30 DMA around 1.1316 before 1.1300. Meanwhile, consolidation in crude prices and a stalling of recent recovery momentum has combined with a change in the technical landscape for the Loonie that has retreated further from recent highs to 1.3250+, and Sterling continues to suffer Brexit-related jitters on top of the overriding Dollar strength (DXY holding firm above 96.500), with Cable testing support just under 1.2900 (namely 1.2895 where 30 and 100 DMAs align).
  • JPY/CHF – Relative outperformers and benefiting from their safe-haven appeal as risk sentiment wanes, with Usd/Jpy reversing from another 110.00+ foray and Eur/Chf has retreating further from 1.1400+ even though the Franc remains below par vs the Buck.

In commodities, Brent (-0.5%) and WTI (-0.4%) prices have been choppy but are ultimately in the red, although off of session lows as the impact from yesterday’s EIA data showing production remained unchanged at the record level of 11.9mln BPD dissipated overnight where trade in the complex was largely flat. In recent news flow Libya’s NOC is said to have not ordered the Sharara oil field to be reopened; Libya are reportedly producing 950k BPD of oil. Separately, the TransCanada Keystone oil pipeline was shut due to a potential leak in the Missouri area; however, it was unknown if the leak originated from Keystone. Finally, sources noted that Saudi oil output fell to 10.24mln BPD, below the target level under the OPEC production pact. Gold (Unch) prices are muted and trading within a thin USD 5/oz range, the yellow metal is still above the USD 1300/oz level and continues to move in tandem with the buck. Similarly, London Metal Exchange copper has retreated from the two months high reached in the previous session as the dollar firms and China’s absence due to their holiday continues to impact markets.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 221,000, prior 253,000
  • 8:30am: Continuing Claims, est. 1.73m, prior 1.78m
  • 9:45am: Bloomberg Consumer Comfort, prior 57.4
  • 3pm: Consumer Credit, est. $17.0b, prior $22.1b

DB's Jim Reid concludes the overnight wrap

We’re in full blown DB research promotion mode at the top here this morning as we have just published a major global growth downside risk analysis, have downgraded our European growth forecasts and have published our latest House View document. We also have a few spaces left at a high profile Brexit panel this afternoon in London to offer up to readers.

Overnight our global economic team published a comprehensive note reviewing the major downside growth risks: trade policy, Brexit, and China. They look at the “tail risk” scenarios for each, reasonably finding that the different shocks would have disparate effects on various regions, though a perfect storm of worst-case outcomes on each front would prompt a very severe downturn. They also downgrade their baseline forecast for euro area growth to +0.9% this year. The full note is available here .

Separately, my House View team published the latest edition of their flagship publication, titled: At the crossroads. They review the global macro outlook, the key themes and risks, and our strategists’ cross-asset forecasts. Overall, there are not major changes to the outlook from the December edition, but many of the major issues impacting growth and markets are set to escalate or be resolved in the next several weeks. The report is available here .

For those that want to know exactly what is going to happen with Brexit, DB is hosting an event later with three high calibre external speakers on UK politics and Brexit. James Forsyth, Political Editor of the Spectator, will help us solve the rubics cube of Conservative Party factions and upcoming Westminster votes. Stephen Bush, Political Editor of the New Statesmen, one of the most plugged in commentators on the Labour Party, will help navigate Jeremy Corbyn’s vision for Brexit and government. Allie Renison, Head of Europe and Trade Policy at the IOD, will help us understand how industry is preparing for no deal, and the EU’s side of talks. DB’s Brexit expert Oli Harvey will moderate. The event starts at 4.45pm in the Deutsche Bank Auditorium, with drinks afterwards with DB Macro Trading. Please register your interest in attending here .

More on Brexit later but in listening to the adverts above you haven’t missed much as this continues to be a quiet week as was expected given the lull in important events. US bourses ended slightly lower last night, with the closing moves for the S&P 500, DOW and NASDAQ being -0.22%, -0.08% and -0.36% respectively. The S&P 500 snapped its run of five straight daily advances, while the dollar notched its fifth straight advance, gaining +0.32%. That was after the STOXX 600 eked our gains of +0.15% in Europe to take its run of successive gains to seven and the most since September-October 2017. Cash HY spreads in Europe and the US were -6bps and -2bps tighter respectively while Treasuries and Bunds ended the day close to flat. So really not much to write home about. To be fair I suspect my wife would be very confused if I wrote home to tell her anything about anything. In fact it seems crazy to think that when I was a student I used to write long flowing letters to old friends, girlfriends and family and then find a letter box to post them. It would be interesting to know the age of the youngest reader who has actually sent regular love letters in the post rather than an email or a WhatsApp. Even phone calls when I was a student were a sign of needless extravagance.

Anyway I digress, in terms of what news we did get yesterday, US Treasury Secretary Mnuchin unsurprisingly reiterated the intention to reach a trade deal with China. He said that “we’re putting in an enormous amount of effort to try to hit this deadline and get a deal.” Elsewhere the US trade deficit data for November was released yesterday, showing a slightly better-than-expected balance at -$49.3 billion. That could mechanically raise fourth quarter growth expectations, but our economists expect it to be balanced out by large imports in December, probably in an effort to front-run tariffs that took effect on January 1. Meanwhile Germany’s soft factory orders data in the morning initially sparked a bit of risk-off with earnings not helping as the day progressed.

Indeed weaker than expected reports from Electronic Arts (-13.31%) and Take Two (-13.76%) seemed to more than overshadow positive snippets from General Motors (+1.58%) and Snap (+21.59%). Microchip Technology (+7.29%) also had a good day after the CEO predicted that we may have seen the bottom in the cycle for the industry. Those remarks helped the broader semiconductor index gain +2.59%, taking it back to near its level of early October.

Over in Europe our equity strategists highlighted overnight that with 30% of companies having reported, Q4 European EPS growth stands at 1% year-on-year, down from the Q3 growth rate of 8%. This is in line with consensus expectations for the companies that have reported. However, EPS growth expectations for the full Q4 earnings season have been marked down from 3% at the start of the season to almost 0% now. Energy, consumer staples and consumer discretionary sectors have seen the biggest upside surprises to earnings, while communication services and technology have seen major disappointments. Click here for the link.

Late last night we heard from Fed Chair Powell and the Fed’s vice chairman for banking supervision Quarles. Powell gave a brief but positive assessment of the economy by saying that “The U.S. economy is now in a good place; at the moment, unemployment is low, prices are near two percent inflation, so we’re in a good place now.” Quarles also gave a similar assessment of the economy by saying that “the outlook is still very solid and the labour market is an extremely solid labour market, and inflation pressures remain muted.” However, Quarles added that global risks represent the most significant risk to the outlook and like the Fed’s Kaplan who provided calendar-based guidance earlier in the week, Quarles went on to say that he will be looking to analyze these risks more over the next 6 months. So, another member to provide a bit more explicit guidance in terms of calendar-based guidance.

In Asia this morning markets are trading mixed with the Nikkei (-0.62%) leading the decline with almost every sector trading lower amidst a slew of earnings releases even as Softbank shares are up as much as +17.54% on the announcement that the company will buy back as much as JPY 600bn ($ 5.5bn) of stock. Meanwhile, the Kospi (-0.03%) is trading flattish post markets re-opening after three days of holiday and the Australia’s ASX (+1.10%) is continuing its move up after yesterday’s surprise shift in policy stance by the RBA. Markets in Hong Kong and China are closed for holidays. Elsewhere, futures on the S&P 500 are down -0.23%. In other news, the US President Trump has nominated senior Treasury official David Malpass to lead the World Bank. In the past, Malpass has been sharply critical of China and has called for a shakeup of the global economic order.

As for Brexit, as we today enter T-50 until March 29th, it was a case of sifting through all the noise again yesterday. The most headline-grabbing comments on Bloomberg was perhaps those from Tusk who didn’t mince his words by saying that there is “a special place in hell for those people who promoted Brexit without any plan for how to deliver it". This won’t encourage the hard Brexiteers to compromise and will therefore not be seen as helpful. He also confirmed that the EU will make no new offer to PM May and “will not gamble with peace in Ireland or put a sell-by date on reconciliation”. The EC’s Juncker and May are due to meet this morning at 10am GMT however there is little sign of any concessions from either the EU or Ireland to May. What is interesting though is contrasting the Tusk comments to those from Germany. Yesterday Reuters reported that a German government spokesman had said that Germany is “prepared to show creativity on Brexit”. That backs up earlier softer comments from Merkel, albeit comments that seemed to be stretched somewhat in the press. The euro finished -0.39% yesterday.

Staying in Europe, BTPs underperformed (10y +6.6bps) yesterday after the new 30-year deal was confirmed as an €8bn deal which seemed to eclipse expectations for closer to €6-7bn. That said the order book did pass an eye-watering €41bn and therefore eclipsed last month’s demand for shorter bonds. Separately, Italian news agency Ansa reported that the European Commission may downgrade Italy’s 2019 growth forecast to as low as 0.2% in new updates due later today. Our economists are at 0.7%, in line with the consensus private sector forecast. Meanwhile, the IMF in its review of Italian economy said that the annual GDP growth is likely to stay below 1% through 2023 while also adding that the Italian government is falling short on needed reforms for sustainable growth. Finally, Bloomberg reported that the ECB sees no urgency for implementing new TLTROs, which would also be bearish for Italy if true.

In other markets yesterday WTI oil closed +0.50% higher after US data showed smaller-than-expected builds in crude and gasoline inventories. Iron ore rose +0.76% yesterday, as it continues to steal the limelight in commodities post the tragic Brazil dam disaster. The video clips are truly horrifying if you haven’t seen them. Iron ore is up +25.53% this year already and +36.26% from the early-December lows.

Moving on. The main event today should be the BoE meeting. While no change in policy is expected our economists expect the outcome to be a lot more dovish with a material risk (50% chance) that the MPC drop their tightening bias altogether and move to neutral. The rational is: a) significantly weaker domestic survey data pointing to below potential growth b) weaker external conditions c) sizeable downside miss to the BoE’s inflation forecasts. As a minimum the team expect Carney to endorse current market pricing which right now is around 15bps worth of hikes this year. More in their report here .

As for the data that was out yesterday, as highlighted at the top, Germany’s December factory orders data made for fairly bleak reading with orders down -1.6% mom during the month (vs. +0.3% expected). The annual rate weakened to -7.0% yoy as a result which is the weakest since 2012.

Finally to the day ahead, where this morning we’ve got more important data out of Germany with the December industrial production report (+0.8% mom expected). Shortly after we get the December trade balance in France and then January house prices data in the UK. This all comes before the BoE meeting at midday while in the US this afternoon we’ll get the latest weekly initial jobless claims reading – which is worth a watch in light of the big spike to 253k last week (shutdown related or not?) – and then December consumer credit data later this evening. Away from that, the Fed’s Kaplan (2.15pm GMT) and Clarida (2.30pm GMT) are scheduled to speak today while the ECB’s Mersch speaks shortly after midday. The European Commission’s latest forecasts are also out while the earnings highlights are Total, L’Oreal, Sanofi, Twitter and T-Mobile.

 

 

 

 

 

Published:2/7/2019 6:29:46 AM
[Markets] S&P 500 halts win streak at 5 days as energy and communication-services stocks stumble Stocks finished lower Wednesday, snapping a five-day winning streak for the S&P 500, after President Donald Trump's State of the Union address offered few details on his economic agenda. The president, however, insisted China commit real, structural reforms before a trade deal can be reached. The Dow Jones Industrial Average finished 21 points, or less than 0.1%, lower at 25,390, while the S&P 500 index closed off by 0.2% at 2,732, registering its first loss of the past five sessions. The energy sector, down 0.8%, and the communication-services group, which includes names like Facebook Inc. , ended with a 1.5% loss on the day. The Nasdaq Composite Index , meanwhile, ended 0.4% lower at 7,375. The three main equity benchmarks have mostly gained, rising by at least 16%, since a Dec. 24 recent nadir for the stock market. In corporate news, shares of Snapchat-parent Snap Inc. surged by 22% after its quarterly results late Tuesday. More broadly, investors were focused on progress in trade talks between the U.S. and China and kept one eye on the Federal Reserve after former boss Janet Yellen said during a CNBC interview that the next move for the central bank could be a rate cute, if sluggish global growth begins to hurt U.S. economic expansion. The Fed under Chairman Jerome Powell has recently adopted a more accommodative monetary policy stance after four rate increases in 2018. Published:2/6/2019 3:18:52 PM
[Markets] The Dow Slips 38 Points, Because It’s Time for a Pause After two days of gains this week the Dow Jones Industrial Average is down 0.15% to 25,373.32. The S&P 500 and Nasdaq Composite are off 0.31% and 0.44%, respectively, at a recent check. Published:2/6/2019 11:48:12 AM
[Markets] Dow Drops 25 Points Because Donald Trump’s State of the Union Changed Nothing 6:37 a.m. The Dow Jones Industrial Average appears set for a lower open this morning following Donald Trump’s State of the Union address, but mornings haven’t mattered much recently. Dow futures have declined 25 points, or 0.1%, while S&P 500 futures have fallen 0.1%, and Nasdaq Composite futures have dropped 0.1%. With the Congress currently working on a border-security bill, the market can’t feel too good about potential for another government shutdown on Feb. 15 if one isn’t passed. Published:2/6/2019 6:16:48 AM
[Markets] The Dow Gains 172 Points Because Economic Indicators Are Holding Up The Dow Jones Industrial Average gained 0.68% to end at 25,411.52. The S&P 500 rose 0.47% to close at 2737.70, and the Nasdaq Composite added 0.74% to end the session at 7402.08. Published:2/5/2019 5:12:46 PM
[Markets] With Boeing Boost, Dow Jones Index Leads Stock Indexes The major stock indexes bounced from a midday dip as the Dow Jones Industrial Average led the stock market.  The Dow Jones index was up 0.6% and remained above the psychologically important 25,000 level. Published:2/5/2019 1:42:58 PM
[Markets] Dow Rises but Off Highs Ahead of Trump's State of the Union Address The Dow Jones Industrial Average was higher ahead of Donald Trump's State of the Union address Tuesday evening. beat fourth-quarter analysts' estimates for earnings and revenue but the stock declined 0.8% amid investor concern over rising costs in some of the company's growth businesses. Stocks rose on Tuesday, Feb. 5, following an unscheduled meeting late Monday in Washington between Donald Trump and Federal Reserve Chairman Jerome Powell that reaffirmed the central bank's signaling of a pause in near-term interest rate hikes. Published:2/5/2019 12:11:39 PM
[Markets] Boeing's adds over 60 points to the Dow as it surges toward another record Shares of Boeing Co. jumped 2.4% in midday trade Tuesday, putting them on track for a second-straight record close. The aerospace and defense contractor's stock was giving a 63-point boost to the Dow Jones Industrial Average , or more than half the Dow's 108-point gain. Earlier Tuesday, Boeing said it made a "significant" but undisclosed investment in Aerion, which supersonic aircraft, in an effort to accelerate technology development and aircraft design. Boeing was one of just two Dow components that have reached a record high this year, the second being Procter & Gamble Co.'s , which closed at a record on Monday before pulling back 0.5% on Tuesday. Published:2/5/2019 11:43:13 AM
[Politics] Democrats Need To Find a Centrist Or They're Doomed Inveterate and predictable Trump-disparager E. J. Dionne declares the state of the Union to be "petrified" (on the weekend), and cites as illustrative of the complete intellectual and temperamental deficiency of the president, by the standards of his great office, that he has twice, some months apart, tweeted with satisfaction that the Dow Jones Industrial Average had passed upwards through 25,000 (nearly a 40% rise since his election). In other days and on other subjects, Mr. Dionne has bui... Published:2/5/2019 11:10:51 AM
[Markets] Tech and consumer stocks power Tuesday's early S&P, Dow, Nasdaq gains Tech and consumer stocks power Tuesday's early S&P, Dow, Nasdaq gains Published:2/5/2019 9:12:44 AM
[Markets] Apple's stock surges again, as Apple retakes position as largest U.S. company by market cap Shares of Apple Inc. ran up 1.8% in morning trade, enough to pace the Dow Jones Industrial Average's gainers, and to propel the technology giant back to Number One on the list of largest U.S. companies by market capitalization. The shares have now soared 12.7% amid a 5-session win streak that started after Apple reported fiscal first-quarter results after the Jan. 29 close. The stock is also now up 22.6% since it closed at a 20-month low opf $142.19 on Jan. 3. Apple's stock rally raises its market cap to $821.7 billion, above second-place Microsoft Corp. at $817.4 billion, and ahead of third-place Amazon.com Inc. at $815.1 billion. Google-parent Alphabet Inc.'s stock fell 0.3% after the internet giant reported fourth-quarter results late Monday, putting the company's market cap in fourth place at $791.6 billion. Published:2/5/2019 9:12:44 AM
[Markets] How the stock market has reacted to State of the Union speeches Here’s a look at how the Dow Jones Industrial Average has performed in the wake of State of the Union addresses, including President Donald Trump’s first one on Tuesday night. Published:2/5/2019 8:41:03 AM
[Markets] Global Stocks Hit 2 Month High On Muted Levitation, Iron Ore Soars

Despite yesterday's disappointing Google results, which saw the search giant beat estimates but its stock slump as investors were concerned by surging costs and expenses, global stocks extended their red hot start to 2019, hitting a 2 month high, boosted by Europe’s miners and banks while the dollar gained for a fourth day as traders waited for U.S. President Donald Trump’s State of the Union address following news the president had unexpectedly had dinner with Fed Chair Powell and Vice Chairs Clarida.

After initially dipping, S&P futures gradually turned higher on Tuesday, tracking shares in Europe where the Stoxx 600 Index headed for the sixth advance in a row, even as chip suppliers Infineon Technologies and AMS issued warnings about future growth, boosted by strong earnings from oil giant BP, which reported that its profits had doubled, while another move higher in crude prices overnight pushed the oil and gas sector up 1.5%. Also helping were euro area PMIs, which were revised slightly upward. Still, the common currency was lower as disappointing data from Italy hung over the region. Sterling fell slightly following a weak services report.

Miners were also up sharply as traders reacted to news that Brazil had ordered Vale, the world’s largest iron ore miner, to close eight of its dams following a deadly collapse that killed over 300 people last month. As a result, iron ore prices continued their surge and are now at a near 2-year high.

“Our fundamental view is there no reason for this incredible move, so is it just speculation, a frenzy about possible stimulus in China?,” said Saxo Bank’s head of FX Strategy John Hardy. “What should we do with it? I don’t know, but it should be noted.”

In Asia, the overnight session remained muted as China and large parts of Asia were closed for Lunar New Year celebrations overnight but what markets were open continued to push higher. Japan’s Nikkei marked its highest level in seven weeks at one point before fading to finish slightly lower. Australian shares suffered no such fatigue, jumping 2%, with long-battered financials surging on short-covering after a special government-appointed misconduct inquiry left the structure of the country’s powerful banks in place, while the RBA kept the Cash Rate Target unchanged at 1.50% as expected while reiterating that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting.

With Europe continuing to rally, the MSCI index of global stocks reached a two-month high, after enjoying its best January on record, rising more than 13% from a near two-year low hit in late December.

On Wall Street, the S&P 500 gained on Monday, with technology and industrials the biggest winners, 100-day moving averages sliced through and the VIX dropping to its lowest in four months. As noted earlier, the Fed took the unusual step of issuing a statement on Monday saying that its head Jerome Powell had told President Donald Trump and Treasury Secretary Steven Mnuchin that “the path of policy will depend entirely on incoming economic information.”

In the currency markets, the dollar fluctuated and was trading unchanged following recent gains against its major peers as investors continued to weigh last Friday’s strong payrolls number offset by disappointing production and capex data. The Bloomberg Dollar index was steady, holding a three-day advance; U.S. and European sovereign yield curves bear steepened with Treasuries outperforming Bunds. The euro edged lower, touching a day low versus the dollar after weak PMIs out of Italy and France.

Cable dropped 0.2% to a 1.3013 day low after the worse-than-forecast U.K. services PMI data. The krona slipped against all G-10 peers apart from the Swiss franc, with the Swedish currency touching a day low after services and composite PMIs slipped in January; USD/CHF rose to 1.0011, an 11-week high

The Australian dollar gained 0.5% to $0.7260, erasing earlier losses amid short covering, after the Reserve Bank of Australia left policy unchanged at its first meeting this year but sounded less dovish than the markets had expected. The Aussie had earlier fallen fell as much as 0.5 percent after a slump in retail sales reinforced concerns about the health of the economy.

Traders will next focus on today's main event, President Donald Trump’s delayed State of the Union address, due at 2100 ET Tuesday as well as U.S. ISM non-manufacturing figures, also due later in the day. Trump told a White House event over the weekend that he might declare a national “emergency” because Democrats in Congress weren’t moving toward a deal to provide money to build a wall on the border with Mexico. Such a step would likely prompt a court challenge from Democrats.

“If President Trump persists in his long-promised wall along the U.S.-Mexico border in the upcoming address, it would cap the dollar’s rally,” said Kengo Suzuki, chief FX strategist at Mizuho Securities.

Also late on Monday, Trump's inaugural committee said it received a subpoena for documents. Elsewhere, there were separate reports that US Rep. Neal is building a case to subpoena US President Trump's tax returns.

In Brexit news, Europe’s top official offered Britain a legal guarantee that it would not be trapped by the Irish backstop last night but was swiftly rejected by Brexiteer MPs. As a reminder, UK PM May is heading to Northern Ireland in a bid to salvage her Brexit deal by finding an alternative to the "toxic" backstop proposal. UK Ministers are secretly planning to unilaterally cut tariffs on all imports to zero in the event of a no-deal Brexit, in a move that could flood the market with cheap goods and “ruin” industry, according to a HuffPost UK exclusive.

In geopolitical news, the UN sanctions monitor report said North Korea nuclear and ballistic missile program remains intact and that North Korea is working to protect those capabilities from military strikes. Furthermore, it added that North Korea is violating UN arms embargo and is breaching sanctions through illegal ship-to-ship transfers of petroleum products and coal.

Elsewhere, West Texas oil climbed as traders weighed output cuts from the OPEC producer group and its partners against expectations for rising U.S. crude inventories. Emerging-market shares and currencies drifted. Looking at today's key events, President Trump will deliver a delayed State of the Union address. Scheduled earnings include Disney, Suncor Energy, Estee Lauder.

Market Snapshot

  • S&P 500 futures up 0.1% to 2,724.00
  • STOXX Europe 600 up 0.8% to 362.64
  • MXAP up 0.3% to 156.79
  • MXAPJ up 0.4% to 513.34
  • Nikkei down 0.2% to 20,844.45
  • Topix up 0.1% to 1,582.88
  • Hang Seng Index up 0.2% to 27,990.21
  • Shanghai Composite up 1.3% to 2,618.23
  • Sensex up 0.2% to 36,657.21
  • Australia S&P/ASX 200 up 2% to 6,005.92
  • Kospi down 0.06% to 2,203.46
  • German 10Y yield rose 2.1 bps to 0.198%
  • Euro down 0.2% to $1.1417
  • Brent Futures up 0.5% to $62.85/bbl
  • Italian 10Y yield fell 1.3 bps to 2.376%
  • Spanish 10Y yield rose 0.2 bps to 1.246%
  • Brent Futures up 0.5% to $62.85/bbl
  • Gold spot down 0.06% to $1,311.47
  • U.S. Dollar Index up 0.1% to 95.96

Top Overnight News from BBG

  • Trump’s inaugural committee is under scrutiny by federal prosecutors in New York, adding new legal woes for the president and his allies that stretch beyond the probe led by Special Counsel Robert Mueller
  • The president’s second State of the Union promises to be one of the most dramatic moments in recent memory for the annual address to Congress. The appearance will be shadowed by the threat of another government shutdown, and he has hinted that he may make news -- a national emergency declaration on the U.S. southern border, a proposal on drug prices or on AIDS, or dates and locations for summits with the leaders of China and North Korea
  • The U.K.’s dominant services sector barely grew in January, bringing the economy to a near- halt. Companies said they were less likely to start new projects and that clients were spending more cautiously because of a lack of clarity around Brexit
  • Danuta Huebner, head of the European Parliament’s constitutional-affairs committee, said the prospect of a U.K. withdrawal from the EU on March 29 without a divorce agreement is so alarming that Britain’s partners in the bloc would seriously consider a later date for departure to ensure it took place in an orderly fashion
  • A manufacturing and export-led slump in Italy’s economy spilled into services at the start of the year, aggravating an already fragile economic situation in the euro area. Business activity among Italian services providers shrank in January and forced companies to reduce headcount for the first time in more than two years

Asia-Pac equity markets found some early support from the tech-led gains on Wall St, although later turned somewhat mixed amid focus on earnings and with most the region shut for the Lunar New Year. Nonetheless, ASX 200 (+2.0%) was the stellar performer due to strength in its largest weighted financials sector as banks seemingly made light of the Banking Royal Commission final report regarding misconduct in the industry. As such, Australia’s banking powerhouses all edged firm gains in the aftermath of the report which recommended against structural separation and referred 24 misconduct cases to regulators but did not suggest criminal charges, while many viewed the report as unlikely to result in fundamental reforms for the industry in the long-term and Moody’s also noted that the recommendations will likely preserve profitability in the industry. Nikkei 225 (-0.2%) shrugged off opening gains and traded flat as earnings remained the main driver for price action in Tokyo after Panasonic cut its outlook, while Yahoo Japan outperformed following an upward revision to its FY giudance. Finally, 10yr JGBs were initially pressured as they followed suit to the recent downside in T-notes, although prices later rebounded following the 10yr auction in which the b/c and accepted prices increased from prior, while the average yield slipped to negative territory. The RBA kept the Cash Rate Target unchanged at 1.50% as expected. The RBA reiterated that low rates are supporting the economy and that progress on inflation and unemployment is expected to be gradual. Furthermore, the RBA noted that the labour market remains strong and that it sees a gradual inflation pick up over next couple of years but added that the central scenario for GDP growth is to average around 3% this year and to slow in 2020 vs. Prev. forecast of around 3.5% growth for the next 2 years back at the December meeting

Top Asia News

  • RBA Leaves Key Rate at 1.5% as Seen by All 32 Economists
  • Polls Not a Risk to India’s Growth, Focus on Investment: SocGen
  • Tycoons on the Run to Play Pivotal Role in World’s Largest Vote
  • Overseas Funds Sour on Indian Bonds as Budget Math Weighs
  • Norinchukin Bank Added 3 Trillion Yen of CDOs Since March

An upbeat session for European equities thus far following on from a holiday-thinned Asia-Pac session as the region is fuelled by a number of large-cap earnings. Major indices extended on opening gains and are firmly in positive territory (Euro Stoxx 50 +1.0%) with Britain’s FTSE 100 (+1.4%) leading the advances amid upbeat earnings from heavyweight BP (+5.2%), wherein the oil-giant beat on adjusted net and revenue forecasts while also expecting higher underlying production and lower refining margins this fiscal year. Sectors are experiencing broad-based gains with the energy sector the marked outperformer as earnings from BP lifts the likes of Royal Dutch Shell (+1.7%) and Total (+1.6%) in sympathy. Elsewhere, the tech sector is largely resilient to a guidance cut from AMS (-13.2%), as the rebound in Wirecard (+6.5%) keeps the sector afloat. Meanwhile, Infineon (-0.3%) numbers printed largely in-line, though the company now expects 2019 revenue growth to be at the bottom end of the forecast range. Finally, Indivior (-11.4%) shares fell as much as 24% at the EU open after the US Federal Court rejected its appeal for another hearing regarding patent infringement by a low-cost copycat drug developed by Dr Reddy.

Top European News

  • Services Bring U.K. Economy to Near-Halt as Brexit Approaches
  • Italy’s Broadening Slump Weighs Down the Euro-Area Economy
  • Panalpina Shareholders May Want to Exit Long Positions: Stifel
  • Salvini’s League Rises to 33.8% in SWG Poll; Five Star Declines

In FX, although the USD is mixed vs major currency rivals, the index has inched a bit closer to the 96.000 mark, largely by virtue of the aforementioned Eur/Usd decline and that pair’s biggest weighting in the basket.

  • AUD was the top G10 performer after a sharp turnaround in fortunes overnight, as the Aussie recovered impressively from sub-0.7200 lows vs the Usd and circa 1.0455 vs the Nzd in wake of a less dovish than many anticipated RBA policy statement. This, despite yet more disappointing data in the form of retail sales and downgrades to the outlook for growth in 2019 and 2020. Aud/Usd is now back up near 0.7250 and Aud/Nzd has rebounded over 1.0500+.
  • CHF - The Franc has extended recent losses vs the Greenback and just traded down through parity amidst broadly risk on trade highlighted by broad EU equity market gains, and the Chf seemingly taking some of the strain from the Jpy that has rebounded from 110.00+ vs the Usd.
  • EUR/GBP - Both on the back foot vs the Dollar and inching closer towards downside big figures at 1.1400 and 1.3000 respectively. The single currency tested bids around 1.1410 before gleaning some traction from a firmer than flash pan-Eurozone services PMI as sub-50.00 Italian and French prints were offset by more encouraging Spanish and German surveys (in headline terms at least). However, Eur/Usd remains precarious below several daily chart levels and just above decent option expiries between 1.1400-10 (1.1 bn). Conversely, Cable has now breached the 200 DMA (around 1.3038) following a 3rd and most worrying UK PMI miss given the importance of services to overall GDP. The Pound is holding just above late January lows, while Eur/Gbp has rebounded towards recent peaks not far from 0.8800.
  • CAD - The Loonie continues track moves in crude prices and is back on the front foot vs its US counterpart having rebounded above the 200 DMA (1.3130) and retesting chart/psychological resistance at 1.3100.

In commodities, a relatively choppy session for the oil market as earlier losses were nursed after a muted Asia-Pac trade. WTI (+1.1%) and Brent (+0.7%) edged higher in recent trade amid the overall market risk-appetite wherein the former reclaimed USD 53/bbl, while the latter hovers around the USD 63/bbl level. News flow has been light for the complex with participants awaiting the release of the weekly API crude inventories for a further catalyst. Elsewhere, metals have been mixed with spot gold (+0.1%) largely moving in tandem with the buck, meanwhile copper is outperforming in the complex with prices holding onto most of yesterday’s risk-fuelled gains. Finally, iron ore prices remain on an upward trajectory as Brazilian mining-giant Vale suspended operations at its Brucutu mine to comply with a court order regarding safety improvement at the mine, ING notes “the mine halt could impact 30mtpa of iron ore supply if Vale is unable to successfully appeal the decision.”

Looking at the day ahead, we’ll also get the remaining PMIs along with the January ISM non-manufacturing (57.0 expected). Tonight at 9pm is President Trump’s State of the Union address while the main earnings highlights today are Walt Disney and BP

US Event Calendar

  • 9:45am: Markit US Services PMI, est. 54.2, prior 54.2
  • 9:45am: Markit US Composite PMI, prior 54.5
  • 10am: ISM Non-Manufacturing Index, est. 57.1, prior 57.6

DB's Jim Reid concludes the overnight wrap

I hope the various winter colds are bypassing you more than they are our family. Both twins have cold induced conjunctivitis and bad coughs. They are walking around a lot with their eyes closed up and bumping into everything. Maisie has an awful cough and slight conjunctivitis too. Calpol is fast going out of stock where we live as a result. Meanwhile, both my wife and I are fighting off the same thing with my hay fever only being kept in check by the snow and tablets. As part of the design of the new house we are considering incorporating a permanent cross on the front door to warn people away.

Fortunately markets continue to shake off their pre-Xmas bout of man-flu but the last 24 hours were about as slow as we’ve seen so far this year. Major equity markets rallied but in thin trading. Volumes in Hong Kong were 54% lower than the 100-day average, as the Chinese mainland was closed for the lunar new year holiday. In Europe and the US, volumes were 15-30% lower than usual, but most benchmark indexes nevertheless grinded higher throughout the session. The NASDAQ led gains, up +1.15% into Alphabet’s earnings report. The S&P 500 and the DOW gained +0.68% and +0.70% respectively. Meanwhile the VIX edged lower to 15.73, its lowest level since the spike higher in early October last year. In Europe, the STOXX eked out a +0.06% gain, but this masked some differentiation across the continent. Italy’s FTSE MIB was up +0.15% with Spain’s IBEX down -0.49%. Spanish banks underperformed, with Banco de Sabadell and CaixaBank trading down -4.80% and -4.54% after weak earnings on Friday.

After the US close, Alphabet (Google’s parent company) reported somewhat disappointing earnings. While revenues rose more than expected in the fourth quarter and the closely-watched “paid clicks” metric rose an impressive 66%, investors focused on the erosion in profit margins from 24% to 21%. Given where we are in the cycle, it’s understandable that investors are attentive to signs of profit compression, and Alphabet’s share price slid around -3.10% in overnight trading.

The good news is that bond markets were a bit more exciting, especially Treasuries, where 10y yields rose +3.9bps which puts them up +9.4bps from the pre-payrolls levels of Friday. The move was led by a stronger day for the Greenback - which included the yen passing 110 for the first time this year (close 109.88) - as well as a busy day for US IG issuance. The moves in Europe were a lot less exaggerated but the direction of travel was the same with 10y Bunds cheapening +1.1bps. The euro also slid -0.16% although the single currency didn’t appear too fussed after ECB Governing Council member Nowotny said that he doesn’t see a recession in Europe despite recent weak data (especially in Germany). To be fair I can’t remember a central bank saying they see one coming but readers feel free to correct me.

The good news for those that found yesterday a bit dull is that there is potential for things to get a little more interesting today firstly with the final January PMIs due out in Europe this morning and then President Trump’s delayed State of the Union address due late this evening. Just on the latter, Trump is due to deliver his address at 9pm ET which is 2am GMT in the UK tomorrow morning. The average speech is around 50 minutes but for context, Trump’s speech last year was the third-longest ever at 80 minutes. Whilst it’s near-impossible to predict what will or won’t be said, expect the contentious border wall issue to be a talking point especially given rising tensions between Trump and House Speaker Pelosi. Indeed Politico believe that the biggest question is whether Trump will use the platform to declare a national emergency at the southern border as justification for beginning construction.

Overnight, one of the main stories has been news of a rare meeting between the Fed Chair Powell and the US President Trump to discuss recent economic developments and the outlook. However the Fed said in a statement that Mr. Powell didn’t share his expectations for monetary policy, “except to stress that the path of policy will depend entirely on incoming economic information and what that means for the outlook,” while adding that his comments were “consistent with his remarks at his press conference of last week.” So, nothing new in particular but it was interesting they met. The meeting was also attended by Fed Vice Chair Clarida and Treasury Secretary Steven Mnuchin. Elsewhere, the Fed’s Loretta Mester (non-voter) said that the monetary policy is not “far behind or far ahead of the curve,” while adding that the Fed might get back to raising interest rates if the economy performs on the lines of her expectations even as she acknowledged a growing set of downside risks to her outlook for continued above-trend growth.

