- US Futures, Oil Flat
- US Dollar rises Despite Mnuchin’s “Strong Dollar” Warning
US equity futures were flat, European stocks rose and Asia was mixed after the dollar posted a modest rebound overnight despite Mnuchin’s “strong dollar” comments, while oil was flat and gold fell, as investors focused on President Donald Trump’s plans to boost growth. The pound fell after a U.K. court ruled that Parliament must vote on triggering Brexit.
A rally in the dollar and stocks fueled by the pro-growth agenda that helped Donald Trump win the election lost steam this month as the president has offered scant detail about spending and fiscal easing. Confidence in the U.S. currency may be buoyed when Senate Democrats unveil a $1 trillion infrastructure plan today that will hinge on Trump’s support, the New York Times reported.
Doubts about exactly how much fiscal stimulus might be forthcoming helped Treasuries rally. Yields on 10-year notes eased to 2.39 percent, having enjoyed the steepest single-day drop since Jan. 5 on Monday. “The driver of a shift higher will be optimism that President Trump’s policies deliver more growth,” Juckes said. “If he starts tweeting about fiscal policy instead of trade policy maybe the bond bears can come out of hibernation again.” The dollar continues to trade in lockstep with 10Y TSY yields.
In Asia, Japan -0.6%. Hong Kong +0.2%. China +0.2%. India +1%.
In Europe, at midday, London +0.2%. Paris +0.1%. Frankfurt +0.2%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq flat. Crude flat at $52.75. Gold -0.3% to $1212.20.
Ten-year Treasury Yield +3 bps to 2.43%
Monday’s Key Earnings
- Business activity in eurozone eased slightly in January according to Markit’s flash composite PMI, which fell to 54.3 from 54.4 in December. Nonetheless the reading was one of the highest over the past five-and-a-half years. It “signals respectable quarterly GDP growth of 0.4% with a broad-based expansion across both manufacturing and services,” said Chris Williamson, chief economist at IHS Markit.
- It was a busy first day for President Trump. Here are some of the highlights: Withdrew from TPP, promised to renegotiate NAFTA, placed a hiring freeze on federal employees, discussed slashing business regulations by 75%, reinstated the Mexico City policy and vowed to stop the seizure of South China Sea islands. Trump will have breakfast today with the heads of GM, Ford (NYSE:F) and Fiat Chrysler (NYSE:FCAU), as he pressures the Big Three carmakers to boost U.S. employment.
- Australia has called for the Trans-Pacific Partnership to go ahead without the U.S. following President Trump’s withdrawal from the 12-nation trade agreement. China’s foreign ministry declined to say whether Beijing would consider any invitation to join the TPP, but a spokesperson instead cited rival trade pacts, saying that Regional Comprehensive Economic Partnership “should be concluded at an early date.”
- “The Japanese manufacturing sector started the New Year on a strong footing,” said IHS Markit economist Amy Brownbill, suggesting that overseas demand is not as weak as some business leaders had feared. The Markit/Nikkei Japan Flash Manufacturing PMI rose to a seasonally adjusted 52.8 in January from a final 52.4 in the previous month, expanding at its fastest pace in almost three years.
- Treasury Secretary nominee Steven Mnuchin said yesterday that an “excessively strong” dollar can have negative short-term impacts on the U.S. economy and accused the IMF of not doing enough to combat currency manipulation. The greenback fell sharply on the comments, hitting a low not seen since late November, but it’s regaining some ground today. Mnuchin is still awaiting confirmation by the Senate, which has yet to schedule a vote.
- Following sharp falls in the lira, Turkey’s central bank hiked its overnight lending rate by 75 bps to 9.25%, but left its benchmark repo rate on hold at 8%. The lira remains the currency market’s worst performing currency of the year, down 7%, and nearly 20% below its level of three months ago. Investors have been unnerved by political uncertainty, a slowing economy and worry the central bank is less than independent.
- Qualcomm doesn’t intend to take Apple’s (NASDAQ:AAPL) legal action lying down, but neither does it plan to stop supplying chips to the iPhone maker. Apple hit Qualcomm (NASDAQ:QCOM) with a $1B lawsuit on Friday over its patent royalty tactics and said it improperly withheld rebates. Besides trying to get Apple’s case dismissed, sources close to Qualcomm say the company is considering filing its own lawsuit in response. QCOM +1%; AAPL -1% premarket.
- Amazon is set to dodge antitrust fines from an EU probe into its e-book publishing deals, according to Bloomberg sources familiar with the company’s bid to settle the 19-month investigation. Amazon (NASDAQ:AMZN) has agreed to change controversial clauses that required publishers to offer it terms as good as or better than those they sign with other e-book distributors.
