Saturday, January 5, 2019

Dour Mood in Markets Lifted by a Trio of Positive Developments on Friday

TradeTheNews.com Weekly Market Update: Dour Mood in Markets Lifted by a Trio of Positive Developments on Friday
Fri, 04 Jan 2019 16:05 PM EST

2019 commenced with a bang as markets gyrated in much the same fashion as the closing weeks of 2018. Following the New Year’s Day holiday global markets endured a fresh bout pernicious risk-off trading linked to worries about global growth. A key China PMI reading dropped into contraction territory while European and US data continued to soften. The US government remained in a partial shutdown and the prospects for ending the standoff anytime soon appeared remote. Global bond yields dropped precipitously along with stock prices on Thursday after Apple preannounced a significant shortfall in quarterly sales which only served to perpetuate fears that the ongoing trade war has severely stunted corporate prospects. The Japanese Yen saw extreme upside volatility in the wake of the Apple news highlighting how global liquidity conditions maybe exacerbating capital market swings in the wake of central banks attempts to wean off of unconventional measures, namely quantitative easing. US rates fell aggressively after the December ISM reading dropped at the fastest pace since October 2008. For the first time since the financial crisis the Fed funds rate briefly traded above that of the yield on the 2-year Treasury note prompting more forecasts for an eventual rate cut by year’s end.

Investor sentiment turned abruptly on Friday as a confluence of factors enticed investors back into risk assets. First, the PBOC cut the Reserve Requirement Ratio (RRR) by a full percentage point, adding liquidity to China’s economy ahead of trade talks with the US early next week. Second, the US December employment report was viewed in a very positive light as upside surprises in payrolls and wage growth far outweighed a rise in the unemployment rate, which could even be viewed as encouraging in the context of a rising participation rate. Finally, within hours of the jobs report a host of risk assets surged again after Fed Chairman Powell noted that he saw the jump in wages as a positive, rather than raising concerns on inflation. He went on to echo what was heard from other Fed officials this week when he added the Fed would remain patient on raising rates and would not rule out modifying the balance sheet run off if it ultimately proved necessary. Breadth on both the NYSE and NASDAQ widened to levels not seen in recent weeks as US stock indices rebounded into the weekend. Rising oil and copper prices supported the positive tone in equities, and for the week the S&P gained 1.9%, the DJIA added 1.6%, and the Nasdaq rose 2.3%.

Leading corporate headlines during this holiday-shortened week was news that Bristol-Myers would acquire Celgene for $74B, which would make it the largest health-care deal ever, though Bristol investors were less than enthusiastic about the plan. Apple slashed its outlook for the first time in the iPhone era, noting poor demand in China and unexpectedly less frequent model upgrades. Samsung announced plans to cut its chip inventory in order to maintain tight supplies as demand is expected to slow. Tesla shares fell after it reported a miss on Q4 targets for Model 3 and implemented a price cut for all vehicles to offset tax credit reductions. Delta weighed on the transports midweek after trimming its Q4 revenue outlook. Netflix named former Activision and Disney executive Spencer Neumann as its new CFO. Shares of winter clothing manufacturer Canada Goose lifted on the news that its store opening in China was well received.

SUNDAY 12/30
(US) Texas judge Reed O'Connor rules Affordable Care Act ('Obamacare') to remain in place during appeal, cited the need to avoid uncertainty during appeal process - US Press

MONDAY 12/31
*(US) DEC DALLAS FED MANUFACTURING ACTIVITY: -5.1 V 15.0E
(US) Federal Communications Commission (FCC) to suspend most operations tomorrow if shutdown continues - press

TUESDAY 1/1
*(CN) CHINA DEC CAIXIN MANUFACTURING PMI: 49.7 V 50.2E (first contraction since May 2017)

WEDNESDAY 1/2
*(UK) DEC PMI MANUFACTURING: 54.2 V 52.5E (29th month of expansion)
*(US) DEC FINAL MARKIT MANUFACTURING PMI: 53.8 V 53.9E (lowest since Sep 2017)
AAPL Cuts Q1 Rev $84B v $91.3Be, gross margin 38%, opex $8.7B (prior Rev $89-93B, gross margin 38.0-38.5%; op-ex $8.7-8.8B) on emerging market challenges and lower anticipated iPhone Rev; China market especially weak (first guidance cut since 2002)
TSLA Reports Q4 Deliveries 90.7K vehicles +8% q/q v 92.0Ke (model 3 deliveries 63.2K v 63.7Ke); Announces $2K price reduction in the US to offset tax credit reduction
005930.KR Will cut chip inventory due to oversupply - Korean press

THURSDAY 1/3
CELG To be acquired by Bristol-Myers in cash and stock deal for implied $102.43/shr initially valued at ~$74B
GM Reports Q4 total deliveries: 785.2K units, -2.7% y/y
(US) Fed's Kaplan (dove, non-voter): Favors taking no action the first few quarters in 2019; personal forecasts for GDP have come down a bit - financial press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 29th: 411.7K, +5.1% y/y
(CN) China Commerce Ministry (MOFCOM): Confirms China and US to hold vice ministerial level trade talks on Jan 7-8th (Mon-Tues)
(JP) Reportedly BoJ will consider trimming inflation outlook for next 2 years - Nikkei

FRIDAY 1/4
*(DE) GERMANY DEC UNEMPLOYMENT CHANGE: -14K V -13KE; UNEMPLOYMENT CLAIMS RATE: 5.0% V 5.0%E
*(CN) CHINA PBOC CUTS REQUIRED RESERVES RATIO (RRR) BY 100 BP to 14.50%; in two stages
*(UK) DEC SERVICES PMI: 51.2 V 50.7E (29th month of expansion)
*(EU) EURO ZONE DEC ADVANCE CPI ESTIMATE Y/Y: 1.6% V 1.7%E; CORE CPI Y/Y: 1.0% V 1.0%E
*(US) DEC UNEMPLOYMENT RATE: 3.9% V 3.7%E
*(US) DEC CHANGE IN NONFARM PAYROLLS: +312K V +184KE
*(US) DEC AVERAGE HOURLY EARNINGS M/M: 0.4% V 0.3%E; Y/Y: 3.2% V 3.0%E; AVERAGE WEEKLY HOURS: 34.5 V 34.5E
*(US) Fed Chair Powell: Welcomes wage data, it doesn't raise inflation concerns; Always prepared to shift policy and shift it significantly if necessary - panel discussion
(US) DOE CRUDE: +0.0M V -2.5ME; GASOLINE: +6.9M V +1.5ME; DISTILLATE: +9.5M V +0.5ME
GE Apollo reportedly mulling offer of jet leasing division; could be worth $40B - press