TradeTheNews.com Weekly
Market Update: ECB Extends QE and Reflation Rally Continues
Fri, 09 Dec 2016 16:02 PM EST
Stocks had a positive week in the US and globally, with many hitting new
all-time highs and the S&P 500 posting consecutive record levels over the
past three sessions. On the week, the S&P and DJIA each gained 3.1%, while
the Nasdaq surged 3.6%. After the historic OPEC agreement and talks with
non-OPEC producers this weekend expected to be fruitful, cuts set by the oil
cartel last week seem to be real. And with a Fed rate decision also on the
horizon, the markets have heavily discounted a likely hike in December. In the
past, the dark shadow of higher rates pushed stock prices down, whereas now
expected corporate tax cuts and deregulation have more than offset the higher
cost of money.
The market rally was also given extra fuel by the hoped-for extension of the
ECB asset buying program. The market reacted positively after Thursday's
meeting, which saw the ECB extend purchases, but at a reduced amount. ECB
President Draghi said purchases will continue through Dec 2017, an extension of
9 months, while the size of purchases will be reduced to $60B from $80B as of
April 2017. Under the current macro narrative, bonds are the target, with the
inevitability of higher interest rates and a larger federal budget pushing
prices lower. Over the week, 10-year Treasuries gained 7bps in yield going from
2.39% to 2.46%, while 30-year bonds were hit harder, gaining 9bps, from 3.06%
to 3.15%.
In corporate news, President-elect Trump gained some market attention by
targeting both the pharmaceutical industry and Boeing in some pointed comments.
On Tuesday, Trump told Boeing through Twitter that the price of its next
delivery for Air Force One was too high and would have to be renegotiated, and
on Wednesday, the president-elect stated in an interview that drug prices would
have to come down, which sent pharmaceutical sector plunging and the NASDAQ
Biotechnology Index down 3% on the day. The financial sector was one of the big
gainers this week, rising 4.4%, helped by interest rate normalization and a
high probability of easier capital requirements. The Italian financial sector
was an exception, with banks selling off after Italian voters said
"no" to constitutional reforms that would have smoothed capital
raising by Monte Paschi and other banks. Energy deals were busy this week:
Glencore is said to be in the final stage of a deal to buy 19.5% of Russian
Rosneft at €10.2B, while a Macquarie-led consortium plans to buy a 61% stake in
the UK National Gas grid for $7B, with the Qatari Government involved in both
deals. Also Sky disclosed it received a takeover approach from 21st Century
Fox, which already hold a 39% stake.
SUNDAY 12/4
(CN) CHINA OCT CAIXIN CHINA SERVICES PMI: 53.1 V 52.4 PRIOR (16-month high)
*(HK) HONG KONG NOV COMPOSITE PMI: 49.5 V 48.2 PRIOR; highest since Mar 2015;
21st consecutive month of contraction
(IT) Italy PM Renzi: My govt ends here (resigns as promised); Turnout was
higher than anyone expected; Italian people have spoke
(IT) Italy referendum early exit polls shows "no" vote ahead on PM
Renzi's proposed Constitutional reforms
(AT) Austria Presidential election: Center-left candidate Alexander Van der
Bellen defeats far-right Norbert Hofer by 53.3% to 46.7% margin
MONDAY 12/5
*(EU) EURO ZONE DEC SENTIX INVESTOR CONFIDENCE: 10.0 V 14.3E
*(US) NOV FINAL MARKIT SERVICES PMI: 54.6 V 54.9E (lowest since Sep 2016)
*(US) NOV ISM NON-MANUFACTURING COMPOSITE: 57.2 V 55.5E
(US) Nov Labor Market Conditions Index Change: 1.5 v 0.2e
*(AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH RATE TARGET (OCR) UNCHANGED
