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Author: skywalker   |   Latest post: Thu, 17 Jan 2019, 07:28 AM

 

Wall Street Breakfast: Trade Talks, Jobs Report, Powell Speech

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A big market rebound is taking shape across the board after China's commerce ministry announced that vice ministerial-level trade talks with the U.S. would be held on Jan. 7-8, as the two sides look to end a bruising dispute. The development was bolstered by positive data from China's services sector, with Caixin's services PMI jumping to a six-month high of 53.9 in December. Chinese Premier Li Keqiang also flagged further policy easing, while the PBOC cut banks' reserve requirement ratios for the fifth time in a year.

Economy

Missing out on the rally are Japanese markets, which are playing catch-up after being closed for most of the week. The Nikkei slipped 2.3% overnight to below 20,000 as investors absorbed a slew of negative news ranging from Apple's revenue forecast cut to signs of a global economic slowdown. JGB yields also dropped near two-year lows, with 10-year government notes falling 5 basis points to minus 0.057%.

Democrats in the House passed a spending package Thursday designed to end the federal government shutdown as Nancy Pelosi reclaimed her role as speaker. To separate the feud over the border wall, Democrats also passed a stopgap spending bill funding the Department of Homeland Security through Feb. 8. President Trump, who has said he won't pass anything without border funding, will resume discussions with congressional leaders today.

The Labor Department, unlike the Commerce Department and Bureau of Economic Analysis, remains funded under the current government shutdown. That will guarantee the release of today's non-farm payrolls report for December, which is expected to show job gains of 178K and push total U.S. employment above 150M jobs for the first time. More positive news? The unemployment rate is forecast steady at a 49-year low of 3.7% for the fourth straight month, while average hourly earnings are seen rising 0.3% after gaining 0.2% in November.

Investors this morning will also be focusing in on the latest comments from Jerome Powell, who joins Janet Yellen and Ben Bernanke for a Fed Chair reunion at the American Economic Association and Allied Science Association Meeting in Atlanta. While many are waiting to see if Powell will hold a hawkish stance or soften his tone on rate hikes, some economists do not expect him to provide much new insight into policy.

Eurozone inflation hit an eight-month low in December, increasing an annual 1.6% vs. 1.9% in November, as the ECB stopped adding stimulus to the economy. While the decline in the headline rate was largely driven by oil and won't surprise policy makers, underlying price pressures are still where they were in mid-2015, just a few months into the €2.6T bond buying program.

Stocks

In the first blockbuster merger of 2019 Bristol-Myers Squibb (NYSE:BMY) agreed to acquire Celgene (NASDAQ:CELG) yesterday for about $74B, combining two of the world's largest cancer drug businesses. Both Bristol and Celgene entered the new year facing challenges of cash flow and growth, and some Wall Street analysts questioned whether the combination - which would create $2.5B in cost savings and significantly raise earnings - would solve them.

Apple shares have now fallen by 39.1% since Oct. 3, when the stock hit a 52-week high of $233.47 a share. With its market cap down to about $674B, its losses are larger than the individual values of 496 members of the S&P 500 - including Facebook (NASDAQ:FB) and JPMorgan (NYSE:JPM). The first to hit a one trillion dollar valuation, Apple (NASDAQ:AAPL) now registers in fourth place in the market cap standings, behind Microsoft (NASDAQ:MSFT), Amazon (NASDAQ:AMZN) and Alphabet (GOOG, GOOGL).

Qualcomm has taken steps to enforce a court order banning the sale of some iPhone models in Germany, a move that will likely see Apple (AAPL) pull the models from local store shelves. Yesterday, Qualcomm (NASDAQ:QCOM) posted bonds of €1.34B as part of a legal requirement by a German court, which found on Dec. 20 that Apple had infringed on patents of power-saving technology used in smartphones.