Back to markets where this morning in Asia sentiment is mixed with Hong Kong, China and South Korea’s equity markets closed for holidays. The Nikkei (+0.04%) is trading flattish post erasing early gains. Futures on the S&P 500 are down -0.10% this morning with the disappointing result from Alphabet weighing slightly. In terms of overnight data releases, Japan’s January composite PMI came in at 50.9 (vs. 52.0 last month) with the services PMI standing at 51.6 (vs. 51.0 last month). Elsewhere the UK’s January BRC like for like sales came in at +1.8% yoy (vs. -0.2% yoy expected).

In other news, Sterling chopped around a bit yesterday amid sporadic Brexit headlines. It was initially weaker into mid-afternoon firstly after Tory lawmaker Rees-Mogg said that he would accept a Brexit deal without an Irish backstop, backing up comments from the ERG that pro Brexit Tory MPs won't support a compromise being proposed by May to add an addendum to the existing Withdrawal Agreement. Later in the session the Pound spiked back above 1.31 post the (albeit limited) story that Merkel was dropping hints of a trying to find a ‘creative’ Brexit compromise. The currency quickly retraced those gains to end the session -0.32% weaker at 1.3037 as the top EU negotiators poured cold water on the prospect of reopening the Withdrawal Agreement, with Michel Barnier saying that the backstop is the "only operational solution" to address the Irish border.

Finally the limited amount of economic data that was out yesterday didn’t do a whole lot to move the dial. Perhaps the most interesting was here in the UK where the January construction PMI slumped a notable -2.2pts to 50.6 (vs. 52.5 expected) and to the lowest since March last year. That of course follows the weaker than expected manufacturing PMI out last Friday. Elsewhere Italy’s preliminary CPI print for January was confirmed at -1.7% mom which wasn’t quite as bad as feared (-1.9% expected). The annual rate for the headline and core readings have however both slipped to +0.9% yoy. The euro area’s Sentix sentiment survey of 4,500 private and institutional investors fell to -3.7, its lowest level since 2014.

In the US, revisions to core capex orders were disappointing at -0.6% mom (vs. -0.1% expected) while core shipments were revised down a further tenth to -0.2% mom. This data is for November so looks a little out of date now with the BEA beginning the process of working through the large backlog of data releases. Later in the session, the Fed released their Q1 Senior Loan Officer Survey, which showed that C&I lending conditions tightened for the first time in two years. Banks’ reported willingness to lend to consumers also fell to its lowest level since 2009. However, the survey took place in later December, amid the nadir for equity markets, so it may somewhat overstate the severity of conditions.

To the day ahead now where the early focus data this morning will be on the final January PMIs in Europe. In terms of expectations, no change from the 50.8 flash services reading for the Euro Area is expected, however expect the market to be closely watching the data in France (following the big plummet in the flash to 47.5) and Italy (which stood at 50.5 in December). Also out this morning are December retail sales for the Euro Area while this afternoon in the US we’ll also get the remaining PMIs along with the January ISM non-manufacturing (57.0 expected). As mentioned near the top, early tomorrow morning (UK time) and late this evening (US time) we’ve got President Trump’s State of the Union address while the main earnings highlights today are Walt Disney and BP.

 

 

Published:2/5/2019 6:40:58 AM
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[Markets] Stocks trade mixed as investors await Alphabet‘s earnings Stocks are trading mostly lower Monday morning after the Dow booked its sixth-straight winning week in the wake of a dovish pivot by the Federal Reserve and a strong January jobs report, with investors looking ahead to another round of earnings and developments in U.S.-China trade talks. Published:2/4/2019 10:05:53 AM
[Markets] Dow Lower Following Six Straight Weeks of Gains; Wall Street Awaits Alphabet Here Are 3 Hot Things to Know About Stocks Right Now The Dow Jones Industrial Average was trading lower early Monday. The blue-chip index last week posted gains for the sixth straight week. Clorox Co. Published:2/4/2019 9:37:04 AM
[Markets] Clorox Stock Jumps, Bristol-Myers Gains and 3 More Monday Morning Movers Dow Jones Industrial Average futures are fractionally higher, while the S&P 500 is flat, and Nasdaq Composite off less than 0.1%. There weren’t too many earnings reports out this morning, although all eyes will be on Google parent (GOOGL) (GOOGL) when it reports after the close of trading. (BMY) (BMY) is up 2.7% to $51.25 on reports that activist investor Starboard Value is looking to take a stake in the drugmaker. Published:2/4/2019 8:34:50 AM
[Markets] Stock Futures Mixed, Dow Jones Lags Ahead Of Alphabet Q4 Drug makers were active Monday, led by Alexion and Bristol-Myers Squibb, but stock futures lagged and the Dow Jones industrials dug in to hold 25,000. Published:2/4/2019 8:05:51 AM
[Markets] Stock futures flat as investors await Alphabet earnings Stock index are struggling for direction Monday, after the Dow booked its sixth-straight winning week in the wake of a dovish pivot by the Federal Reserve and a strong January jobs report, with investors looking ahead to another round of earnings and developments in U.S.-China trade talks. Published:2/4/2019 7:05:10 AM
[Markets] Market Snapshot: Stock futures point to consolidation as investors await another round of earnings Stock index are struggling for direction Monday, after the Dow booked its sixth-straight winning week in the wake of a dovish pivot by the Federal Reserve and a strong January jobs report, with investors looking ahead to another round of earnings and developments in U.S.-China trade talks.
Published:2/4/2019 6:35:37 AM
[Markets] Dow Futures Are Doing Nothing Because There’s Nothing to Do STOCKSTOWATCHTODAY BLOG 6:32 a.m. What should the Dow Jones Industrial Average do when there’s almost no new information to drive it higher or lower? Almost nothing. Dow futures have risen 13 points, or 0. Published:2/4/2019 6:05:32 AM
[Markets] Dow futures seen slightly lower; Alphabet set to report earnings At around 2:45 a.m. ET, Dow futures slipped 9 points, indicating a negative open of more than 30 points. Futures of the S&P and Nasdaq were also seen relatively downbeat. Trading was subdued on Monday, with many regional markets in Asia closed for the Lunar New Year. Published:2/4/2019 2:34:51 AM
[Markets] Asian markets mixed; Sony shares plunge more than eight percent Stocks in Japan rose in early trade. Australian shares were higher, ahead of the release of a report looking into misconduct in the country's banking sector. The Dow Jones Industrial Average posted slight gains on Friday after the U.S. government released jobs growth data that easily beat expectations. Published:2/3/2019 7:02:29 PM
[Markets] The Profit Party Is Over: Q1 Earnings Growth Crashes, Set For Biggest Drop In 3 Years

After last week's earnings deluge, 46% of the companies in the S&P 500 have now reported actual results for Q4 2018. And according to Factset data, so far earnings season is mediocre at best with the percentage of companies reporting EPS above estimates (70%) below the 5-year average. Companies are also reporting earnings that are 3.5% above the estimates, which is also below the 5-year average. The silver lining is that in terms of revenues, the percentage of companies reporting actual revenues above estimates (62%) is above the 5-year average, and on aggregate, companies are reporting revenues that are 0.8% above the estimates, which is also above the 5-year average.

Separately, the blended year-over-year earnings growth rate for the fourth quarter is 12.4% today, which while is above the earnings growth rate of 10.9% last week, if well below the Q3 earnings growth, with positive earnings surprises reported by companies in multiple sectors - led by the Energy sector - responsible for the increase in the earnings growth rate during the week.

While hardly a disaster, if 12.4% is the actual growth rate for the quarter, it would mark the first time the index has not reported earnings growth above 20% since Q4 2017 according to Factset. However, it will also mark the fifth straight quarter of double-digit earnings growth for the index (although this is unlikely to persist, see below). Ten of the eleven sectors are reporting year-over-year earnings growth. As shown in the chart above, five sectors are reporting double-digit earnings growth, led by the Energy, Industrials, and Communication Services sectors.

Looking at the top line, the blended, year-over-year revenue growth rate for the fourth quarter is 6.6% today, which is above the revenue growth rate of 6.2% last week. Positive revenue surprises reported by companies in multiple sectors (led by the Health
Care sector) were responsible for the increase in the revenue growth rate during the week. Ten of the eleven sectors are reporting year-over-year growth in revenues. Three sectors are reporting double-digit growth in revenues: Communications Services, Energy, and Real Estate.

Some more key metrics on Q4 earnings season courtesy of Factset:

  • Earnings Revisions: On December 31, the estimated earnings growth rate for Q4 2018 was 12.2%. Six sectors have higher growth rates today (compared to December 31) due to upward revisions to EPS estimates and positive EPS surprises.
  • Earnings Guidance: For Q1 2019, 33 S&P 500 companies have issued negative EPS guidance and 9 S&P 500 companies have issued positive EPS guidance.
  • Valuation: The forward 12-month P/E ratio for the S&P 500 is 15.7. This P/E ratio is below the 5-year average (16.4) but above the 10-year average (14.6).

So on net, earnings season is progressing generally in line with expectations. That's the good news.

The bad news is that while companies are still reporting generally strong earnings, the good days are about to end with a bang as a result of the recent barrage in profit warnings and negative preannouncements, first and foremost starting with Apple, which issued a shocking guidance cut one month ago for the first time since 2001.

As a result, during January, analysts lowered earnings estimates for companies in the S&P 500 for the first quarter, and the Q1 bottom-up EPS estimate dropped by 4.1% (to $38.55 from $40.21) during this period.

How significant is a 4.1% decline in the bottom-up EPS estimate during the first month of a quarter? How does this decrease compare to recent quarters? Here are some troubling answers from FactSet which notes that during the past five years (20 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.6%.

During the past ten years, (40 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.8%. During the past fifteen years, (60 quarters), the average decline in the bottom-up EPS estimate during the first month of a quarter has been 1.7%. Thus, the decline in the bottom-up EPS estimate recorded during the first month of the first quarter was larger than the 5-year, 10-year, and 15-year averages.

In fact, the first quarter marked the largest decline in the bottom-up EPS estimate during the first month of a quarter since Q1 2016 (-5.5%).  At the sector level, all eleven sectors recorded a decline in their bottom-up EPS estimate during the first month of the quarter, led by the Energy (-22.5%) and Information Technology (-7.3%) sectors. Overall, seven sectors recorded a larger decrease in their bottom-up EPS estimate relative to their 5-year average and their 10-year average for the first month of a quarter.

What is striking is just how fast Q1 earnings have been slashed lower, with the S&P expected to post a 3.3% growth as recently as Dec 31, a number which is now down to -0.8%, as consensus for the first time expects Q1 EPS to post an annual decline due to downward revisions to EPS estimates during the month.

The collapse is even more pronounced if one extend the period under observation: on September 30, the estimated earnings growth rate for Q1 2019 was 6.7%. On December 31, the estimated earnings growth rate for Q1 2019 was 3.3%. Six of the eleven sectors are now predicted to report a decrease in earnings for the first quarter, curiously led by the Information Technology (-8.9%) sector which until recently had been the fastest growing sector for years.

And, as noted above, if the index reports an actual decline in earnings for the first quarter, it will mark the first year-over-year decline in earnings since Q2 2016 (-3.1%).

Furthermore, the after peaking in October, forward EPS for 2019 has been declining ever since and in January recorded its biggest sequential decline since January 2016.

What about beyond Q1, which is now expected to be the first quarter since 2016 to post negative earnings growth? Well after the earnings decline in Q1 2019 analysts now expected - at best - low, single-digit growth in earnings in Q2 2019 and Q3 2019. For Q1 2019, analysts are projecting a decline in earnings (-0.8%) and revenue growth of 5.7%.

  • For Q2 2019, analysts are projecting earnings growth of 1.6% and revenue growth of 5.1%.
  • For Q3 2019, analysts are projecting earnings growth of 2.7% and revenue growth of 4.9%.
  • For Q4 2019, analysts are projecting earnings growth of 9.9% and revenue growth of 6.0%.
  • For CY 2019, analysts are projecting earnings growth of 5.6% and revenue growth of 5.3%.

Incidentally the 5.6% EPS growth for the full year 2019 is already a 30% haircut to the 7.8% EPS growth that was expected on Dec. 31... and we are only 1 month into the new year.

What does all of this mean for stocks?

Well, the current consensus year-end target price for the S&P 500 is 3044.19, which is 12.6% above the closing price of 2704.10. At the sector level, the Energy (+18.8%) sector is expected to see the largest price increase, as this sector has the largest upside difference between the bottom-up target price and the closing price. On the other hand, the Utilities (+1.8%)  sector is expected to see the smallest price increase, as this sector has the smallest upside difference between the bottom-up target price and the closing price.

Meanwhile, from a valuation standpoint, the forward 12-month P/E ratio - assuming 2019 EPS grows 5.6% Y/Y - is 15.7x. This P/E ratio is below the 5-year average of 16.4 but above the 10-year average of 14.6. It is also above the forward 12-month P/E ratio of 14.4 recorded at the end of the fourth quarter (December 31). Since the end of the fourth quarter (December 31), the price of the index has increased by 7.9%, while the forward 12-month EPS estimate has decreased by 1.1%.

At the sector level, the Consumer Discretionary (20.1) sector has the highest forward 12-month P/E ratio, while the Financials (11.4) sector has the lowest forward 12-month P/E ratio.

Finally, as clearly shown in the chart beow, the only reason stocks have surged nearly 15% from their mini bear market lows on Dec 24 is due to multiple expansion, as Forward EPS have continued to decline, however the Fed's dovish reversal has been quite successful in boosting forward PE multiples.

As the chart above clearly shows, the Fed's dovish flip has made earnings largely irrelevant for the market's near term direction, as Powell's stated intent to pause hiking and ostensibly slow the Fed's balance sheet shrinkage has taken priority over everything else. In any case, now that Q4 earning session is over the hump, during the upcoming week, 103 S&P 500 companies (including 1 Dow 30 component) are scheduled to report results for the fourth quarter. Expect even more market upside irrelevant of what historicals companies report or what guidance they deliver.

 

Published:2/3/2019 4:31:55 PM
[Markets] Dow Gains 327 Points as Powell Powers Market The Federal Reserve swooped in to save the stock market last week—and perhaps not a moment too soon. Entering the week, the Dow Jones Industrial Average had already gained 6% in 2019, and companies like (FB) (ticker: FB) and (BA) (BA) were doing their best to demonstrate that corporate profits would hold up. At Wednesday’s Federal Open Market Committee meeting, Fed Chairman Jerome Powell and team signaled that they were taking more rate increases off the table and rethinking how fast they would let their balance sheet shrink. Published:2/1/2019 7:50:44 PM
[Markets] The Dow Rises 64 Points After Jobs Rally Fizzles The Dow Jones Industrial Average ceded most of the morning’s gains from a strong jobs report, but ended with a gain of 0.3% to end at 25,063.89. Published:2/1/2019 4:48:41 PM
[Markets] Powell-Pivot Sends Gold To 8-Month Highs, Dow Up Sixth Straight Week

What made The Fed stomp on the brakes and slam the monetary trajectory into reverse so fast? Probably nothing!!

 

China's stock markets were levitated late Thursday, early Friday (after The Fed) back into the green for Shanghai Composite (tech heavy indices underperformed)...

 

A Mixed week too in Europe with UK's FTSE outperforming and Spain and Italy underperforming...

 

No "mix" for US stocks - they are all green. Trannies were best on the week with the rest of the majors holding around the same gains (Dow up 6 straight weeks)

 

S&P, Dow, and Small Caps all lifted into the close to end green but Nasdaq ended red (Thanks to AMZN)

 

Futures show today a little better - the surge on payrolls and again on ISM then fade from the European close...

 

The major US equity indices all stalled at the 100DMA...

 

Energy, Financials, and Tech continue to lead the market this year, though financials underperformed on the week...

 

AMZN spoiled the party this week (down for 2 straight weeks, back into bear market)...and is unchanged since Jan 7th...

 

VIX tumbled to a 16 handle and credit spreads crashed in the week...

 

As the Fed's implied easing plunged...

 

Treasury yields tumbled on the week after The Fed but rose today after good payrolls/ISM data...

 

This was the biggest yield drop for 2Y since 2018... sending the curve notably steeper... (though hitting resistance once again)

 

And the market shifted more hawkish on the day after the "good" data...

 

The Dollar plummeted after The Fed flip-flop and only rebounded around half of the loss after good data today...

 

Yuan was practically unchanged on the week after a big roller-coaster run higher then lower...

 

Litecoin managed to rally on the week but the rest of the major cryptos continued their slide...

 

Commodities are higher across the board this week, led by WTI...

 

Gold had a second good week in a row - closing at the highest since May 2018...

 

And against the Yuan, surged back to early Jan highs...

 

WTI rose to its highest since November, back above $55...

 

And the coldest week on record prompted a big sell-off in NatGas...

 

As The Nattie/WTI ratio continues to re-normalize...

 

Finally, we note that while macro surprises have exploded today (thanks to payrolls), earnings expectations continue to tumble (to six month lows)...

Let's just hope its not 2018 deja vu all over again...

And remember what is driving all this exuberance in stocks...

Published:2/1/2019 3:22:02 PM
[Markets] Dow, S&P 500 end higher as tech weighs on Nasdaq; stocks notch weekly gains Dow, S&P 500 end higher as tech weighs on Nasdaq; stocks notch weekly gains Published:2/1/2019 3:22:02 PM
[Markets] Dow and S&P Hold on to Slim Gains While Amazon Drags Nasdaq Into the Red The Dow Jones Industrial Average rose Friday after the U.S. created more jobs than expected in January. fell 5.4% after the online retailing giant reported fourth-quarter earnings and revenue that topped Wall Street's forecasts but issued first-quarter guidance that was below expectations. posted a fourth-quarter earnings beat and the stock jumped 3.6%, though revenue missed analysts' estimates. Published:2/1/2019 3:22:02 PM
[Markets] Stocks are struggling Friday, with only the Dow still in positive territory Stocks are struggling Friday, with only the Dow still in positive territory Published:2/1/2019 1:18:49 PM
[Markets] Dow Holds on to Slim Gains Despite of Strong January Jobs Report The Dow Jones Industrial Average rose Friday after the U.S. created more jobs than expected in January. was falling 4.1% after the online retailing giant reported fourth-quarter earnings and revenue that topped Wall Street's forecasts but issued first-quarter guidance that was below expectations. posted a fourth-quarter earnings beat and the stock jumped 3.6%, though revenue missed analysts' estimates. Published:2/1/2019 1:18:49 PM
[Markets] Schultz Met With Angry Protesters During Downtown Seattle Book Event

Former Starbucks CEO Howard Schultz was greeted by protesters at Seattle's Moore Theater Thursday night during a book tour stop - less than one week after he was heckled at a New York Barnes & Noble for being an "egotistical, billionaire asshole." 

His crime? Announcing on 60 Minutes that he was thinking of running for president as a "centrist independent" - a move viewed by Democrats as splitting the party, virtually ensuring a second term for President Trump. 

Protesters gathered outside Moore Theater holding signs shaped like giant coffee cups with messages such as "Grande Ego" , "Venti Mistake" and "Howard, Don't Do It!" 

King County Executive Dow Constantine said during Thursday's protest "I am here on behalf of everyone in this county and this country who has a memory, who remembers when Ralph Nader’s ego got in the way of Al Gore becoming president." 

Schultz is such a threat to Democrats that Hillary Clinton adviser, Adam Parkhomenko, tweeted a URL to find locations where people can protest the former Starbucks chairman

The site, "protesthoward.com," which lists its mission as "Save Democracy," lists 11 locations where Schultz will appear on his book tour.

Schultz has faced intense backlash from the left since announcing that he may run in 2020. On Monday, fellow billionaire Michael Bloomberg warned Schultz not to run as an independent, a decision he wrestled with in 2008 when he was considering running for office. 

"I faced exactly the same decision now facing others who are considering it," said Bloomberg. "The data was very clear and very consistent. Given the strong pull of partisanship and the realities of the electoral college system, there is no way an independent can win."

"In 2020, the great likelihood is that an independent would just split the anti-Trump vote and end up re-electing the President. That's a risk I refused to run in 2016 and we can't afford to run it now," Bloomberg added. "We must remain united, and we must not allow any candidate to divide or fracture us. The stakes couldn’t be higher."

Schultz, on the other hand, thinks that there are enough moderate voters on both sides of the aisle who are sick of the status quo and will rally behind him. 

"I believe that lifelong Democrats and lifelong Republicans are looking for a home," Schultz told Axios on Sunday night - acknowledging that a vote-splitting campaign "is going to create hate, anger, disenfranchisement from friends, from Democrats."

Published:2/1/2019 11:48:41 AM
[Markets] Dow rises more than 150 points after strong jobs report and manufacturing data U.S. stocks edged mostly higher Friday morning, on the heels of one of the best Januarys for equity indexes in about 30 years, as investors digested an unexpectedly strong January jobs report and other economic data. The Dow Jones Industrial Average (DJIA) rose 171 points, or 0.7%, to 25,171, and the S&P 500 index (SPX) rose 11 points, or 0.4%, to 2,714. The Nasdaq Composite Index (COMP) rose 9 points at 7,291, an advance of 0.1%. Published:2/1/2019 10:21:54 AM
[Markets] Is It All Just One Giant Short Squeeze: Investors Rush To Pull Money Out Of US Stocks

After the worst December for stocks since the Great Depression, which saw the S&P500 tip into bear market territory if only for a few seconds on December 24, the market enjoyed a furious rebound last month, when it climbed 7.9%, the best January return since 1987, a fact that was not lost on president Trump who is back to tweeting about the market after taking a 3 month hiatus during the Q4 swoon.

Of course, as extensively discussed here and elsewhere, this miraculous rebound was entirely due to the Fed's bizarre, according to some laughable dovish reversal, which has put rate hikes on hold at least until the summer if not indefinitely with the market now officially expecting the Fed to cut rates in early 2020 when the recession hits, paradoxically giving stocks a green light to keep levitating up until the point the US economy contracts if not beyond: after all at some point, the Fed will have to launch QE4, and that as every shoeshine boy knows, is bullish for stocks which long ago ceased to reflect the economy and merely rise and fall based on how much liquidity the Fed is injecting or draining from the market.

And yet, something strange happened: at a time when stocks continued to surge, investors were not buying it the market's latest miraculous recovery, and according to EPFR, this week saw wildly risk-off flows with $9.4 billion allocated to bonds while $15.0 billion was pulled out of equities.

Which, once again, begs the question: was the recent rally just one giant short squeeze?

As Bank of America's Michael Hartnett points out in his latest Flow Show, not only were billions pulled out of US equity funds, with outflows on 10 of the past 11 weeks, culminating with $12.1NN in ETF outflows and $2.9BN in mutual funds outflows this week, but US equities have suffered record outflows in the past 3-months, amounting to $82.0BN, equivalent to a whopping 2% of all AUM, i.e. consistent with US equity bearishness at "events" & "big lows" of past decade.

Meanwhile, as investors drained equity funds, they rushed to allocate funds to "yield" with $6.9BN in inflows to corporate bond & EM bond funds, the largest since Jan'18...

... while IG bond funds saw $4.7 billion in inflows this week, the biggest since Feb'18.

Meanwhile, betting on a sharply lower dollar, investors allocated even more funds to EM which saw another week of inflows, with BofA noting that the cumulative bond & equity inflows to EM are now back to just $2 billion from all-time highs.

So what accounts for this odd divergence? According to BofA it's all the Fed trade, i.e., "long risk, long leverage, short vol", as the fear of a credit event in Dec'18 caused the now infamous Fed capitulation on tightening... and it worked as credit ETFs, such as EMB/HYG/LQD, are all back at highs.

And yet, not all is well just yet, because as Hartnett notes, the BofAML Global EPS Model still forecasts 0% 2019 vs consensus +5%, adding that the model says end of EPS recession will be signaled by steeper US 2s10s yield curve (>50bps), as well as a rebound in Asian export growth, easy China financial conditions, and rising global PMI - in short "watch Jan ISM & new orders tomorrow...must bounce." It bounced in the US... it dropped pretty much everywhere else.

Hartnett concludes with what he dubs the "Most contrarian trade in world" which is now a Fed hike in 2019 - consensus now rushing back to "low growth, low rates" playbook of long credit, EM, growth stocks.

As such, the greatest irony of all would be if the Fed ended tightening just as wage inflation is set to accelerate further. As such, the best hedge against inflation & complete collapse in Fed credibility is short US dollar, long small cap value stocks.

 

Published:2/1/2019 9:48:33 AM
[Markets] Dow Drives Higher on Strong January Jobs Report The Dow Jones Industrial Average jumped Friday after the U.S. created more jobs than expected in January. was falling 4.1% after the online retailing giant reported fourth-quarter earnings and revenue that topped Wall Street's forecasts but issued first-quarter guidance that was below expectations. posted a fourth-quarter earnings beat and the stock jumped 3.1%, though revenue missed analysts' estimates. Published:2/1/2019 9:18:35 AM
[Markets] Dow rises 100 points to kick off February trading following strong jobs report Dow rises 100 points to kick off February trading following strong jobs report Published:2/1/2019 8:46:54 AM
[Markets] S&P opens flat, Dow higher after jobs data; Amazon weighs (Reuters) - The Dow Jones Industrial index opened slightly higher on Friday while the S&P 500 was flat after stronger-than-expected U.S. jobs data reassured investors worried about a slowdown, but losses ... Published:2/1/2019 8:46:54 AM
[Markets] Dow Gains 52 Points Because the Jobs Report Was Very, Very Strong 8:33 a.m. The Dow Jones Industrial Average has bounced back into positive territory after the January jobs report showed that the U. S.added far more jobs than had been expected. The Dow has ticked up 52 points, or 0.2%, while the S&P 500 has was little changed. The 10-year Treasury yield has risen 0.013 percentage point to 2.64%. Published:2/1/2019 7:51:45 AM
[Markets] Futures Flat On Lack Of Trade Progress, Global Econ Slump; Amazon Slide Hits Nasdaq

Following the best month for global markets in seven years, February has started off with a whimper as S&P were following the lack of tangible progress in US-China trade talks, Nasdaq futures sliding after disappointing guidance from Amazon, a European rally fizzled dragged down by banks and dismal German and Italian PMI data, and mixed Asian markets after the worst Chinese Caixin PMI in 3 years.

While stocks soared this week after the Fed all but abandoned plans for further rate hikes, and on optimism that a U.S.-China trade deal might be on the cards, the lack of any actual progress in trade negotiations coupled with the lowest Caixin/Markit index of Chinese manufacturing since February 2016, added to a growing list of economic readings indicating slowing global growth.

On Thursday, technology shares gained thanks to solid corporate reports, though a disappointing sales forecast from Amazon.com has now curbed optimism. On the trade front, Treasury Secretary Steven Mnuchin and U.S. Trade Representative Robert Lighthizer head to China in mid-February.

Meanwhile, Washington trade negotiations, that had been tipped as “determinative”, in the end broke up with an agreement to keep talking. Underwhelming news that China plans to buy substantially more American agricultural and energy goods failed to spark buying euphoria in either soybeans or global stocks.

MSCI’s World Index came off its highest level since Dec. 4 after its best January gain on record when it rose an unprecedented 7.79% on the month. The weak Chinese data also took MSCI’s broadest index of Asia-Pacific shares outside Japan down 0.2%, though that followed a 7.2% gain in January. The Australian dollar, the best barometer of investor sentiment towards China, tumbled half a percent.

Europe's mood was only slightly better as several strong earnings reports helped offset the Chinese survey, providing an early boost to Europe's STOXX 600 index, although while most European bourses were slightly positive to start, the rally fizzled as banks slumped, and it wasn't just the aforementioned Deutsche Bank: Spain's CaixaBank and Sabadell fell Friday after they released fourth-quarter numbers. Jefferies called CaixaBank’s earnings “messy,” citing the one-time items that pushed profit below estimates. At Sabadell, provisions weren’t as severe as expected, but analysts said its business in the U.K. looked weak. CaixaBank slumped 7.3% and Sabadell 6%, making them the biggest decliners on the Stoxx 600 Banks Index.

Separately, PMI prints for Italy and Switzerland came in below expectations, and even though Germany's was just below expectations, it still posted the first contraction in over 3 years.

Friday's market slump followed another strong day for US markets, when stocks also gained after U.S. President Donald Trump said he would meet Chinese President Xi Jinping soon to try to seal a comprehensive trade deal as the top U.S. negotiator reported “substantial progress” in the talks. Beijing’s trade delegation said the talks made “important progress”, China’s official Xinhua news agency reported although neither side was willing to provide details, suggesting that little - if anything - was actually achieved.

The previously upbeat mood was also chilled somewhat by White House insistence that March 1 was a hard deadline for a deal, a failure of which would lead to an increase in U.S. tariffs on Chinese goods.

“Analysts mostly remain deeply skeptical that a genuine trade deal can be done on this time frame,” Commonwealth Bank of Australia economists wrote. “We are less pessimistic since these negotiations are being conducted by senior politicians, not by trade bureaucrats,” they added. “Both sides also have an incentive, and arguably a growing incentive, to get a meaningful deal done.”

Traders now turn their attention to Friday’s monthly American labor report amid an ongoing earnings season that’s given investors mixed signals.

In FX, the Bloomberg dollar index moved in a tight range before today's January payrolls data, while Treasuries were little changed. The euro rose as core inflation in the area beat estimates, shrugging off PMI misses in Germany and Italy. On Thursday, the euro slumped when Bundesbank President Jens Weidmann painted an unusually bleak picture of the German economy, saying the slump will last longer than initially thought. The pound led G-10 currency losses amid euro-sterling buying and after U.K. manufacturing data came in weaker than expected. Bunds edged lower, leading core and semi-core bond declines.

In commodities, oil prices were subdued as the China data offset signs major exporters were reducing output in line with a pact to cut supply. Gold prices hovered just short of nine-month highs supported by the fall in bond yields and expectations for a softer dollar. Spot gold stood at $1,318.41 per ounce, having touched a top of $1,326.30.

Key events include the employment report, manufacturing PMI readings. Exxon Mobil and Chevron are due to report earnings

Markets Snapshot

  • S&P 500 futures down 0.03% to 2,703.75
  • STOXX Europe 600 up 0.3% to 359.69
  • MXAP down 0.09% to 156.50
  • MXAPJ up 0.01% to 511.47
  • Nikkei up 0.07% to 20,788.39
  • Topix down 0.2% to 1,564.63
  • Hang Seng Index down 0.04% to 27,930.74
  • Shanghai Composite up 1.3% to 2,618.23
  • Sensex up 0.7% to 36,500.77
  • Australia S&P/ASX 200 down 0.03% to 5,862.83
  • Kospi down 0.06% to 2,203.46
  • German 10Y yield rose 1.1 bps to 0.16%
  • Euro up 0.1% to $1.1459
  • Brent Futures down 1.9% to $60.71/bbl
  • Gold spot down 0.1% to $1,321.48
  • U.S. Dollar Index down 0.1% to 95.52
  • Italian 10Y yield fell 1.0 bps to 2.233%
  • Spanish 10Y yield rose 1.4 bps to 1.21%

Top Overnight Headlines

  • China promised to “substantially” expand purchases of U.S. goods after the latest round of trade talks, and both sides planned further discussions to reach a breakthrough with only a month to go before the Trump administration is set to ratchet up tariffs
  • Europe’s primary bond market racked up a record 221.7 billion euros of sales in January, allaying fears that the European Central Bank’s wind-down of stimulus measures would hammer issuance; Issuance jumped 18% versus January 2018, partly because of a rush to get covered-bond sales and sterling public- sector deals done before looming risks such as Brexit
  • Ministers in Theresa May’s government are setting out to woo members of the opposition Labour Party, in the hope that they’ll provide enough votes to get her Brexit deal through
  • Japan’s Government Pension Investment Fund lost 9.1%, or 14.8 trillion yen ($136 billion), in the three months ended Dec. 31. The decline in value and the rate of loss were the steepest based on comparable data back to April 2008
  • Despite a recession in Italy and a significant loss of economic momentum in Germany, the ECB president isn’t showing much urgency to reverse course on a stimulus-withdrawal path that was originally supposed to include an interest-rate increase late this year, according to Oxford Economics
  • There’s a gold rush on as investors pour more and more funds into bullion. Global holdings in exchange-traded funds surged 70.6 metric tons in January, bringing assets to the highest in almost six years as prices rally

Asian equity markets traded cautiously as disappointing Chinese data clouded over the momentum from Wall St. where most major indices finished positive and the S&P 500 posted its best January performance in over 3 decades, with sentiment driven by earnings and progress in US-China trade discussions. ASX 200 (Unch.) and Nikkei 225 (Unch.) both opened higher amid broad optimism following the trade talks and with corporate updates dominating news flow in Japan, although China slowdown concerns later pressured both indices off intraday highs. Hang Seng (Unch.) and Shanghai Comp. (+1.3%) traded indecisively after Chinese Caixin Manufacturing PMI printed its weakest in around 3 years. However, the mainland has kept afloat on trade-related hopes and after another liquidity effort by the PBoC ahead of the Lunar New Year week-long market closure, while Barclays also speculate the PBoC could lower interest rates as soon as today due to the weak data. Finally, 10yr JGBs were higher as they continued to track the upside in T-notes in the aftermath of this week’s dovish Fed, and as Japanese yields continued to decline in which 20yr and 30yr JGB yields fell to their lowest since 2016.

Top Asian News

  • India Overshoots Budget Deficit Target for Second Straight Year
  • India Stocks Rally as Budget Offers Tax Bonanza to Consumers
  • Modi Woos Indian Voters With Tax Cuts, Payouts to Farmers
  • Malaysians, Chinese Lead Record Influx of Tourists to Indonesia

Major European equities initially posted slight gains but have since deteriorated into negative territory [Euro Stoxx 50 -0.1%]. The FTSE 100’s Shell (+0.6%) shares strengthened after initially opening in the red as the energy sector is underperforming weighed on by the oil complex. Other sectors are broadly in the green. Other notable movers include, Electrolux (+9.8%) who are at the top of the Stoxx 600 following a revenue beat and the Co’s largest investor supporting their proposed split. JC Decaux (+9.4%) are also at the top of the Stoxx 600, following their earnings. At the bottom of the Stoxx 600 are Caixabank (-7.9%) as their net profit missed expectations. Deutsche Bank (-3.4%) were the mornings most notable earnings release as the Co. shrank for the 8th consecutive quarter, with sources stating that time is running out for the Co. to turn around on its own; making a merger with Commerzbank (-1.2%) or another European bank more likely. Separately Adidas (-2.9%) are in the red following a downgrade at UBS.