AT 1.50%; AS EXPECTED
TUESDAY 12/6
*(DE) GERMANY OCT FACTORY ORDERS M/M: 4.9% V 0.6%E; Y/Y: 6.3% V 1.6%E
*(EU) EURO ZONE Q3 FINAL GDP Q/Q: 0.3% V 0.3%E; Y/Y: 1.7% V 1.6%E
*(US) Q3 FINAL NONFARM PRODUCTIVITY: 3.1% V 3.3%E; LABOR COSTS: 0.7% V 0.3%E
(US) OCT FINAL DURABLE GOODS ORDERS: 4.6% V 3.4%E; DURABLES EX TRANSPORTATION:
0.8% V 0.5%E
LNKD: EU approves Microsoft-LinkedIn merger with conditions, as expected -
press
(US) Atlanta Fed GDPNow: cuts Q4 GDP forecast to 2.6% from 2.9% on Dec 1st
VA: Justice Department approves Virgin-Alaska merger, as expected
9984.JP: President-elect Trump tweets: "Masa (SoftBank) of Japan has
agreed to invest $50 billion in the U.S. toward businesses and 50,000 new
jobs"
*(AU) AUSTRALIA Q3 GDP Q/Q: -0.5% (first contraction in 5 years) V -0.1%E; Y/Y:
1.8% V 2.2%E (lowest annual pace since 2008)
WEDNESDAY 12/7
*(CN) CHINA NOV FOREIGN RESERVES: $3.052T V $3.061TE (5th straight month of
decline and largest monthly amount since January; Lowest level since Mar 2011)
*(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.25%; NOT
EXPECTED
*(UK) OCT INDUSTRIAL PRODUCTION M/M: -1.3% V 0.2%E; Y/Y: -1.1% V 0.5%E (largest
decline since 2012)
*(UK) OCT MANUFACTURING PRODUCTION M/M: -0.9% V +0.2%E; Y/Y: -0.4% V +0.7%E
*(PL) POLAND CENTRAL BANK (NBP) LEAVES BASE RATE UNCHANGED AT 1.50%; AS
EXPECTED
(US) President-elect Trump: will bring down drug prices - Time Magazine
*(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATES UNCHANGED AT 0.50%; AS
EXPECTED
ALR: Abbott seeks to terminate $56/shr cash Alere acquisition; files complaint
seeking termination in the Delaware Court of Chancery
(US) Association of American Railroads weekly rail traffic report for week ending
Dec 3rd: 553.1K carloads and intermodal units, +2% y/y (third straight week of
gains)
COST: Reports Q1 $1.17 (ex $0.07 benefit from legal settlement) v $1.19e,
R$28.1B (including member fees) v $28.4Be
*(JP) JAPAN Q3 FINAL GDP Q/Q: 0.3% V 0.5%E; ANNUALIZED GDP: 1.3% V 2.3%E (3rd
straight expansion both quarterly and annualized)
*(CN) CHINA NOV TRADE BALANCE $44.6B V $46.9BE
THURSDAY 12/8
(CN) China Passenger Car Association (PCA): China Nov retail auto sales at
2.42M, +19.8% y/y
*(EU) ECB LEAVES MAIN 7-DAY REFINANCING RATE SEEN UNCHANGED AT 0.00%, AS
EXPECTED
*(EU) ECB POLICY STATEMENT: EXTENDS ASSET PURCHASE TARGET UNTIL DEC 2017
(9-month extension); SCALES BACK PURCHASES TO €60B AFTER APRIL
*(US) INITIAL JOBLESS CLAIMS: 258K V 257KE; CONTINUING CLAIMS: 2.01M V 2.05ME
(EU) ECB chief Draghi: To buy €60B in QE from Apr until Dec; reiterates that
program can be amended if needed - prepared remarks
*(EU) ECB chief Draghi: discussed option of continuing QE at full €80B for 6
months, decided instead to reduce QE to €60B in April - Q&A
(US) Fed reports Q3 Financial Accounts: Household Change in Net Worth: $1.59T v
$0.84T prior
*(CN) CHINA NOV CPI M/M: 0.1% V 0.7% PRIOR; Y/Y: 2.3% (7-month high) V 2.2%E
*(CN) CHINA NOV PPI Y/Y: 3.3% V 2.3%E (3rd straight y/y positive print; 5-year
high)
FRIDAY 12/9
*(FR) FRANCE OCT INDUSTRIAL PRODUCTION M/M: -0.2% V +0.6%E; Y/Y: -1.8% V -0.6%E
*(FR) FRANCE OCT MANUFACTURING PRODUCTION M/M: -0.6% V +0.7%E; Y/Y: -1.5% V
+0.1%E
LLY: Provides detailed study from failed Alzheimer's drug Solanezumab trial
*(US) DEC PRELIMINARY MICHIGAN CONFIDENCE: 98.0 V 94.5E
SKY.UK: Discloses possible offer for Sky plc by 21st Century Fox at £10.75/shr
in cash; forms independent committee to consider proposal terms
(US) Atlanta Fed maintains Q4 GDP forecast at 2.6%, no change from Dec 6th
(US) Weekly Baker Hughes US Rig Count: 624 v 597 w/w (+4.5%) (4th straight
weekly increase)