Weekly Market Update: Yield curve steepens and Santa Claus rally continues as uncertainty subsides
Fri, 20 Dec 04:07 PM EST/09:07 PM GMT
Stock markets continued to ride a wave of momentum this week. US indices notched successive all-time highs as the week progressed. Trump administration trade negotiators were out en masse touting the merits of the ‘Phase 1’ trade deal reached with China last week, while officials on both sides acknowledge negotiators remained in close contact and are working towards the signing of an official agreement in January. As expected, the House voted to impeach President Trump on Wednesday, but Speaker Pelosi, in a sign of gamesmanship, did not submit the articles of impeachment to the Senate before Capitol Hill shut down for the holidays. The partisan environment did not hold up the passage of the USMCA though. Investors’ wiliness to add risk kept upward pressure in interest rates. The US 2/10-year yield spread widened to levels not seen since this summer, signaling receding global growth concerns. WTI crude futures bubbled above $60/bbl and gold prices remained in check. For the week, the S&P500 gained 1.7%, the DJIA added 1.1%, and the Nasdaq rose 2.2%.
In corporate news this week, Boeing announced it would suspend production of its beleaguered 737 MAX aircraft as the regulatory process to return the aircraft to the skies trudges on. Unilever cut its fully year revenue growth guidance, pointing to an economic slowdown in South Asia. PYPL beats, raises FY20 outlook. FedEx shares were pummeled after missing consensus and cutting its outlook yet again, while Amazon restricted third-party sellers from using FedEx Ground for Prime shipments, citing performance issues. US food flavorings maker IFF announced it would merge with DuPont’s nutrition and biosciences business to create a global ingredients behemoth valued at $45B. Remote connectivity provider LogMeIn entered into a definitive agreement to be acquired by affiliates of Francisco Partners and Evergreen Coast Capital (the PE affiliate of Elliott Management) at $86.05/share in cash for a $4.3B aggregate valuation. TiVo announced plans to merge with entertainment tech firm Xperi in a $3B deal, after scrapping its plans to split itself into two different entities.
MONDAY 12/16 *(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 43.4 V 44.6E (12th straight contraction) *(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 45.9 V 47.3E (11th straight month of contraction) *(UK) DEC PRELIMINARY PMI MANUFACTURING: 47.4 V 49.2E (8th straight month of contraction) *(US) DEC EMPIRE MANUFACTURING: 3.5 V 4.0E *(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 52.5 V 52.6E BA Confirms to suspend 737 MAX Production in January, will not layoff or furlough any employees
TUESDAY 12/17 UNA.NL Cuts FY19 underlying Rev growth 'slightly below prior guidance' (prior lower half of its 3-5% multi-year range); Cites economic slowdown in South Asia; Earnings, margin and cash are not expected to be impacted *(US) NOV HOUSING STARTS: 1.365M V 1.345ME; BUILDING PERMITS: 1.482M V 1.418ME *(US) NOV INDUSTRIAL PRODUCTION M/M: 1.1% V 0.8%E; CAPACITY UTILIZATION: 77.3% V 77.4%E *(US) OCT JOLTS JOB OPENINGS: 7.267M V 7.009ME FDX Reports Q2 $2.51 v $2.79e, Rev $17.3B v $17.6Be
WEDNESDAY 12/18 *(DE) GERMANY DEC IFO BUSINESS CLIMATE: 96.3 V 95.5E; CURRENT ASSESSMENT: 98.8 V 98.1E; (US) Association of American Railroads weekly rail traffic report for week ending Dec 14th: 520.6K, -8.5% y/y MU Reports Q1 $0.48 v $0.49e, Rev $5.14B v $5.03Be *(AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +39.9K V +15.0KE; UNEMPLOYMENT RATE: 5.2% V 5.3%E *(US) HOUSE OF REPRESENTATIVES VOT TO IMPEACH PRESIDENT TRUMP: Article 1 Abuse of Power, passes ; Article 2 Obstruction, passes, as expected *(JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Adjusts wording on overseas risks
THURSDAY 12/19 *(SE) SWEDEN CENTRAL BANK (RIKSBANK) RAISES REPO RATE BY 25BPS TO 0.00%; AS EXPECTED *(UK) NOV RETAILS SALES (EX-AUTO/FUEL) M/M: -0.6% V +0.4%E; Y/Y: 0.8% V 2.0%E *(UK) BANK OF ENGLAND (BOE) DEC MINUTES: VOTED 7-2 TO LEAVE INTEREST RATES UNCHANGED AT 0.75% (US) House of Representatives votes to approve USMCA trade bill; Vote was 385 to 41 NKE Reports Q2 $0.70 v $0.58e, Rev $10.3B v $10.1Be (UK) Financial Conduct Authority chief executive Andrew Bailey reportedly has been selected as next Bank of England governor XGuides Q4 adj -$1.15 v -$0.65e; Cuts FY20 CAPEX forecast to $875M (vs $950M prior); Cuts quarterly dividend by ~80% to $0.01, terminates stock buyback program
FRIDAY 12/20 (JP) JAPAN SAID TO EASE PART OF EXPORT CONTROLS WITH SOUTH KOREA- financial press (US) Q3 FINAL GDP PRICE INDEX: 1.8% V 1.8%E; CORE PCE Q/Q: 2.1% V 2.1%E