Top European News

  • Thyssenkrupp Shares Jump as Major Holders Support Breakup
  • UBS Downgrades Euro Forecasts, Still Sees Room for Appreciation
  • Germany to Forfeit Billions in Carbon Sales With Coal Exit
  • Italian Industry Slump Worsens Outlook for Economy in Recession

In FX, USD The Dollar is pretty evenly split in terms of relative performance against G10 counterparts going into the monthly US jobs data, as the DXY hovers around 95.500 and roughly midway between weekly highs and lows, so far (95.987-157). However, the Buck remains pressured after Wednesday’s dovish Fed and net short positioning for month end, so a bullish/upbeat NFP report is needed to confirm a near term base for the index, and expectations are not skewed to the upside after such a bumper payroll number last time around.

  • GBP Sterling is the clear laggard, and already looking precarious before the UK manufacturing PMI miss. Indeed, the Pound succumbed to accelerated selling once Cable relinquished the 1.3100 handle and Eur/Gbp breached 0.8750, with the former subsequently declining through the 200 HMA (1.3085-90) and testing, but not yet breaking the 200 DMA (1.3045), while the cross got to within a few pips of offers said to be sitting up at 0.8800 before fading.
  • AUD/CAD Also underperforming, albeit to a lesser extent, with the Aud undermined by benign Aussie PPI data and a sub-forecast/even deeper contraction in China’s Caixin manufacturing PMI. Aud/Usd is currently around 0.7260 having almost reached 0.7300 yesterday, while the Loonie continues to meet resistance ahead of 1.3100 and some key chart support just above the big figure following pretty sanguine comments from BoC’s Wilkins on Canadian wages.
  • CHF/EUR/NZD All modestly firmer vs the Usd, with the Franc rebounding from 0.9950+ levels towards 0.9920 and not unduly deterred by weaker than expected Swiss retail sales or headline manufacturing PMI. Similarly, the single currency largely took more bleak Eurozone manufacturing PMIs in stride, before deriving some traction from firmer core inflation and technically a recovery in Eur/Usd of its 100 DMA (1.1441). The Kiwi remains above 0.6900, and perhaps benefiting from the Aud’s demise as the cross retreats back below 1.0500.
  • JPY On a more even keel than major rivals and holding above 109.00 vs the Usd.

In commodities, Brent (-0.1%) and WTI (Unch) are choppy, with prices for both around the middle of a slim USD 1/bbl range; impacted by global growth concerns following the weak Chinese PMI data. In terms of recent news flow, Russian oil product exports from the Port of Tuapse are forecast at 1.128mln tonnes vs. 1.463mln in January. Markets are looking ahead to today’s Baker Hughes rig count, which previously showed total rigs increased by 9 to 1059, with gas rigs up by 9 at 862.  Gold (Unch) is also around the middle of its range, with the yellow metal uneventful mimicking the dollar’s lack of direction ahead of today’s US jobs report. Elsewhere, Glencore have said they see 2019 copper production at 1.54MT, alongside the Co’s subsidiary being told to halt the production of a new system which removes uranium from their cobalt supplies. Separately, US metal importers are reportedly losing hope that the tariff exemptions, which some applied for over 8 months ago, will be approved by the Commerce Department as the US shutdown further delays the ruling.

US Event Calendar

  • 8:30am: Change in Nonfarm Payrolls, est. 165,000, prior 312,000
  • 8:30am: Unemployment Rate, est. 3.9%, prior 3.9%
  • 8:30am: Average Hourly Earnings MoM, est. 0.3%, prior 0.4%; YoY, est. 3.2%, prior 3.2%
  • 8:30am: Labor Force Participation Rate, est. 63.0%, prior 63.1%
  • 9:45am: Markit US Manufacturing PMI, est. 54.9, prior 54.9
  • 10am: U. of Mich. Sentiment, est. 90.7, prior 90.7; Current Conditions, prior 110; Expectations, prior 78.3
  • 10am: Construction Spending MoM, est. 0.2%, prior -0.1%
  • 10am: Wholesale Inventories MoM, est. 0.5%, prior 0.8%; Wholesale Trade Sales MoM, prior -0.2%
  • Wards Total Vehicle Sales, est. 17.2m, prior 17.5m

DB's Jim Reid concludes the overnight wrap

Welcome to February where we’ve woken up to a few millimetres of snow here in the south of England. This will no doubt ground us to a halt here. Given it’s payroll Friday, it’s the 12 month anniversary of the higher than expected average hourly earnings print that broke the long period of ultra low vol and started the vol quake that saw the VIX trade over 50 just four days later. Back then, the expectation for AHE was 2.6% and it came in at 2.9% (eventually revised to 2.8%). Ironically 12 months later very few people are worried about inflation even though a print of 3.2% is expected today after a higher than expected surprise last month (3.2% vs 3.0% expected). Even the Fed have thrown the towel in and gone full circle in their dovishness. So we’ll see what today brings for the overall release. We’ll preview it in full later.

The last day of January proved in the end to be a decent microcosm of how the record-breaking month played out with US equities extending gains, credit tightening, and bonds rallying across the board. Indeed the tech sector led the charge again as the NASDAQ rallied +1.37% which means the index had 8 days in January with gains of at least 1%. That’s the most in a single month since October 2011. The NYSE FANG index also rose +2.74% which put it up +13.06% in January while the S&P 500 last night finished +0.87%. The index received a boost just before the US close, as USTR Lighthizer spoke positively about the US-China trade talks (details below). In fairness the DOW (-0.06%) did close a bit lower mainly due to DowDupont falling -9.23% following a profit warning. The other big laggards were US large-cap banks, with Goldman Sachs down -2.21% as lower yields weighed on the sector, with the S&P 500 banks index dropping -1.21%.

Indeed it was earnings that really dictated how things played out yesterday. The headliners were Facebook (+10.82%) and General Electric (+11.43%) which rallied by the most in 3 years and 10 years respectively. GE’s 2035 bonds rallied -24.6bps and they are now -128.5bps tighter from their November wides, around the time they got downgraded from A to BBB+ by the major credit ratings agencies. A reminder that it was GE which sparked all the concern about the swelling of the BBB credit market in the US last year.

Elsewhere Charter Communications (+14.19%), AmerisourceBergen (+6.19%), UPS (+4.09%), and Mastercard (+3.54%) deserve honorable mentions too after the market also viewed their latest earnings reports favorably. Much like how we saw companies get punished for small misses in previous quarters, the market has started rewarding companies who appear to be painting a less negative outlook picture.

After the close last night, Amazon beat consensus expectations on the profit and revenue fronts for the fourth quarter. Nevertheless, shares slid over -5% after hours as first quarter guidance was a touch lower than anticipated and international momentum softened surprisingly. To be fair, the stock is still up over 27% since its Christmas Eve though. Futures on the S&P 500 (unch) and NASDAQ (-0.40%) are trading flat and slightly lower respectively.

Overnight in Asia, stocks have fallen back after the China Caixin manufacturing PMI came in below expectations at 48.3 (vs. 49.6 expected), the second consecutive monthly reading below the 50-mark and the lowest since February 2016. The Nikkei (+0.12%), Hang Seng (-0.31%), and the Kospi (+0.06%) all fell after the release, although the Shanghai Composite (+0.77%) continues to climb as no dramas came out of the latest round of trade talks.

Indeed the sound bites trickling out of this week’s US-China trade talks have been on balance positive without necessarily seeing any breakthroughs. Yesterday we heard from President Trump who tweeted that “meetings are going well with good intent and spirit on both sides” however “no final deal will be made until my friend President Xi, and I, meet in the near future to discuss and agree on some of the long standing and more difficult posts”. He also suggested that both sides were working towards an agreement by March 1st which is when tariffs on China are due to go up. The WSJ yesterday reported that China are pushing for a Trump-Xi meeting this month, while Bloomberg reported that the Chinese negotiators offered no other major proposals or concessions in this week’s talks. Nevertheless, USTR Lighthizer, one of the more influential and hawkish members of the US administration, said that progress is being made and Chinese Vice Premier Liu He said that hopes to accelerate the timetable, possibly signaling increased confidence. President Trump then said that Lighthizer and Mnuchin will travel to China to continue talks and that have already made “tremendous progress,” though that “doesn’t mean we have a deal” yet. Both sides have released statements overnight. China have said talks went well and they will buy more goods from the US and “will actively respond to US concerns on intellectual property, creating (a) fair market environment”. The US statement was a bit more neutral. So all to play for over the next 4 weeks ahead of the current March 1st deadline for further escalation.

Back to yesterday where, as mentioned earlier, it was also a decent day for credit with cash HY spreads c.-4bps tighter in the US and Europe. EM hard currency spreads were also -2.9bps tighter while bond markets in Europe rallied anywhere from -1.1bps (in Italy – after the country officially entered a technical recession as expected) to -5.9bps lower (in Spain). Treasuries rallied -4.4bps and -4.3bps at the 2y and 10y points of the curve with the curve broadly unchanged while oil traded close to flat.

That move for Treasuries comes ahead of a busy end to the week for data today including the aforementioned first employment report of the year tonight in the US. In terms of what else to expect from the report the consensus is running at 165k for nonfarm payrolls (following 312k in December) while earnings are expected to have risen +0.3% mom which would keep the annual rate at +3.2% yoy as discussed above. Our US economists also expect a 165k payrolls reading however are slightly below market on earnings at +0.2% which in their view would lower the annual rate slightly to +3.1%. However, they also note that if hours worked remain at 34.5 as they anticipate, the payroll proxy for nominal income growth would rise to 5.5% (year-over-year), matching its post-recession high. Therefore they note that in short, while the January employment report may not be as eye-popping as the prior month, it should still be consistent with further tightening of the labour market and strong income growth.

Meanwhile yesterday’s economic data certainly caught the eye. It started with Italy which confirmed a technical recession with its second consecutive negative qoq GDP print (-0.2% vs. -0.1% expected). So that’s now 6 recessions since the inception of the euro for Italy. Contrast that with Australia that leads the developed world pack by not seeing a recession since 1991. Growth for the broader Euro Area was confirmed at +0.2% qoq as expected which leaves the yoy rate at +1.2% and down from +1.6% in Q3.

In the afternoon in the US the Q4 ECI disappointed slightly at +0.7% qoq (vs. +0.8% expected) however given the dovish pivot for the Fed this is perhaps less significant than it previously would have been. More notable was the jump in claims last week to 253k from 200k which was the largest jump since the September 2017 hurricane-impacted month. The report was probably influenced by some transitory factors (the government shutdown affecting DC, the public teachers’ strike in California, weather in the Midwest). Worth watching if these end up being one-offs or not in next week’s data. Also out yesterday was the Chicago PMI which plummeted unexpectedly by -7.1 points – the biggest in nearly four years - to 56.7 (vs. 61.5 expected). That perhaps raises the potential of downside risks to today’s ISM reading in the US. Finally new home sales in November were confirmed as rising a much greater-than-expected +16.9% mom (vs. +4.8 expected).

In terms of the day ahead, this afternoon’s January employment report in the US will almost certainly be the biggest crowd puller. However prior to that this morning we get the final January manufacturing PMIs in Europe where the market will be on close lookout for the sub-50 readings in Germany (49.9 expected) and Italy (48.8 expected) especially. We’ll also get the January CPI report for the Euro Area (no change to the +1.0% yoy core reading expected) while due out in the US is the manufacturing PMI (no change to 54.9 expected), November construction spending (+0.2% mom expected), November wholesale inventories (+0.5% mom expected), January ISM manufacturing (54.0 expected), final January University of Michigan consumer sentiment survey revisions (headline 90.7 reading expected) and January vehicle sales data (17.2m expected). In addition to that, the Fed’s Kaplan is due to speak this afternoon while the earnings highlights include Exxon Mobil, Chevron and Merck.

Published:2/1/2019 6:46:28 AM
[Markets] Dow joins Nasdaq and S&P 500 in positive territory at midday Dow joins Nasdaq and S&P 500 in positive territory at midday Published:1/31/2019 11:12:21 AM
[Markets] Dow Industrials Slip on Disappointing Earnings U.S. stocks flipped between small gains and losses on the final day of January as investors continued to weigh global trade tensions and corporate earnings. The Dow Jones Industrial Average fell 50 points, or 0.2%, to 24965. The S&P 500 rose 0.6%, while the Nasdaq Composite climbed 1.2%. Published:1/31/2019 10:41:38 AM
[Markets] Dow Industrials Fall in Early Trading U.S. stocks slumped early Thursday on the final trading day of the month, as investors continued to weigh global trade tensions and corporate earnings. The Dow Jones Industrial Average dropped 148 points, or 0.6%, to 24868, shortly after the opening bell. Join WSJ journalists as they discuss what’s ahead for financial markets in 2019. Published:1/31/2019 9:10:58 AM
[Markets] Tesla Stock Tumbles, Facebook Soars and 3 More Thursday Morning Movers SECTORFOCUS BLOG Earnings Everywhere. Stock were mixed in early trading Thursday: Dow Jones Industrial Average futures were 0.3% lower while S&P 500 futures were roughly flat and Nasdaq Composite futures were climbing 0. Published:1/31/2019 8:10:39 AM
[Markets] GE's stock soars, on track for biggest one-day post-earnings gain in over 10 years Shares of General Electric Co. rocketed 8.7% in very active premarket trade, putting them on track to open at the highest level seen during regular-session hours since Nov. 1, after the company missed fourth-quarter earnings expectations but beat on revenue. Volume swelled to 7.3 million shares about 90 minutes before the open, enough to make the stock the most actively traded in the premarket. If the stock's gain holds, it would be the biggest one-day gain since it ran up 9.3% on March 23, 2009, and the biggest one-day post-earnings jump since to soared 13.1% on Oct. 10, 2008. The has lost 9.9% over the past three months through Wednesday, while the Dow Jones Industrial Average has slipped 0.4%. Published:1/31/2019 7:10:50 AM
[Markets] Global Stock Rally Fades After Italy Slides Into Recession

The total capitulation by the Federal Reserve which confirmed all it cares about is the stock market, propelled world stocks to their best January on record on Thursday, although in a deja vu of last January, when stocks similarly soared only to flop spectacularly, traders were trying not to get too carried away.

An overnight rally in global markets, helped by a dovish capitulation by the Fed which sent the S&P 1.55% higher on Wednesday as well as strong results from Facebook that sent the stock 11% higher premarket, faded overnight following another contractionary print in China's official manufacturing PMI (49.5, up from 49.4 in Dec and above the 49.3 estimate), and the latest GDP print out of Italy which confirmed that the country had entered a recession for the first time in 6 years.

Even with the modest fade in sentiment, the MSCI world stocks index rose 0.5% and for the 20th day out of the last 23.  For January it is up more than 7.2% which is its best January since the index began in 1988 and the best performance in any month since December 2015. "The rally really does lift all boats,” said Pictet emerging market portfolio manager Guido Chamorro.

S&P futures and European stocks traded mixed on Thursday following catch up gains in Asia as investors took a pause in the wake of mixed corporate earnings despite now open support from the Federal Reserve which signaled an extended rate hike pause and announced it will be flexible on the path for reducing its balance sheet, sending the S&P to an 8-week high even as Nasdaq contracts stayed in the green, helped by better-than-expected results at Facebook. Meanwhile, Treasury yields and the dollar extended Wednesday’s declines. As a result, S&P futs were unchanged before President Trump was set to meet top China trade negotiator Chinese Vice Premier Liu He in the second day of the US-China trade talks.

Europe's Stoxx 600 Index trimmed early gains of as much as 0.6%, dragged lower by banks and telecos as energy companies rose following strong results from Shell. Italy's FTSE MIB index dropped on data showing the country fell into recession at the end of 2018, its first in 6 years.

GDP

Germany's DAX drifted 1% off session high, as Deutsche Bank weighs on the index following news the German lender could be forced to merge with Commerzbank by mid-year if its results dont improve. FTSE-100 up 0.6%

MSCI’s index of Asia-Pacific shares rose to its highest since October helped by a 1% jump on Japan’s Nikkei which shrugged off the normal headwind of a higher yen. The main emerging market index skipped to a more than 8 percent January gain while the Shanghai Composite Index climbed 0.3 percent despite data showing China’s factory activity contracted for a second straight month.

Emerging-market stocks were poised for their best monthly gain in almost three years and while Powell's dovish turn boosted currencies for a seventh day as the dollar extended its decline. The MSCI emerging-market equity index added to yesterday’s advance to head for a four-month high. The currency gauge was set for its longest winning streak in more than a year, with South Africa’s rand, Turkey’s lira and Brazil’s real leading gains since the U.S. central bank’s statement on Wednesday.

In FX, the Bloomberg Dollar index slipped to the the lowest since Sept. 27 as focus turned to US payrolls data due Friday; the greenback fell versus all G-10 peers, while the yen and risk-sensitive currencies led gains following the dovish Fed remarks; Treasuries rallied, outperforming Bunds. The euro reversed gains to trade below the 1.15 handle; the common currency initially shrugged off weaker-than-forecast German retail sales (-4.3% m/m in Dec. vs est. -0.6%) before edging lower despite euro-area growth in the three months through December matching estimates at 1.2% y/y, pressured by Italian GDP data.

With Wednesday’s statement the Fed helped ease fears that it would continue with plans to tighten policy even in the face of cooling economic data. The Fed said it would be “patient” about any future rate hikes and signaled flexibility in reducing its bond holdings, adding fuel to the emerging-market rally that began as 2018 drew to a close.

Investors now have a wary eye on meetings between Chinese negotiators and their counterparts in Washington as talks to resolve the trade dispute continue.

“I suspect the Fed news will trump everything, and people will look at the news, whatever comes in these earnings, against the backdrop of what the Fed is doing," Gavin Friend, senior market strategist at National Australia Bank in London, said in a podcast. “It could be the catalyst for a breakthrough in key levels in the dollar index against major currencies.”

Looking at today's key event, President Trump will meet with Chinese Vice Premier Liu He at 15:30 EST today. Trump also said it is highly unlikely he would be willing to include 'Dreamers' in negotiations regarding border security and government funding, while there were separate reports that the White House is said to prepare an emergency wall plan. US Democrats reportedly suggested openness for a compromise with President Trump, despite unveiling initial proposal for border security which doesn't include a physical barrier.

In the latest Brexit news, the EU stands ready to take Brexit to a last-minute summit rather than bend the knee to demands from UK PM May, according to diplomats citing the scheduled summit on March 21-22. UK PM May is also said to be putting together a series of measures in an attempt to woo Labour MPs to support her Brexit deal; measures include cash injections into leave-supporting deprived areas.

In the commodity markets, oil prices rose for a third day, pushed up by lower imports into the United States amid OPEC efforts to tighten the market, and as Venezuela struggles to keep up its crude exports after Washington imposed sanctions on the nation. U.S. West Texas Intermediate crude futures were at $54.47 per barrel, up 24 cents, or 0.4 percent, from their last settlement. Brent was up 36 cents, or 0.6 percent, at $62.01 per barrel.

Expected data include jobless claims and new home sales. Blackstone, Conoco, Ferrari, GE, Mastercard, UPS, and Amazon are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,684.25
  • STOXX Europe 600 up 0.1% to 358.96
  • MXAP up 1.2% to 156.58
  • MXAPJ up 0.8% to 510.49
  • Nikkei up 1.1% to 20,773.49
  • Topix up 1.1% to 1,567.49
  • Hang Seng Index up 1.1% to 27,942.47
  • Shanghai Composite up 0.4% to 2,584.57
  • Sensex up 1.8% to 36,246.18
  • Australia S&P/ASX 200 down 0.4% to 5,864.65
  • Kospi down 0.06% to 2,204.85
  • Brent futures up 0.4% to $61.90/bbl
  • Gold spot up 0.2% to $1,321.92
  • U.S. Dollar Index little changed at 95.31
  • German 10Y yield fell 2.3 bps to 0.165%
  • Euro up 0.06% to $1.1487
  • Italian 10Y yield fell 3.4 bps to 2.243%
  • Spanish 10Y yield fell 3.7 bps to 1.217%

Top Overnight News from Bloomberg

  • U.S. President Donald Trump will meet China’s top trade negotiator in the Oval Office on Thursday for high-level talks, with little indication that Beijing will bend to American demands to deepen economic reforms
  • Italy fell into recession at the end of 2018, capping a year of political turmoil, higher borrowing costs and fiscal tensions that took their toll on the economy. The contraction will put further pressure on the coalition government, which already appears to be fraying
  • The European Union is prepared to take Brexit down to a last-minute, high-stakes summit rather than cave into U.K. Prime Minister Theresa May’s demands over the next few weeks, diplomats said
  • The number of Chinese companies warning on earnings is turning into a flood as a deadline looms on Thursday, with no industry spared from worsening demand

Asian stocks were mostly higher across the board as they took impetus from their counterparts in US where sentiment was lifted on the back of earnings and a dovish Fed, while the region also digested better than expected Chinese PMI data. ASX 200 (-0.4%) and Nikkei 225 (+1.1%) both initially benefitted from the rising tide in the aftermath of the FOMC, although weakness in Australia’s largest weighted financial sector later dragged on the local bourse, while a slew of corporate updates shared the focus for Japan. Hang Seng (+1.1%) and Shanghai Comp. (+0.4%) conformed to the positive tone following better than expected Chinese Manufacturing PMI and Non-Manufacturing PMI data, while another PBoC liquidity injection ahead of next week’s Lunar New Year and ongoing US-China trade talks also contributed to the optimism. Finally, 10yr JGBs were initially higher as they tracked the upside in T-notes post-FOMC and as the BoJ Summary of Opinions unsurprisingly reiterated the need to persistently continue powerful monetary easing, although gains were later pared despite stronger 2yr auction results as upside was restricted by the firm risk sentiment.

Top Asian News

  • Ship Giants to Join Forces in Korea to Fend Off China Threat

All Major European indices initially opened higher [Euro Stoxx 50 -0.3%] continuing the overnight gains seen in Asia which benefited from a dovish Fed alongside strong earnings from Facebook, who were up 11.5% after-market; although European indices have since reverted much of this following an earnings dominated open. FTSE 100 (+0.5%) is benefitting from Shell (+4.1%) and Diageo (+4.0%) due to both companies’ earnings beating on expectations; Shell’s strong performance has subsequently led to outperformance in the energy sector (+2.3%). The SMI (U/C) is the underperforming sector, weighed on by Swatch (-5.4%) who are at the bottom of the Stoxx 600 after their FY group sales missed expectations; although losses are capped by strong performance in Roche (+2.2%) following their earnings. Other notable movers include, Unilever (-3.7%) who anticipate 2019 underlying sales growth at the bottom of their 3-5% range; and as such are down on the day. Elsewhere, Wirecard (+1.8%) have recouped some of the losses seen in the previous session due to an FT article reporting that an executive has been accused of using forged contracts. And BT (-2.6%) are down despite reiterating EBITDA guidance at the top end of expectations for FY18/19, as Philip Jansen is to take over as CEO from Gavin Patterson on Friday.

Top European News

  • Spain’s Economy Remains Bright Spot Amid Euro-Area Slowdown
  • Shell Pledges to ‘Do It All’ as Cash Surge Underpins Returns
  • As Wirecard Gets Bigger, So Does the Target on Its Back
  • Nestle Chairman Signals He’s Open to a Full Sale of Skin Health

In FX, odds looked stacked against the Greenback following an arguably even more dovish twist from the FOMC than many or most were looking for (effectively announced a pause in the tightening cycle, with patience going forward and not necessarily further hikes at this stage, or much more balance sheet reduction). This, coupled with some ‘strong’ sell signals for month end portfolio rebalancing saw the Buck slump to new recent lows vs G10 peers, while the DXY slipped under its 200 DMA (95.290) at one stage to 95.127 before stabilising and perhaps benefiting from early SOMA-related positioning (front-running ahead of the usual flow window).

  • JPY - The main beneficiary of post-Fed Dollar weakness and pronounced US Treasury curve bull-steepening, as Usd/Jpy reversed sharply from 109.50+ peaks into the FOMC to circa 108.50. Note, however, option expiries between 108.90-109.00 in 1 bn may limit further downside in the headline pair ahead of the NY cut.
  • AUD/NZD - Also revelling in the broadly bearish Usd hue, plus a revival in risk appetite, which partly Fed induced and underscored by improvements in China’s manufacturing and services PMIs overnight. Aud/Usd is consolidating off fresh multi-week highs circa 0.7275 having blasted through daily tech resistance around 0.7207 that had been containing advances ahead of the FOMC, while Nzd/Usd is pivoting 0.6900 with the Kiwi drawing additional momentum from S&P’s NZ rating outlook upgrade to positive from stable.
  • GBP/CHF/CAD - All firmer vs the US Dollar, albeit marginally, as Cable continues to trade heavily around 1.3150 amidst the ongoing Brexit hiatus, while the Franc remains in a 0.9900-50 range and Loonie meanders between 1.3120-55 awaiting some independent impetus from looming Canadian GDP and PPI data before a speech from BoC’s Wilkins.
  • EUR - The single currency finally breached its 100 DMA around 1.1443, and 1.1450 on its way to a 1.1515 peak vs the Usd, but has been undermined by more poor Eurozone data in the shape of German retail sales and Italian GDP (both negative and worse than forecast). Note, the aforementioned SOMA interests also have a tendency to weigh on Eur/Usd more than other Usd/major pairings.

In commodities, it was a mixed session in the commodities complex thus far, as the energy benchmarks pare back a bulk of yesterday’s Fed-induced gains with WTI (-0.2%) drifting into negative territory and Brent (+0.5%) off best levels. Oil prices have been on a downwards trajectory for most of the EU session with a brief Brent dip below USD 61.50/bbl, coinciding with the Iraqi oil ministry stating 40 oil wells are to be drilled in the Southern Manjoon oilfield. As reference the Manjoon oil field is estimated to have reserves of almost 12.6bln barrels. Otherwise, new-flow has been light in the complex with traders keeping a close eye on US-Sino trade developments with Vice Premier Liu He due to meet US President Trump at the Oval office around 20:30 GMT. On the Venezuelan front, Chinese energy giant PetroChina is reportedly planning to drop Venezuelan state-owned PDVSA amid the US oil sanctions on the company in the backdrop of Venezuela’s political turmoil. The sanctions seem to have a muted impact in the oil market thus far as US already stated that any shortfalls in output will be countered with the use of the US Strategic Petroleum Reserve. Meanwhile, prices are somewhat underpinned by the OPEC production cuts with figures stating output amongst the members fell 900k BPD, (vs. 800K planned at the latest meeting); as according to JBC.

Elsewhere, metal prices are supported by the still-subdued dollar with spot gold poised to end the month with a fourth consecutive monthly gain, prices reached levels last seen in May 2018 as the yellow metal advances above USD 1320/oz. Citigroup notes that the precious metal is benefitting from a weaker buck alongside safe-haven buyers hedging against the outcome of the US-China trade talks. Moving on, nickel and steel prices are expected to be weighed on by a soaring output of the raw material in China and Indonesia and as such, BMO analysts expect the nickel deficit to narrow to 96k tonnes in 2019 vs. current 129k tonnes.

Looking at the day ahead, we’re due to get Q4 ECI (+0.8% qoq expected), latest weekly initial jobless claims, November new home sales and the January Chicago PMI (2.3pt drop to 61.5 expected). Away from the data the ECB’s Coeure, Mersch and Weidmann are due to speak at separate events while earnings highlights include Amazon, Royal Dutch Shell, Unilever, DowDuPont, General Electrics, Diageo and ConocoPhillips.

US Event Calendar

  • 7:30am: Challenger Job Cuts YoY, prior 35.3%
  • 8:30am: Employment Cost Index, est. 0.8%, prior 0.8%
  • 8:30am: Initial Jobless Claims, est. 215,000, prior 199,000; Continuing Claims, est. 1.72m, prior 1.71m
  • 9:45am: Chicago Purchasing Manager, est. 61.5, prior 65.4
  • 10am: New Home Sales, est. 570,000, prior 544,000; MoM, est. 4.78%, prior -8.9%
  • 4pm: Total Net TIC Flows, prior $42.0b

DB's Jim Reid concludes the overnight wrap

If you’re in the U.K. I hope you’ve met today’s tax return deadline. I still haven’t quite finished mine and I’m a little stressed as to when I’ll get the chance. This is the most complicated of my life as during the last tax year I sold all my worldly possessions (apart from my family and my golf clubs) to buy our new house. I’ve had to go through 24 years of files to work out what I’d originally paid for all the assets that I subsequently sold. Surprisingly some were actually sold higher than where I’d bought them. Others less so! At least next year’s will now be easy as pretty much all I own is tied up in a vastly overpriced U.K. house in a post Brexit era.

On the positive side this last day of January will be greeted with more enthusiasm than the last day of the previous two very poor months for performance. The Fed helped supercharge this last night with US markets advancing to their highest levels since early December after delivering a surprisingly dovish policy statement at yesterday’s meeting. It marked the first Fed meeting day in which the S&P 500 rallied since Chair Powell’s tenure began, snapping a streak of seven straight losses on Fed meeting days. Has Mr Powell now yielded to the desires and moods of financial markets? Indeed, yesterday was the best “Fed day” performance since December 2014, when then-Chair Yellen struck a similarly dovish tone and the committee inserted a reference to being “patient” into the statement.

The p-word was again a key factor at yesterday’s meeting, as its re-introduction marked one of several notably dovish changes that supported yesterday’s market reaction. As a reminder, yesterday was the first of the previous “off” meetings with a press conference. There was also the normal policy statement, but no update to FOMC participants’ macro and interest rate forecasts.

The new policy statement had four notable changes that all leaned in a dovish direction: theyi) removed the “further gradual increases” description of the policy path, ii) added “market-based measures of inflation compensation have moved lower,” iii) added a reference to “muted inflation pressures,” and iv) added a sentence saying “the Committee will be patient as it determines what future adjustments” to rates will be appropriate. Taking items i and iv together, the committee therefore removed its tightening bias, and looking at ii and iii this indicates that incoming hard data and market pricing on the inflation front are the key variables to watch before the fed returns to its tightening track. The policy statement was accompanied by a separate note which committed to using the fed funds rate as the main policy tool and to maintaining enough excess reserves moving forward to maintain the “floor” system. That was consistent with our economists’ expectations, but still represents an official confirmation.

Our economists now believe that the risk to their call for two more rate hikes later this year and another one next year has shifted a bit further to the downside, though the substantial further lift to financial conditions resulting from yesterday’s announcement somewhat limits this downside risk. See here for their full summary of the meeting.

Now to recap the strong day of market rallies. Yields on two-year Treasuries rallied -6.5bps while 10-year yields fell a more modest -3.2bps, leading the yield curve to bull steepen +3.2bps. The dollar dropped -0.50%, with the euro gaining +0.41% and emerging markets outperforming, up +0.65%. The NASDAQ advanced +2.20%, while the S&P 500 and DOW rallied +1.57% and +1.77% respectively, though to be fair the major indexes were already around 1 percent higher on the session before the Fed gave the rally an extra boost. The main factor during morning trading in New York was positive earnings reports (more details below).

After the close markets also had to contend with a couple of bellwether numbers in the tech space, with Facebook and Microsoft highlighting results. Thesocial media giant beat expectations on profits, revenue, and active users, and shares rallied over 11% overnight. Microsoft’s earnings and sales figures were slightly below analysts’ expectations, and shares slid -4%. Qualcomm’s revenues were a touch soft as well, but a healthy beat on profits helped shares rally over 2%. Net-net, NASDAQ futures are up +0.42% while the rest of Asia is taking the lead from Wall Street with healthy gains for the Nikkei (+1.16%), Hang Seng (+1.06%), Shanghai Comp (+0.69%) and Kospi (+0.36%).

We haven’t heard any sound bites to come from the US-China trade talks as of yet with talks continuing today however sentiment overnight has also partially been helped by the January PMIs in China where both the manufacturing (54.7 vs. 53.8 expected) and services (49.5 vs. 49.3 expected) prints came in higher than expected. The manufacturing reading also rose 0.9pts from December and it leaves the composite 0.6pts higher at 53.2, and therefore the highest since September last year.

Back to yesterday, where the earnings highlights included a +6.83% rally for Apple (post the numbers after the close on Tuesday), Boeing (+6.30%), AMD (+19.95%) and Anthem (+9.12%). The Boeing numbers were notable insofar as the company reported $100bn of annual sales for the first time in its 102-year history, while also forecasting further revenue growth for this year. Management also eased some of the recent concerns over China’s outlook, saying “we continue to see strong demand in China.”

Closer to home, Italy is starting to creep up on people’s radars again. Yesterday there was some focus on a Bloomberg story suggesting that Deputy PM Salvini is facing internal pressure to force early elections due to frustration over the League’s coalition partner 5SM. Cabinet Undersecretary Giorgetti is one who has publically voiced frustration. This story is also having legs given the rising support for the League based on a weekly average of opinion polls (Bloomberg) which puts their support at 32% (from 20% in April 2018) versus 25% for the 5SM (from 35%). The same article does however go on to say that Salvini is not looking at early elections and is supposedly talking down such expectations within the party. That said we’ve become more than accustomed to elections in Italy with 65 governments since 1946, equivalent to a new government every 1.1 years and 91 in the last 117 years.

Markets are also well versed on recessions in Italy with 5 since the adoption of the euro (equivalent to an average real GDP growth rate of +0.12% qoq). This morning we get a first look at Q4’18 GDP with the consensus expecting a -0.1% qoq reading. As a reminder this follows -0.1% qoq in Q3 and so assuming the consensus is correct, a negative reading will push Italy into another technical recession. For all the above BTPs outperformed yesterday with 10y yields -3.4bps lower compared to -1.1bps for Bunds and -1.5bps for OATs. At 2.596%, yields are now rivalling July levels from last year. It’s worth adding that the FTSE MIB (+0.36%) also outperformed the DAX (-0.33%) yesterday and performed in line with the STOXX 600 (+0.36%).

As for Brexit it was another day of swings and roundabouts for Sterling which traded as high as $1.315 and as low as $1.306. The newsflow mainly centered around the EU side yesterday with Juncker saying that a “disorderly Brexit is now more likely” and that the “withdrawal accord won’t be renegotiated”. That’s not a great surprise as it’s a reiteration of what Juncker has said previously. Ireland PM Varadkar also said that the “EU is not offering a renegotiation of a deal” and there are “no plans to organize an emergency summit”. Ireland’s Foreign Minister Coveney also said that he’s skeptical that there are workable alternatives to the backstop, a view reinforced by Angela Merkel’s spokesman who said “the opening of the exit deal is not on the table”. Comments then that hardly fuel much confidence that the stalemate will be broken. Over to Mrs May. My personal view is that there is scope for a deal but that the EU and Irish might conclude that Parliament is so anti no-deal and slowly gaining more control that if they hold off long enough the chamber will find a way of forcing the government to commit to this. This weakens the UK’s negotiating position in my opinion. As bad as no-deal might be, if you’re negotiating you need the genuine threat of it to strengthen your hand.

