TradeTheNews.com Weekly Market Update: Reflation Trade Ignores Trump’s Stumbles
Fri, 17 Feb 2017 16:03 PM EST
Fed Chair Yellen's remarks to Congress on Tuesday added extra fuel to the Trump and reflation trades, as the markets saw the likelihood of the next rate hike getting closer. The odds of a March rate move edged higher as she confirmed that all policy meetings are ‘live’, stating that waiting too long to raise rates may be detrimental to the economy and could cause the Fed to raise rates later at a hasty pace. A chorus of other Fed speakers largely echoed Yellen, with members agreeing that with the employment and inflation mandates nearing targets, three or so rate hikes this year would be appropriate.
Stocks rallied along with the Fed-speak: the Dow jumping 1.2% over two days, and touching a new all-time high at 20,639 before leveling off in the back half of the week. Bonds sold off, with the 10-year Treasury yield spiking above 2.51%, before bond prices rallied again and stocks sold off, as investors pondered how markets are reacting to macro factors. For the week, the DJIA gained 1.7%, the S&P500 rose 1.5%, and the Nasdaq added 1.8%.
ECB meeting minutes released this week show the central bank was unanimous in its decision to keep its stimulus at current levels. Members also noted there would be a trade-off between changes to its ‘capital key’ menu of eligible securities and bond-buying in the short part of the curve that yield less than the deposit rate. Initially, peripheral EGBs went into a rally, with 10-year BTPs losing 7bps in yield. German Bunds also recovered in price Friday as the market reassessed the extent of the trade-off between short-term bonds and capital key revisions.
In politics, Trump largely avoided making any market moving remarks this week, but he lost some key appointments. He accepted the resignation of national security adviser Mike Flynn after reports of his conversations with the Russian ambassador came to light. Labor nominee Andrew Puzder also withdrew his name from consideration after several Republican senators balked at his appointment. Trump also gave a long and rambling press conference on Thursday berating the mainstream media again for 'fake news' and unjustified criticism towards himself and administration.
Corporate news this week was dominated by major merger developments and a persistent flow of earnings releases. On the M&A front, Aetna and Humana formally ended their $37B combination attempt on Tuesday, though Aetna remains on the hook for the $1B termination fee. And after a court blocked the Cigna and Anthem combination last week, Cigna moved on Tuesday to formally end its merger agreement, seeking damages exceeding $13B; Anthem filed a temporary restraining order aiming to halt any merger termination. On Friday morning, Kraft Heinz confirmed it had made an approach for Unilever in a cash and stock deal valued at $143B, but Unilever rejected the proposal as it sees no merit for shareholders. Yahoo was said to have reached a tentative deal with Verizon for a $250-350M price reduction in the sale of its operating business after hacking reports surfaced. On the earnings side, Deere reported a beat on the top and bottom line, and surprised the street by raising its outlook on equipment sales.
SUNDAY 2/12
(JP) JAPAN PRELIMINARY Q4 GDP Q/Q: 0.2% V 0.3%E (4th straight quarterly growth); Y/Y: 1.0% V 1.1%E
MONDAY 2/13
(CN) CHINA JAN CPI M/M: 1.0% (11-month high) V 0.2% PRIOR; Y/Y: 2.5% (32-month high) V 2.4%E
(CN) CHINA JAN PPI Y/Y: 6.9% V 6.5%E; 5th straight increase and highest since Aug 2011
(US) NY Fed JAN Survey of Consumer Expectations: inflation expectations highest since summer 2015; household spending expectations lowest since Jan 2016
TUESDAY 2/14
CSGN.CH Reports Q4 Net loss CHF2.35B v loss CHF2.07Be; Pretax profit CHF692M v loss CHF2.01Be; Rev CHF5.38B v CHF5.10Be
(DE) GERMANY Q4 PRELIMINARY GDP Q/Q: 0.4% V 0.5%E; Y/Y: 1.7% V 1.8%E; GDP NSA Y/Y: 1.2% V 1.4%E
(IT) ITALY Q4 PRELIMINARY GDP Q/Q: 0.2% V 0.3%E; Y/Y: 1.1% V 1.0%E
(UK) JAN CPI M/M: -0.5% V -0.5%E; Y/Y: 1.8% V 1.9%E; CPI CORE Y/Y: 1.6% V 1.7%E (highest annual reading since Jun 2014)
