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