Back to the continent, where yesterday in Germany, the Economy Ministry officially slashed its forecast for 2019 growth to 1.0% compared to the 1.8% forecast made in October. That would be the weakest since 2013. It’s worth noting that Bunds are back to within just 3.5bps off the early January closing lows, which at the time were the lowest since 2016.

As far as yesterday’s data was concerned, in the US the ADP employment change report for January surprised to the upside at 213k (vs. 181k expected) ahead of payrolls tomorrow while pending home sales for December printed at -2.2% mom (vs. +0.5% expected). In Germany consumer confidence for Germany ticked up 0.3pts to 10.8 while for the Euro Area, economic, business and services confidence indicators all weakened marginally. Here in the UK net consumer credit was slightly weaker than consensus in December (0.7bn vs. 0.8bn expected) while mortgage approvals fell slightly to 63.8k (vs. 63.1k expected).

To the day ahead now, where the early data this morning comes from Germany with the December retail sales report. January house price data in the UK follows before we get the preliminary January CPI print in France (-0.6% mom expected) and a first look at Q4 GDP for the Euro Area. The consensus is for +0.2% qoq which would have the effect of lowering the annual rate to +1.2% yoy (from +1.6%). At the same time we’ll also get the aforementioned Q4 GDP for Italy which is expected to come in at -0.1% qoq and therefore confirm two consecutive negative quarters and a technical recession. Across the pond today we’re due to get Q4 ECI (+0.8% qoq expected), latest weekly initial jobless claims, November new home sales and the January Chicago PMI (2.3pt drop to 61.5 expected). Away from the data the ECB’s Coeure, Mersch and Weidmann are due to speak at separate events while earnings highlights include Amazon, Royal Dutch Shell, Unilever, DowDuPont, General Electrics, Diageo and ConocoPhillips.

 

Published:1/31/2019 6:42:36 AM
[Markets] The Dow Rises 435 Points Because Bulls Love a Dovish Fed The Dow Jones Industrial Average surged 1.77%, to 25,014.86. The S&P 500 added 1.55% to close at 2681.05, and the Nasdaq Composite gained 2.20% to end at 7183.08. Published:1/30/2019 4:37:04 PM
[Markets] Dow Cracks 25,000 After Fed Holds Rates Steady, Apple and Boeing Surge Higher The Dow Jones Industrial Average rose sharply Wednesday, getting a boost from earnings from Apple Inc. Apple guided to a relatively strong fiscal second quarter after beating reduced earnings and revenue estimates in its first quarter. Boeing soared 6.25% after the aerospace giant smashed Wall Street's fourth-quarter earnings estimates. Published:1/30/2019 3:38:03 PM
[Markets] Stocks, Bonds, Gold Soar As Powell Breaks Curse With Dovish Capitulation

There is only one clip for this...

Jay Powell Broke the curse - after 7 straight losing sessions on FOMC days (the most ever for a Fed Chair), The Fed's total capitulation today was greeted with a rally (helped dramatically by Apple and Boeing)

  • Oct 3: Powell - "economy is overheating"

  • Nov 2: Trump - “not even a little bit happy with my selection of Jay."

  • Jan 30: Powell: - "economy is slowing"

Stocks legged up further when Powell said during his presser that he "doesn't want the balance sheet unwind to cause market turbulence."

But he tried to reassure:

"We don't react to most things that happen in the financial markets. ... When we see a sustained change in financial conditions, then that's something that has to play into our thinking."

But markets knew better - gold and stocks (and bonds) bid as the dollar dumped...

Rate trajectory expectations tumbled and stocks soared on that dovishness...

 

The Dow is up 16% from the day Trump said it's "tremendous opportunity to buy" (and Mnuchin called the plunge protection team).

Over 50% of the Dow's gains today came from Apple and Boeing...

 

All the major indices broke above key technical levels today (Dow > 200DMA, S&P and Nasdaq > 100DMA) but were unable to hold them...

 

VIX tumbled along with credit spreads...

 

Treasury yields tumbled after The Fed statement...

 

10Y Yield closed at 2.69% - breaking the 18-day streak of 2.7x% handles...

 

2Y Yields tumbled and are near to generating a 'death cross' implying further downside to rates...

 

The yield curve bull-steepened up to 55bps (2s30s)...

 

And we note that TLT just generated a "golden cross" suggesting Bond prices are set to rise further...

 

The dollar puked on the dovishness...

Tumbling to its weakest close since September...

 

Cryptos surged overnight...

 

Which sent yuan surging - not good for Chinese exports - to its strongest against the dollar since July 2018...

 

Commodities are higher across the board as the dollar dumped...

 

Gold soared above $1325 on the back of the biggest 4-day gains since Brexit...

 

WTI surged above $54 today pushing January's gains near 20% - the best month since April 2015 and best January ever...

 

 

 

 

 

 

Finally, this is what capitulation looks like - The Fed today confirmed the market's shift from anticipating 50bps of rate-hikes in 2019 to now expecting rate-cuts...

So much for Fed independence - its rescue the market at all costs...

We give the final world to Peter Schiff (@PeterSchiff):

"Powell's finale statement was that the markets wanted clarity on the balance sheet reduction, and that the Fed was now providing it. The truth is that until recently the markets had clarity and did not like what they saw. So it's not clarity the Fed is providing, but relief! "

Published:1/30/2019 3:06:45 PM
[Markets] Dow ends up over 400 points to above 25,000 level after Fed rate decision Dow ends up over 400 points to above 25,000 level after Fed rate decision Published:1/30/2019 3:06:45 PM
[Markets] NY AG and Gov. to investigate Apple over FaceTime privacy breach New York Attorney General Letitia James and Gov. Andrew Cuomo said Wednesday they are launching an investigation into Apple Inc.'s failure to warn its customers about a privacy breach involving its FaceTime service. A recent bug allowed users to receive audio and video from the device of the person they were calling even before the person had accepted or rejected the call, they said in a statement. "New Yorkers shouldn't have to choose between their private communications and their privacy rights," said James. "This FaceTime breach is a serious threat to the security and privacy of the millions of New Yorkers who have put their trust in Apple and its products over the years." The authorities are accepting customer complaints about the breach and have set up a helpline at 1-800-697-1220 that will be open Monday to Friday from 8.30 a.m. to 4.30 p.m. There are reports that the bug was brought to Apple's attention more than a week before the company shared it widely and took action to disable the feature of the app that required a fix, they said. Apple shares were up 6.7% Wednesday after its quarterly earnings. The stock has fallen 0.9% in the last 12 months, while the Dow Jones Industrial Average , which counts it as a member, has fallen 4% and the S&P 500 has fallen 5%. Published:1/30/2019 2:39:34 PM
[Markets] The Dow is now up more than 500 points as investors like what they hear from Fed The Dow is now up more than 500 points as investors like what they hear from Fed Published:1/30/2019 2:07:17 PM
[Markets] Dow Jumps Higher After Fed Holds Rates Steady, Apple and Boeing Surge Higher The Dow Jones Industrial Average rose sharply Wednesday, getting a boost from earnings from Apple Inc. Apple guided to a relatively strong fiscal second quarter after beating reduced earnings and revenue estimates in its first quarter. Boeing soared 7.1% after the aerospace giant smashed Wall Street's fourth-quarter earnings estimates. Published:1/30/2019 1:08:36 PM
[Markets] Dow Leads Stock Market Up, As Earnings Lift Apple, Boeing, McDonald's The stock market continued to reward positive earnings reports Wednesday, as three Dow Jones components charged ahead. Meanwhile, preliminary trade talks got underway with China, and the Federal Reserve prepared to release its policy statement at 2 p. Published:1/30/2019 11:06:01 AM
[Markets] Apple's stock approaches, then backs away from 50-day moving average Shares of Apple Inc. ran up 5.1% in morning trade Wednesday, in the wake of fiscal first-quarter results, but have backed away from apparent chart resistance at the 50-day moving average (DMA). The stock was up as much as 5.6% at its intraday peak of $163.33 before paring some gains, while the widely-watched 50-DMA, which many Wall Street technicians use to track the short-term trend, extended to $163.49, according to FactSet. The last time the stock traded above the 50-DMA was Nov. 1. Meanwhile, the Nasdaq Composite was up 0.9%, and has closed above its 50-DMA every day since Jan. 15, and the Dow Jones Industrial Average was up 1.3%, and has been above its 50-DMA since Jan. 17. Published:1/30/2019 10:35:38 AM
[Markets] Dow Posts Sharp Gains as Apple and Boeing Surge, Wall Street Awaits Fed Decision The Dow Jones Industrial Average rose sharply Wednesday, getting a boost from earnings from Apple Inc. Apple guided to a relatively strong fiscal second quarter after beating reduced earnings and revenue estimates in its first quarter. Boeing soared 5.4% after the aerospace giant smashed Wall Street's fourth-quarter earnings estimates. Published:1/30/2019 9:05:24 AM
[Markets] US STOCKS SNAPSHOT-Wall St opens higher on Apple, Boeing boost U.S. stocks opened higher on Wednesday, as results from Apple Inc and Boeing Co calmed nerves ahead of the Federal Reserve's update on monetary policy and fresh U.S.-China trade talks. The Dow Jones Industrial ... Published:1/30/2019 8:37:16 AM
[Markets] Boeing stock jumps after profit beat, to give 150-point boost to Dow Boeing stock jumps after profit beat, to give 150-point boost to Dow Published:1/30/2019 7:34:31 AM
[Markets] Stock Futures Surge On Earnings, Dow Jones Stock Eyes Breakout Apple and Boeing drove the Dow Jones industrials to an early lead Wednesday, as markets looked toward China trade talks and Federal Reserve policy news. Published:1/30/2019 7:34:31 AM
[Markets] Wall Street Futures Surge After Boeing Blast, Apple Beat Revive Earnings Bulls U.S. equity futures suggest solid gains at the start of trading on Wall Street, with the Dow called 250 points higher after much stronger-than-expected quarterly earnings from Boeing . Markets unwilling to reach for risk ahead of today's Federal Reserve rate decision, with dollar index hovering at a two-week low and Treasury bonds yields falling in the face of slowing growth and inflation forecasts. U.S.-China trade talks kick-off in Washington as Apple CEO Tim Cook says he's "optimistic' that tensions have cooled over the past month. Published:1/30/2019 7:07:08 AM
[Markets] Apple's stock surge to add nearly 60 points to the Dow's price Shares of Apple Inc. shot up 5.4% in premarket trade Wednesday, after the technology giant's fiscal first-quarter results, which were mixed but better than many had feared. The stock's price gain would add about 56 points to the Dow Jones Industrial Average's price, or more than half the Dow futures gain of 98 points, or 0.4%. Apple's stock is on track to open at the highest level seen during regular-session hours in six weeks, or Dec. 19. The stock has tumbled 27.5% over the past three months through Tuesday, while the Dow has slipped 1.2%. Published:1/30/2019 6:35:25 AM
[Markets] Apple's share surge looks to add nearly 60 points to the Dow at Wednesday open Apple's share surge looks to add nearly 60 points to the Dow at Wednesday open Published:1/30/2019 6:35:25 AM
[Markets] Global Markets Rise Ahead Of Fed And Trade Talks As Gold Hits 8 Month High

World stocks inched up and the dollar steadied on Wednesday after Apple failed to disappoint investors and reported earnings, meeting Wall Street's lowered expectations, and sending its stock higher in a muted session as investors braced for a barrage of catalysts, from US-China trade talks and the Fed meeting to an avalanche of corporate earnings. The pound halted a two-day decline and U.K. shares rallied after lawmakers voted to renegotiate Brexit.

The MSCI world equity index was fractionally in the green following gains in Asia overnight and a muted start to trading in Europe. The pan-European STOXX 600 benchmark index was flat.

US equity futures all rose, supported by with Apple shares which extending gains in pre-market trading after first-quarter earnings reassured investors that the worst may be past, although it remains very much unclear if Apple can pivot from a cell phone to a "services" company, especially with services revenue growth slowing sharply. In any case, investors were relieved that there was no more bad news after the company shocked financial markets at the start of this month with a revenue warning that sparked fears that U.S.-China trade tensions were taking a toll on the tech sector.

“Apple earnings delivered enough for investors to come back on board,” said Markets.com analyst Neil Wilson. “Although Apple still faces big questions like pricing structure, upgrade cycles, FX headwinds and weaker Chinese demand, we did get a positive answer to the key question on whether services margins can help rerate the stock higher.”

The Stoxx Europe 600 Index was mixed after data showing euro-area economic confidence extended its worst losing streak in a decade, ahead of Sino-U.S. trade talks and a closely watched Fed announcement in which Chair Powell is likely to disappoint markets. The UK's FTSE 100 traded higher by 0.9%, climbing for a second day and outperforming continental bourses, with CAC also rising 0.5%; DAX trades lower by 0.4%. Investors fretted about the possibility of a “no-deal” British departure from the European Union after UK lawmakers instructed Prime Minister Theresa May on Tuesday to reopen the treaty she had negotiated with Brussels to replace a controversial Irish border arrangement.

Goldman Sachs upped its “no-deal” Brexit probability to 15 percent from 10 percent, and cut the chance of Brexit not happening at all to 35 percent from 40 percent according to Reuters. “Tuesday’s Brexit amendments offered little additional clarity to anyone,” Goldman Sachs analysts wrote.

Earlier in the session, Stocks in Japan and China slid, while they increased in South Korea, Australia and Hong Kong. The yuan advanced to the highest since July on hopes for the U.S.-China trade talks getting underway in Washington. Growing fears that central banks are preparing to reflate "whatever it takes", helped send gold to an eight-month high, underscoring lingering investor caution.

While Apple CEO Tim Cook said trade tensions between the United States and China were easing, lifting the mood before another round of official talks on Wednesday in Washington, that may prove another unreasonably optimistic take. The two sides are meeting next door to the White House in the highest-level talks since U.S. President Donald Trump and his Chinese counterpart Xi Jinping agreed a 90-day truce in their trade war in December.

“I expect that the Washington summit will help pave the way for an extension of the trade truce. This is also what markets expect and a failure of the talks is not priced in at all,” said Giuseppe Sersale, fund manager at Anthilia Capital. Which is also why the risk of downside following the trade talks is far greater.

Elsewhere, following lackluster corporate earnings in January, all eyes will be on tech giants including Facebook and Microsoft when they report today. That will be the backdrop for the Fed’s policy decision and its assessment of the U.S. economy, while the arrival of Chinese negotiators in Washington for talks to resolve the ongoing trade dispute adds another layer of complexity.

Expectations from Wednesday’s Federal Reserve rates review are that policymakers will reinforce their recent dovish stance, given signs of a slowdown in the U.S. economy. “We believe the Fed is likely to show the flexibility markets are seeking at its upcoming meeting, as it balances still solid domestic economic growth against slower global growth and less significant, but persistent, domestic risks,” said John Lynch, Chief Investment Strategist at LPL Financial.

And yet nobody really has any clue what happens next: “Such is the extent of uncertainty across global markets at the moment that investor sentiment is struggling to gain any meaningful traction,” Simon Ballard, a macro strategist at First Abu Dhabi Bank, said in a note. “The overarching veil of caution suggests that near-term positive momentum potential will likely remain limited. It is still very much global trade and the global rates outlook that sit at the heart of investor focus.”

European bond markets little changed across core and periphery, trading in tight ranges, as are USTs. BTPs shrug off talk of early Italian election, with 5-and 10-year auction well-received. Bloomberg USD index also steady, with Aussie dollar leading G-10 gainers, followed by the pound. Swedish krona edges lower after soft consumer confidence data. In commodities, WTI and Brent both up ~0.3%, metals trading higher across the board

In FX, the Bloomberg Dollar Spot Index was confined to a narrow range as investors look ahead to the Federal Reserve policy decision and U.S.-China trade talks. The pound climbed above $1.31 as bias remained to fade dips, while the Aussie led gains versus its G-10 peers as inflation data beat forecasts. Emerging-market currencies climbed to a fresh seven-month high: the Australian dollar surged 0.5 percent as inflation topped forecasts, while the Chinese yuan reached a six-month high in the offshore market before the trade talks. Elsewhere, the Mexican peso declined as Fitch Ratings cut the debt of state oil company PEMEX to one notch above junk.

Iron ore surged after Brazil’s Vale SA, the world’s largest producer, outlined plans to cut output after a deadly dam breach. Iron ore is now up nearly 30% since November.

WTI crude gained as traders assessed the impact of U.S. sanctions against Venezuela, a major exporter. Brent (+0.6%) and WTI (+0.7%) prices are firmer as the complex reacts to the smaller than expected build in yesterday’s API Crude Stocks alongside reports that Saudi Arabia are planning on further oil production cuts and exports next month; additionally, believing that SPR releases are a solution to the US’s Venezuela oil shortage problem. Follows sanctions announced on Monday which aim to stop the proceeds from PDVSA’s crude exports of around 500,00 BPD to the US.

In addition to the above, expected data include mortgage applications and pending home sales. Alibaba, AT&T, ADP, Boeing, McDonald’s, Microsoft, Nasdaq, Facebook, Mondelez, Qualcomm and Visa are among the slew of companies reporting earnings

Market Snapshot

  • S&P 500 futures up 0.2% to 2,645.50
  • STOXX Europe 600 up 0.08% to 357.51
  • MXAP up 0.1% to 154.52
  • MXAPJ up 0.4% to 504.93
  • Nikkei down 0.5% to 20,556.54
  • Topix down 0.4% to 1,550.76
  • Hang Seng Index up 0.4% to 27,642.85
  • Shanghai Composite down 0.7% to 2,575.58
  • Sensex down 0.06% to 35,570.42
  • Australia S&P/ASX 200 up 0.2% to 5,886.70
  • Kospi up 1.1% to 2,206.20
  • German 10Y yield fell 0.2 bps to 0.198%
  • Euro down 0.04% to $1.1428
  • Italian 10Y yield fell 3.1 bps to 2.277%
  • Spanish 10Y yield rose 1.6 bps to 1.254%
  • Brent futures up 0.6% to $61.68/bbl
  • Gold spot up 0.1% to $1,313.36
  • U.S. Dollar Index little changed at 95.78

Top Overnight News from Bloomberg

  • U.K. PM Theresa May promised to renegotiate the most contentious part of her Brexit deal after it was rejected by Parliament. She will now head to Brussels with the threat of economic chaos still looming over her country; The Irish government rejected any softening of the so-called backstop
  • Despite the best efforts of central bankers, investors are betting the next phase of European monetary policy will look a lot like the last one; market expectations for the peak rate in this cycle are being slashed, and the implied timing for a first hike since 2011 is being pushed out further by the day
  • Iron ore markets were convulsed after Brazil’s Vale outlined plans to cut output after a deadly dam breach. Prices surged, with futures rallying more than 9%
  • Italian Deputy Prime Minister Matteo Salvini is facing pressure to force an early election this year from lieutenants frustrated by dealing with an unruly coalition partner
  • Jerome Powell will debut the Fed’s latest communications strategy -- a press conference eight times a year -- by emphasizing patience in raising interest rates, a message the chairman struggled to deliver in December
  • From Hong Kong to Japan, exports data for December showed a marked downturn as supply-chain disruptions triggered by U.S.-China tensions and a cyclical slowdown in the world economy, led by China, hit the trade-reliant region
  • Brexit will probably split BOE policy makers on how to respond
  • U.S. and China are sitting down Wednesday for the first of two days of talks aimed at finding a solution to a trade war. Administration officials and other people familiar with the state of play say the two sides remain far apart
  • Several senior members of Matteo Salvini’s League are urging him to capitalize on a growing lead in opinion polls to ditch the anti-establishment Five Star Movement
  • A lack of clarity surrounding the U.K.’s departure from the EU pushed confidence among British employers this month to levels last seen in the wake of the Brexit vote
  • Average daily foreign-exchange turnover in the U.K. dropped to $2.6t in October 2018, a 4% fall from the record high of $2.7t in April 2018, according to Bank of England data. In North America, daily volume dropped 0.1% to $995b

Asian stocks traded indecisively with the region tentative heading into this week’s key risk events and as participants also digested better than expected Apple results, which only provided brief support to US equity futures after-hours. ASX 200 (+0.1%) and Nikkei 225 (-0.4%) were both subdued although strength across commodities just about kept the Australian benchmark afloat, while Tokyo stocks were weighed by currency effects and uninspiring corporate updates. Elsewhere, Hang Seng (-0.1%) and Shanghai Comp. (-0.3%) declined at the open amid broad weakness in the region and with China Life Insurance shares heavily pressured after it flagged a 50%-70% drop in FY net, although Chinese markets then rebounded off lows amid a non-committal tone ahead of the looming US-China trade talks and after the PBoC injected liquidity for the 1st time in 8 days. Finally, 10yr JGBs were uneventful with prices stuck to within this week’s tight range amid the indecision seen across the region and with an unchanged BoJ Rinban announcement largely ignored.

Top Asian News

  • Chinese Firms Slash Profit Forecasts, Fueling Slowdown Fears
  • JPMorgan Names Filippo Gori as Deputy CEO for Asia Pacific
  • Malaysia Lets Goldman Decide How Much of $7.5b Bank Wants to Pay
  • Hong Kong Dollar Spikes as Pre-Holiday Liquidity Tightness Seen
  • Calm Has Descended on Asian Stocks Ahead of Fed, Trade Talks

Major European equities have been indecisive [Euro Stoxx 50 U/C] taking lead from the indecisive trade seen overnight ahead of today’s FOMC rate decision and press conference. Benefitting from sterling effects the FTSE 100 (+1.2%) is the outperforming index, with Burberry (+2.5%) in the green in sympathy with LVMH (+6.3%) after their earnings; and stating they are cautiously confident regarding 2019. Other luxury names such as Kering (+3.4%), Christian Dior (+4.0%) and Pandora (+2.0%) are also up in sympathy with LVMH. Sectors are mixed with outperformance in consumer discretionaries and some underperformance in telecom names. Other notable movers include Atos (+8.1%) who, following their earnings and 2019 guidance confirmation, are at the top of the Stoxx 600. Elsewhere, Novartis (-1.2%) are down following results, where the Co. missed on Q4 sales and operating income, as are Siemens (-1.5%) after their Q1 revenue came in just under expectations; Co. also stating they have made no further concessions on the Alstom (-0.5%) merger and will not pursue it at all costs.

Top European News

  • Siemens CEO Fires Broadside Against EU With Rail Deal on Brink
  • Atos to Hand Out Worldline Shares, Paving Way for More Deals
  • Santander Seeks to Move Past Orcel Fiasco With New Plan
  • U.K. Lending Slows as Brexit Uncertainty Hangs Over Outlook
  • Why Irish Reckon May Still Boxed In on the Brexit Backstop

In FX, the DXY index and Greenback overall looking to the Fed for more direction, as the DXY meanders between 95.875-682.

  • AUD - Firmer than expected Australian Q4 CPI data has helped to revive a flagging Aud/Usd, with the pair back up on the 0.7200 handle and close to daily chart resistance around 0.7207, while Aud/Nzd has rebounded firmly over 1.0500, as the Kiwi continues to meet offers around 0.6850 vs the Usd.
  • GBP - The next best G10 currency, as initial post-UK Parliamentary Brexit vote downside is reversed to an extent in Cable and Eur/Gbp, with the former reclaiming 1.3100+ status and perhaps deriving some respite from a bounce ahead of the 200 DMA (circa 1.3055). Meanwhile, the cross has recoiled relatively sharply from fresh peaks just shy of 0.8760 towards 0.8715, and perhaps the bulk of noted month end buying interest has now been transacted.
  • CAD - Another major ‘outperformer’, or at least holding a firmer line vs its US counterpart within a 1.3235-85 range, and still cushioned by the recuperation in crude prices. Ahead, perhaps a little independent impetus via Canadian average weekly earnings data, but in truth this pales against the sheer volume of US releases on tap, and of course the impending FOMC.
  • JPY/EUR - Both flat to a tad softer vs the Dollar, and very confined in the run up to the Fed, as Usd/Jpy continues oscillate between 109.00-50 amidst undulations in broad risk sentiment, and the single currency remains entrenched in a 1.1400-50 band (with the topside also ‘protected’ by the 200 DMA around 1.1444).
  • CHF/SEK - The Franc and Krona have extended recent losses/underperformance/retracements, with the Chf perhaps undermined by weaker than forecast Swiss KoF and ZEW sentiment surveys, while the Sek will not have been helped by declines in consumer and industrial confidence that will merely keep the Riksbank on the back-burner. Usd/Chf is hovering above 0.9950 and Eur/Sek just below 10.3900.

In commodities, Brent (+0.6%) and WTI (+0.7%) prices are firmer as the complex reacts to the smaller than expected build in yesterday’s API Crude Stocks alongside reports that Saudi Arabia are planning on further oil production cuts and exports next month; additionally, believing that SPR releases are a solution to the US’s Venezuela oil shortage problem. Follows sanctions announced on Monday which aim to stop the proceeds from PDVSA’s crude exports of around 500,00 BPD to the US. Gold (+0.1%) is trading in the middle of its USD 6/oz range, on a steady dollar ahead of today’s FOMC decision. Elsewhere, Vale’s CEO announced they will take up to 10% of the Co’s output offline to decommission 10 dams following Friday’s dam burst.

Looking at today’s calendar, today's Fed meeting outcome will no doubt hog much of limelight while the data highlights in the US this afternoon include the January ADP employment change report (183k expected) and December pending home sales (+0.5% mom expected). In Europe this morning we’re kicking off with the December import price index reading in Germany followed by December consumer spending data in France, December money and credit aggregates data in the UK and then January confidence indicators for the Euro Area. Today is also the day that trade talks are due to resume between the US and China with Vice Premier Liu Ge meeting with US Trade Representative Lighthizer and Treasury Secretary Mnuchin in Washington. Finally, it’s a busy day for earnings with reports due from Microsoft, Facebook, Alibaba, Visa, AT&T, Novartis, Boeing and McDonald’s.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior -2.7%
  • 8:15am: ADP Employment Change, est. 181,000, prior 271,000
  • 10am: Pending Home Sales MoM, est. 0.5%, prior -0.7%; YoY, est. -7.0%, prior -7.7%
  • 2pm: FOMC Rate Decision
  • U.S. BEA Working With Census, OMB on Economic-Data Schedule

DB's Jim Reid concludes the overnight wrap

Morning from Dublin where there will be lots of eyebrows raised this morning after the events in U.K. parliament last night. However if you think Brexit negotiations are currently in a deep freeze then spare a thought for those in the Midwest of the US today who will face a once in a generation polar vortex which will bring temperatures down to -53C (-64F). Chicago will be even colder than Antarctica and see lows of -27F, with a wind chill factor making that feel closer to -50F. Good luck to all our readers there. Rather worryingly Chicago police say people are being robbed at gunpoint of their coats and those hideously expensive Canada Goose jackets that were two a penny in Davos last week have been especially targeted. The good news is that if you’ve been desperate to pick up a ticket to Hamilton they are reselling at half-price for tonight in Chicago as no-one wants to brave the elements. So for those that don’t mind the cold there’s your opportunity. Don’t wear your Canada Goose jacket out though.

One area where there was a thawing out last night was that U.K. Parliament now have a mandate for a Brexit deal. The problem is that this mandate has already been ruled out by the EU. Nevertheless Brussels have been asking the U.K. what they want for the last two and a half years and finally we have an outline of what they want. Parliament now seems happy to vote for the withdrawal agreement as long as the Irish backstop is removed/amended in a satisfactory manner.

To recap in as brief a way as possible as everyone might be bored by now, the only amendments that passed were a non-binding one (Spelman) that voted against leaving with no-deal and one (Brady) that asked the government to renegotiate the withdrawal agreement to accommodate an alternative arrangement to the Irish backstop. So Mrs May will go to Brussels and try to reopen negotiations on an agreement that the EU have already said before and after last night’s votes that they won’t reopen. Whether diplomacy can work in the background remains to be seen.

All the reaction I’ve seen from the market overnight talks about it in terms of it being a unicorn-like mission with absolutely no chance of success. However stranger things have happened. Maybe I’m being naive but both the EU and the U.K. don’t want there to be a no-deal and both parties are categoric that there can’t be a hard border in Ireland. To me there is scope for negotiations on that basis. However I haven’t heard anyone that agrees with me yet. Indeed DB’s Oli Harvey downgraded Sterling to neutral overnight and overall thinks developments have on balance become more negative. His updated probabilities are; 1) May pivots to a softer Brexit stance via the Political Declaration on the Future Relationship: 15% (previously 40%), 2) Last-minute ratification on the existing deal in the face of no alternatives 50% (previously 30%), 3) Second referendum: 5% (previously 15%), 4) New election: 15% (previously 10%), 5) No deal Brexit: 15% (previously 5%). See the full report here . In market terms Sterling dropped as various soft or delayed Brexit motions failed to pass and closed -0.74% at $1.3066. Overnight in Asia the Pound has consolidated around those levels and as we go to print it’s at $1.3086.

Moving on, we’re now firmly into the business end of the week with the next event for markets to navigate being the first Fed meeting of 2019 tonight. With neither the consensus nor the market pricing in any chance of a hike, most observers will instead be watching to see if the current narrative is maintained. Our US economists expect the most meaningful alteration to the post-meeting statement to be to the forward guidance language. Indeed at the December meeting the statement noted that the “Committee judges that some further gradual increases” in rates would be consistent with the Fed’s dual mandate. Our team believe that this statement is now too strong given intermeeting developments and expect the language to be softened by noting that the Fed expect “further gradual adjustments” in policy will be consistent with the Fed’s objectives. As for Powell’s press conference, our colleagues expect a similar message to be reiterated with the unspoken takeaway likely to be that June is the earliest possible date for another rate increase. The balance sheet topic is likely to be a talking point although our team don’t expect any major announcements.

As you’ll see in the day ahead at the end, we’ve also got a bumper day for earnings scheduled, especially in the tech sector, while trade talks between the US and China also formally get underway again today. Yesterday, in an interview with Fox, Treasury Secretary Mnuchin confirmed that “everything is on the table” in response to a question about Trump potentially dropping all tariffs in return for a good deal. For what it’s worth yesterday our China Chief Economist Zhiwei Zhang published a short update in which he concluded that he expects the two governments to reach a partial trade deal by March 1st, with China making concessions to buy US goods, lower tariffs, and open part of the service sector. Zhiwei believes that the US may stop imposing more tariffs in exchange. That all said, he also expects the Huawei case to extend beyond March.

Back to markets, where despite Mnuchin’s comments, corporate earnings and the tech sector spoilt hopes of a bounce back for US equities with the NASDAQ (-0.81%) at the forefront of declines along with the NYSE FANG index (-2.09%) which plummeted for its fifth daily decline in the last seven sessions. After the bell, however, Apple beat earnings expectations and sparked a rally, with shares up +5.9% in post-market trading. This helped NASDAQ futures retrace most of their declines from yesterday, with front-month contracts up +0.66% overnight. Digging into the results, Apple beat on headline earnings, with EPS at $4.18 versus consensus $4.17, and also on revenue, at $84.3bn versus estimates for $83.9. Notably, revenue fell especially hard in China ($13.2bn from $17.9bn last year), as signaled in the company’s earlier guidance.

Prior to this the S&P 500 closed down -0.15% while the DOW (+0.21%) just about managed to stay onside thanks to some positive large-cap earnings. Better than expected results from 3M (+1.94%) and Pfizer (+3.16%) seemingly helped offset some of the post-Caterpillar global growth concerns however at the other end Allergan (-8.60%) and Harley-Davidson (-5.08%) succumbed to heavy falls after their respective results failed to convince the market. Anecdotally, companies’ guidance is mixed on the macro outlook, with Whirlpool CFO Peters saying “continued economic and trade uncertainty to temper overall demand” while Verizon CFO Ellis anticipates “no major impact at this point on the macro economy or even the shutdown”.

Earlier in Europe, the STOXX 600 gained +0.80% while treasuries and bunds traded close to flat. BTP yields rallied -3.1bps to a new 6-month low. The energy sector outperformed, gaining +0.32% in the US and +1.30% in Europe, as Brent crude oil prices rose +2.32% to mostly retrace Monday’s selloff. The move was driven by comments by Saudi Arabia’s Energy Minister Al-Falih, who said that he expects to cut oil output further next month and to keep production “well below” the levels agreed by OPEC. New US sanctions on Venezuela’s national oil company also helped ease the supply outlook, while historically cold weather in the US increases demand for heating oil.

Markets in Asia are also trading slightly cautiously overnight with the Nikkei down -0.32% and bourses in China flat as markets await the start of trade talks. The Hang Seng (+0.27%) and Kospi (+0.27%) have however posted modest gains while EM FX is similarly mixed.

In other news, the latest sentiment indicator in the US took on added focus yesterday in light of uncertainty around government policy and recent financial market volatility. Indeed the January consumer confidence reading slumped even more than expected, to 120.2 (vs. 124.0 expected) from a downwardly revised 126.6 in December. The present situations index was broadly flat at 169.6 however the expectations component fell to 87.3 and the lowest since 2016 likely reflecting the government shutdown. There were lots of people on twitter suggesting that the ratio between the two suggests an imminent recession based on historical observations. However if the disparity mostly reflects the shutdown it could easily reverse and nullify the signal. The graph between the two does look worrying though. On the plus side the ratio of respondents describing jobs as “plentiful” versus respondents saying they are “hard to get” reached a new cyclical high, which points to further labour market strength.

Meanwhile the S&P CoreLogic house price index confirmed that prices rose +4.68% yoy in the 20 biggest cities in November and therefore slowing slightly from October. In Europe we only had the French consumer confidence print for January which surprised to the upside at 91 (vs. 88 expected and 86 in December). That marks a decent correction from the protest’s impacted December reading and is in stark contrast to the PMIs in France that we saw last week.

Looking at today’s calendar, this evening’s Fed meeting outcome will no doubt hog much of limelight while the data highlights in the US this afternoon include the January ADP employment change report (183k expected) and December pending home sales (+0.5% mom expected). In Europe this morning we’re kicking off with the December import price index reading in Germany followed by December consumer spending data in France, December money and credit aggregates data in the UK and then January confidence indicators for the Euro Area. Today is also the day that trade talks are due to resume between the US and China with Vice Premier Liu Ge meeting with US Trade Representative Lighthizer and Treasury Secretary Mnuchin in Washington. Finally, it’s a busy day for earnings with reports due from Microsoft, Facebook, Alibaba, Visa, AT&T, Novartis, Boeing and McDonald’s.