(UK) JAN PPI INPUT M/M: 1.7% V 1.0%E; Y/Y: 20.5% V 18.5%E
(DE) GERMANY FEB ZEW CURRENT SITUATION SURVEY: 76.4 V 77.0E; EXPECTATIONS SURVEY: 10.4 V 15.0E
(EU) EURO ZONE Q4 PRELIMINARY GDP Q/Q: 0.4% V 0.5%E; Y/Y: 1.7% V 1.8%E
AET Aetna and Humana Mutually End Merger Agreement; Aetna to pay $1B breakup fee
(US) JAN PPI FINAL DEMAND M/M: 0.6% V 0.3%E; Y/Y: 1.6% V 1.5%E
(US) Fed Chair Yellen: waiting too long to tighten would be unwise; more policy adjustments will likely be needed if the economy remains on track - semi-annual testimony
CI Cigna terminates merger agreement with Anthem; files suit seeking damages exceeding $13B - filing
Berkshire Hathaway discloses latest quarterly holdings; adds to stakes in airline industry - 13 F-HR filing
(US) Weekly API Oil Inventories: Crude: +9.9M (4th straight build) v +14.2M prior
000725.CN Apple reportedly considering BOE Technology as its first China supplier for iPhone screens - financial press
WEDNESDAY 2/15
ACA.FR Reports Q4 Net €291M v €315Me; Rev €4.58B v €4.29Be; to reduce stake in Amundi to 70% (currently holds 74.2%)
HEIA.NL Reports FY16 Net €2.10B v €2.13Be, Op Profit €3.54B v €3.47Be, Rev €20.8B v €20.6Be
BN.FR Reports FY16 Net €1.72B v €1.79Be, Op €3.02B v €2.89B y/y, Rev €21.9B v €22.4B y/y; Announces €1B efficiency program
(SE) SWEDEN CENTRAL BANK (RIKSBANK) LEAVES REPO RATE UNCHANGED AT -0.50%; AS EXPECTED
(UK) JAN JOBLESS CLAIMS CHANGE: -42.4K V +0.5KE; CLAIMANT COUNT RATE: 2.1% V 2.3%E
(UK) DEC AVERAGE WEEKLY EARNINGS 3M/Y: 2.6% V 2.8%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.7%E
(UK) DEC ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E
(US) JAN ADVANCE RETAIL SALES M/M: 0.4% V 0.1%E; RETAIL SALES EX AUTO M/M: 0.8% V 0.4%E
(US) FEB EMPIRE MANUFACTURING: 18.7 V 7.0E (highest since Sept 2014)
(US) JAN CPI M/M: 0.6% V 0.3%E; CPI EX FOOD AND ENERGY M/M: 0.3% V 0.2%E; CPI INDEX NSA: 242.839 V 242.479E
(US) JAN INDUSTRIAL PRODUCTION M/M: -0.3% V 0.0%E; CAPACITY UTILIZATION: 75.3% V 75.4%E
(US) FEB NAHB HOUSING MARKET INDEX: 65 V 67E
(US) DOE CRUDE: +9.5M V +3.5ME; GASOLINE: +2.8M V +0.5ME; DISTILLATE: -0.7M V -1ME
(US) Atlanta Fed cuts Q1 GDP forecast to 2.2% from 2.7% on 2/9
(US) Association of American Railroads weekly rail traffic report for week ending Feb 11th: 518K carloads and intermodal units, +2.6% y/y
(US) Top Senate Republicans reportedly urge White House to withdraw Labor Sec-designate Puzder's nomination - CNN
(US) DEC TOTAL NET TIC FLOWS: -$42.8B V +$30.2B PRIOR; NET LONG-TERM TIC FLOWS: -$12.9B (first decline in 3 months) V +$34.4B PRIOR
AMAT Reports Q1 $0.67 v $0.66e, R$3.28B v $3.29Be
CSCO Reports Q2 $0.57 v $0.56e, R$11.6B v $11.6Be; Increases dividend 11.5% to $0.29/shr (implied yield 3.5%)
(CN) China Jan Foreign Direct Investment (FDI): CNY80.1B v CNY81.4B prior, Y/Y: -9.2% (First decline in 27 months) v +1.4%e
992.HK Reports Q3 Net $98M v $146Me; R$12.2B v $11.7Be
THURSDAY 2/16
NESN.CH Reports FY16 Net CHF8.5B v CHF9.6Be, Op Profit CHF13.7B v CHF13.8Be, Rev CHF89.5B v CHF89.7Be; proposes dividend of CHF2.30/shr
SU.FR Reports FY16 Net €1.75B v €1.85Be; adj EBITA €3.48B v €3.48Be, Rev €24.7B v €24.7Be
(ID) INDONESIA CENTRAL BANK (BI) LEAVES 7-DAY REVERSE REPURCHASE RATE UNCHANGED AT 4.75%; AS EXPECTED
(US) JAN HOUSING STARTS: 1.25M V 1.23ME; BUILDING PERMITS: 1.29M V 1.23ME
(US) INITIAL JOBLESS CLAIMS: 239K V 245KE; CONTINUING CLAIMS: 2.076M V 2.05ME
(US) FEB PHILADELPHIA FED BUSINESS OUTLOOK: 43.3 V 18.0E (highest since Jan 1984)
TGH Believes used shipping container prices have bottomed - earnings slides
(US) Atlanta Fed raises Q1 GDP forecast to 2.4% from 2.2% on 2/15
FRIDAY 2/17
(UK) JAN RETAIL SALES (EX-AUTO FUEL) M/M: -0.2% V 0.7%E; Y/Y: 2.6% V 3.9%E
DE Reports Q1 $0.61 v $0.51e, R$5.63B v $4.63Be; Raises outlook
ULVR.UK Kraft Heinz confirms made approach on possible combination; Unilever declines proposal
(US) Weekly Baker Hughes US Rig Count: 751 v 741 w/w (+1.3%) (5th straight rise)
S Softbank reportedly preparing to approach Deutsche Telekom's T-Mobile US about a possible merger with Sprint - press