- BT Group has been forced to write down the value of its Italian business by £530M after a review found “inappropriate accounting behavior.” The sum is far higher than the £145M initially anticipated and will affect its results for the next two years. As a result, BT has suspended a number of Italy’s senior management team and appointed a new regional CEO who will start on Feb. 1. BT -19.4% premarket.
- Powered by strong chip and display panel sales, Samsung Electronics’ (OTC:SSNLF) operating profit jumped 50% to 9.2T Korean won ($7.9B) in Q4, helping the company bounce back from its costly Note 7 debacle. That put the full year figure at 29T won, a 10% increase from 2015. Samsung also expects profit growth this year but warned political uncertainty could challenge its business strategy.
- Pokemon Go has finally come to South Korea, the world’s fourth-largest gaming market, more than six months after the global phenomenon launched in other regions. The game relies on Google Maps to work, but in South Korea, those functions have been limited for national security reasons. How did developers get around the issue? “We used various publicly accessible data sources,” said Dennis Hwang, art director of Niantic. Nintendo (OTCPK:NTDOY) also jointly developed the game.
- The merger will take longer to close, according to Yahoo (NASDAQ:YHOO), but investors breathed a sigh of relief that its $4.8B Verizon (NYSE:VZ) deal hasn’t been derailed by a hacking scandal. Yahoo expects the sale of its core internet business to close in the second quarter of this year, after reporting better-than-expected quarterly profit and revenue numbers. YHOO shares climbed 1.1% in extended trading on the news.
- Rio Tinto has agreed to sell its thermal coal assets in Australia’s Hunter Valley to Yancoal Australia for up to $2.45B. “This sale is consistent with our strategy of reshaping our portfolio to ensure the most effective use of capital,” CEO Jean-Sebastien Jacques declared. Seeking to weather a downturn in commodities, Rio (NYSE:RIO) has sold at least $5.3B in assets since 2013. RIO +2.7% premarket.
- Toshiba’s board will meet on Friday to approve plans to make its chip business a separate company, with hopes to raise more than ¥200B ($1.8B) by selling a 20% stake in it. According to Reuters, CEO Satoshi Tsunakawa told Toshiba’s (OTCPK:TOSYY) main creditors of the plans today, as part of efforts to offset an upcoming multi-billion dollar writedown for its U.S. nuclear business.
- Breaking up is hard to do… The proposed merger of health insurers Aetna (NYSE:AET) and Humana (NYSE:HUM) has been blocked on antitrust grounds. A federal judge said the tie up would threaten competition and would’ve resulted in higher prices and reduced services for seniors who buy Medicare Advantage. The action is also bad news for Aetna as it will owe Humana a $1B breakup fee.
- Bernie Ecclestone has stepped down as chief executive of Formula One, ending his 40-year reign over the sport. Liberty Media (NASDAQ:LMCA) has replaced Ecclestone with former FOX executive Chase Carey following the completion of its $4.4B takeover. While the 86 year old will remain as “a source of advice for the board of F1” it is understood that he will no longer have any operational control over the motor racing series.
- Avis Budget Group has taken an unusual step to block its biggest shareholder from potentially increasing its sway over the business, a year after giving the investor a board seat. The rental-car company put in place a “poison pill” aimed at blocking hedge fund SRS Investment Management from acquiring more than 10% voting power. SRS currently owns 9.7% of Avis (NASDAQ:CAR) common stock.
- 650 U.S. Volkswagen dealers will receive an average of $1.85M in a $1.2B diesel emissions settlement approved by District Judge Charles Breyer, which called it “fair, reasonable, and adequate.” In total, VW (OTCPK:VLKAY) has now agreed to spend up to $22B in the U.S. to address claims from owners, environmental regulators, U.S. states and dealers.
- Takata shares have lost nearly half their value in less than a week, sinking 48% since Wednesday’s close. Investors are rushing to sell ahead of a possible bankruptcy, proposed by bidders Autoliv (NYSE:ALV) and Key Safety Systems, as Takata (OTCPK:TKTDY) faces a potential multibillion-dollar bill for recalls related to its faulty air bags.
- Jose Cuervo is planning a Feb. 8 pricing for its delayed Mexican listing in a bid to raise up to $1B. The alcohol company put its IPO on hold twice last year after the election of Donald Trump sent the peso to record lows and spurred fears of an economic slowdown in Latin America’s second largest economy. Not many North American firms are older than Jose Cuervo, which traces its roots back to the early 18th century.