Published:1/30/2019 6:35:25 AM
[Markets] Apple stock gains after earnings, though outlook falls short of expectations Apple Inc. shares were up 1.7% in after-hours trading Tuesday after the company saw December-quarter revenue decline from a year earlier and posted a weaker-than-expected forecast. The company reported fiscal first-quarter net income of $20 billion, or $4.18 a share, compared with $20.1 billion, or $3.89 a share, a year earlier. Apple posted revenue of $84.3 billion, in line with its preannouncement from early January that called for $84 billion in revenue for the quarter. A year ago, Apple reported $88.3 billion in revenue. The company generated $52 billion in revenue from the iPhone business and $10.9 billion in revenue from its services segment. That compares with $61.6 billion and $8.5 billion, respectively, for those two areas of the business a year earlier. Greater China accounted for $13.2 billion in revenue during the holiday quarter, compared with $18 billion in the year-ago period. Apple expects March-quarter revenue of $55 billion to $59 billion, whereas analysts had been calling for $59 billion. Apple shares have tumbled 27% over the past three months, while the Dow Jones Industrial Average , of which Apple is component, has risen 0.6%. Published:1/29/2019 4:01:00 PM
[Markets] Dow Closes Modestly Higher Ahead of Apple Earnings The Dow Jones Industrial Average posted modest gains Tuesday as shares of 3M Co. moved higher while Verizon Communications Inc. rose 3% after reporting solid fourth-quarter earnings but issuing weaker-than-expected 2019 guidance. Published:1/29/2019 3:30:38 PM
[Markets] Dow Trades Higher and Nasdaq Stumbles Ahead of Apple Earnings The Dow Jones Industrial Average was rising Tuesday as shares of 3M Co. moved higher but Verizon Communications Inc. rose 2.2% after reporting solid fourth-quarter earnings but issuing weaker-than-expected 2019 guidance. Published:1/29/2019 12:30:16 PM
[Markets] Nasdaq Tumbles Below Yesterday's Lows, Dow Holding Green

The Dow (up) and Nasdaq (down) are dramatically divergent so far today...

 

...with the Nasdaq breaking below yesterday's lows as the former holds green for now...

January remains strongly positive though still...

 

 

Published:1/29/2019 10:00:46 AM
[Markets] Dow earnings reporters' stocks would boost Dow's price by 11 points The shares of the three Dow Jones Industrial Average components that reported fourth-quarter earnings ahead of the open would add about a combined 11 points to the Dow's price. Dow futures were last up 35 points. Shares of Pfizer Inc. fell 2.1% in premarket trade after a downbeat outlook, which would cut the Dow's price by about 6 points; 3M Co. shares rose 1.8% after earnings and sales beats, which would add about 24 points to the Dow; Verizon Communications Inc.'s stock dropped 3.2% after mixed results, which would reduce the Dow's price by about 11 points. Published:1/29/2019 8:32:31 AM
[Markets] 3M Earnings Top, Guidance Weak, Kicking Off Heavy Slate Of Industrial Reports 3M topped Q4 estimates, but the Dow Jones industrial giant slashed its own 2019 guidance. Shares fell early Tuesday. GE, DowDuPont, Honeywell earnings are due this week. Published:1/29/2019 7:29:12 AM
[Markets] Verizon stock falls after mixed fourth quarter Shares of Verizon Communications Inc. are down 0.7% in premarket trading Tuesday after the company reported mixed results for its fourth quarter. The wireless carrier reported net income of $2.1 billion, or 47 cents a share, compared with $18.8 billion, or $4.57 a share, a year earlier. Adjusted earnings per share climbed to $1.12 from 86 cents and came in ahead of the FactSet consensus expectation, which called for $1.09. Total operating revenue rose to $34.3 billion from $34 billion a year earlier. Analysts were expecting $34.4 billion. Verizon reported 1.22 million retail postpaid net additions, up from 1.17 million in the year-ago period. Analysts had been calling for 1.07 million postpaid net additions. The company expects low-single-digit consolidated revenue growth for the 2019. Verizon's stock has fallen 2.5% over the past three months, as the Dow Jones Industrial Average has gained 0.4%. Published:1/29/2019 6:31:13 AM
[Markets] Markets Mixed Ahead Of Barrage Of News As Gold Hits 6 Month High

In a session that has seen global markets drift around ahead of a barrage of key events and gold climb to a seven-month high...

... European stocks reversed modest early losses to trade 0.8% higher, with UK’s FTSE 100 rising 1.4% as cable fluctuated ahead of today's "Plan B" Brexit vote, with S&P futures erasing early losses in Asia to trade flat, some 12 points off sessions low as markets opted for caution before three major macro events and a blizzard of big tech company earnings in the coming days.

Despite the upcoming action - a key Brexit vote in the UK , Wednesday’s Fed decision, Thursday’s conclusion of the latest Sino-U.S. trade talks and Friday's payrolls - European and Asian stocks held up relatively well, however news that the U.S had leveled charges against China’s telecom giant Huawei days before the next round of trade talks between Washington and Beijing knocked sentiment.  That, however, was offset by promises of more economic stimulus from China, which had berated Washington on Monday for blocking the appointment of judges for its World Trade Organisation appeal against U.S. tariffs.

As SocGen's Kit Juckes writes overnight, traders are puzzled by various market inconsistencies, with more questions about what's NOT happening in markets than about what is going on, such as: "Why didn't Mario Draghi's admission of downside economic surprises weaken the euro? And why didn't the end of the US government shutdown give Treasury yields a nudge higher?"

In short, markets are in limbo, waiting for new news and with the FOMC and the payroll data due later this week.

“Investors are very cautious with many uncertainties on U.S.-China trade talks and Brexit. Huawei is at the center of dispute, creating very noisy background for the trade talks,” said Margaret Yang, a market analyst at CMC Markets. “All these are making it more difficult for investors to judge the market’s direction. Money is fleeing into assets such as gold, seeking safety.”

Indeed, as noted above it was a mixed picture across global stock markets on Tuesday, with European shares climbing, U.S. futures trimming a drop and Asian equities slipping as investors juggled concerns about the fallout from America’s trade war with China against hopes for progress in this week’s talks offset by yesterday's criminal charges against Huawei and formally seeking the extradition of its CFO. Personal goods and travel companies were among the biggest gainers in the Stoxx Europe 600 Index as most sectors turned higher following a directionless start.

Meanwhile in the US, Dow Jones, S&P 500 and Nasdaq futures all showed U.S. stocks were heading for a lackluster open especially after poor guidance by 3M and Pfizer, as focus turned to Apple’s earnings report. PG&E tumbled in pre-market trading after the U.S. utility sought bankruptcy protection with $52 billion in debt.

Markets will have more catalysts this week with over 100 of the S&P500 companies reporting results, including Amazon, Apple and Facebook. Overnight on Wall Street, the Dow and S&P 500 each closed down 0.8 percent and the Nasdaq was off more than 1 percent. The losses came after Caterpillar and Nvidia Corp joined a growing list of companies cautioning about the crippling effects of softening Chinese demand.

In Asia, shares were mixed, with losses for Australia and New Zealand, with their benchmark indices down 0.5 percent and 1.2 percent respectively. Japanese and Chinese stocks both recovered from early wobbles to finish in the green. Technology stocks underperformed after American prosecutors filed criminal charges against Huawei. Worryingly, earnings at China’s industrial firms  shrank in December, pointing to more troubles for the country’s vast manufacturing sector, which are already struggling with a decline in orders, job layoffs and factory closures.

China Foreign Ministry expressed serious concern regarding US charges on Huawei and its CFO, whilst strongly urging the US to halt unreasonable suppression of Chinese companies and asked US to withdraw arrest order for Huawei's CFO. China Minister of Industry and Information Technology Miao said China will continue to lower taxes and fees for SMEs, while China will also significantly reduce the investment negative list.

As Bloomberg notes, after a robust start to the year for equities, investors are looking for reasons to chase the rally in a corporate earnings season that’s been mixed so far. Against the backdrop of U.S.-China stress and geopolitical tensions in Venezuela they also need to navigate the Federal Reserve rate decision, developments in the U.K.’s Brexit process and a potential slew of American economic data that was delayed by the government shutdown.

“Even though this has been a good start of the year,’’ investors now “want to be kind of defensive,’’ Ben Emons, managing director of global macro strategy at Medley Global Advisors, said on Bloomberg TV. “Earnings will not grow strongly, and we still deal with leverage in the corporate sector that has not been unwound in any way.’’

Most European government bond yields were little changed. Weaker economic data and unknowns like the trade feuds and Brexit have all boosted expectations that interest rates will stay low.  European yields little changed to 2bps higher across core and periphery, 10-year gilt yield 1bp higher, 10-year UST yield 1bp lower.

New debt deals from Greece, Belgium and Austria were also in the pipeline. The slide in rates has also encouraged governments to launch new bond deals. Even Angola, which has just taken IMF aid, said it was eyeing a bond sale.

The U.S.-Sino moves, as well as bets that the U.S. Fed will sound more cautious on Wednesday, kept the dollar near a two-week low and heightened the safe-haven appeal of the Japanese yen and the Swiss franc. The Bloomberg USD index also little changed within a tight range, with NZD leading G-10 gains and GBP lagging, although sterling off its worst session level ahead of key parliamentary Brexit votes after the London close.

Sterling held at $1.3166 and 86.88 pence to the euro before crucial votes later in the day aimed at breaking a deadlock in the UK parliament over Brexit. The pound has rallied 6 percent from Jan. 4 lows, but further gains may be limited unless lawmakers emerge with a big majority on the votes.

In commodities, WTI and Brent trade 1.1% and 1.3% higher respectively. West Texas crude edged higher as the U.S. slapped a de facto ban on oil from Venezuela. Emerging-market shares and their currencies were steady. Gold rose to highest level since June.

Expected data include Conference Board Consumer Confidence, while the government shutdown will delay some reports yet this week and next. Apple, Danaher, Harley-Davidson, Lockheed, Pfizer and Verizon are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures little changed at 2,640.75
  • STOXX Europe 600 up 0.6% to 356.32
  • MXAP down 0.2% to 154.33
  • MXAPJ down 0.3% to 503.19
  • Nikkei up 0.08% to 20,664.64
  • Topix up 0.1% to 1,557.09
  • Hang Seng Index down 0.2% to 27,531.68
  • Shanghai Composite down 0.1% to 2,594.25
  • Sensex down 0.3% to 35,538.29
  • Australia S&P/ASX 200 down 0.5% to 5,874.17
  • Kospi up 0.3% to 2,183.36
  • German 10Y yield rose 0.5 bps to 0.21%
  • Euro up 0.1% to $1.1441
  • Italian 10Y yield rose 1.5 bps to 2.308%
  • Spanish 10Y yield rose 0.9 bps to 1.229%
  • Brent futures up 1% to $60.55/bbl
  • Gold spot up 0.4% to $1,308.19
  • U.S. Dollar Index down 0.1% to 95.67

Top Overnight News

  • PG&E Corp., California’s biggest power company, filed for Chapter 11 bankruptcy in Northern California bankruptcy court as investigators probe whether its equipment ignited the deadliest fire in state history
  • PM Theresa May is backing a plan to ditch the most contentious part of her Brexit deal as she scrambles for a compromise all sides can support, with time running out before the U.K. leaves the European Union. Some EU states are said to weigh conditions for Brexit extension
  • The Trump administration will press China to prove it can keep promises in talks this week aimed at ending the trade war, Treasury Secretary Steven Mnuchin said. China will offer to buy more U.S farm products, according to WSJ
  • The U.S. Treasury Department indicated that the government’s borrowing needs are rising faster than previous estimates as the Trump administration finances a widening budget deficit
  • Australian firms suffered the worst slump in conditions since the 2008 global financial crisis as evidence mounts that the economy slowed in the latter part of last year
  • U.S. prosecutors filed criminal charges against Huawei Technologies Co., China’s largest technology company, alleging it stole trade secrets from an American rival and committed bank fraud by violating sanctions against doing business with Iran
  • Oil held most of its biggest loss in a month as renewed concern over slowing global growth largely outweighed U.S. sanctions against Venezuela’s state oil company
  • Acting Attorney General Matthew Whitaker said that Special Counsel Robert Mueller’s Russia investigation is “close to being completed”
  • Wall Street has become obsessed with the Federal Reserve’s balance-sheet runoff, as investors debate why it’s suddenly roiling markets more than a year after it began
  • Greece will on Tuesday sell bonds for the first time since the end of its international bailout, testing investor interest in the country’s newfound economic independence

Asian equity markets traded lower for most the session as the region followed suit to the negativity on Wall St where sentiment was dampened by corporate updates in which industrial bellwether Caterpillar missed on earnings and Nvidia reduced its guidance with both citing a slowdown in China, while the DoJ announcement of charges against Huawei raised concerns regarding the potential impact this could have on US-China relations. ASX 200 (-0.5%) was negative on return from the extended weekend with the index dragged lower by underperformance in healthcare as Resmed shares tumbled on poor sales figures and with energy names pressured by the recent 3% drop in oil prices, while price action in the Nikkei 225 (Unch.) was at the whim of the JPY-risk dynamic. Elsewhere, Hang Seng (-0.2%) and Shanghai Comp. (-0.1%) weakened after the US announced charges against Huawei including intellectual property theft, as well as bank and wire fraud, although markets gradually rebounded off lows as focus shifted to the upcoming trade discussions. Finally, 10yr JGBs were flat as prices failed to benefit from the weakness across stocks, while a mixed 40yr JGB auction also failed to provide a catalyst for direction. 

Top Asian News

  • China Life Says Profit May Fall Up to 70% Amid Stock Market Rout
  • India Media Giant Rocked by Claims of Ties With Fraud Probe
  • Asia’s $1.6 Trillion Stock Rally Is Looking Increasingly Fragile
  • Mothers Futures Hit Circuit Breaker After SanBio Trial Fails

Major European equities are modestly in the green [Euro Stoxx 50 +0.5%], outperformance is seen in the FTSE 100 (+1.4%) where index heavyweights British American Tobacco (+4.6%) and Unilever (+1.7%) are in the green after a broker move and purchase of New York based ‘The Laundress’ products business respectively. Sectors are mixed, with outperformance seen in consumer staples, largely due to the aforementioned British American Tobacco and Unilever. Other notable movers include Royal Mail (-10.5%) who are at the bottom of the Stoxx 600 following their earnings, whilst Sartorius (+16.0%) are at the top of the index following a double digit increase to their 2018 sales revenue and earnings. Separately, SAP (-2.0%) are down in spite of the Co.raising their 2020 non-IFRS revenue outlook and confirming their non-IFRS profit outlook.

Top European News

  • Swedbank Drags Down Swedish Banks Amid Fee-Income Concerns
  • Norwegian Air Falls Most on Record After Emergency Stock Sale
  • Chips Lead Tech Slide on Report TSMC Suppliers to Cut Prices
  • OMV Says Romanian Strife Casts Doubt on Black Sea Development

In FX, NZD/AUD/EUR - The Kiwi is back in pole position and just outperforming G10 peers like the Euro that is also benefiting from some cross-flows, and a generally soft US Dollar. Nzd/Usd is back up around 0.6850, with some support emanating from NZ trade data overnight alongside ongoing Aud/Nzd selling as the pair delves deeper below 1.0500 (to circa 1.0450 at one stage). Note, Aud/Usd was undermined by a sharp deterioration in NAB business conditions, but subsequently derived some traction to pare losses from 0.7140 to 0.7175 on the back of broadly upbeat comments from RBA’s Harper who reiterated guidance for the next policy move to be a hike based on strength in the Aussie jobs market and the country’s healthy budget situation. Meanwhile, Eur/Usd has inched a bit further above 1.1400 to test its 100 DMA (1.1446) having cleared a 50% Fib (1.1430), but not quite able to breach 1.1450 and challenge the next upside chart resistance at 1.1463 (61.8% Fib). Note also, the single currency may encounter option-related offers ahead of 1 bn expiries at 1.1465-75.

  • CAD/GBP/CHF/JPY - All narrowly mixed vs the Greenback, as the Loonie draws some solace from relative calm in the  oil/commodity complex and recovers towards 1.3250, while Cable is pivoting 1.3150 and awaiting the outcome of UK Parliament’s vote on Brexit Plan B alongside amendments, but the Pound still trading weaker vs the Euro on customary month end factors (Eur/Gbp RHS demand lifting the cross over 0.8700 earlier). Usd/Chf and Usd/Jpy are just off Monday’s lows within narrow ranges of 0.9910-25 and 109.15- 45 respectively, with the Franc not really reacting to Swiss trade data even though the surplus shrank substantially.
  • NOK/SEK - Contrasting fortunes for the Scandi Crowns as the Nok also derives comfort from a partial recovery in crude prices vs the Sek acknowledging more Riksbank commentary highlighting no rush to hike rates again (vs the Norges Bank on course to continue its tightening cycle in March). Eur/Nok sub-9.7150, Eur/Sek 10.3500+.

In commodities, Brent (+1.0%) and WTI (+0.9%) prices are higher, and around the USD 60/bbl and USD 52/bbl level respectively, after somewhat pairing back the sessions initial losses; as the risk sentiment has improved from yesterday. US have imposed sanctions on Venezuelan state-owned oil firm PDVSA, aiming to significantly reduce their crude exports to the US; additionally, trying to pressure President Maduro into stepping down. Elsewhere, Nord Stream 2, a new gas export pipeline running from Russia to Europe, continues in discussions to raise EUR 6bln in financing. Separately, Total have announced a significant new discovery in the North Sea, which has an estimated 250mln barrels of oil equivalent of recoverable resources. Gold (+0.3%) is in the green, benefitting from dollar weakness amidst an uneventful overnight session; with the yellow metal towards its session high of USD 1309.4/oz. Following the lifting of sanctions against Rusal, the LME has begun accepting aluminium deliveries from the Co. into their warehouses

US Event Calendar

  • 9am: S&P CoreLogic CS 20-City YoY NSA, est. 4.89%, prior 5.03%; 20-City MoM SA, est. 0.4%, prior 0.41%
  • 10am: Conf. Board Consumer Confidence, est. 124, prior 128.1; Present Situation, prior 171.6; Expectations, prior 99.1

DB's Jim Reid concludes the overnight wrap

A long opening para today but as the reader you have the right to skip! Anyway, of all the stories I’ve told in my first para over the years the one that I got most mail back about and the one I still get reminded of most was the one where I woke up one morning to find 40 freshly planted trees had been stolen overnight from our garden. I was apoplectic with rage. 5 years on I’m still not sure I’ve gotten over it. Well today I report another theft, this time of a more baffling variety. Last week I was listening to Spotify and kept on getting booted out as someone was apparently listening elsewhere. As I was travelling I put this down to my wife. However when I did get in, new playlists and albums kept on being added that indicated that my wife was going through an experimental stage. Albums by artists called Hoshi, Lil Peep, Maes, Ozel and Polock appeared - most of which seemed to sing in French and none of which I’d ever heard of. Anyway I meant to grill my wife about it wondering whether she was trying to impress a younger (French) man but I forgot about it.

Last night over dinner I got booted out of the account again and I asked her if she’d added all these new albums. She looked at me with deep confusion and as she was in the room with me I realised it couldn’t be her. After much soul searching and more random music being added to my account while I was trying to play some dinner music myself, the only explanation I could find is that someone had stolen my account. I changed my password and all was fine again. It’s quite creepy knowing someone is on your music account though. Anyway I’m sure I had some revenge on the thief as over the weekend my daughter wanted a 1970s children’s TV theme song called “Jamie and the magic torch” on about 20 times in a row. She loves it. We introduced her to this as we call one of our twins Jamie (as my family still call me to this day - I reinvented myself as Jim when I went to a new school 34 years ago). This was the song everyone sung at me when I was 5. There will be a small group of readers who will remember it well. Anyway I can now picture this very cool young French man with big headphones in an arty cafe in Paris thinking he was very clever stealing my account but suddenly being bombarded with 40 year old U.K. children TV soundtracks. However where my trees are 5-plus years later still haunts me.

Like Spotify, you can always skip the bits of my research you don’t like and if you’re a bull you may want to do a little bit of skipping today. Monday certainly painted a downcast start to the week ahead of a busy calendar of catalysts: today’s latest Brexit shenanigans, tomorrow’s Federal Reserve meeting conclusion, US/China trade talks starting on the same day, Q4 Euro GDP on Thursday, the US jobs report on Friday, and plenty of potential tape-bombs from the equity world as earnings season reaches a peak. Indeed earnings were the main culprit yesterday as US and European equity markets were all down. The S&P 500 and DOW retreated -0.79% and -0.84%, respectively, as earnings from macro bellwether Caterpillar and a pre-announcement from NVIDIA both disappointed (details below). The S&P 500 machinery index shed -3.33% and the NASDAQ fell -1.11%, as the poor company-level earnings were extrapolated to their parent sectors. Ten-year treasury yields fell -1.5bps while US HY credit widened +5bps.

Earlier, European stocks had opened lower as well, extending their falls throughout the day, although by the close they had stabilised somewhat, with the STOXX 600 ending -0.97%. Energy stocks led the falls in Europe (-1.86%), as Brent Crude dipped below $60 a barrel for the first time in two weeks before closing at $60.03. Fixed income in Europe struggled to rally though, with 10y Bunds +1.2bp, OATs +1.0bps and BTPs +1.6bps.

As mentioned, the negative tone was set by poor company earnings, with Caterpillar reporting adjusted EPS of $2.55 (vs $2.99 estimated) a 14.6% miss and the biggest margin miss since 2008. The company also said their outlook “assumes a modest sales increase”, below previous expectations. Caterpillar shares fell -9.13%, and the company said lower demand from China was partly responsible for their reduced estimates, with the company expecting sales from the country to be roughly flat in 2019 year-on-year. Nvidia later added to the negative picture, with its shares opening over 18% lower after the company cut its Q4 revenue forecast from $2.7bn to $2.2bn, before paring back losses to close down -13.82%. Nvidia also cited “deteriorating macroeconomic conditions, particularly in China” as a factor affecting its sales, and the company will be releasing Q4 earnings on 14 February. This comes after data last week showed that the Chinese economy grew at its slowest annual rate in 2018 since 1990. Note that the key earnings release today is Apple which is already -33.05% off its 2018 peak, after it warned on its outlook late last year. So earnings and the outlook here will be a key contributor to the macro outlook.

After US markets closed yesterday, the Department of Justice announced two separate indictments covering 23 criminal accusations against Huawei and its executives. The US is formally asking Canada to extradite the company’s CFO Meng Wanzhou to face the charges. The move could complicate trade talks between the US and China which are set to begin later this week, though the offshore renminbi traded flat after the news, perhaps signaling that the news has already been discounted.

Staying in the region, equity markets have fallen in Asia this morning, although are paring back losses, with the Nikkei (-0.17%), up from its lows of the session where it was down over 1%. The Hang Seng (-0.53%), the Shanghai Composite (-0.62%) and the KOSPI (-0.17%) are also lower. Meanwhile oil has steadied since its declines yesterday, with Brent Crude trading at $60.11 a barrel.

Before we recap more of the last 24 hours let’s move to the exhausting topic of covering Brexit. Today UK MPs will vote on a variety of different amendments on where to go next. Although the specific amendments to be debated will be decided by the Speaker of the House of Commons, two of particular interest are the one by Sir Graham Brady (who chairs the 1922 committee of Conservative backbench MPs) and the cross-party one offered by the Labour MP Yvette Cooper and the Tory MP Nick Boles. The Brady amendment calls for the backstop “to be replaced with alternative arrangements to avoid a hard border”. Supporters of the amendment argue that if a majority of MPs voted in favour, it would demonstrate that changes to the backstop would be sufficient to get the withdrawal agreement through Parliament, and would encourage the EU to modify its position. However, the Irish government have remained uncompromising on the issue, with Simon Coveney, the Irish Deputy Prime Minister, telling The Andrew Marr TV Show on Sunday that “the backstop … is part of a balanced package that isn’t going to change”.

The other amendment of interest put forward is the Cooper-Boles amendment, which is another attempt to avoid a no-deal Brexit. This would require that parliamentary time be made for MPs to debate new legislation, which would require there to be an extension of the Article 50 negotiations if the House of Commons has not approved a deal by February 26. DB’s Oliver Harvey published a preview on Friday of today’s vote (link here ). UK equities fell yesterday along with the rest of Europe, with the FTSE 100 (-0.91%) falling for the fifth consecutive day, while sterling fell back somewhat against the dollar to trade -0.26% weaker at 1.3162.

Ahead of the votes today, leading Brexiter Jacob Rees-Mogg last night said that the influential European Research Group of hard Brexit supporters within the Tory party will not vote in favour of any amendments at this stage. Simultaneously, PM May has endorsed the Brady-backed motion and the government will reportedly whip the party into voting for the amendment. The problem for the government is that without either the ERG or support from other parties, none of their amendments will get a majority. Labour has not yet tipped its hand in either direction, though the party leadership is reportedly leaning toward supporting the Cooper-Boles motion that could potentially lead to a delay to Article 50. Anyway the votes will begin at 7pm this evening.

Before turning back to yesterday’s action, note that DB’s European equity strategist Sebastian Raedler haslowered his tactical outlook for European equities from positive to neutral, following the 8% rally since late December, as the market has gone from being almost 10% too low on his model (based on Euro area PMIs, the EUR and Euro area real bond yields) to being in line with fair-value. He expects Euro area PMI momentum (i.e. the six- month change in PMIs and a key driver of European equities) to improve from the current seven-year low of -4.5 points to +1.5 points by mid-year. But even this mild PMI improvement implies little further upside for European equities over the coming months, leading him to turn more cautious on the market.

Back to yesterday and staying in Europe, ECB President Draghi appeared before the Economic and Monetary Affairs Committee at the European Parliament yesterday, following last week’s ECB meeting where the Governing Council acknowledged that the risks had “moved to the downside”. The euro rose against the dollar as Draghi spoke, reaching its highest level in nearly two weeks and ultimately closing up +0.19%. Draghi said that if the outlook worsened further, the ECB could still use other tools to combat this, but said that “at this point in time, we don’t see such contingency as likely to materialise, certainly this year”.

Across the Atlantic, the US Congressional Budget Office published its latest Budget and Economic Outlook, including forecasts for the next 10 years. The report makes for stark reading for US policymakers, but at least the outlook is somewhat improved relative to last year’s edition. For the 2018-2028 period, deficits are now forecast to average -4.3% of GDP per year, down from the previous forecast of -4.8% per year. That level of deficit spending has only been hit a handful of times over the last 50 years, and always amid a recession. So to have it every year is incredible. The improvement in forecasts though is driven by lower projections for federal outlays as a percent of GDP, partially helped by lower interest rate projections. Instead of a peak in 10-year treasury yields around 4.1%, the CBO now pencils in 3.7%. Revenues are forecast to be lower as well, with slightly shallower economic growth projections from previously, but this dynamic is outweighed by the outlay side. Overall, these numbers should still worry those who look beyond the immediate path of markets even if there is an interest rate improvement from last year. As a market aside, the projections include around $245bn in reduced deficits for 2020-2021, which could cause the US Treasury to adjust its future issuance plans if the figures are borne out.

Yesterday saw very few data releases, although the Dallas Fed’s Manufacturing index for January came in above estimates at 1.0 (vs -2.7 expected), marking a rebound from the previous month’s two-and-a-half year low. In Europe, M3 money supply growth rose to +4.1% yoy from +3.8%, though M1 growth slowed to 6.6% from 6.7%. The credit impulse turned slightly negative as well.

Turning to the day ahead and as well as the latest Brexit votes in the UK Parliament, we have earnings releases for Apple, Pfizer and SAP. In terms of data, we have French consumer confidence figures for January, Italian PPI inflation for December, and in the US we also have the Conference Board consumer confidence reading and preliminary wholesale inventories for December.

 

 

 

 

Published:1/29/2019 6:31:13 AM
[Markets] The Dow Rises 184 Points Because the Fed Trumps the End of the Shutdown The Dow Jones Industrial Average rose 0.8% to close at 24,737.20 on a report that the Fed might stop winding down its bond holdings earlier than expected. Published:1/25/2019 5:07:36 PM
[Markets] Dow ends up over 180 points on upbeat earnings, deal to end shutdown Dow ends up over 180 points on upbeat earnings, deal to end shutdown Published:1/25/2019 3:38:11 PM
[Markets] Gold Jumps, Dollar Dumps As Trump Folds, Fed Holds

China Manufacturing, European Economy, and US Hope all plunging further... so buy stocks right? Bad global news is great stocks news?

And then there's this...

So what is lifting stocks? Well that's easy...

How to trade it? Simple, don't...

 

China let slip quasi QE but the early gains were erased into the close...

 

German business sentiment tumbled but EU stocks managed strong gains...except UK's FTSE...

 

Led by European banks soaring today after dumping on ECB comments (and no, nothing changed)...

 

US equity futures surged overnight after Quasi QE from China and a WSJ headline on the end of QT. However, having tagged the week's highs, stocks dipped on headlines of a shutdown deal (remember, End of Shutdown is negative for stocks as it means the economy won’t crash in Q1, meaning a lower probability that The Fed stops QT), but ended higher on the day and week...

The S&P ended red on the week (breaking its 4-week win streak) but Nasdaq and The Dow managed to hold tiny gains on the week...

 

Another major short-squeeze dragged markets higher after Tuesday's tumble...

 

Credit and equity protection compressed notably on the day and week...

 

Treasuries were sold today, erasing yesterday's gains but ending the week lower in yield still...

 

Bond yields still have room to fall if equity cyclicals are right...

 

The dollar puked today after WSJ reports a QT slowdown - this is the biggest drop since early November...

 

Yuan surged on the week... (today was biggest spike since Dec 1st)

 

EUR dumped on ECB yesterday and jumped today on WSJ's Fed QT story, breaking up to the 1.14 technical support/resistance...

 

Despite the dollar weakness, bitcoin and Ether both fell on the week...

 

Commodities spiked on the day as the dollar dumped...Silver was best on the week...

 

WTI chopped around between various whole numbers...

 

Spot gold spiked above $1300 intraday to its highest since June...

 

Silver surged on the day amid heavy volume...

Breaking above the 200DMA...

Gold is nearing a "golden cross" formation...

 

Gold surged in dollars and yuan (the biggest jump in the latter in over a month)...

 

And finally, since The Fed hiked rates in December, gold remains the leading asset class, just ahead of The Dow...

 

And we leave you with this from a decade ago - has anything really changed?... "wankingbankers"...

Published:1/25/2019 3:06:47 PM
[Markets] Apple Fuels Dow Jones Rally; Western Digital, Micron Lead Nasdaq The Dow Jones backed off highs Friday but still showed a solid gain, undeterred by weak earnings from Intel. Apple outperformed ahead of earnings next week. Published:1/25/2019 1:05:04 PM
[Markets] Stock Futures Gain Strength: Will Dow Jones Snap Win Streak? Western Digital and Starbucks led stock futures higher Friday. Intel took an early dive, as the Dow Jones industrials faced its first weekly loss of 2019. Published:1/25/2019 8:34:51 AM
[Markets] Stock Futures Climb: Will Dow Jones Snap Win Streak? Western Digital and Starbucks led stock futures higher Friday. Intel took an early dive, as the Dow Jones industrials faced its first weekly loss of 2019. Published:1/25/2019 8:04:17 AM
[Markets] Intel stock drops 6% after Needham, Susquehanna downgrades Shares of Intel Corp. are down nearly 6% in premarket trading Friday, after the company reported disappointing fourth-quarter earnings and gave a downbeat outlook for the current quarter and the year ahead. Needham analyst N. Quinn Bolton lowered his rating on the shares to hold from buy, writing that the company's numbers "were below our revised expectations as cloud customers pivoted from capacity addition to inventory absorption in late 4Q18 and the slowdown in China created excess inventory in the enterprise segment." He expects these two factors to impact demand for Intel's data-center products, the company's largest driver of growth. Susquehanna's Christopher Rolland downgraded the stock to neutral from positive and cut his price target to $50 from $58, citing a deceleration for the data-center group, macroeconomic concerns, and risks to the company's process-technology leadership. He wrote that Intel's projection for mid-single-digit data-center growth on a year-over-year basis in 2019 seems to imply an "overly aggressive" reacceleration in the second half of the year. Rolland deems that projection questionable given tough comparisons ahead, "a lack of overly compelling new server features," and potential share losses to Advanced Micro Devices Inc. in servers. The stock has gained 12% over the past three months, as of Thursday's close, while the Dow Jones Industrial Average has slipped 1.7%. Published:1/25/2019 7:33:42 AM
[Markets] Stocks Rally After Shrugging Off Trade Concerns, Dismal German Data

It's a sea of green across global markets, which resumed their rally overnight with European stock and US equity futures following Asian peers higher, shrugging off softer numbers from tech giant Intel and weaker German IFO data, buoyed by strong earnings and optimism from some positive trade-related comments by U.S. officials ahead of next week’s meeting, while tech shares rallied. Gold and oil climbed, while the dollar hit session lows following news Trump advisor Roger Stone was arrested for witness tampering.

European markets opened higher, led by automakers and tech stocks which rose 1.5% and 1%, respectively. Europe's STOXX 600 index hit its highest since Dec. 4, up 0.8% on the day.  Trade optimism received a fresh boost of optimism after Bloomberg reported that a Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He.

The euro gained even as German business sentiment measured by the IFO Survey fell for the 5th month in a row to 99.1 its weakest level in almost three years, while the expectations component tumbled to the lowest level since 2012; confirming a recession in Europe's biggest economy is closer than most expect; core European sovereign bonds stabilized after rallying for most of the week.

On Thursday, the euro fell to its lowest in six weeks following Thursday’s European Central Bank meeting in which Mario Draghi painted an increasingly downbeat picture of the European economy.

Europe's gains came as stocks rose overnight in Asia and the United States on the back of strong earnings from U.S. tech firms. The MSCI All-Country World Index was up 0.3% on the day, but the gauge was set to break a four-week winning streak as weak economic data and cautious soundings from central banks pulled the index half a percent down on the week. Chipmaker and software stocks led the way in Asia, shrugging off weaker 2019 forecasts from Intel, which fell in pre-market trading.

