Closing Market Summary: Stocks Squander Early Gains; Settle in the RedStocks rocketed to new records early on Tuesday, but ran out of gas soon thereafter as the new year rally showed signs of fatigue. The major stock indices finished lower across the board.
The S&P 500 and the Nasdaq Composite lost 0.4% and 0.5%, respectively, while the small-cap Russell 2000 tumbled 1.2%. The Dow Jones Industrial Average showed relative strength, ending just a tick below its unchanged mark. At their session highs, the major averages held gains between 0.8% and 1.1%.
Eight of eleven sectors finished Tuesday in negative territory with the materials (-1.2%) and energy (-1.2%) groups pacing the retreat. Energy shares sold off amid a decrease in the price of crude oil, which slipped from a three-year high; West Texas Intermediate crude futures declined 0.7% to $63.86 per barrel.
The industrial sector (-0.9%) also showed relative weakness with its second largest component by market cap--General Electric (GE 18.21, -0.55)--losing 2.9%. GE tumbled after announcing that it will take a larger-than-expected charge of $6.2 billion from its legacy reinsurance business. In addition, reports indicate the company is considering a major breakup.
Most other sectors finished with losses between 0.3% and 0.7%, including the heavily-weighted financial sector (-0.3%). However, within the financial space, Citigroup (C 77.11, +0.27) climbed 0.4% after reporting better-than-expected earnings for the fourth quarter.
On the flip side, the heavily-weighted health care sector (+0.5%) finished in the green, thanks in large part to Merck (MRK 62.07, +3.41), which climbed 5.8% after announcing that its drug Keytruda was successful in combination with two chemotherapy drugs as a first line treatment for lung cancer. UnitedHealth (UNH 232.90, +4.26) also advanced, adding 1.9%, after beating earnings estimates and raising its guidance for 2018 due to the tax overhaul.
The consumer staples sector (+0.4%) also finished in the green, as did the lightly-weighted real estate space (+0.5%).
In the bond market, U.S. Treasuries finished mixed in a curve-flattening trade. The yield on the benchmark 10-yr Treasury note slipped one basis point to 2.54% while the 2-yr yield climbed one basis point to 2.01%. Yields move inversely to prices.
Elsewhere, equity indices in the Asia-Pacific region finished Tuesday mostly higher. Japan's Nikkei climbed 1.0%, closing at a fresh 26-year high, while Hong Kong's Hang Seng rallied 1.8%, bouncing back from Monday's decline--which broke a 14-session winning streak.
The major European bourses settled mixed. The UK's FTSE shed 0.2% while France's CAC and Germany's DAX added 0.1% and 0.4%, respectively.
Reviewing Tuesday's economic data, which was limited to the Empire State Manufacturing Index for January:
- The Empire Manufacturing Survey for January declined to 17.7 ( consensus 19.0) from the prior month's revised reading of 19.6 (from 18.0).
On Wednesday, investors will receive a slew of economic reports, including the weekly MBA Mortgage Applications Index at 7:00 AM ET, Industrial Production (consensus +0.4%) and Capacity Utilization (consensus 77.3%) for December at 9:15 AM ET, the NAHB Housing Market Index ( consensus 73) at 10:00 AM ET, the Fed's Beige Book at 2:00 PM ET, and Net Long-Term TIC Flows for January at 4:00 PM ET.
In addition, Bank of America (BAC 31.24, +0.05), Goldman Sachs (GS 258.46, +1.43), U.S. Bancorp (USB 57.17, +0.19), and Charles Schwab (SCHW 55.53, +0.14) will report earnings before the opening bell.
- Nasdaq Composite: +4.6% YTD
- Dow Jones Industrial Average: +4.3% YTD
- S&P 500: +3.9% YTD
- Russell 2000: +2.4% YTD
Asian equities’ best start to a year since 2006 continued Tuesday as most bourses in the region pushed higher. The yen declined amid concern Japanese authorities may want to limit gains that pushed the currency to a four-month high. The MSCI Asia Pacific index climbed as advances in the consumer staples and technology sectors offset a drop in materials. Japanese shares closed at multi-decade highs, while stocks in Hong Kong headed for a record. The yen halted a five-day advance as Japanese Finance Minister Taro Aso said sudden moves in exchange rates are a problem, while declining to comment on levels. Focus remains on China’s yuan, trading at the strongest level in more than two years and prompting speculation about possible steps to cool its gains.
Nikkei +0.93% Hang Seng +1.09% CSI +0.20% Shanghai +0,13% Shenen +0.37%
Eur$ 1.2265 CNH 6.4348 CNY 6.4362 JPY 110.89 GBP 1.3788 RUB 56.2894 WTI 64.51
S&P +0.31% EuroStoxx -0.03% Dax +0.07% FTSE +0.17% SMI +0.10%
Macro :
- Hansson Calls for ECB Policy Guidance Change: Macro Squawk Wrap
- Bitcoin Investors Could Lose All Their Money: ESMA’s Maijoor
Keep an eye on :
- ABN NA : ABN Amro Starts Digital Forex Platform for SME Companies
- AZAIM : Too Early To Start Exclusive Negotiations On Alitalia, Govt Says
- CGG FP : CGG Sees 2017 Ebitda Up More Than 10% on Multi-Client Revenue
- RE FP : Colas Wins Railway Maintenance Contracts in France, U.K.
