With the first trading session of the year on deck, investors are sketching their market predictions for 2017. Which sectors will be hot? Will the oil rally continue? Is the IPO market poised for a comeback? More record M&A? Elections results in France and Germany? How will Brexit turn out? Other trade agreements? Tensions with China, North Korea, Russia, Mexico? Upcoming U.S. monetary policy? How will a Trump presidency shape the markets? Any other stock-related tea leaves?
The manufacturing sector of the world's No. 2 economy expanded for a fifth month in December, another survey has confirmed, and even posted its fastest rate of improvement since January 2013. China's Caixin manufacturing PMI came in at 51.9%, up from November's 50.9, while the official PMI stood at 51.4 - the second highest monthly reading of 2016. The data caps a year of steady improvement and signals policy makers may have leeway to curb financial risks while keeping growth humming.
Meanwhile, hundreds of Chinese companies and tens of thousands of vehicles have been punished by the Ministry of Environmental Protection for violating measures meant to reduce smog during a period of particularly noxious pollution in the country. Many cities in Northern China still face a "red" or "orange" alert, however, the total number of "blue sky days" reached 198 in 2016, up 12 from the previous year.
Finland has started a radical experiment: It's giving 2,000 citizens a "universal basic income" of €560 a month, with funds that keep flowing whether participants work or not. The program is hoped to cut government red tape, reduce poverty and boost employment, and could be expanded to include all adult Finns if successful.
The Brexit bashing continues after British manufacturing growth soared to a two-and-a-half-year high last month, fueled by new orders from both home and abroad. Markit's U.K. Manufacturing PMI rose to 56.1, from 53.6 in November, faring much better than many economists predicted in the aftermath of the vote to leave the EU. The FTSE 100 hit a new record high on the news, rising 0.5% to 7173.50.
It will inevitably be another big year for crude watchers as the truth over whether oil producing countries will cap output is made clear. Jan. 1 marked the official start of the deal agreed by OPEC and non-OPEC member countries in November last year to reduce production by almost 1.8M barrels per day. In the session today, crude is pushing higher: WTI +2.4% to $55/bbl.
Vladimir Putin has ruled out a tit-for-tat retaliation against the U.S. expulsion of 35 Russian diplomats, in a move Donald Trump called "very smart" over the weekend. The President-elect also criticized China for its failings in assisting the U.S. with North Korea, after Kim Jong Un warned that preparations for launching an ICBM were at the final stage. "China has been taking out massive amounts of money & wealth from the U.S. in totally one-sided trade, but won't help with North Korea. Nice!"
The 115th Congress convenes in Washington. The nation's new, all-Republican leadership begins to take power today with an ambitious conservative agenda, including tax cuts, regulation rollbacks and the repeal of Obamacare. Decades-old programs, such as social security and Medicare, will also be in the crosshairs as the GOP aims to shrink both the size of the federal budget and bureaucracy in Washington.
The dollar index kicked off the new year by making its biggest one day gain in over two weeks, rising 0.4% to 102.63. Most analysts expect the greenback to continue strengthening in 2017, because the economy appears likely to withstand multiple Fed rate hikes, making it more attractive to hold dollar-denominated assets. Despite pressure from a strong dollar, gold also extended its positive run into the new year following an 8% gain in 2016.
Other currency news... Bitcoin (COIN, OTCQB:BTCS) started 2017 by jumping above $1,000 for the first time in three years, having outperformed all central-bank-issued currencies with a 125% climb in 2016. The crypto-currency may have been boosted in the past year by increased demand in China on the back of a 7% annual fall in the value of the yuan, its weakest showing in over 20 years. Data shows most bitcoin trading is done in China.
Twitter's executive exodus continues. Kathy Chen was hired seven months ago as the social media company's (NYSE:TWTR) managing director of Greater China, but she has left the company following a restructuring in Asia. Twitter is blocked in China, but like Facebook (NASDAQ:FB) and others it serves advertisers in the country who want to reach a global audience.
Samsung Electronics will announce later this month the results of an investigation into what caused some of its Galaxy Note 7s to catch fire, sources told JoongAng Ilbo. In October, Samsung (OTC:SSNLF) said it was examining all aspects of the device, suggesting there may have been a combination of factors that contributed to one of the costliest product safety failures in tech history.
More rumors about Apple's Indian dreams... Smartphone component maker Wistron (OTC:WICOF), which counts Apple (NASDAQ:AAPL) among its customers, has applied for permission to expand its plant in Bengaluru, India. The move comes less than two weeks after WSJ reported that Apple was in talks with the Indian government about the possibility of assembling products in one of the world's largest markets for smartphones.
