The markets quietly moved higher as earnings news plays out while the news cycle is dominated by Washington. No major policy changes just yet and there is still a lack of clarity on the timing of changes to tax policy or the health care law. Stocks look good for the time being so let’s take what the market gives us.
Economic & Central Banking Snippets
- The Reserve Bank of Australia (RBA) announced they would keep interest rates unchanged at a record low 1.5% and signaled that they would remain on hold for some time.
- China’s foreign exchange reserves have dropped below $3T for the first time since 2011. This is the seventh straight monthly decline as capital continues to flow out of the world’s second-largest economy. Outflows continue despite China’s efforts to tighten capital controls.
- German industrial production sank 3.0% MoM in December – the biggest drop since Jan 2009 and over 8 standard deviations below expectations. The contraction was largely driven by capital goods, which subtracted 2% from the headline figure. Keep in mind, the auto industry drives manufacturing for the German economy.
- The Reserve Bank of India surprised markets by keeping interest rates unchanged. The RBI also changed its stance to “neutral” from “accommodative,” saying it would monitor inflation.
- Mexico’s central bank increased its key lending rate on Thursday by 50 basis points to 6.25% after inflation jumped to an 18-year high. This was the sixth time in a row that the Bank of Mexico increased lending rates to halt inflation and strengthen the peso.
- Japan’s producer prices rose 0.5% year on year which snaps 21 consecutive months of decline, according to the Bank of Japan.
- UK GDP expanded by 0.7% providing a useful gauge of Britain’s official growth statistics. Consumer spending and robust industrial production were behind the pick up as UK factories enjoyed their best annual pace of growth since 2011.
The Trump T(i)rade
- The potential collapse of NAFTA could have a huge global impact, according to Mexican officials, as they prepare to fall back on WTO rules amid fears Washington could torpedo the global trade body. The White House is expected to soon give Congress a required 90-day notice that it will begin negotiations. That means NAFTA talks could start in May. (FT)
- The U.S. Department of the Treasury sanctioned individuals and businesses linked with the Iranian missile program just days after the country’s testlaunch of a medium-range Khorramshahr ballistic missile. Iran’s regional adversaries (Israel and Saudi Arabia) have lobbied Washington to take a tougher line on Iranian activities, and there is nothing in the resolution to stop the United States from imposing unilateral penalties after missile tests. (Stratfor)
- U.S. Homeland Security Secretary John Kelly said he hopes that the wall along the U.S.-Mexico border will be finished within two years, Fox News reported. According to Kelly, construction will take place where the wall is “needed first, and then it will be filled in.” (Stratfor)
- In his first phone call with President Erdogan of Turkey, President Trump reiterated the “close, long-standing relationship” between the U.S. and Turkey, and agreed to act jointly against the Islamic State.
- The U.S. Army will grant the final permit for the controversial Dakota Access oil pipeline after an order from President Trump to expedite the project. It would allow the final section of the line to tunnel under North Dakota’s Lake Oahe, enabling the $3.8B pipeline to begin operations in June.
- Donald Trump said the administration plans to make a corporate tax announcement over the next two to three weeks.
- US President Donald Trump has told Chinese President Xi Jinping that the White House will respect the “One China” policy, in a move that will ease tensions between the powers, according to someone familiar with the call.
We went from bearish to neutral last week and this week we are back to being bulls and long stocks. A top of some kind is probably in the cards within the next several weeks but we will need to see a break in the trend channels for that scenario to become reality. Charts below..
- Uber has hired a former Nasa engineer to help it research flying cars. After more than 30 years at the US space agency, Mark Moore is joining Uber’s Elevate division as its director of engineering for aviation. Mr Moore’s research has explored how advances in robotics, autonomous systems and electric propulsion can facilitate new kinds of small aircraft.
- The Chicago Stock Exchange has proposed a new speed bump that certain traders could bypass if they agree to strict trading obligations aimed at making it easier for others to buy and sell stocks. It would prevent “latency arbitrage” – when speedy traders detect a price change on one exchange and then race ahead to other exchanges to pick off quotes at stale prices.
- Kellogg cut its sales forecast this year as the maker of Special K and Frosted Flakes continues to do battle with sluggish cereal sales. The company said it now expects currency-neutral comparable net sales to decline by about 2% for 2017. Losses were mainly driven by the stronger dollar, which ate into the value of Kellogg’s overseas earnings.
- French investigators may prosecute Fiat Chrysler over abnormal emissions from some of its diesel engines. The referral makes it the third manufacturer to be referred to French prosecutors, after Volkswagen and Renault.
- Chinese overseas deals worth almost $75B were cancelled last year as a regulatory clampdown and restrictions on foreign exchange caused 30 acquisitions with European and US groups to fall through. But despite more deals being abandoned, Chinese direct investment into the US and Europe still more than doubled to a record $94.2B in 2016. (FT)
- Investors in Takata have begun to price in the growing risk of a court-led bankruptcy after Chinese-owned Key Safety Systems emerged as the leading bidder for the Japanese automotive supplier mired in a global recall crisis over exploding airbags.
- Turkish police have detained 445 people suspected of links to the Islamic State, BBC reported. Many of the suspects were detained in provinces bordering Syria. A total of 18 people — 14 of them foreigners, including 10 minors — were detained in and around Istanbul. The Turkish military has been battling the Islamic State in northern Syria while seeking to push back ethnic Kurds in the region. The country has suffered a string of attacks blamed on the Islamic State in the past two years. (STRATFOR)
- A stand-off with European authorities over the terms and future of Greece’s bailout has led to a rare public split on the International Monetary Fund’s (IMF) board. European institutions and the IMF have been at loggerheads over stringent fiscal targets demanded by its European creditors as the IMF wants Greece to receive more long-term debt relief. Without the IMF’s participation, the rescue program would end and cause a new funding crisis for Athens. (FT)
- Volkswagen has launched a U.S. subsidiary designed to oversee $2B in investments to promote zero-emission vehicles, a commitment the German auto giant made in the wake of Dieselgate. Their Electrify America unit will open more than 500 EV charging stations as it works toward building out a national network.
- After a year of setbacks in its attempts to tap international bond markets, Nigeria has sold a $1B eurobond. The deal was priced at a yield of 7.875% and was approximately 8 times oversubscribed.