Global stocks are poised for their first weekly drop of 2019, with investors questioning the validity of the post-Christmas rally as the earnings season rolls on. Traders are grasping at straws for hints at progress on trade ahead of discussions next week in Washington, while also assessing the economic impact of the 35-day government shutdown that’s hampering the normal flow of official data: “I’m reasonably positive,” Axel Merk, chief investment officer at Merk Investments LLC in San Francisco, told Bloomberg TV. “I don’t think we have an imminent recession which is usually one of the key ingredients to a real bear market, but it’s prudent to diversify.”

Markets reversed losses from earlier in the week even though according to the latest Reuters polls of hundreds of economists from around the world, a synchronized global economic slowdown is underway and any escalation in the U.S.-China trade war would trigger a sharper downturn, and despite a downgrade of US stocks to Neutral by Citi.

Offsetting the economic gloom, in a note to clients, UBS Global Wealth Management’s CIO Mark Haefele said that rhetoric on U.S.-China trade has become more positive, and that Beijing has taken steps to stimulate its economy.

“While economic and earnings growth is slowing, we believe it is unlikely that growth will drop far below trend,” he said. “At the same time, there are reasons to be cautious about policymakers’ ability to follow through on their rhetoric.”

Chinese Vice Premier Liu He will visit the United States on Jan. 30 and 31 for the next round of trade negotiations with Washington. The two sides are “miles and miles” from resolving trade issues but there is a fair chance they will get a deal, U.S. Commerce Secretary Wilbur Ross said on Thursday.

In US political news, President Trump said he wants a prorated down payment on the wall in any short-term government funding bill and that if Senate Majority Leader McConnell and Minority Leader Schumer can reach an agreement on government funding, he would support it. However, US House Speaker Pelosi said the idea of including a down payment on wall is a non-starter and Democrats were said to not support any kind of border wall funds which was made clear to McConnell, while Pelosi was later reported to postpone a press conference concerning counter offer to President Trump.

In central bank news, ECB dove Benoit Coeure said he sees a lot of political uncertainty and that economic slowdown is a surprise to the ECB, adds jury still out on how persistent slowdown will be and that rate guidance may have to be adjusted at some point. While, ECB’s Villeroy (Dovish) stated they remain committed to keeping interest rates low and ECB will probably downgrade the GDP forecast in March. Finally ECB’s Vasiliauskas (Hawkish) stated that there is no reason to change ECB guidance at the moment.

In currencies, the dollar fell 0.2%, hitting session lows shortly after news that Trump advisor Roger Stone had been arrested by the FBI. The euro rebounded 0.36% at $1.1345, recovering from a six-week low hit in the wake of ECB President Mario Draghi’s downbeat comments on Thursday. The ECB’s post-meeting statement for the first time since April 2017 alluded to "downside risks" to growth.

The British pound was also higher, rising 0.2 percent to $1.3076 after brushing a two-month high of $1.3140, lifted after The Sun reported on Thursday that Northern Ireland’s Democratic Unionist Party has privately decided to back May’s Brexit deal next week if it includes a clear time limit to the Irish backstop.

10-year U.S. Treasurys yields were slightly higher at 2.729% after dropping to a one-week low as pessimism over global growth supported safe-haven government debt.

In commodities, Brent (-0.1%) and WTI (+0.2%) prices are mixed and off of session highs, just under USD 62/bbl and USD 54/bbl respectively; in spite of yesterday’s unexpected EIA crude inventory build of 7.97mln vs. Exp. -0.042mln draw. Elsewhere, Russia was China’s largest crude oil supplier for December and 2018; with Russia being the largest crude supplier to China for the third year in a row. Gold (+0.3%) is marginally higher on the weakness in dollar, in spite of the positive risk sentiment reducing safe haven demand for the yellow metal. Copper prices are benefiting from market sentiment, whilst palladium has lost over 8% since reaching a high of just under USD 1400/oz last week.

Today's publication of durable goods orders and new home sales is postponed by government shutdown. AbbVie and Colgate-Palmolive are reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.6% to 2,650.75
  • STOXX Europe 600 up 0.7% to 358.16
  • MXAP up 1% to 154.44
  • MXAPJ up 1.2% to 503.03
  • Nikkei up 1% to 20,773.56
  • Topix up 0.9% to 1,566.10
  • Hang Seng Index up 1.7% to 27,569.19
  • Shanghai Composite up 0.4% to 2,601.72
  • Sensex down 0.6% to 35,985.79
  • Australia S&P/ASX 200 up 0.7% to 5,905.61
  • Kospi up 1.5% to 2,177.73
  • German 10Y yield rose 0.8 bps to 0.188%
  • Euro up 0.2% to $1.1330
  • Italian 10Y yield fell 9.1 bps to 2.303%
  • Spanish 10Y yield fell 2.0 bps to 1.22%
  • Brent futures little changed at $61.13/bbl
  • Gold spot up 0.2% to $1,283.61
  • U.S. Dollar Index down 0.2% to 96.43

Top Overnight News

  • A Chinese delegation including deputy ministers will arrive in Washington on Monday to prepare for high-level trade talks led by Vice Premier Liu He, according to people briefed on the matter
  • Commerce Secretary Wilbur Ross said the U.S. and China are eager to end their trade war, but the outcome will hinge on whether Beijing will deepen economic reforms and further open up its markets. “We’re miles and miles from getting a resolution,” he said in an interview on CNBC on Thursday
  • U.K. Chancellor of the Exchequer Philip Hammond warned that leaving the European Union without a deal would betray voters who were promised a “more prosperous future” if they chose Brexit. EU ties itself in knots on Irish border amid Brexit tension
  • Senators began a new effort to end the 34-day partial government shutdown after blocking two rival spending bills. The White House signaled President Donald Trump was open to a plan to reopen agencies for three weeks, but at a price
  • The Greek parliament’s historic vote on the agreement with the Republic of Macedonia over the latter’s name, was pushed to Friday, with not enough time for all listed lawmakers to speak Thursday
  • Oil rose for a third day as a deepening crisis in Venezuela that threatens to complicate OPEC’s task of balancing world oil supplies outweighed a surprise jump in U.S. crude inventories
  • Bank of England Governor Mark Carney said threats of jail for bankers are just a bluff and the real weapon to improve behavior is hitting pay packets
  • U.K. Chancellor of the Exchequer Philip Hammond suggested he could quit the government in protest if the U.K. plunges out of the European Union with no-deal in nine weeks’ time
  • Benoit Coeure and Francois Villeroy de Galhau -- two of the top contenders to become the next ECB president -- said they don’t know if the institution will be able to raise interest rates this year

A jubilant tone was observed across the Asia-Pac majors heading into the weekend, which followed the mostly positive performance of their global peers amid firmer US PMI data and a dovish tone from the ECB. ASX 200 (+0.7%) and Nikkei 225 (+1.0%) were buoyed by broad gains across the sectors and with Japanese exporters supported by favourable currency flows, although not all was rosy as healthcare lagged in Australia and steep losses in AMP Capital. Elsewhere, Hang Seng (+1.6%) and Shanghai Comp. (+0.4%) advanced as the 2nd phase of the PBoC’s RRR cut took effect and with outperformance seen in tech names including Tencent after regulators approved 2 of the Co.’s mobile phone games. However, gains in the mainland were initially capped after the PBoC‘s continued inaction resulted to a net weekly drain of CNY 770bln, in which it cited high liquidity levels due to the RRR cut. Finally, 10yr JGBs remained close to this week’s best levels after the prior day’s extended gains and with the BoJ also present in the market for government bonds with 5yr-10yr maturities, although prices have slightly eased with demand for bonds subdued by the risk appetite.

Top Asian News

  • Goldman, Morgan Stanley Are Said to Ask to Cancel Jardine Trades
  • Sinopec Says It Lost $688m on ‘Misjudged’ Oil Prices
  • It’s Happy Friday Mode for Asia Traders as Stock Rally Lives On
  • Yuan- Free FX Strategies for Betting on China. Or Against It

Major European indices are in the green [Euro Stoxx 50 +1.1%], the FTSE 100 (+0.4%) is the underperforming index given the impact of yesterday’s dovish ECB, alongside overnight sterling strength following reports that the DUP may agree to PM may’s deal if the Irish backstop has a time limit. The index is also weighed on by poor performance in Vodafone (-2.2%) who missed on their Q3 service revenue. Sectors are in the green, with underperformance in telecom names given the aforementioned earnings from Vodafone. Other notable movers include Telia (-3.3%) who are at the bottom of the Stoxx 600 after the Co. missed on Q4 revenue and adjusted EBITDA. Similarly, Givaudan (-3.3%) are near the bottom of the Stoxx 600 following a miss on Q4 revenue and adjusted EBITA.

Top European News

  • ECB Presidential Contenders Wary on Chance of 2019 Rate Hike
  • German Business Confidence Deteriorates Amid Heightened Risks
  • Maersk Ready to Move Ahead With Drilling Unit IPO, CEO Says
  • EU Ties Itself in Knots on Irish Border Amid Brexit Tension
  • Russia Central Bank to Boost FX Buying as Ruble Steadies

In FX, the Dollar and overall index retraced some of yesterday’s trade and ECB-induced gains in which DXY reached highs just shy of 96.700. The index fell back below its 50 DMA at 96.549 and through the 96.500 level to currently hover nearer the bottom of a 96.300-530 range, with a 96.680 Fib also keeping the upside capped. Meanwhile, the US government shutdown is set to notch its 35th day after the US Senate blocked two competing proposals (although this was expected) and as a result today’s US building permits, durable goods and new home sales data will be postponed.

  • EUR – Staging a recovery from post-ECB lows, when EUR/USD briefly lost the 1.1300 handle. Back above the level now, the single currency was largely unreactive to unsurprising narratives from ECB’s Coeure and Villeroy, while the release of an overall downbeat German ifo survey and downgrades in the ECB SPF also did little to wobble the Euro. EUR/USD now close to the top of a 1.1300-50 range ahead of a Fib level at 1.1351. In terms of option expiries, the pair sees EUR 1.96bln scattered around 1.1300-25, EUR 1.5bln between 1.1350-60 and EUR 2.8bln between 1.1375-1.1400.
  • CAD – Rising oil prices and an easing buck sent USD/CAD back below its 50 DMA at 1.3350 to an intraday low of 1.3311 ahead of the psychological 1.3300 level with reported bids around the figure. A marginal pullback in energy sent USD/CAD back up to around the middle of a 1.3311-3361 band ahead of the Canadian budget balance release later today.
  • GBP –Tumultuous day for the Pound after a Sun article provided Cable with the fuel to sky rocket past the 1.3100 handle to a high just shy of 1.3140, well above the December low of 1.2477. The article reported that PM’s coalition party, the DUP, are willing to back her Brexit deal if the Premier can get an expiry date to the backstop, though is widely expected to be rejected by the EC. Nonetheless, the idea of unity in the government aided the Pound to set fresh yearly highs vs. the buck. However, Cable has pared back most of the overnight gains, albeit holding just above its 200 DMA (1.3055-60) and closer to the bottom of 1.3057-3139 parameters.
  • JPY – Choppy session thus far, but overall back on a decline amid the broad upturn in risk appetite around the market after USD/JPY rose above its 30 DMA at 109.79 to reach intraday highs of 109.91 (vs. low of 109.52) ahead of USD 1.2bln of option expiries at the 110.00 strike for the NY cut.

In commodities, Brent (-0.1%) and WTI (+0.2%) prices are mixed and off of session highs, just under USD 62/bbl and USD 54/bbl respectively; in spite of yesterday’s unexpected EIA crude inventory build of 7.97mln vs. Exp. -0.042mln draw. Elsewhere, Russia was China’s largest crude oil supplier for December and 2018; with Russia being the largest crude supplier to China for the third year in a row. Looking ahead we have the Baker Hughes rig count, where last week total rigs decreased by 25 to 1050. Gold (+0.3%) is marginally higher on the weakness in dollar, in spite of the positive risk sentiment reducing safe haven demand for the yellow metal. Copper prices are benefiting from market sentiment, whilst palladium has lost over 8% since reaching a high of just under USD 1400/oz last week.

US Event Calendar

  • 8:30am: Durable goods orders data postponed by govt shutdown
  • 10am: New home sales data postponed by govt shutdown

DB's Jim Reid concludes the overnight wrap

As I finish this off I’m on the earliest train out of Davos and back to Zurich before travelling home. We had a DB drinks reception for our clients last night and one said to me that in 11 years of coming here the best advice would be to trade in the opposite direction to the main theme of the conference over the next 12 months. If you believe that then you should trade if favour of a return to globalisation trends in 2019 as the conference was generally concerned about its immediate path. Our CEO overheard this and said that on the main panel he was on, the head of the WTO was the contrarian. He said that 2019 will end up being around the lowest tariff year on record and an improvement on 2018. Clearly this relies on China and US either sorting out their differences or at least announcing a truce. However, it’s a reminder that although global trade has come off the peak, tariffs are still historically low outside of the main dispute. Personally, I think globalisation is in reverse but whether it’s a soft landing or not depends on policy. All to play for.

Back to the real (financial) world and yesterday lived up to the billing of being a busy day in markets with much weaker-than-expected European PMIs initially setting the tone. Draghi and the ECB then played for time - given March is where they get their latest staff forecasts - but acknowledged that risks were now to the downside. Elsewhere, Wilbur Ross downplayed expectations that a US-China trade deal is any closer, US jobless claims hit the lowest since around the time man first walked on the moon, and it was also a day where the government shutdown looked likely to continue for some time yet, even if there have been overnight attempts to find a deal to temporarily open government. So plenty to discuss.

However, by the end of play the main US equity indices hadn’t moved much as the S&P 500 eked out a +0.14% gain while the DOW dropped -0.09%. More positively, tech stocks rallied with the NASDAQ up +0.68%. The Philadelphia Semiconductor index advanced +5.73% on the back of strong earnings from Texas Instruments, Lam Research, and Xilinx. The STOXX 600 pared gains of as much as +0.49%, heading into negative territory after the ECB before closing +0.22%. Rates fell across the continent, as 10y Bunds and OATs finished -4.4bps and -5.0bps lower. BTPs outperformed, with yields down -9.3bps, to 2.66% and to the lowest level since last July. Treasuries rallied as well, with 10-year yields ending -2.5bps lower while the dollar rallied +0.45%.

The euro experienced sharp moves amid the data and ECB meeting. First, the single currency weakened around -0.44% following the soft PMI data (details below). It then held its level around 1.1340 as the ECB policy statement kept policy unchanged, which maintained forward guidance (“interest rates to remain at their present levels at least through the summer”) and said reinvestments will continue for an extended time beyond the first rate hike.

The euro then took another leg lower to 1.1307 after Draghi said the risks to the outlook have “moved to the downside.” However, this shift was ultimately viewed as somewhat incremental and the euro retraced all its moves to return to flat on the session as the press conference continued. Draghi confirmed that the Council decision was unanimous on changing the outlook but that the Council “didn’t discuss policy implications”. There was apparently “unanimity” among the council supporting the view that the “likelihood of recession is low”, but DB’s Mark Wall thinks the Governing Council is divided on the outlook, between one camp who expect uncertainties (Brexit, trade, etc.) to be resolved positively and another who is more worried about European domestic demand. The tension between these two views will probably not be resolved until the ECB publishes new staff forecast at its March meeting. Mark’s full thoughts are available here.

On other policy questions, there was also no decision made on TLTRO, although it was mentioned by several officials and clearly talked about, while the positive side effects were talked up by Draghi later on. That perhaps leaves the option open for March but didn’t provide any insight beyond that. The issue of negative rates and their impact on banks was also posed to Draghi, however, it was mostly a repeat of the line he used in December. Draghi specifically said that “we have to see how the continuation of negative rates will affect this balance” in response to a question on if the ECB would have to do something about it. Again a non-committal answer.

As highlighted earlier, in the midst of Draghi speaking, headlines also hit the wires from across the pond and specifically comments from US Trade Secretary Ross. He said that the US and China were “miles and miles” away from a resolution, which caused a kneejerk reaction in markets but then followed by saying that there is a “fair chance” that the two countries would arrive at a trade deal. He also added that it was “unlikely” that next week’s meetings between the two sides would result in a final solution. Crystal clear then. Later on, Director of the National Economic Council Larry Kudlow said that President Trump was optimistic about talks with China, so no shortage of noise on the trade front.

President Trump himself tweeted later in the session about the ongoing government shutdown, saying “We will not Cave!” and escalating the tension. The senate voted on two bills to reopen government, but neither received enough support to pass. Overnight, the debate has seemingly moved on as to whether government could reopen for three weeks if Mr Trump received a down payment for the wall. Pelosi has already poured cold water on the idea but it perhaps shows that negotiations aren’t completely breaking down. In the background, the Washington Post reported that White House Chief of Staff Mick Mulvaney has asked all executive departments and agencies for lists of their highest-impact programs which could be negatively affected if the shutdown continues into March or April. Probably always good to prepare for the worst, but such a long shutdown, if realised, would have serious implications for the US economy.

In Asia this morning, technology stocks are leading markets higher, with the Nikkei (+1.06%), Hang Seng (+1,34%), Shanghai Comp (+0.57%) and Kospi (+1.49%) all moving upwards. Other significant news overnight has come from the UK, where sterling rose 0.5% against the dollar to its highest level in over two months, after the Sun reported that the DUP would be prepared to back Prime Minister May’s Brexit deal if there were a time limit to the Irish backstop. The news comes ahead of Tuesday’s debate in the House of Commons, where Parliament will have the opportunity to vote on a variety of amendments put forward by MPs to May’s Brexit plan.

Back to the details of the PMIs, which actually ended up requiring a bit of digging through such was the disparity between sectors and countries. However, the bottom line is that momentum is certainly weaker. The composite reading for the Euro Area for instance came in at 50.7 compared to expectations for 51.4. That’s also down 0.4pts from the soft December reading and is the lowest now since July 2013. The data is also consistent with GDP growth of just +0.1% qoq, which paints downside risks to the consensus forecast for 2019 growth of around 1.3% (DB 1.2%). In terms of sectors, manufacturing slumped more, by 0.9pts to 50.5 (vs. 51.4 expected) while the services reading fell 0.4pts to 50.8 (vs. 51.5 expected). As you can see though both were much softer than expected.

What was interesting was the split between Germany and France. In France the services reading tumbled further by 1.5pts to 47.5 (vs. 50.5 expected) and to the lowest in nearly 5 years. The manufacturing reading bounced back in contrast to 51.2 (vs. 50.0 expected) from 49.7, however, the extent of the drop in the services reading left the composite at 47.9 versus 48.7 in December. So rather worryingly there was little sign of a rebound after recent protests. In Germany the pain was reserved for the manufacturing sector, which tumbled to 49.9 from 51.5. That’s the first sub-50 reading since November 2014. The services reading did, however, rise 1.4pts to 53.1, which left the composite at 52.1 and up 0.5pts from December. Our economists also highlight that the implied non-core PMI numbers aren’t pretty with the implied non-core composite down 1pt equally, shared by the manufacturing and services sectors. Manufacturing PMIs for Italy and Spain will print next Friday alongside the final readings across the globe.

The associated statement with the PMIs highlighted “ongoing auto sector weakness, Brexit worries, trade wars and the protests in France” as reasons dampening growth in both sectors but also that the survey responses “indicate that a deeper malaise has set in at the start of the year” and that “companies are concerned about a wider economic slowdown gathering momentum, with rising political and economic uncertainty increasingly affecting risk appetite and demand”. With the manufacturing reading for the Euro Area and Germany now down in 12 of the last 13 months, a quick refresh of our equity versus PMI regression analysis shows that the STOXX and DAX are still around 14% and 17% ‘cheap’ respectively and that implied PMIs are actually more like 46.0 for the Euro Area and 43.7 for Germany based on equity markets. France looks 16% ‘cheap’ by the same measure. So despite the decline in PMIs, equity markets have oversold by this basic measure in Europe. However, for there to be a sustainable rebound, the PMIs need to find a base. Something they have struggled to do for over a year now.

In the US, initial jobless claims fell to 199k, the lowest level since 1969, as the US labour market continues to strengthen. Continuing claims fell from 1,737k to 1,713k, near the cyclical and multi-decade lows. The US PMIs, while not as significant as the European vintages, showed some improvement with the manufacturing index up to 54.9 from 53.8. The services reading fell 0.2pts to 54.2, while the composite print ticked up to 54.5 from 54.4. The Kansas City Fed’s manufacturing index rose to 5 from 3, though the anecdotal details suggested some concerns over both tariffs and the government shutdown. Altogether, the PMIs and KC Fed index did not move the needle for our expectations of next Friday’s ISM manufacturing report.

Finally, the day ahead will feature the January IFO survey in Germany this morning along with the January CBI reported sales survey in the UK. The US session is meant to feature the December durable and capital goods orders data, as well as the January new home sales print, however, the government shutdown will delay that once more. The earnings calendar features AbbVie and Colgate-Palmolive, as well as Ericsson in Europe.

Published:1/25/2019 6:33:08 AM
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[Markets] US STOCKS-Chipmakers, airlines lift Nasdaq; trade worries stall S&P, Dow A rally in shares of chipmakers and airlines lifted the Nasdaq on Thursday, while the Dow Industrials and the S&P 500 wavered due to concerns about the Sino-U.S. trade dispute and the longest U.S. government shutdown ever. U.S. Commerce Secretary Wilbur Ross said the United States and China were a long way from resolving their trade dispute, but saw a fair chance of a deal. Published:1/24/2019 10:58:03 AM
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[Markets] US STOCKS-S&P, Dow set to open lower after Commerce Secretary Ross's trade comment The S&P 500 and the Dow Jones Industrial Average were set to open lower on Thursday after U.S. Commerce Secretary Wilbur Ross said the United States and China were "miles and miles" from resolving their trade dispute. The world's two largest economies are trying to meet a March 1 deadline to resolve their trade dispute. Published:1/24/2019 8:29:08 AM
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[Markets] Stocks Ignore European PMI Collapse, Rise On Tech Rally

European and Asian stocks rose and US equity futures were flat, as a rally in European tech shares lifted trader mood ahead of today's ECB meeting and the latest round of US-China trade talks, even as the latest round of collapsing European PMIs was roundly ignored. The dollar climbed and Treasury yields dropped.

European tech giant STMicro rose as much as 8.4%, lifting the Stoxx 600 Technology Index to a 7-week high after investors brushed aside the chipmaker’s lower-than-expected quarterly sales forecast, focusing on better margins, expected recovery and positive indications from peers in U.S. and Asia. Increases in software and chipmaker shares pulled the Stoxx Europe 600 index higher, which shrugged off weaker euro area PMIs, trading 0.6% higher, and hovering near session peak. Technology, autos and banks lead the gains. The FTSE MIB (+1.2%) outperformed its peers bolstered by strong performance in banking names after Italian PM Conte said the Italian banking system is well capitalised and stable; with markets also looking out for any potential signals from the ECB on TLTROs.

European equity strength was somewhat puzzling as it came on the day the Germany Manufacturing PMI missed badly, printing 49.9, below the 51.3 expected, the lowest print since November 2014 and in contraction for the first time in 5 years...

... while French Service PMI tumbled to 47.5, far below the 50.5 expected, the lowest since February 2014.

The sudden plunge in Eurozone manufacturing and services sentiment suggests that the ECB will likely have to further trim its optimism for a rebound, if not turn outright dovish, a move which could send the Euro tumbling even more (it last traded at 1.1346, the lowest level since the start of the year).

Earlier in the session, Asia’s main stock markets all posted modest gains although trade was far from smooth sailing in Asia-Pac and upside in the other US majors were also capped amid ongoing shutdown concerns and trade uncertainty. ASX 200 (+0.4%) and Nikkei 225 (-0.1%) were mixed throughout the majority of the session as corporate updates dictated price action and in which energy names kept Australia afloat after Santos reported an increase in Q4 output and revenue, while Japanese exporters lacked unison amid an indecisive currency. Hang Seng (+0.4%) and Shanghai Comp (+0.4%) were initially lacklustre amid ongoing trade uncertainty and following another substantial daily liquidity drain by the PBoC of CNY 250bln, but then gradually improved as money market rates declined ahead of the 2nd phase of the PBoC’s 100bps RRR taking effect tomorrow.

Meanwhile in the US, S&P 500 index futures up 0.1%, Nasdaq +0.4% as investors continue to operate with few signals on China trade talks and in a drought of data on the U.S. economy thanks to the longest ever government shutdown. The tit-for-tat battle between President Donald Trump and Democrat leader Nancy Pelosi appears to be escalating. A vote on reopening agencies is set for Thursday.

At the same time, downbeat comments continue to emanate from the annual conclave of global movers and shakers in Davos: “Earnings expectations particularly in the U.S. are too high,” said Bridgewater co-CIO Greg Jensen in an interview on Bloomberg TV Wednesday from Davos. “And generally the Fed and other policy makers are still expecting stronger growth than we see.”

In rates, European bonds bull flattened with peripherals leading the way. Ten-year BTPs and bonos outperform bunds by 5bps and 4bps respectively, while across the Atlantic, TSY yields were flat to 1bp lower across 2s through 10s, slight flattening bias.

In FX, the euro dropped before the ECB policy decision due out in less than an hour, weighed down by the abovementioned soft PMI data out of the euro area amid a broad recovery for the greenback during the London session. The Bloomberg dollar spot index recovered from an early loss as traders awaited fresh developments from U.S.-China trade talks; the greenback rallied against the euro in London hours to 1.1339, nearing a three-week high, after an expected rebound in French activity in January failed to materialize; composite PMI dropped to 47.9, the lowest in more than four years; Treasuries edged higher, underperforming European peers. The Aussie was the worst performing major, and hit a three-week low after National Bank of Australia, one of the big four banks, raised mortgage rates prompting concerns the central bank may have to ease policy; the AUD rallied earlier on better-than-expected employment data. Sterling dropped on profit-taking and the Norwegian krone rose after the central bank reiterated its outlook for gradual interest-rate increases.

In commodities, Brent (-0.4%) and WTI (-0.1%) pared back some of the downside seen after yesterday’s unexpected API crude stocks build of +6.55mln vs. Exp -0.4mln; with markets now looking to today’s EIA release. Separately, US President Trump has stated that oil sanctions could be imposed this week on Venezuela if the political situation deteriorates further.

Expected data include jobless claims and PMIs. American Airlines, Bristol-Myers, Union Pacific, Intel and Starbucks are among many companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,642.50
  • STOXX Europe 600 up 0.4% to 356.24
  • MXAP up 0.3% to 152.67
  • MXAPJ up 0.4% to 496.32
  • Nikkei down 0.09% to 20,574.63
  • Topix up 0.4% to 1,552.60
  • Hang Seng Index up 0.4% to 27,120.98
  • Shanghai Composite up 0.4% to 2,591.69
  • Sensex up 0.1% to 36,142.78
  • Australia S&P/ASX 200 up 0.4% to 5,865.69
  • Kospi up 0.8% to 2,145.03
  • German 10Y yield fell 1.4 bps to 0.211%
  • Euro down 0.3% to $1.1343
  • Italian 10Y yield rose 1.1 bps to 2.394%
  • Spanish 10Y yield fell 3.2 bps to 1.281%
  • Brent futures little changed at $61.12/bbl
  • Gold spot down 0.2% to $1,279.91
  • U.S. Dollar Index up 0.3% to 96.38

Top Overnight News

  • President Trump tweets that he will give State of the Union address when the partial government shutdown is over
  • While headline oil futures barely moved on the back of a deepening crisis in Venezuela, the price of barrels that more closely mirror the Latin American country’s supplies surged to a fresh five-year high on Wednesday relative to WTI
  • Venezuelan bond prices climbed for a fourth day as anti-government protests throughout the country spurred speculation that President Nicolas Maduro’s regime could be coming closer to an end
  • The Swiss National Bank intends to keep interest rates at a record low and can even reduce them further if the political risks dominating the outlook explode into a bigger crisis, President Thomas Jordan said
  • Malaysia’s central bank left its benchmark interest rate unchanged on Thursday, as expected, giving little indication on whether it sees room to ease policy amid subdued inflation and weak economic growth
  • Jardine Matheson Holdings Ltd., the flagship investment firm of a 186-year-old conglomerate, plunged 83 percent, wiping out as much as $41 billion in market value, before quickly recovering, with traders speculating that a fat finger error may have caused the dramatic drop

Most Asian bourses eventually followed suit to the gains stateside where the DJIA led the majors higher on better than expected earnings from several of its components, although trade was far from smooth sailing in the Asia-Pac region and upside in the other US majors were also capped amid ongoing shutdown concerns and trade uncertainty. ASX 200 (+0.4%) and Nikkei 225 (-0.1%) were mixed throughout the majority of the session as corporate updates dictated price action and in which energy names kept Australia afloat after Santos reported an increase in Q4 output and revenue, while Japanese exporters lacked unison amid an indecisive currency. Hang Seng (+0.4%) and Shanghai Comp (+0.4%) were initially lacklustre amid ongoing trade uncertainty and following another substantial daily liquidity drain by the PBoC of CNY 250bln, but then gradually improved as money market rates declined ahead of the 2nd phase of the PBoC’s 100bps RRR taking effect tomorrow. Finally, 10yr JGBs were flat with price moves contained by the indecision across riskier assets throughout the sessions and amid mixed results at this month’s 20yr JGB auction.

Top Asian News

  • Bank Indonesia Governor Says Rate Near Peak, No Cut Seen Yet
  • Anbang Is Said to Near First Domestic Disposal as Empire Unwinds
  • Hainan Airlines Is Said to Signal Plans to Sell Dollar Bonds
  • Kuwait Finance Said to Offer 35% Premium in $8 Billion Deal

Major European equities are in the green [Euro Stoxx 50 +0.7%]. The FTSE MIB (+1.2%) is outperforming its peers bolstered by strong performance in banking names after Italian PM Conte said the Italian banking system is well capitalised and stable; with markets also looking out for any potential signals from the ECB on TLTROs. Sectors are mixed, with outperformance in tech names following STMicroelectronics (+8.8%) earnings release; other tech names such as Infineon (+4.9%) are up in sympathy. Other notable movers include, Novozymes (-3.5%) who are at the bottom of the Stoxx 600 after missing on Q4 sales.

Top European News

  • French Economy Stays on Downward Trend at Start of 2019
  • Norway Flags Risk to Outlook as Tightening Plan Kept in Place
  • SNB to Keep Negative Interest Rate for Some Time, Jordan Says
  • STMicro Sees Past IPhone Jitters With Back-to-Growth Forecast

In FX, the DXY is back on an upward trajectory follow the prior session’s declines in which the index tested 96.000 to the downside at one point. In early EU trade, DXY gained more ground above psychological level and currently resides near intraday highs of 96.400 with upside exacerbated by the release of overall downbeat EZ PMIs. In terms of technicals, the index has breached its 100 DMA to the upside at 96.100 and sees its 200 DMA around 96.550.

  • AUD – The marked underperformer amid the release of Australian jobs numbers, where the Aussie initial felt support as headline employment change and the unemployment rate were better-than-expected, thought gains were pared as the growth in employment was mostly fuelled by part-time jobs which coincided with the decline in participation rates. Additionally, reports of NAB hiking mortgage rates exacerbated downside in the AUD as some suggest this could aid the RBA to push back a rate hike, especially given the decline in house prices, subsequently, interest rate futures are pricing a 60% chance of a rate cut by December 2019. As such AUD/USD lost more ground below its 100 DMA at 0.7171 to levels below 0.7100 vs. a high of 0.7166. Furthermore, HSBC sees AUD/USD declining to 0.6600 this year and Rabobank sees the pair at 0.6800 citing 'doom loop' of debt which threatens to weigh heavily on the currency.
  • NOK – A firmer Crown in the aftermath of a hawkish Norges interest rate decision in which the CB left its key policy rate unchanged as expected. Focus was more on whether a rate hike will be pushed further into H1 given the recent decline in oil, which the Central Bank left unchanged. Norges also noted that the domestic economic growth and labour market development appear to be broadly in-line with forecasts while inflation has been slightly above expectations. Subsequently, EUR/NOK fell through the 9.7500 to a low print of 9.7130 (vs high of 9.7600) and currency hovers closer to the bottom of the intraday band.
  • EUR, GBP- The EUR is ultimately on the backfoot as dismal French PMIs triggered the decline in the single currency in which the composite output pointed to the quickest contraction in the French private sector output for over four years, according the IHS. Meanwhile, Germany’s manufacturing PMI fell into contractionary territory and to a 50-month low while the manufacturing output index slid to a 69-month low. In terms of the Eurozone, ING highlights that the below-forecast metrics indicates Q1 is off a disappointing start, heavily influence by France. Furthermore, IHS Markit’s Chief Economist notes “The disappointing survey data indicate that [Eurozone] GDP is rising at a quarterly rate of just 0.1%.” As such, EUR/USD fell further below its 200 DMA at 1.1384 to test the intraday low 1.1330 to the downside before stabilising just above its LOD ahead of the ECB interest rate decision later where focus will be on the EZ growth outlook (full preview available in the Research Suite). In terms of option expiries, a sizeable EUR 2.2bln are scatter at strike 1.1395-1.1405. Meanwhile, Sterling is largely side-lined following days of gains as the ECB decision comes into focus, Cable is heavily dictated by dollar action as the pair resides near intraday lows below 1.3050 (vs high of 1.3094)

In commodities, Brent (-0.4%) and WTI (-0.1%) have pared back some of the downside seen after yesterday’s unexpected API crude stocks build of +6.55mln vs. Exp -0.4mln; with markets now looking to today’s EIA release. According to reports several Libyan oil ports are closed due to poor weather. Separately, US President Trump has stated that oil sanctions could be imposed this week on Venezuela if the political situation deteriorates further. Gold (-0.2%) has been subdued due to the improved risk tone following updates to the US-China trade front. Recent news flow has seen China’s commerce ministry stating that Vice Premier Lie He will travel to the US on January 30th; adding that the US and China are to have an in-depth negotiation on economic and trade issues. Elsewhere, Anglo America have reported Q4 copper production of 184Kt vs. Prev. 149KT, a 5-year high; Co’s CEO stating this is largely due to efficiency and productivity improvements.

In terms of the day ahead, the ECB meeting should be the main focus for markets today. We’ll also get the PMIs in the US  alongside the latest weekly initial jobless claims print (expected to tick up modestly to 218k), December leading index (-0.1% mom expected) and the Kansas City Fed manufacturing activity index print for January (expected to hold at +3). Meanwhile, we’ll also get the EIA’s 2019 energy outlook while the earnings highlights today include Intel and Starbucks.