BP has opted out of the first wave of agreements to develop oil and gas reserves in Iran after the lifting of international sanctions - setting it apart from its two biggest European rivals Shell (RDS.A, RDS.B) and Total (NYSE:TOT). Sources told FT the main reason was commercial, but they also acknowledged the continued existence of some U.S. sanctions against Iran and the prospects of a hardline stance by the Trump administration. BP +1.6% premarket.
South Korea has banned the sale of 10 models built by Nissan (OTCPK:NSANF), BMW (OTCPK:BAMXF) and Porsche (OTCPK:POAHF) after an investigation found the automakers fabricated documents related to emission tests. The three manufacturers were slapped with total fines of 7.17B won ($5.9M), which apply to 4,523 vehicles, and the certifications given for the models have been withdrawn.
For the first time since 1962, Sweden's best-selling car of the year was not a Volvo. The Volkswagen Golf (OTCPK:VLKAY) represented 5.9% of the new cars market in 2016 ahead of Volvo's three most popular models - the V70, S90 and V90 - with a 5.7% share together. Despite Volvo's car business now being owned by China's Geely (OTCPK:GELYY), it's still viewed as an iconic Swedish brand.
A "technology disruption" Monday evening left thousands of international travelers stuck in U.S. airports for hours on one of the busiest travel days of the year. "At this time, there is no indication the service disruption was malicious in nature," the Customs and Border Protection agency declared. All affected airports were back up and running by late Monday. Related tickers: AAL, ALK. DAL, JBLU, LUV, SAVE, UAL, VA
SpaceX is preparing to resume rocket launches next Sunday, using revised operational procedures developed in response to a fiery accident that occurred during routine ground preparations last fall. SpaceX's (Private:SPACE) blastoff date is subject to results of testing later this week, WSJ reports, but if everything checks out, Iridium Communications (NASDAQ:IRDM) will get the first 10 of its next-generation communications satellites into orbit.
A McDonald's has opened on Vatican property, despite protests from locals and top clerics. The branch is located just meters from St. Peter's Square and occupies the bottom floor of a building that is also home to several senior cardinals. According to La Repubblica, McDonald's (NYSE:MCD) will pay the Administration of the Patrimony of the Apostolic See a monthly rent of €30,000 for the 538 square-meter space.
Last year turned out to be a disappointing one for new drug approvals with the FDA clearing just 22 new medicines for sale, the lowest number since 2010 and sharply down on 2015's tally of 45. Several factors led to the decline: Five new drugs that had been scheduled for approval in 2016 ended up winning an early green light at the end of 2015. There was also a decline in drugs being filed for approval and the FDA rejected or delayed more applications in 2016 than in the previous two years.
Indonesia's government has terminated all business partnerships with JPMorgan (NYSE:JPM) after the U.S. bank downgraded its assessment of Southeast Asia's largest economy following the election of Donald Trump. "I don't think it will affect investor interest in Indonesia but it does reflect the difficulty of sell-side analysts... in producing balanced research reports," said Alan Richardson, an investment manager at Samsung Asset Management.
Anshu Jain has landed a top job at Cantor Fitzgerald, a year and a half after being replaced as co-chief executive officer of Deutsche Bank (NYSE:DB) amid mounting legal and regulatory problems. In his newly created position as group-level president, Jain will help oversee Cantor's strategy and expansion efforts in areas including fixed-income, equities trading and prime brokerage.
Euronext has offered €510M to buy the London Stock Exchange's (OTCPK:LNSTY) French clearing business, helping pave the way for LSE's proposed $28B merger with Deutsche Boerse (OTCPK:DBOEY). LCH.Clearnet is an independent clearing house that serves major international exchanges, while Euronext (OTCPK:EUXTF) is the first pan-European exchange, spanning Belgium, France, the Netherlands, Portugal and the U.K.
Investors funneled a record $375B into exchange-traded funds in 2016, according to BlackRock (NYSE:BLK), compared with $348B in 2015. Best and worst non-leveraged perfomers: SILJ +150.6%, XME +112.5% RSXJ +105%, VXX -68.9%, VIIX -68.9%, VIXY -68.7%. Nearly 250 new ETFs were also launched during the year, with the dominant category being U.S. equities, representing 36% of new funds.
In Asia, Japan closed. Hong Kong +0.7%. China +1.1%. India +0.2%.
In Europe, at midday, London +0.5%. Paris +0.5%. Frankfurt flat.
Futures at 6:20, Dow +0.8%. S&P +0.8%. Nasdaq +0.8%. Crude +2.4% to $54.98. Gold -0.4% to $1147.40.
Ten-year Treasury Yield +7 bps to 2.5%
Today's Economic Calendar
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
2:00 PM Gallup US ECI