A day after Netflix (NASDAQ:NFLX) confirmed reports that it's hired CFO Spencer Neumann from Activision Blizzard (NASDAQ:ATVI) to be its new chief financial officer, the finance chief of the company's subsidiary announced plans to depart. Blizzard Entertainment CFO Amrita Ahuja is heading to Square (NYSE:SQ) to replace former CFO Sarah Friar. The latter's prior departure stunned investors, sending SQ shares down 30% since the announcement on Oct. 10.

FCC Chairman Ajit Pai has canceled his appearance at CES for the second year in a row, citing the ongoing partial government shutdown. Last year he said he couldn't attend the biggest consumer electronics showcase due to safety concerns following the commission’s move to reverse net neutrality regulations. Pai was scheduled to speak on the opening day of CES 2019, which begins on Jan. 8 and runs through the 11th.

Hit hard by trade tensions, Tesla (NASDAQ:TSLA) said it plans to start delivering Model 3 cars to customers in China in March, cementing a time frame that Elon Musk tweeted about late last year. Starting prices will be 499,000 yuan ($72,000). A report from Bloomberg yesterday suggested that Tesla is also very close to landing approval to start selling the Model 3 in Europe.

Ousted Nissan Chairman Carlos Ghosn is set to appear in a Tokyo court on Tuesday after he requested an open hearing to explore the reason for his detention. It will be his first public appearance since he was locked up in mid-November on allegations of financial misconduct. Ghosn's arrest has rocked the auto industry and strained Nissan's (OTCPK:NSANY) ties with French partner Renault (OTCPK:RNLSY), where he still remains chairman and CEO.

Delta Air Lines yesterday said fare revenue didn't climb as much as expected during the holiday travel season, rattling the airline sector. Delta (NYSE:DAL) shares fell 8.9% in their worst day in more than six years, American Airlines (NASDAQ:AAL) tumbled 7.5% and United Continental (NASDAQ:UAL) dropped 5%. Among the concerns are that major carriers will struggle to maintain profits as lower fuel prices lead customers to expect cheaper flights.

Zimbabwe's largest brewing company, Delta Beverages, has abandoned a plan to only accept hard currency payments after the government intervened. The unit, 40% owned by AB InBev (NYSE:BUD), hasn't been able to pay some international suppliers for "extended periods," choking off access to further credit. The currency crisis is undermining President Emmerson Mnangagwa's efforts to win back foreign investors, who were sidelined under his predecessor, Robert Mugabe.

Petrobras may see a windfall of tens of billions of dollars as the incoming government of Jair Bolsonaro signals serious intentions to resolve a long-running dispute with the state-run oil giant. At issue is an oil producing zone in the Santos Basin, where the Brazilian government granted Petrobras the right to extract 5B barrels of oil and gas in 2010. While both sides are claiming rights, incoming Energy Minister Bento Albuquerque said both sides had determined that Petrobras (NYSE:PBR) was the creditor in the dispute.

13 Canadian citizens have been detained in China since Huawei CFO Meng Wanzhou was arrested last month in Vancouver, although "at least eight" of them have since been released, according to the Canadian government. Ottawa has repeatedly said it sees no explicit link between Meng and the detentions of its citizens, but Beijing-based Western diplomats and former Canadian ambassadors have said they believe the arrests were a "tit-for-tat" reprisal.

Today's Markets

In Asia, Japan -2.3%. Hong Kong +2.2%. China +2.1%. India +0.5%.
In Europe, at midday, London +1.2%. Paris +1.2%. Frankfurt +1.6%.
Futures at 6:20, Dow -1.3%. S&P -1.5%. Nasdaq -1.9%. Crude +1.9% to $47.98. Gold -0.2% to $1292.40. Bitcoin -1% to $3789.
Ten-year Treasury Yield

Today's Economic Calendar

8:30 Non-farm payrolls
9:45 PMI Services Index
10:15 Jerome Powell Speech
10:15 Fed's Bostic Speech
10:30 EIA Natural Gas Inventory
11:00 EIA Petroleum Inventories
1:00 PM Baker-Hughes Rig Count
8:00 Fed's Williams Speech on Saturday
10:15 Fed's Bostic Speech on Saturday

 

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