US Event Calendar

  • 8:30am: Initial Jobless Claims, est. 218,000, prior 213,000; Continuing Claims, est. 1.73m, prior 1.74m
  • 9:45am: Bloomberg Consumer Comfort, prior 58.1
  • 9:45am: Markit US Manufacturing PMI, est. 53.5, prior 53.8
  • 9:45am: Markit US Services PMI, est. 54, prior 54.4
  • 9:45am: Markit US Composite PMI, prior 54.4
  • 10am: Leading Index, est. -0.1%, prior 0.2%
  • 11am: Kansas City Fed Manf. Activity, est. 2.5, prior 3

DB's Jim Reid concludes the overnight wrap

The main themes of Davos this year are the future of Globalisation and of work in a robotics age. I presented on the former yesterday and on the latter this morning. To be honest, globalisation to me is being able to walk between sessions in the snow-draped highest city in Europe and still being able to listen to England play cricket in the blistering heat in Barbados using a cheap roaming 4G contract. I will fight hard to protect globalisation in that form. Talking of roaming, I ventured around the whole conference area yesterday and the most scary thing was seeing various snipers on the roof between all the venues. Security is high but I suspect it would have been even higher if the likes of Trump hadn’t cancelled.

It was a busy day in Davos around me, with speeches from German Chancellor Angela Merkel, Japanese Prime Minister Shinzo Abe, Chinese Vice President Wang Qishan, among many other public officials and private investors. Most speakers highlighted the need to defend globalisation, free markets, and multi-lateral institutions, so the highlight might have been the voice of dissent from Italian Prime Minister Conte. He said that EU budget rules have resulted in higher public debt, by slowing economic growth, and predicted GDP growth of 1.5% this year. For context, DB economists and the private consensus both predict 0.7% GDP growth. My thoughts in my presentation was that globalisation has been in aggregate a force for good, especially via a big drop in global poverty over the last 40 years. However, redistribution remains as big a problem as ever and unless policy makers act soon, a worse system in aggregate may win out via populism. The redistribution argument extents to intra-Europe as well. Can the European project survive with Germany running a near 2% budget surplus while the likes of Italy continue to be squeezed - notwithstanding the recent budget increases. Clearly Germany has every right to be fiscally prudent but is it the best way of ensuring Europe’s long-term stability? Probably too big a question for 5am on a cold morning.

The Davos population will likely be tuned into their phones and screens this morning in what is a bit a blockbuster few hours ahead, with the January flash PMIs due out first of all, followed by the ECB at lunchtime. Just on the PMIs, they will be released at 8.15am GMT for France, 8.30am GMT for Germany and 9.00am GMT for the Euro Area this morning. As we discussed on Monday, the Eurozone and German manufacturing PMIs have both been sequentially down 11 months out of the last 12. European equity and credit markets remain cheap to PMIs but the problem over the last year is that PMIs haven’t stabilized, so equities haven’t yet found a decent base.

Consensus thinks we might see some stability today though, with the composite Euro Area reading actually expected to tick up slightly to 51.4 from 51.1 primarily due to the services reading edging up 0.3pts to 51.5. The manufacturing print is expected to hold steady at 51.4, which, as a reminder, was the lowest reading since February 2016. For France, the consensus is for a slight tick back up to 50.0 (from 49.7) for the manufacturing reading and a sharper move higher for the services reading to 50.5 (from 49.0). If the extent of the decline for France last month was related to the ‘yellow vests’ protests then the risk might be for a bigger bounce-back in the France data. In Germany, the consensus is for no change in the manufacturing reading at 51.5 and a 0.3pt increase in the services reading to 52.1.

As for the ECB at lunchtime, we noted in yesterday’s EMR that our economists believe that there are three key questions facing Draghi and the Council. The first is: have the balance of risks tilted to the downside? Our team believes they have. The second is: will the ECB commit to replacing TLTRO2? Our team believes that there will be a replacement to avoid a potentially disorderly deleveraging, with confirmation by the March meeting at the latest. The third question is: is there a consensus building around a technical or one-off depo rate hike to support the banking system? Although Draghi has hinted at such, the minutes lacked any evidence that the Council is discussing the idea. But that’s not to say that the topic won’t be brought up again in the Q&A. As a related stat, amazingly there’s still $8.3tn of negative yielding debt swimming around in the world, which is actually a 46% increase compared to October’s levels.

Negative yields and deposit rates don’t help banks and this has become a bigger and bigger talking point now that there’s doubt as to whether the ECB can even raise rates this cycle at all. Our economists have written two notes looking at the structural impact of negative rates on banks over the last week. The first looked at the cost of the interest rate cycle through the lens of net interest income across sectors of the economy and across countries. They found that in cash terms, the net interest income of financial corps was no worse at the end of the last monetary cycle in 2008 than at the start in 2002. However, the current cycle is very different with the net interest income of financial corps deteriorating by almost four times versus the previous cycle. The second note looked at the benefits of a sustainable banking system in the Euro Area and the drivers of profitability. The team conclude that the ECB has good reason to care about the structural profitability of the banking system and inability to reach such would come with significant economic and financial risks, and transmission of policy. They also find that it is full normalisation of monetary policy rather than the removal of the negative depo rate that will benefit banks most, and this requires a sustained economic recovery. It’s also worth flagging the view from our rates strategists who believe that the ECB should consider a tiered reserves system, similar to that in Japan and Switzerland.

Plenty to consider then. Markets overnight are going into the meeting with modest gains for the most part in what’s been a fairly quiet session for newsflow. The Hang Seng (+0.14%), Shanghai Comp (+0.51%) and Kospi (+0.51%) are all up however the Nikkei (-0.26%) is still lagging behind after most markets started on the back foot. Japan’s flash manufacturing PMI for January didn’t help, dropping 2.6pts to 50.0 and to the lowest since August 2016. Futures in the US are broadly flat along with EM FX.

This follows a bit of a lacklustre session yesterday where risk assets bounced between gains and losses before ultimately closing close to flat on the day. The S&P 500 opened as much as +0.76% higher, dropped to -0.75% around lunchtime, and closed +0.22%. The DOW and NASDAQ posted similar roundtrips, ultimately ending the session +0.70% and +0.08% respectively. The VIX also jumped above 22 for the first time in two weeks but subsequently fell to end the session -1.28pts lower at 19.52. US HY credit opened -4.3bps tighter but partially retraced to close -0.7bps.

Sentiment had been boosted by better-than-expected earnings reports from the likes of Procter & Gamble, United Technologies and IBM. Each company raised their guidance for Q1 or FY 2019, pointing to increased confidence in the economic backdrop. Overall, S&P 500 earnings are running +14.2% higher yoy so far. However, a turn in the oil price (WTI closing -2.29%) along with little sign of progress on the government shutdown saga appeared to be the catalyst to turn sentiment from the highs. Early in the day the Chairman of the White House Council of Economic Advisers Kevin Hassett had even said that the US economy could see growth in Q1 of “very close to zero” should the government shutdown extend for the whole quarter. He did, however, also add that growth could rebound to “4 or 5 percent” in Q2 if the government reopens.

Just on the shutdown, the Senate is set to vote on two bills today: a Republican proposal modelled on President Trump’s weekend offer, which would reopen the government and include wall funding, and a Democratic proposal, which would reopen the government with no wall funding. Neither bill appears likely to receive the requisite 60 votes. The House has already passed the Democrats’ bill and, while some senior Democrats expressed a willingness to raise border control spending, they still refuse to contemplate any wall funding. So the two sides are still entrenched, and acrimony is increasing after President Trump sent Speaker Pelosi a letter yesterday, insisting that he would still deliver his State of the Union address on January 29. Pelosi responded by insisting that he is not invited to speak to Congress until the government is reopened.

Meanwhile, here in the UK the prospect of Labour supporting a backbench plan for legislation to delay Article 50 should a deal not be agreed before February 26th (Cooper-Boles amendment) helped Sterling climb +0.89% yesterday and close above $1.30 for the first time since November 8th. Germany’s Economy Minister Altmaier also said he “would not mind” if the UK needed more time to clarify its position, though France’s EU Minister said that such an extension would be “technically feasible, although it is not simple”. Gilts were flat despite the bigger move for Sterling while the FTSE 100 (-0.85%) underperformed other European markets with the STOXX 600 closing -0.06%. Bond markets continue to be a relative sideshow for now with Treasuries just +0.2bps higher, which means that the range since January 8th, on an intraday basis, is still just 14bps.

The relatively benign moves for Treasuries partly reflects the data where the Richmond Fed manufacturing index for January printed in line at -2, and thus improving on the -8 level seen in December. Following notable deterioration in December, the regional Fed surveys so far in January have been a bit more mixed with the Richmond Fed and Philly Fed improving, but the Empire Fed dropping notably. We’ll get the manufacturing PMI today along with the Kansas Fed survey, which should help to further shape ISM expectations for this month. In Europe, France’s INSEE Manufacturing Sentiment Index fell 1 point to 103, which was as expected but nevertheless could point to some stabilization in conditions this month. For the Eurozone aggregate, January consumer confidence fell to -7.9 and December’s print was revised lower, though the results may been affected by a new methodology in the calculation.

In terms of the day ahead, as highlighted at the top the flash, January manufacturing PMIs and the ECB meeting around lunchtime should be the main focus for markets today. We’ll also get the PMIs in the US this afternoon, alongside the latest weekly initial jobless claims print (expected to tick up modestly to 218k), December leading index (-0.1% mom expected) and the Kansas City Fed manufacturing activity index print for January (expected to hold at +3). Meanwhile, we’ll also get the EIA’s 2019 energy outlook while the earnings highlights today include Intel and Starbucks.

Published:1/24/2019 6:27:51 AM
[Markets] US Market Indexes Rebound to Close Higher Wednesday Dow Jones gains 0.70% Published:1/23/2019 4:54:36 PM
[Markets] Dow Stages Late-Day Comeback to Rise 171 Points All three major indexes ended the day above the break-even line, while the Dow Jones Industrial Average registered the most gains. It’s been a tug of war with mixed signals on fourth-quarter earnings, the global economy, the trade war, Brexit, and the U.S. government shutdown. TheDow Jones Industrial Average increased 171.14 points, or 0.7%, to 24,575.62, while the S&P 500 added 5.8 points, or 0.2%, to 2,638.7 and the Nasdaq Composite grew 5.41 points, or 0.1%, to 7,025.77. Published:1/23/2019 4:27:30 PM
[Markets] Wall St edges higher as upbeat earnings dampened by trade, shutdown woes Uncertainty persisted in Washington, where no end to the longest-ever federal government shutdown appeared to be in sight. "The headlines coming out of Davos are rehashing some of the pessimism," said Matthew Keator, partner in the Keator Group, a wealth management firm in Lenox, Massachusetts. IBM provided the biggest boost to the Dow, rising 8.5 percent after cloud and software services helped its profit come in above analyst estimates and the company offered better-than-expected guidance for 2019. Published:1/23/2019 3:55:39 PM
[Markets] Stocks, Dollar Slide As Global Growth Gloom Grows

No one wins today...

Chinese stocks trod water overnight...

 

European markets pumped and dumped...Spain is leading on the week and UK's FTSE the laggard...

 

US Markets were a mixed bag as earnings beats mixed with multiple macro headlines leaving the indices notably dispersed...

In cash markets, Dow outperformed thanks to IBM, UTX, and P&G (as FDX and UPS dragged on other indices after a downgrade)...

White House Council of Economic Advisers Chairman Kevin Hassett said that if the partial government shutdown extends through March, there’s a chance of zero economic expansion this quarter, though “humongous” growth would follow once federal agencies reopen. Oil’s retreat weighed on energy producers and service providers.

“The broader concern that I think will continue to creep in here is, leaving trade aside, is how weak is global growth? How weak is China’s growth?” said Liz Ann Sonders, chief investment strategist at Charles Schwab & Co.

Trade-talks rhetoric ratcheted up with China warning that US markets would crash if Trump did not do a deal (therefore suggesting he is under pressure to do a deal since he lives and dies by the stock market). However, later in the day, Trump responded by threatening that more tariffs will be unleashed if the Chinese do not come towards his goals.

Overall the score seems to be Kudlow 1 - 0 Hassett...

This headline hit at 1435ET TRUMP'S OUTSIDE CHINA ADVISOR SAYS THERE WON'T BE BREAKTHROUGH IN TRADE TALKS SOON - CNBC - and stocks dipped but only enough for algos to BTFD.

 

VIX had a wild ride - from a 19 handle to over 21 and all the way back down again...

 

 

Treasury Yields ended the day marginally higher across the curve (but well off the day's yield highs)...

 

The dollar dropped into the red for the week...

 

Offshore Yuan surged overnight up to the Fix...

 

Ether, Bitcoin, and Ripple dipped in the afternoon after CBOE withdrew its Bitcoin ETF request...

 

Another chaotic day in crude along with copper on China growth concerns and PMs managed to hold unchanged on the week...

 

WTI ranged between $52 and $53.50 on the day ahead of tonight's API inventory data...

 

Finally, earnings expectations continue to slide...(S&P Fwd EPS is at the lowest level in 5 months)

'Soft' survey sentiment has collapsed...

And the lifeblood of the rebound - central bank balance sheet expansion - has stalled once again...

And there's one more thing...

Published:1/23/2019 3:24:05 PM
[Markets] Dow ends up over 170 points, buoyed by strong round of earnings Dow ends up over 170 points, buoyed by strong round of earnings Published:1/23/2019 3:24:05 PM
[Markets] Dow Rises as Wall Street Weighs Strong Earnings, Global Growth Concerns The Dow Jones Industrial Average is higher after solid earnings from several bellwethers helped to allay growth worries. jumped 8.46% after the technology giant posted adjusted fourth-quarter earnings that beat estimates and issued an outlook for the year that was higher than forecasts. Stocks were higher on Wednesday, Jan. 23, as sharp gains earlier in the session fueled by strong earnings reports faded and investors once again focused on the fate of U.S.-China trade talks and further signals of a slowing global economy. Published:1/23/2019 3:24:05 PM
[Markets] Dow Edges Up as Wall Street Weighs Strong Earnings, Global Growth Concerns The Dow Jones Industrial Average is higher but has struggled for direction during Wednesday's session after solid earnings from several bellwethers fail to allay growth worries. Published:1/23/2019 12:54:06 PM
[Markets] Dow's gain bucks negative broad-market breadth data The Dow Jones Industrial Average rose 24 points in afternoon trade, defying the negative breadth in the broader market, as the sharp gains in three Dow components were enough to keep the blue-chip barometer in positive territory. Of the Dow's 30 components, 21 were trading lower. But the stock price gains for International Business Machines Corp. , United Technologies Corp. and Procter & Gamble Co. after upbeat earnings reports added about 121 points to the Dow's price. Meanwhile, the number of declining stocks lead advancers 1,699 to 1,095 on the NYSE and 1,601 to 1,153 on the Nasdaq exchange. The volume of declining stocks represented 58.8% of total volume on the Big Board and 65.2% of total volume on the Nasdaq. While the Dow gained, the S&P 500 declined 0.2% and the Nasdaq Composite shed 0.5%. Published:1/23/2019 12:22:33 PM
[Markets] Dow Jones Gives Back Gains After Negative Reversal Shakes Stocks The Dow Jones Industrial Average erased a 1.2% intraday gain near midday Wednesday. Other indexes were down in late morning trade after a negative reversal. The day's leaders were an unlikely bunch: IBM gapped up 8%; Procter & Gamble, 4%; and United Technologies, 3. Published:1/23/2019 11:23:17 AM
[Markets] Dow Rises as IBM, P&G and United Technologies Power Higher The Dow Jones Industrial Average trades higher Wednesday, getting a boost from solid earnings and rebounding from the previous session's sharp selloff. Published:1/23/2019 10:24:22 AM
[Markets] Dow's up 125 points as opening surge is halved Dow's up 125 points as opening surge is halved Published:1/23/2019 10:24:22 AM
[Markets] IBM, P&G and UTX shares surge early Wednesday to power 240-point Dow run-up IBM, P&G and UTX shares surge early Wednesday to power 240-point Dow run-up Published:1/23/2019 8:53:40 AM
[Markets] Dow Posts Strong Gains as IBM, P&G and United Technologies Power Higher The Dow Jones Industrial Average rises Wednesday, getting a boost from solid earnings and rebounding from the previous session's sharp selloff. Published:1/23/2019 8:53:40 AM
[Markets] Wall Street set to open higher on strong earnings from Dow members United Technologies Corp rose 4.3 percent after the industrial conglomerate reported a better-than-expected profit and forecast 2019 earnings above estimates, boosted by acquisition of aero parts maker Rockwell Collins. Fellow industrial companies in the Dow, Boeing Co, Caterpillar Inc and 3M Co rose between 0.2 percent and 0.9 percent. The gains follow Wall Street's more than 1 percent loss on Tuesday as worries about slowing global growth came to the fore after a gloomy economic outlook from the International Monetary Fund, signs of further cooling in China's economy and mixed reports on U.S.-China trade talks. Published:1/23/2019 8:23:40 AM
[Markets] IBM's stock surges into bull-market territory ahead of the open Shares of International Business Machines Corp. shot up 7.8% in premarket trade Wednesday on the back of better-than-expected fourth-quarter results, enough to propel them into bull-market territory. The price gain would add about 64 points to the Dow's price, while Dow futures climbed 176 points. After closing at a 9-year low of $107.57 on Dec. 24, IBM's stock had bounced 13.9% through Tuesday. A close at or above $129.09--the stock is currently 2.1% above that level ahead of the open--would represent a gain of 20% or more from its bear-market closing low, which to many chart watchers defines a bull market. IBM's stock has still lost 6.6% over the past three months and 26.3% over the past 12 months, while the Dow Jones Industrial Average has slipped 3.15 the past three months and declined 6.9% the past year. Published:1/23/2019 7:53:30 AM
[Markets] US STOCKS-Futures rise on strong earnings reports from Dow members Strong earnings from Dow members IBM, United Technologies and Procter & Gamble lifted U.S. stock index futures on Wednesday, putting Wall Street on track to recover from its second biggest decline in 2019. ... Published:1/23/2019 7:22:32 AM
[Markets] United Tech stock soars 4% premarket after earnings blow past estimates United Technologies Corp. shares jumped 4% in premarket trade Wednesday, after the company blew past earnings estimates for the fourth quarter and offered upbeat guidance for 2019. The company said it had net income of $686 million, or 83 cents a share, in the quarter, up from $397 million, or 50 cents a share, in the year-earlier period. Adjusted per-share earnings came to $1.95, well ahead of the FactSet consensus of $1.55. Sales rose to $18.0 billion from $15.7 billion, also well ahead of the FactSet consensus of $16.8 billion. "Looking to 2019, our segment profit is expected to grow faster than sales, and free cash flow, excluding separation costs, is expected to grow faster than earnings," Chief Executive Greg Hayes said in a statement. The company, which is planning to split into three global companies housing its core businesses, said it now expects 2019 adjusted EPS of $7.70 to $8.00, compared with a $7.81 FactSet consensus. Sales are expected to range from $75.5 billion to $77.0 billion, compared with a FactSet consensus of $76.6 billion. Shares have fallen 18.4% in the last 12 months, while the S&P 500 has fallen 7.3% and the Dow Jones Industrial Average has fallen 6.9%. Published:1/23/2019 6:23:06 AM
[Markets] Global Rally Returns As Markets Fade Trade Fears, Dollar Slides

One day after the biggest S&P drop in a month, stocks have regained their composure putting trade and global growth concerns on the backburner, and global stock indices are generally a sea of green this morning.

Trading was initially choppy overnight as hopes of more stimulus measures from China to shore up economic growth clashed with worries over progress between Washington and Beijing to resolve a trade spat between the world’s top two economies. The MSCI world equity index was down 0.1 percent, with Asian equity markets choppy as the region attempted to shrug off the headwinds from the US, where stocks slumped on Tuesday as the risk averse tone and lingering global growth concerns caught up with the major US indices on return from their extended weekend.

The FT reported that the US turned down China’s offer for preparatory trade talks, which was later denied by NEC Director Larry Kudlow helping U.S. equities pare some losses though the fresh concerns about U.S.-China relations kept share prices in check. Early trade jitters pushed the MSCI index of Asia-Pacific shares ex-Japan lower by 0.2%, stalling after climbing to a seven-week high on Monday.

“The main culprit for the risk-off tone this morning is the change in sentiment around U.S.-China trade talks .... That seeped into Asia overnight and Europe this morning,” said Edward Park, deputy chief investment officer at Brooks MacDonald.

Australia's ASX 200 (-0.3%) was subdued with underperformance in the energy sector after crude prices slipped by over 2% and Nikkei 225 (-0.1%) was dampened by disappointing trade data including the sharpest drop in exports since October 2016.

However, sentiment in Tokyo was propped up by a weaker currency after the BOJ cut its inflationary outlook slashing 2019 core CPI from 1.4% to 0.9%, even as it kept its monetary policy, sending the USDJPY to new highs and boosting local stocks while Japan Display shares surged on reports it is in investment discussions with TPK and Silk Road Fund. 10yr JGBs traded sideways throughout most the session amid the indecisive risk tone in stocks and then saw choppy trade in reflection of sentiment in the region and following an unsurprising BoJ decision to keep policy setting unchanged.

Elsewhere, Hang Seng and Shanghai Composite confirmed trader indecisiveness after mixed actions by the PBoC as it conducted a Targeted Medium-term Lending Facility for the first time ever which was at a lower rate than MLF rates and is aimed at spurring lending to small firms, but conversely refrained from reverse repo operations which resulted to a daily drain of CNY 350bln.

A fresh batch of disappointing corporate updates from European companies further knocked confidence about fourth-quarter earnings, pushing European stocks lower for a third session at the start of trading, with the Stoxx 600 down as much as 0.5%, with bourses all across Europe losing ground as a profit warning by Ingenico sent the French payment group down over 12 percent and hit the whole European tech sector.

However, sentiment reversed sharply just after the open, with most European equities trading mostly higher [Euro Stoxx 50 +0.2%], after recovering from opening losses, taking the lead from Wall Street.

Echoing the rebound in Europe, U.S. futures pointed to a positive start for Wall Street after the S&P 500, Nasdaq and the Dow all posted their biggest one-day percentage drops since Jan. 3 on Tuesday.

Still, despite a modest return of bullish sentiment, the ride ahead will be bumpy: Justin Onuekwusi, a fund manager at Legal & General said central banks’ stimulus unwinding, China’s slowdown, the broader impact of trade wars and populist rhetoric from politicians were all keeping markets on edge. "All these issues have an impact on markets. Every time you have an increase in rhetoric, markets react. It feels like there is a greater political risk premium. The biggest near-term risk is that as you see markets fall, confidence drops and you get people not spending which becomes self-perpetuating. The near-term probability of that has increased.”

In FX, the U.S. dollar slumped to session lows having trading near a three-week high earlier after the Bank of Japan left monetary policy unchanged as expected, boosting risk appetite and sending the yen lower.  The Bloomberg Dollar Spot Index fell for the first time in seven days in a rather muted session in currencies, with short-term positioning dictating price action. The yen weakened as the BOJ lowered its inflation outlook, while the kiwi advanced as consumer-price data beat estimates. Treasuries slipped as oil prices rose, while euro-area bonds were mixed as stocks in Europe and U.S. equity futures rebounded. Sterling rose as the U.K. parliament moved closer to ruling out a no-deal Brexit. The euro was a shade lower at $1.1358 but remained in close reach of a three-week low of $1.1336 set on Tuesday, weighed by recent weakness in the euro zone economy and worries about fallout from Brexit.

In the key central bank event overnight, the BoJ kept monetary policy settings unchanged as expected with NIRP held at -0.1% and 10yr JGB yield target at around 0%. Furthermore, the BoJ extended its lending scheme for 1 year and stated that economic momentum for reaching price goal is sustained but lacking strength, while it added that risks to price and economic outlooks are skewed to the downside. BoJ reduced Real GDP forecasts for FY18 but raised Real GDP forecasts for FY19 and FY20, while it reduced Core CPI forecasts on all years through to FY20. BoJ Governor Kuroda said the downward revision to price outlook is due to the temporary decline in oil prices, Kuroda expects inflation to pick up towards the 2% target. Adding that downside risks from overseas are heightening due to US-China trade friction and European problems.

In the latest Brexit developments, PM May is reportedly set to force ministers to keep a no deal Brexit on the table despite threats of ministerial resignations. This has been seen as a defence mechanism against the Labour Party’s potential support for the Cooper-Boles Brexit delay plan.  UK Tory party Brexiteers concerned about prospects of a delay, have suggested they could be won over if UK PM May can get a serious concession from the EU on backstop. Following this, ITV's Paul Brand tweets "Jacob Rees-Mogg will say in a speech today that the backstop remains “the one absolute obstacle” to backing PM’s deal BUT he’s “encouraged by signs of movement”. Sun's Steve Hawkes reports "Labour has told second referendum campaigners it is backing the Cooper-Boles Amendment". Has subsequently been confirmed by a Labour party source, stating it is ‘highly likely’ they will back the amendment.

In commodities, Brent (+0.8%) and WTI (+0.8%) prices have nursed initial losses and moved into positive territory due a turnaround in risk sentiment. Following on from Saudi Energy Minister Al Falih’s withdrawal from the WEF at Davos, Russian Energy Minister Novak has also cancelled his trip; Novak was due to speak on Friday on the Great Energy Race alongside IEA’s Birol. Separately, IEA’s Birol has stated that oil demand will grow by at least 1mln BPD. In terms of forecasting DNB have cut their 2019 Brent forecast to USD 70/bbl vs. Prev. USD 75/bbl. Of note API’s have been rescheduled to today due to Monday’s US market holiday.

Gold has marginally benefitted from the risk sentiment, with the yellow metal trading at the top of it’s narrow USD 4/oz range; currently just under USD 1285/oz. Elsewhere, China’s December scrap metals imports increased to 510k tonnes, their highest figure since May, ahead of China tightening waste imports in 2019.

Expected data include mortgage applications. Abbott, Comcast, P&G, and Ford are among companies reporting earnings.

Market Snapshot

  • S&P 500 futures up 0.2% to 2,636.25
  • STOXX Europe 600 down 0.05% to 354.91
  • MXAP down 0.3% to 152.23
  • MXAPJ down 0.1% to 494.65
  • Nikkei down 0.1% to 20,593.72
  • Topix down 0.6% to 1,547.03
  • Hang Seng Index up 0.01% to 27,008.20
  • Shanghai Composite up 0.05% to 2,581.00
  • Sensex down 0.6% to 36,217.48
  • Australia S&P/ASX 200 down 0.3% to 5,843.72
  • Kospi up 0.5% to 2,127.78
  • German 10Y yield rose 0.3 bps to 0.239%
  • Euro down 0.01% to $1.1359
  • Italian 10Y yield fell 1.7 bps to 2.383%
  • Spanish 10Y yield fell 1.3 bps to 1.321%
  • Brent futures up 0.7% to $61.94/bbl
  • Gold spot little changed at $1,285.00
  • U.S. Dollar Index little changed at 96.36

Top Overnight News from Bloomberg

  • The European Union is prepared to hit 20 billion euros ($22.7 billion) of U.S. goods with tariffs should President Donald Trump follow through on a threat to impose duties on EU cars and auto parts, said a senior trade official for the bloc
  • The European Commission is pushing the Irish government to lay out its plans for the border in the event of a no-deal Brexit, a person familiar with the matter said
  • The U.K. parliament is inching toward a plan to delay Brexit to prevent Britain dropping out of the European Union without a deal, with the opposition Labour Party now increasingly likely to support the proposal
  • Debt levels in the U.K. aren’t necessarily a cause for concern, according to Bank of England Deputy Governor Ben Broadbent
  • Investors are seeking record amounts of bonds from Southern Europe, emerging from the sidelines after last year’s political turmoil in Italy. Sovereign bond offerings from Italy, Spain and Portugal this month have all drawn unprecedented bidding for a total of 106 billion euros ($120 billion), up 14 percent from a year ago. That has helped drive a slide in peripheral euro-area yields in the past two weeks
  • The chairman of Thailand’s Election Commission says a general election is to be held on March 24

Asian equity markets were choppy as the region attempted to shrug off the headwinds from Wall St, where stocks declined as the risk averse tone and lingering global growth concerns caught up with the major US indices on return from their extended weekend. Furthermore, it was also reported that the US turned down China’s offer for preparatory trade talks, which was later denied by NEC Director Kudlow. Nonetheless, ASX 200 (-0.3%) was subdued with underperformance in the energy sector after crude prices slipped by over 2% and Nikkei 225 (-0.1%) was dampened by disappointing trade data including the sharpest drop in exports since October 2016. However, sentiment in Tokyo was later propped up by a weaker currency, while Japan Display shares surged on reports it is in investment discussions with TPK and Silk Road Fund. Hang Seng (U/C) and Shanghai Comp. (U/C) conformed to the indecisiveness after mixed actions by the PBoC as it conducted a Targeted Medium-term Lending Facility for the first time ever which was at a lower rate than MLF rates and is aimed at spurring lending to small firms, but conversely refrained from reverse repo operations which resulted to a daily drain of CNY 350bln. Finally, 10yr JGBs traded sideways throughout most the session amid the indecisive risk tone in stocks and with participants side-lined prior to the BoJ policy announcement, but then saw  choppy trade in reflection of sentiment in the region and following an unsurprising BoJ decision to keep policy setting unchanged.

Top Asian News

  • China Meat Giant Surges as Founder Returns After Vanishing
  • China Companies Suspected of Buying Own Bonds to Spur Demand
  • Thailand to Hold First General Election Since Coup in 2014
  • BOJ Leaves Stimulus Unchanged as It Cuts Inflation Outlook Again
  • The January Rally Is Waning in Asia Stocks, Just Like Last Year

Major European equities are mostly higher [Euro Stoxx 50 +0.2%], after recovering from opening losses, taking the lead from Wall Street. US stocks were affected by growth concerns, alongside subsequently denied reports that the US turned down an offer by two Chinese vice-ministers to attend preparatory trade talks in the US. Sectors have strengthened somewhat from their negative opening, and are now mixed with underperformance in energy names and outperformance in utilities. Tech names have been underperforming following ASML (-1.8%) cutting Q1 sales guidance, with the likes of STMicroelectronics (-1.4%) down in sympathy. Other notable movers include Carrefour (+6.7%) are at the top of the Stoxx 600 following earnings where they confirmed all targets for their 2022 transformation plan. Separately, RPC Group (+4.6%) are firmly in the green after recommending a final cash offering of GBP 7.82/shr; with Co’s directors seeing the acquisition terms as fair and reasonable. In contrast, at the bottom of the Stoxx 600 are Ingenico (-13.2%) after reporting a FY18 EBITDA miss.

Top European News

  • Still Here? Brexit Delay Might Worsen EU’s Election Headache; Fox Warns No-Deal Exit Is ‘Real Possibility’: Brexit Update
  • Record Bidding for Southern Europe’s Debt Shows Pent-Up Demand
  • Salvini Takes a Swing at Merkel and Forecasts Losses for Macron
  • Apollo Seals $4 Billion Deal for Ketchup-to-Lotions Packager RPC
  • Patisserie Valerie Collapses as Luke Johnson’s Rescue Fails

In FX, a relatively muted session for the Dollar thus far with the index hovering around the middle of a tight 96.268-378 range after NEC Director Kudlow dismissed reports that US turned down an offer from China for trade talks. The US government shutdown is now rolling onto its 33rd day, although there were reports overnight that US Senate are to vote on two separate bills on Thursday which could potentially bring an end to the shutdown. Meanwhile, BLS stated the January 2019 Employment Situation will be published as scheduled on February 1, 2019, at 1330GMT. ING noted that the 800k workers affected by the shutdown represent only 0.5% of the total US NFP, noting that the impact to the US economy will be modest but noticeable.

  • JPY – On the backfoot in early EU trade following the BoJ rate decision in which the Central Bank kept the NIRP at -0.1% and the 10yr JGB yield target around 0% as expected while also reducing inflation forecasts, which was widely touted beforehand. Furthermore, Japan logged the first trade annual deficit in three years, as the cost of energy imports surged. As such USD/JPY breached its 100 and 50 HMAs (at 109.45 and 109.53 respectively) to a high of 109.73 (vs low of 109.33) with little to report on the options expiry front.
  • GBP, EUR – The Pound continues on its upwards trajectory amid ongoing hopes of an Article 50 extension despite the UK Governments constant dismissal of the option, though the latest suggests that support for the Cooper amendment (to give Parliament power to extend Article 50) is stacking up, with reports of the Labour party also supporting the amendment. Lloyd’s notes that the recent Sterling strength was more than they anticipated, though a clean break through 1.3000 is still needed for “re-energised momentum” to the upside. GBP/USD  remains closer to the top of a 1.2945-1.3000 range ahead of its 200 DMA at 1.3081. Meanwhile the EUR remains flat within

In commodities, Brent (+0.8%) and WTI (+0.8%) prices have nursed initial losses and moved into positive territory due a turnaround in risk sentiment. Following on from Saudi Energy Minister Al Falih’s withdrawal from the WEF at Davos, Russian Energy Minister Novak has also cancelled his trip; Novak was due to speak on Friday on the Great Energy Race alongside IEA’s Birol. Separately, IEA’s Birol has stated that oil demand will grow by at least 1mln BPD. In terms of forecasting DNB have cut their 2019 Brent forecast to USD 70/bbl vs. Prev. USD 75/bbl. Of note API’s have been rescheduled to today due to Monday’s US market holiday. Gold (Unch) has marginally benefitted from the risk sentiment, with the yellow metal trading at the top of it’s narrow USD 4/oz range; currently just under USD 1285/oz. Elsewhere, China’s December scrap metals imports increased to 510k tonnes, their highest figure since May, ahead of China tightening waste imports in 2019.

US Event Calendar

  • 7am: MBA Mortgage Applications, prior 13.5%
  • 9am: FHFA House Price Index MoM, est. 0.3%, prior 0.3%
  • 10am: Richmond Fed Manufact. Index, est. -2, prior -8

DB's Jim Reid concludes the overnight wrap

Good morning from the highest city in Europe. Davos is very cold and please expect lots of Canada Goose jackets if you catch up with events on the telly over the rest of this week. I looked at buying one before I came out so as to fit in with the Davos set. When I saw how much they cost I realised I would rather not fit in. Actually, I got there late last night and the only non-restaurant places I found to eat were a kebab shop and a Co-op supermarket. I was wondering whether Bono has ever had a similar dilemma between the two choices. As I’m staying in a self-catering apartment and after much deliberation I opted for the latter and cooked myself a pizza. In nearly a quarter of a century it’s probably the first business trip that I’ve cooked for myself. I quite enjoyed it. Anyway, if you’re in town let me know, especially if you want to attend one of my sessions.

