TradeTheNews.com Weekly
Market Update: Hopes for China trade deal fade; Yield curve inverts
Fri, 07 Dec 2018 16:09 PM EST
It was a jarring week for investors which saw the Dow trade lower by nearly 800
points in two separate sessions before sliding another 559 points on Friday.
Traders were forced to navigate the anomaly of a Wednesday US market closure
due to the observance of Former President George H. W. Bush’s funeral which may
have hampered liquidity and goosed volatility. Stock trading opened on a
decidedly positive note after President Trump and President Xi appeared to
reach some sort of a détente at their G20 dinner last Saturday. The euphoria
spurred by positive tones coming from the US President was short lived though.
Tuesday saw the US Treasury yield curve invert for the first time when the
5-year yield dropped below 3-year and eventually 2-year rates. This alarming
growth signal spooked investors and, along with a rethink of just how lasting
the trade truce will be, sent stocks careening lower in a global flight from
risk assets.
Thursday when markets reopened the panic resumed after news broke late on
Wednesday that the CFO of Chinese tech giant Huawei was arrested in Canada and
was to be extradited to the US on trade sanction violations. The US 10-year
yield dropped below 2.85% for the first time since this summer while the VIX
popped back above 25. The Russel 2000 took out the fall lows while the other
major US indices appeared poised to retest those Oct/Nov lows. Oil prices also
remained heavy heading into the OPEC producers meetings. Oil prices bounced on
Friday after an agreement was reached to take an additional 1.2M bpd of supply
off the market beginning in January. Friday’s softer than expected November
employment data didn’t raise any serious doubts about the prospects for a rate
hike on December 19th, but was consistent with growing market expectations for
a less hawkish Fed in 2019. Various Fed officials echoed the dovish shift
outlined by Powell last week, but the softening of Fed expectations had
diminishing effects on investor sentiment and stocks remained under pressure
into the closing bell. Trade concerns and troubling signals for growth both
home and abroad seem to have surpassed any positive momentum coming from the
growing expectation of a wait and see Fed. For the week the S&P500 fell
4.6%, the DJIA lost 4.5%, and the Nasdaq tumbled 4.9%.
In corporate news this week, Nexstar confirmed it would acquire Tribune Media
Company for $46.50/shr cash in a $6.4B deal that would make it the largest
local TV firm in the United States. Tesaro shares jumped after Glaxo announced
it would acquire the cancer-focused drugmaker in a $5.1B all-cash deal.
Marlboro maker Altria Group announced a C$2.4B strategic investment in Canada
pot firm Cronos, sending the cannabis company’s shares 20% higher on Friday.
Toll Brothers dropped after reporting an earnings miss and lackluster guidance,
the latest evidence of slowing housing demand. Restoration Hardware jumped on a
strong outlook and beats on both the top and bottom line. Lyft filed
confidential plans for an IPO with the SEC, beating rival Uber to the punch.
SUNDAY 12/2
(US) US President Trump: China has agreed to remove tariffs on Car imports -
tweet
MONDAY 12/3
(UK) UK Home Secretary Javid: No chance of pulling the 11th Dec vote on PM
May's Brexit Deal - radio comments
*(UK) NOV MANUFACTURING PMI: 53.1 V 51.7E
(CN) Reportedly China imports first US crude cargo in November after a month's
halt following escalation of trade war - press
TRCO Nexstar confirms to acquire Tribune Media Company for $46.50/shr cash in
$6.4B deal
TSRO To be acquired by GSK for $75/shr cash in $5.1B deal
(US) MARKIT NOV FINAL MANUFACTURING PMI: 55.3 V 55.4E
CRON Altria reportedly in discussions to acquire Cronos - press
(US) Atlanta Fed raises Q4 GDP forecast to 2.8% from 2.6% prior
*(AU) RBA LEAVES CASH RATE TARGET UNCHANGED AT 1.50%; AS EXPECTED; Low rates
support the economy
TUESDAY 12/4
(UK) UK Parliament find Government in contempt over Brexit legal advice; UK Gov
defeated in contempt motion 311-293; Orders Gov to publish full advice
immediately
(RU) Sec of State Pompeo: reiterates US position that Russia is cheating on the
INF treaty; US has given Russia a 2-month deadline to come back into compliance
(UK) UK PM May Government defeated 321-299 in Vote on Parliament Brexit Power
WEDNESDAY 12/5
*(IN) INDIA CENTRAL BANK (RBI) LEAVES REPURCHASE RATE UNCHANGED AT 6.50%; AS
EXPECTED
*(UK) NOV PMI SERVICES: 50.4 V 52.5E (28th month of expansion but lowest since
July 2016)
*(CA) BANK OF CANADA (BOC) LEAVES INTEREST RATE UNCHANGED AT 1.75%; AS EXPECTED
Oman Energy Minister: OPEC+ agrees to recommend a cut, has consensus for Oil
production cut
(US) Association of American Railroads weekly rail traffic report for week
ending Dec 1st: 567.3K, +0.4% y/y
(US) FEDERAL RESERVE BEIGE BOOK: ECONOMIC GROWTH 'MODEST OR MODERATE'; LABOR
MARKETS TIGHTENED FURTHER
HUAWEI.CN Canada reportedly arrests global CFO, Deputy Chairwoman and daughter
of founder, Wanzhou Meng in Vancouver on trade sanction violation suspicions in
the US - Globe & Mail
HUAWEI.CN Confirms Wanzhou Meng is detained by Canada authorities Dec 1st, not
aware of any wrongdoing by Meng, not provided with much information so far;
confirms US is seeking to extradite her
THURSDAY 12/6
(US) Q3 FINAL NONFARM PRODUCTIVITY Q/Q: 2.3% V 2.3%E; UNIT LABOR COSTS Q/Q:
0.9% V 1.0%E
*(US) DOE CRUDE: -7.3M V -1ME; GASOLINE: +1.7M V +1ME; DISTILLATE: +3.8M V +1ME
(US) Atlanta Fed cuts Q4 GDP forecast to 2.7% from 2.8% prior
(US) Fed Reports Q3 Financial Accounts: Household Change in Net Worth: $2.07T v
$2.278T prior
JPM CEO Dimon: we still have a strong economy; trade, oil and Brexit are
creating uncertainty which is roiling the markets; see 60% chance of a US/China
trade resolution - CNBC interview
LYFT.IPO Announces Confidential Submission of Draft Registration Statement for
Proposed Initial Public Offering
FRIDAY 12/7
(EU) EURO ZONE Q3 FINAL GDP Q/Q: 0.2% V 0.2%E; Y/Y: 1.6% V 1.7%E
CRON Announces C$2.4B strategic investment from Altria Group; Altria agreed to
acquire 146.2M shares at C$16.25/shr
(US) NOV CHANGE IN NONFARM PAYROLLS: +155K V +198KE
(US) NOV UNEMPLOYMENT RATE: 3.7% V 3.7%E (matches the lowest since 1969)
(US) NOV AVERAGE HOURLY EARNINGS M/M: 0.2% V 0.3%E; Y/Y: 3.1% V 3.1%E; AVERAGE
WEEKLY HOURS: 34.4 V 34.5E
(US) DEC PRELIMINARY UNIVERSITY OF MICHIGAN CONFIDENCE: 97.5 V 97.0E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.7% prior
BAS.DE Cuts FY18 Adj EBIT -20% to -15% y/y (prior slight decline up to -10%
y/y) due to the Chemicals segment