The cold air has obviously also infiltrated markets this week. US bourses reopening yesterday failed to stem the reversal of some of the new year optimism. Indeed, the latest headlines on the earnings and trade fronts weighed on sentiment. Equity markets failed to recover from heavy falls at the open with the S&P 500, DOW and NASDAQ closing down -1.42%, -1.22% and -1.91% respectively. The NYFANG index dropped -3.38% as Amazon and Netflix posted their worst days of the year.

Markets took another leg lower in the US afternoon session, after headlines broke that US negotiators declined a proposed meeting between with mid-level Chinese officials, apparently citing lack of progress on China’s industrial policies, especially the alleged forced technology transfers. The meeting would have been with Vice-Minister of Commerce Wang and Vice-Minister of Finance Liao, to lay groundwork for next week’s planned meeting between senior officials namely Vice-Premier Liu, US Trade Representative Lighthizer, and Treasury Secretary Mnuchin. Those talks are still scheduled to take place, but expectations for a breakthrough have now fallen. Late in the day, Trump Administration officials formally denied the reports however head of the National Economic Council Kudlow did add that “enforcement is absolutely crucial to the success of these talks. In any case the damage to markets had been done.

Earnings also played a part in the sogginess, as poor results from Halliburton, Johnson & Johnson and Stanley Black & Decker weighed on the industrials and consumer discretionary sectors (down -2.07% and -1.79% respectively). All three companies declined following their latest quarterly reports with the common denominator being management comments about a challenging outlook ahead, highlighted by Black & Decker CEO Loree saying “economic growth is slowing". This more than offset gains to eBay (+6.13%) which rallied after one of its bigger shareholders, Elliot Management, proposed a five-step plan which in their view could result in eBay’s share price almost doubling. The energy sector also suffered (-2.20%), as WTI oil tumbled -1.91% however did at least pare a sharper slide earlier in the session. That move came despite there not really being an obvious catalyst aside from the various growth concerns which have been highlighted in recent days – none of which are particularly new news.

Meanwhile, here in Europe UBS also missed at both the earnings and sales lines following its quarterly report which resulted in shares falling -3.17% in Switzerland - albeit off the early lows. That weighed on the wider European Banks index which closed down -1.03% and for the fifth time in the last seven sessions while the STOXX 600 ended -0.36%. HY credit spreads widened +4bps and +12bps in Europe and the US respectively. In contrast bonds were slightly stronger, albeit only modestly so, with Bunds ending -2.0bps lower and Treasuries -4.5bps. The 2s10s curve also flattened -1.6 bps but the reality is that it still remains rooted in the 10-20bp range that it’s been in since the end of November.

Overnight the focus has turned to the BoJ where, as expected, there have been no changes to policy. Also as expected are the lower inflation forecasts in the BoJ’s outlook, the fourth consecutive quarter they have done so. For the fiscal year starting April, core CPI is expected to be 0.9% compared to 1.4% previously. With the backdrop of lower inflation and with the consumption tax looming, the hurdle to the BoJ contemplating adjusting policy continues to look high. JGBs are slightly weaker this morning post the decision with the 10y up less than a basis point to -0.004% with Kuroda due to speak shortly. The Yen has weakened -0.25% while the Nikkei (+0.04%) is broadly flat. That’s the case also for the Hang Seng (+0.06%) and Shanghai Comp (+0.07%) with the Kospi (+0.24%) outperforming. The good news is that the slide for US equity futures also appears to have come to an end with S&P 500 contracts up +0.15%. That may reflect the news that lawmakers in the Senate have agreed to hold separate votes today on rival proposals in order to reopen the government.

Moving on. There was some interest in the ECB’s bank lending survey yesterday which was softer compared to recent surveys. The net percentage of banks reporting tightening standards to enterprises was closer to even with -1 in Q4 compared to -6 in Q3. Demand for loans also continued its slowing trend from recent quarters with the net balance to enterprises falling to +9 versus +12 in Q3. It was a similar story for housing loans although demand for the latter did pick up. At a country level the softness was mostly reserved for Italy and Spain. Notably the outlook for Q1 also implies further moderation which fits in with lower growth expectations for the Euro Area this year. At a minimum the data should add to the anticipation levels for tomorrow’s PMIs and ECB policy meeting. Our economists’ preview for the meeting is available here. They don’t think any big policy changes are imminent, but think the council could shift its characterisation of the balance of risks to the downside. Apart from that, they’ll focus on any hints regarding new TLTROs and/or any discussion of a potential one-off deposit rate hike.

Here in the UK it was nice to get some rare positive news in the form of the latest labour report. Indeed there were positive surprises for the November unemployment rate (down one-tenth to 4.0% vs. 4.1% expected), average weekly earnings (up one-tenth to +3.4% 3m/yoy vs. +3.3% expected) and employment change (141k 3m/3m vs. 87k expected) prints. That of course compares to what have been weaker PMIs in the UK recently and the ongoing Brexit saga so this somewhat complicates the picture for the BoE with the supply side narrative of a tighter UK labour market very much intact. A hike by August is less than 50% priced however it will challenge the BoE not to sound overly dovish given the strength in the hard data.

The only other data worth flagging yesterday in Europe was the January ZEW survey in Germany where there was a big slump in the current situations component to 27.6 (vs. 43.0 expected) compared to 45.3 in December. However the expectations component did climb 2.5pts to -15.0 and bettered expectations for a fall to -18.5.

In the US, monthly existing home sales fell short of expectations, rising by 4.99 million in December compared to expectations for 5.25 million, the slowest pace and biggest downside miss since November 2015. Mortgage applications have picked up over the last couple weeks as long end interest rates have fallen, so there could be scope for a rebound in the near future. We’ll get the latest MBA mortgage application data later today.

In terms of the day ahead, this morning in Europe we’ll get January confidence indicators out of France followed later on by the January CBI survey in the UK. In the US this afternoon it’ll be worth keeping an eye on the January Richmond Fed manufacturing survey (-2 expected vs. -8 previously) in light of some weak regional Fed surveys so far this month, while the November FHFA house price index is also due out. This afternoon we’ll also get the January consumer confidence reading for the Euro Area. Away from that we’re due to hear from the BoE’s Broadbent while the second day of the Davos forum gets underway. Earnings wise we’re due to get quarterly reports from United Technology, Proctor & Gamble and Ford.

Published:1/23/2019 6:23:06 AM
[Markets] US futures point to a muted open, after Tuesday's sharp losses On the earnings front, a slew of companies are due to report, including Abbott Labs, Comcast, Procter & Gamble, Kimberly-Clark, Ford and F5 Networks. Investors will keep abreast of domestic politics as the longest-ever government shutdown continues to wreak havoc and trigger uncertainty across the U.S. Around 3:40 a.m. ET, Dow futures popped 9 points, indicating an open of 21.52 points up. Published:1/23/2019 3:21:58 AM
[Markets] [$$] Stock Market’s Next Hurdle: Tech and Industrial Earnings Investors enjoying tranquility in the stock market are facing a new source of potential volatility: the quarterly earnings of industrial and technology companies that start reporting this week. The S&P 500 and Dow Jones Industrial Average posted their smallest daily moves over a two-week period since September in the two weeks through Friday, according to Dow Jones Market Data. The average one-day swing for both the S&P 500 and Dow was 0.6%, marking a sharp change from the violent moves that dominated in the fourth quarter. Published:1/22/2019 7:18:48 PM
[Markets] Stocks Suffer Most Since Xmas Eve As 'Big Trouble' In China Spreads

But, but, but last week the China talks were going great and everything was awesome? Now, talks are off and The IMF says the global economy has shit the bed?

China stocks started badly and never got any better after the shitty data hit... No National Team?

 

European stocks extended yesterday's losses...

 

US markets were weak overnight after dismal China data (worst annual GDP growth in 28 years) and trade talks headlines (confirming "little progress") but when the "U.S. TURNS DOWN CHINA OFFER OF PREPARATORY TRADE TALKS" headline hit, stocks tanked...

And then - as if on cue with the dow down 450 points - Larry Kudlow shows up on TV and proclaims: "REPORT THAT WHITE HOUSE CANCELED CHINA MTG NOT TRUE... KUDLOW REJECTS FT REPORT ON U.S. TURNING DOWN CHINA PREP TALKS" which sent stocks spiking higher.. but that did not last...

 

By the close, Nasdaq and Trannies were worst (both down over 2%)...some panic buying in the last few seconds...

 

From Friday's cash open, the Nasdaq has erased all the trade hope gains...

 

"Most Shorted" stocks fell over 3% today - their biggest drop in six weeks...

Volume was above average today but not huge.

But...95% of S&P 500 stocks were to the downside today - this is the worst tumble, breadth-wise, since December 24.

From a volume perspective, it's also an ugly day... 88% of NYSE volume is in declining stocks, which rivals the 88.4% seen on December 24...

 

All the major US equity indices broke back below their 50-day moving averages...but bounced back above it thanks to Kudlow and some panic-buying at the bell.

 

Equity (VIX) and Credit (CDX) protection markets soared higher today...

 

Treasury yields tumbled between 3 and 5bps on the day...

 

30Y Yields fell to one-week lows before Kudlow hit...

 

The dollar is up from Friday's close but roundtripped today to close almost unchanged (The dollar was bid as China data hit)...

 

 

Cryptos bounced today pushing Litecoin and Bitcoin Cash green for the week...

 

PMs managed modest gains as copper and crude were clubbed after China data...

 

WTI rebounded to $53 after sliding all day...

 

Finally, history appears to be written as the lagged effects of China's collapsing credit impulse (not offset by central bank balance sheet expansion) are not sending happy signals for global shareholders...

But in the US, it's time for some catch down...

Published:1/22/2019 3:18:04 PM
[Markets] Dow Sinks as Global Growth Warnings Rattle Wall Street, Nasdaq Tumbles Over 2% The Dow rose 3% last week, the S&P 500 gained 2.9% and the Nasdaq jumped 2.7%. posted stronger-than-expected fourth-quarter earnings and forecast a modest increase in full-year sales for 2019. Shares fell 3% after the company said completion and production sales slowed from the previous three months. Published:1/22/2019 3:18:04 PM
[Markets] 5 stocks account for nearly 200-points of Dow's tumble Of the Dow Jones Industrial Average's 412-point plunge Tuesday, five higher-priced components are accounting for nearly half of the decline. The biggest drag on the Dow's price is Boeing Co. as the stock fell $8.75, or 2.4%, to shave about 59 points off the Dow's price. Among the other biggest drags, shares of Goldman Sachs Group Inc. shed $5.66, or 2.8%; Caterpillar Inc. declined $4.86, or 3.6%; 3M Co. dropped $4.60, or 2.4%; and Apple Inc. gave up $3.72, or 2.4%. Combined, the stocks' price declines cut about 187 points off the Dow's price. The Dow is a price-weighted average, meaning stocks with the highest prices have the most influence, while indexes like the S&P 500 and the Nasdaq Composite are market-capitalization weighted, meaning the most valuable companies carry the most weight. Published:1/22/2019 2:17:20 PM
[Markets] GE's stock dives on heavy volume as reports raise uncertainty over potential GECAS sale Shares of General Electric Co. took a 5.3% dive in active afternoon trade Tuesday, as the pullback from last week's 10-week closing high accelerated. Volume was 73 million shares, enough to make GE's stock the most actively traded on all the major equity exchanges. The stock had rocketed 36% from the Dec. 12, 9 1/2-year closing low of $6.71 to through Jan. 17, before ticking 0.9% lower on Friday. A Barron's report over the long weekend questioned what GE Capital Aviation Services (GECAS) could fetch in a sale, or whether a sale would even go through. Earlier this month, GE's stock rallied after Bloomberg reported that Apollo Global Management was in talks to buy some or all of GECAS, but an announcement hasn't materialized. On Tuesday, The Wall Street Journal reported Air Lease Corp. indicated it wasn't interested in buying GECAS, and that fellow GECAS rival AerCap Holdings N.V. was hopeful that any potential buyer would retain a disciplined approach. GE's stock has tumbled 30.7% over the past three months, while the Dow Jones Industrial Average has eased 3.9%. Published:1/22/2019 12:46:45 PM
[Markets] Dow's Decline Gains Momentum as Global Growth Warnings Rattle Wall Street The Dow Jones Industrial Average slumped on Tuesday but the blue-chip index has closed higher for four straight sessions. The Dow rose 3% last week, the S&P 500 gained 2.9% and the Nasdaq jumped 2.7%. posted stronger-than-expected fourth-quarter earnings and forecast a modest increase in full-year sales for 2019. Published:1/22/2019 12:19:16 PM
[Markets] Stock losses are growing at midday with the Dow now down 300 points Stock losses are growing at midday with the Dow now down 300 points Published:1/22/2019 11:17:03 AM
[Markets] IBM's stock falls ahead of earnings report that has usually led to losses Shares of International Business Machines Corp. dropped 0.8% in morning trade Tuesday, ahead of the technology company's fourth-quarter report due out after the bell. History suggests investors have good reason to be cautious ahead of the report, given that the stock's one-day, post-earnings reaction has been negative after 16 of the past 20 reports even though EPS beat expectations in 18 of the reports, including the past 16 in a row. Of those post-earnings reactions, the average of the 16 declines was 4.4% and the average of the four gains was 3.6%. IBM's stock has lost 5.6% over the past three months, while the Dow Jones Industrial Average has slipped 3.2%. Published:1/22/2019 10:51:04 AM
[Markets] Travelers beats earnings estimates despite higher catastrophe losses The Travelers Cos. said Tuesday it had net income of $621 million, or $2.32 a share, in the fourth quarter, up from $551 million, or $1.98 a share, in the year-earlier period. Adjusted per-share earnings came to $2.13, ahead of the FactSet consensus of $2.10. Revenue rose to $7.7896 billion from $7.451 billion. Net written premiums rose to $6.691 billion from $6.424 billion. The FactSet consensus was for sales of $6.763 billion. The insurer said catastrophe losses rose to $610 million pre-tax from $499 million in the year-earlier quarter. "Fourth quarter core income of $571 million and core return on equity of 10.0% were both impacted by a high level of catastrophe losses arising from the California wildfires and Hurricane Michael," CEO Alan Schnitzer said in a statement. The company said all of its business lines showed improvement, particularly workers' compensation, surety, management liability and personal auto product lines, while commercial auto was hit by higher loss estimates for the full year. The company had an underwriting gain of $135 million, down from $266 million a year ago. Net investment income rose to $630 million from $601 million. Shares were flat premarket, but have fallen 11% in the last 12 months, while the S&P 500 has fallen 5.7% and the Dow Jones Industrial Average , which counts Travelers as a member, has fallen 5.8%. Published:1/22/2019 6:18:08 AM
[Markets] Global Stocks Retreat on Growth Concerns; US Earnings Take Center Stage Global stocks retreat for a second day on twin concerns for word economic growth in the form of a sharp China slowdown and reduced 2019 forecasts from the IMF. European stocks clipped by growth concerns and Brexit uncertainty as Prime Minister Theresa may attempts to revive her rejected exit deal. U.S. equity futures suggest a 17 point pullback for the S&P 500 and a 150-point slide for the Dow at start of trading. Published:1/22/2019 3:15:20 AM
[Markets] US markets are set to slip: Dow futures point to a decline of more than 150 points at the open Dow Jones Industrial Average futures implied a drop of more than 170 points for the index at Tuesday's open. S&P 500 and Nasdaq 100 futures also pointed to opening declines on Tuesday for the indexes. Dow Jones Industrial Average futures declined 181 points, as of 12:58 a.m. Tuesday ET. Published:1/22/2019 12:45:01 AM
[Markets] S&P Futures Slide As Trade Pessimism Returns

It has been an overnight session of two different narratives, with Asian markets rising on Chinese economic data where despite the biggest annual drop in GDP since 1990 (which boosted hopes for more stimulus), Beijing goalseeked a slightly better than expected retail sales and industrial production December print...

... while European bourses and US equity futures dipped on a late Sunday report from Bloomberg pouring cold water on US-China trade talks, and according to which the two sides have so far made "little progress" on the issue any deal Trump strikes with China may ultimately be judged on: ending what the U.S. has dubbed as decades of state-coordinated Chinese theft of American intellectual property. BBG added that this stood in contrast to movement on other fronts that has lifted stocks in recent sessions, including a report on Friday that China offered a highly unrealistic path to reducing its trade surplus to zero by 2024.

As a result, emerging-market currencies weakened and stocks erased gains as traders assessed potential road blocks in U.S.-China trade talks later this month. The yuan weakened as the U.S. and China negotiators were said to remain far apart over the key issue of intellectual property, with the next round of talks scheduled for Jan. 30-31, even as the Shanghai Composite rose 0.6% to close above 2,600, while the Nikkei was fractionally in the green, rising 0.3% to 20,719 and Australia was also green.

Chinese optimism did not carry over to Europe, however, where the Stoxx 600 index was on course for its first drop in five days, tracking S&P 500 futures lower in muted volumes due to the MLK market closure in the US. That said, European stocks trimmed early losses, with Stoxx 600 hitting session high, still down 0.2%, with telecom, utilities and banks shares leading declines, while airlines rallied. 

European telecom companies were the first sector to give up 2019 gains, with the Stoxx 600 Telecommunications Index falling as much as 1.5%, making it Monday’s biggest sector decliner in Europe and erasing this year’s gains after slightly negative reports on several large carriers. The sector is now down 0.6% on the year, the first industry group (but certainly not the last) in negative territory for the period, with Deutsche Telekom leading declines with a 2.4% drop after a Berenberg downgrade; Orange, Vodafone and Telecom Italia all dropped as well.

Earlier in the session, Germany report that PPI rose 2.7% Y/Y in Dec, missing expectations of 2.9% and far below November's 3.3% print as Europe's inflationary impulse appears to be fading.

S&P 500 futures dropped as much as 0.5% and hit a session low around 5am, although they have since posted a modest rebound and were down 8.5 points last.

Monday's muted start was in stark contrast to last week's rally, when risk assets extended gains amid positive manufacturing numbers and signs the U.S. and China were closing in on a trade truce (even though many of these were officially denied). However, as Bloomberg notes, the "picture is complex", as reports on intellectual property paint a less optimistic view on the outlook for talks, while data on Monday confirmed China’s economy expanded at the slowest pace since the global financial crisis.

In FX, the pound erased a loss before Theresa May returns to Parliament to explain what she’s going to do next on Brexit. On Sunday, the U.K. prime minister ditched cross-party talks and was set to try to get her failed deal through Parliament with votes of Conservatives and her Northern Irish allies. Elsewhere, the dollar was steady, while bonds in Europe were mixed. The yen rose versus all its G-10 peers as global risks, including a lack of progress on the key U.S.-China trade issue of intellectual property, underpinned demand while Treasuries didn’t trade due to the MLK holiday.

Top Overnight News

  • Theresa May briefed her Cabinet on Sunday evening that there was little prospect of cross-party Brexit talks yielding a workable alternative plan to the one that Parliament overwhelmingly rejected last week. Instead, according to two people who were on the conference call between May’s most senior ministers, she said she would seek changes to the Irish backstop section of the deal she’s negotiated with the European Union
  • European Union governments disagree over how long they think the U.K. should delay Brexit, with some pushing for an extension of as much as a year, diplomats said
  • China’s economy expanded at the slowest pace since the global financial crisis, as a domestic financial clean-up, weakening global demand and trade conflict with the U.S. all dampened momentum
  • According to people close to the discussions, the U.S. and China have so far made little progress on the issue any deal Trump strikes with China may ultimately be judged on: ending what the U.S. has dubbed as decades of state- coordinated Chinese theft of American intellectual property
  • The No. 3 House Democrat on Sunday offered a path for a deal to end the almost month-long partial government shutdown, focused on a permanent solution for so-called “Dreamers” rather than the three-year reprieve offered by President Donald Trump
  • Administration officials are planning for President Donald Trump’s second summit with North Korean leader Kim Jong Un to take place in Vietnam, said people familiar with the plans

Asian equity markets began the week higher as the region followed suit to the optimism seen last Friday amongst the US majors after reports China is to offer concessions to eliminate the US trade imbalance, but with gains capped as participants digested a slew of Chinese data including 2018 GDP which was at the slowest growth in 28 years as expected. ASX 200 (+0.2%) and Nikkei 225 (+0.2%) were both positive from the open as they benefitted from the US-China trade optimism, but then pulled-back from their highs heading into the Chinese data and after US Trade Representative Lighthizer noted there was little progress made with China regarding intellectual property theft. Elsewhere, Hang Seng (+0.4%) and Shanghai Comp. (+0.4%) had a relatively tepid open on caution prior to the key data releases and after the PBoC skipped liquidity operations, although Chinese markets later breathed a sigh of relief from the inline GDP numbers, as well as better than expected Industrial Production and Retail Sales data.

Major European equities are mostly in the red [Euro Stoxx 50 -0.2%] as sentiment is dictated by China’s 2018 GDP printing, as expected, the slowest growth in 28 years. FTSE MIB (-0.6%) is the underperforming index, weighed on by Telecom Italia (-1.9%) after the Co’s proposal to confer all network assets into a separate company has been opposed by the communications regulator. Meanwhile, UK’s FTSE 100 (+0.3%) outperforms on currency effects and as the Pound awaits PM May’s Brexit “Plan B”. Sectors are similarly in the red, with underperformance seen in Telecom names; where the aforementioned Telecom Italia is amongst those weighing on the sector. Other notable movers include William Hill (-2.6%) after the Co. state their full year operating profit for 2018 is expected to decrease from 2017’s level. Separately, Henkel (-5.3%) are towards the bottom of the Stoxx 600 after guiding FY19 EPS lower to mid-single digits.

In FX, the DXY is little changed and closer to the top of a 96.200-380 range following a relatively rangebound Asia-Pac session, with little reaction to the confirmation by USTR Lightihzer regarding little progress in intellectual property issues in US-Sino trade talks, while US President Trump dismissed the WSJ report about US mulling to lift China tariffs to move forward dialogue. Liquidity in the markets will likely be thin as US participants are away on MLK day, while State-side data remains scarce as the US government has been shut for almost a month.

  • GBP, EUR – More angst for the Pound as PM May heads to the Commons later (around 15:30 GMT) to pitch her so-called “Plan B” with little expected in regard to a realistic strategy. Downing Street denied weekend reports that the Premier is looking to tweak the Good Friday agreement with Ireland to break the Brexit deadlock, while the Irish European Foreign Affairs Minister stated Ireland will not take part in bilateral talks and dialogue between EU and the UK, in turn pouring cold water on the Handelsblatt report from last week that the EU are ready to make further concessions on the backstop if the initiative comes from Ireland. Going back to May’s statement, there were reports over the weekend that MPs are to ambush the Premier with amendments aimed at stopping a no-deal scenario. Two amendments to be aware of are the Cooper and Grieve amendments, the former is aimed at giving parliament power to extend Article 50 while the latter gives parliament the power to hold “indicative votes” on Brexit options (such as a Norway or Canada-style).  GBP/USD current resides nearer to the bottom of a 1.2831-1.2900 range, below its 100 DMA at 1.2891 and around its 200 HMA at 1.2844. Meanwhile, the EUR remains firmer, albeit marginally as EUR/USD straddles around its 50 DMA at 1.1379 and closer to the middle of a 1.1361-1.1400 range ahead of the ECB interest rate decision on Thursday, while EUR 1.2bln in option expiries rest at strike 1.1400 for today’s NY cut.
  • JPY, CHF – Mixed trade for the “safe-haven” currencies with the Yen slightly firmer upon the release of Chinese GDP which printed the slowest annual growth in almost three-decades, though this was widely expected by analysts amid the ongoing US-China trade disputes. USD/JPY resides in the middle of a 109.50-80 range, while the absence of US participants will drain liquidity. Elsewhere, further suspicious activity in the weakening Franc as EUR/CHF stabilises nearer to the top of a 1.1300-1.1350 range and similarly USD/CHF closer the top of the intraday range with speculation of potential SNB intervention taking place.

In commodities, Brent (-0.1%) and WTI (Unch%) recouped most of the initial losses, though prices remain below USD 63/bbl and USD 54/bbl; as the risk tone is directed by the slowest GDP growth in 28 years from China. Separately, China produced 3.86mln BPD for December which is a 2.85% increase Y/Y; however, 2018 domestic output decreased to 3.8mln BPD vs. Prev. 3.85mln BPD. Friday’s Baker Hughes Rig Count showed total decreased by 25 to 1050; with oil rigs decreasing by 21 to the lowest level in since May 2018. Gold (-0.2%) is in the red but trading within a narrow USD 4/oz range, largely due to a lack of catalyst in the dollar as it is a US market holiday. Elsewhere, China’s primary aluminium output increased for the second month to a record in high in December of over 3mln tonnes; in contrast China’s daily average steel output in December fell to the lowest level since March, due to weaker profit margins.

DB's Jim Reid concludes the overnight wrap

So far this year the market has shaken off its cast from December and is rehabilitating well. It’s a packed week though with lots to test the recovery and before we preview it we’ve already had the first test with China releasing all important data this morning. The good news is that there were no huge surprises with Q4 GDP printing in line with expectations at 6.4% (vs. 6.5% in Q3). That said, it confirms the lowest quarterly rate of growth in China since Q1 2009 (when it was also +6.4%) while the 2018 GDP growth rate of 6.6% is the lowest since 1991. Meanwhile the December activity indicators also out in China this morning were broadly in line. Retail sales printed at +8.2% yoy (vs. +8.1% expected) and fixed asset investment at +5.9% ytd yoy (vs. +6.0% expected) with industrial production (+5.7% yoy vs. +5.3% expected) the biggest positive surprise.

Markets in Asia are up across the board to kick off the week with Chinese bourses leading the way. The Shanghai Comp and CSI 300 are +0.68% and +0.69% respectively while the Hang Seng (+0.34%), Nikkei (+0.34%) and Kospi (+0.08%) have posted more modest gains. The CNY (-0.17%) is a touch weaker after that data along with most other EM currencies while US equity futures are down -0.30%. A Bloomberg story out early this morning suggesting that trade negotiations between the US and China – specifically over accusations of IP theft by China - are failing to make progress appears to be impacting sentiment this morning too. A reminder that China Vice Premier Liu He is travelling to the US on January 30th - 31st for trade negotiations. We should note that US equity and bond markets will be closed today on account of the Martin Luther King Jr. holiday. So it should quieten down as the day progresses.

Even after the China numbers we have a busy week with the world’s most powerful and influential people (plus me) at Davos. So expect lots of headlines (hopefully not involving me). Outside of this, we see U.K. PM May present her alternative Brexit plan today, the ECB and BoJ policy meetings (Thursday and Wednesday), global flash PMIs (Thursday) and earnings season starting to get busier. The ongoing partial government shutdown (31 days and counting today) in the US should also be a talking point with certain US data releases continuing to be delayed as a result and more worries about what it might do to Q1 growth.

Going through these in a little more detail, in terms of Brexit it’s an important week (how many times have we said that) as PM May is due to present her Plan B to Parliament today ahead of a vote on January 29th. The latest is that there isn’t really any latest but lots of behind the scenes activity. TheTimes and various other media outlets last night reported after a cabinet meeting yesterday that May’s tactic seems to have moved from hopes of cross party agreements to getting a deal that the Tories and the DUP can coalesce around. That really involves the backstop and further negotiations with the EU/Ireland. There’s no sign that this will be forthcoming and could be disappointing to the market.

However the Sunday Times earlier reported that we could again be set for more unprecedented procedural dramas in the days ahead. Leaked emails they obtained show that “Dominic Grieve, the former attorney-general, has been in secret communications with Colin Lee, the clerk of bills, with the explicit intention of suspending Britain’s departure from the European Union”. So, while we’re no nearer to a breakthrough the odds of no Brexit might be edging ever so slightly higher from a low base. Related to this it seems likely that an amendment will be put to the next bill that asks for a second referendum. If so it will be interesting to see how the vote for such an amendment would go cross parties. An interesting 8 days lays ahead. Overall it feels like the U.K. Parliament will somehow ensure that a no-deal Brexit is unlikely but that the breakthrough continues to be as illusive as ever. We should add that Sterling has traded broadly flat overnight however Bloomberg is reporting that PM May briefed her Cabinet last night suggesting that cross party Brexit talks had yielded little. The story suggests that the PM will instead seek changes to the Irish backstop to secure enough support from the DUP and pro-Brexit Tory members.

Elsewhere, tomorrow sees the World Economic Forum in Davos officially get underway with the theme of this year's Forum being "Globalisation 4.0: Shaping a New Architecture in the Age of the Fourth Industrial Revolution". Please let me know if you or anyone from your office want to attend my slots on Wednesday (globalisation) and Thursday (Will robots take your job?).

The flash PMIs on Thursday could be the most market moving event of the week. We'll get the manufacturing PMI for Japan, and manufacturing, services and composite readings in Europe and the US. For Europe the composite Euro Area reading is expected to rise 0.3pts to 51.4 broken down by the manufacturing and services rising 0.1pts and 0.3pts respectively.

Any slight rise could be a big deal as the problem with the European PMIs is that their falls have now been long standing and consistent (albeit from very high levels just over a year ago). For example, the Eurozone and German manufacturing PMIs have both been sequentially down 11 months out of the last 12. Equity and credit markets remain cheap to PMIs but the problem so far is that PMIs haven’t stabilised. This will be a big test. So, this is probably the highlight of the week.

Onto the ECB and there's fairly low expectations around the policy meeting on Thursday. The ECB is in a bit of a wait and see mode for now ahead of the next meeting in March when policy makers will then get the added benefit of new economic projections. Potentially important things to keep an eye on however include an acknowledgement of risks to the outlook tilting to the downside and comments around reassessing the impacts of TLTRO - both of which were acknowledged as talking points from the minutes of the December meeting. Also given Draghi’s hint last time out that the ECB are aware of the damage to the banking system of persistent negative rates it will be interesting if he now expands upon that. On this it was interesting to read a piece by Mark Wall on Friday looking at net interest income of the four major economic sectors in Europe pre and post the GFC. Since the GFC, non-financial corporates and governments have seen theirs improve whereas households and financials have seen theirs deteriorate. It should be a zero-sum game at economy wide level but perhaps it’s gone too far inter-sector wise. That partly explains the funk the European banking sector is in and may even be a small part of explaining why populism has grown. To restore balance, policy at some point might have to take from the government and corporates and give to consumers and the banks. Anyway the report can be seen here.

Elsewhere in central bank world, the BoJ is also expected to be a bit of a non-event on Wednesday. Our Japanese economists expect the BoJ to vote to maintain its current policy stance and anticipate downward revisions to inflation forecasts for FY18 and FY19 in the outlook report by 0.1 and 0.2 percentage points respectively. In the view of our colleagues none of the conditions they deem necessary for monetary policy normalization – stable core inflation above 1%, stronger policy side effects, government declaration of end of deflation – have been realized at this point. In addition, the economic outlook is unlikely to be reduced to an extent that would demand further easing. In sum, our colleagues estimate the probability of further easing this year at around 10%.

Meanwhile the ongoing partial government shutdown in the US continues to complicate the timing of economic data releases with a decent backlog now built up. Our US economists estimate that to date the impact on real GDP growth for Q1 is approximately -0.2 to -0.3 percentage points assuming the government reopens by the end of this week. However if it lasts for the entire quarter, it could subtract around a full percentage point. Significantly the lack of timely data releases is increasing uncertainty for the Fed to get a better picture of how Q1 growth is tracking and this will continue until the BEA reopens. Friday's new home sales and durable goods orders fall under this category while the backlog includes retail sales, trade data, housing starts and building permits amongst others. However we will get the Richmond Fed and Kansas Fed manufacturing reports on Wednesday and Thursday respectively which will be worth watching in light of other soft regional Fed surveys of late.

As for earnings, we're due to get quarterly reports from 59 S&P 500 companies this week including Johnson & Johnson and IBM on Tuesday, United Technologies, Proctor & Gamble and Ford on Wednesday, Starbucks, Intel and American Airlines on Thursday and AbbVie on Friday. UBS (Tuesday) and Ericsson (Friday) are the highlights in Europe. It's still early days in earnings season however for the US with about 10% of the S&P 500 having reported, 80% have beaten earnings expectations and 55% have beaten sales expectations. The full day by day week ahead is at the end as usual.

Turning to a recap of last week, the S&P 500 advanced +2.87% (+1.32% on Friday) on positive trade headlines and earnings reports. On the former, a Wall Street Journal article said that Treasury Secretary Mnuchin is arguing for removal of tariffs on China and a Bloomberg News article claimed that China has offered to buy additional US products in an effort to close the trade deficit. There were various denials from the White House but markets want to believe there is no smoke without fire. Equity gains were broad-based, with the DOW and NASDAQ also advancing +2.96% and +2.66% (+1.38% and +1.03% on Friday), respectively. Banks outperformed, as fourth quarter results from major US banks showed declining FICC revenues but overall strength and a more positive Q1 outlook, with an index of bank stocks up +7.57% (+1.56% Friday). Banks in Europe also gained +2.83% (+2.11% Friday) while the STOXX 600 advanced +2.25% (+1.80%). In Asia, the Nikkei and Shanghai Composite rallied +1.50% and +1.65% (+1.29% and +1.42% Friday), respectively. The VIX index slid a bit more to 17.8 (-0.4pts on the week and -0.3pts Friday), closing at a six-week low.

The positive risk sentiment pushed Treasury yields a bit higher, with 10-year yields up +8.4bps to 2.784% (+3.4bps Friday), while bund yields rose +2.4bps (+2.0bps Friday). Peripheral spreads rallied, with Italian and Spanish spreads to bunds down -12.3bps and -9.8bps (-3.4bps and -1.7bps Friday), respectively. The dollar strengthened +0.70% (+0.28% Friday) as US economic data mostly steadied. Initial jobless claims fell, industrial production surprised to the upside, though regional Fed surveys were mixed and consumer sentiment deteriorated. Credit continued its strong start to the year, with US and EU HY cash spreads narrowing -22bps and -19bps (-10bps and -8bps Friday), respectively. The US side was helped by another strong week for oil, as WTI crude prices rose +4.28% (+3.32% Friday), which has supported the HY energy sector. US HY energy credit is -128bps tighter this year with the overall market -92bps tighter.

Published:1/21/2019 7:10:06 AM
[Markets] Which Stock and Bond Markets Close for Martin Luther King Jr. Day The stock and bond markets in the U.S. will be closed on Monday, Jan. 21 in observance of Martin Luther King Jr. Day. A corporate earnings season that kicked off with (GS) (GS) and other banks reporting strong results has helped. Through Friday’s close, the Dow Jones Industrial Average had gained almost 6% so far in January, while the S&P 500 was up about 6.5% and the Nasdaq Composite had added almost 8% in value. Published:1/21/2019 4:11:05 AM
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