- CON GY : Continental Is Said to Hire JPMorgan as Adviser: Reuters
- DAI GY : Mazda, Mercedes-Benz Plan EV Production in Thailand: Post
- FCA IM : Marchionne: Magneti Marelli Will Be Spun Off by End of 2018
- GLPG NA : WorldQuant Takes Short Position of 0.51% in Galapagos: AFM
- GE US : *GE 4Q MAY RAISE CONCERNS OF FUNDING NEEDS FOR GE CAPITAL: COWEN
- BOSS GY : Hugo Boss Fourth Quarter Sales EU735 Mln
- LISN SW : Lindt & Spruengli Full Year Sales Meet Estimates
- MHG NO : Marine Harvest 4Q Total Volume 113k Tons Vs 111k Tons Guidance
- NOVN VX : FDA Accepts Novartis Unit’s Submission for Adalimumab
- UG FP : PSA 2017 Vehicle Sales Rise 15.4% to 3.6M Units
- RIO LN : Rio Tinto Affirms 2018 Output Targets as 4Q Iron Ore Tops Ests
- RNO FP : Nissan CEO Sees Potential Need for More U.S. Production Capacity
- RYA LN : Ryanair Says It’s Interested in Buying Parts of Insolvent Niki
- SIE GY : Siemens Seeks to Position Healthineers as ‘Dividend’ Stock: BZ
- SIKA SW : Sika Buys Majority Stake in Italy’s Index Construction Systems
- TIT IM : Telecom Italia Board Is Said to Meet to Revise Canal Plus JV
- TGS NO : TGS Reports Three New Onshore Seismic Projects in North America
- VPK NA : WorldQuant Takes Short Position of 0.50% in Vopak: AFM
- YNAP IM : Yoox Net-A-Porter Full Year Net Revenue EU2.1 Bln
>>> Up
* AB Foods Upgraded to Overweight at Barclays; PT 33.80 Pounds
* Adtran Upgraded to Neutral at Goldman
* Gilead Upgraded to Outperform at Wells Fargo; PT $96
* Hunting Upgraded to Overweight at Morgan Stanley; PT 8.60 Pounds (double Upgrade)
* Iberdrola Upgraded to Buy at SocGen; Price Target 7.25 Euros
* Michaels Upgraded to Buy at Goldman
* Northrop Grumman Upgraded to Outperform at Wells Fargo; PT $360
* P&G Upgraded to Neutral at Goldman; PT $88
* Scor Upgraded to Sector Perform at RBC; PT 37 Euros
* Spirit Aero Upgraded to Outperform at Wells Fargo; PT $110
>>> Down
* Finisar Downgraded to Sell at Goldman
* Hershey Downgraded to Sell at Goldman; PT $101
* Inchcape Downgraded to Hold at Berenberg
* Lockheed Cut to Market Perform at Wells Fargo; Price Target $340
* Premier Oil Cut to Sector Perform at RBC; Price Target 1 Pound
* Rockwell Collins Cut to Market Perform at Wells Fargo; PT $143
* RPC Downgraded to Hold at Berenberg
* Spirit Air Downgraded to Hold at Stifel; PT $50
* Umicore Downgraded to Underperform at Credit Suisse; PT 30 Euros
>>> Initiation
* Credit Suisse Rated New Underweight at Barclays; PT 15.40 Francs
* Sabre Insurance Group Rated New Buy at Berenberg; PT 3.20 Pounds
* Sabre Insurance Group Rated New Overweight at Barclays
* UBS Rated New Underweight at Barclays; PT 15.80 Francs
>>> Call
Asia Market Update: Rio Tinto reports Q4 production, yuan continues to strengthen; Bitcoin weaker on crackdowns in Sout Korea and China
***Headlines/Economic Data***
General Trend:
- Japanese officials comment after recent gains in the Yen
- PBoC raises rate on 63-day open market operation (OMO) by 5bps to 2.95% (in line with prior 5bps increases on 7, 14 and 28-day reverse repos)
Japan
-Nikkei 225 opened flat; closed +1%
TOPIX Iron & Steel Index -1.5%
Softbank +1.9% (gained 3.2% prior session on speculation related to listing of mobile phone unit)
Fast Retailing +2.5% (reported better than expected Q1 results on Jan 11th)
- (JP) JAPAN DEC PPI (CGPI) M/M: 0.2% V 0.4%E; Y/Y: 3.1% V 3.2%E
- (JP) Japan Fin Min Aso: No comment on FX levels, do not see a big deal with dollar at ~¥110.80
- (JP) Japan Econ Min Motegi: Want to closely monitor impact that FX, financial market moves have on economy
-(JP) Japan Nov Tertiary Industry Index m/m: 1.1% v 0.3%e
-Japan MoF sells ¥1.79T v ¥2.2T indicated in 0.10% (prior 0.1%) 5-yr bonds; avg yield -0.084% v -0.107% prior; bid to cover 5.24x v 4.19x prior
Korea
-Kospi opened flat
Chipmakers gain: Samsung Electronics +1%, Hynix +1%
General weakness in financial sector: Industrial Bank of Korea -2.4%, Hana Financial -1.7%, Woori Bank -2.2%, KB Financial -1.2%
- (KR) South Korea Fin Min Kim: Irrational speculation in cryptocurrency; tax and regulation needed on crypto - Korean press
- (KR) South Korea has 147K people that have been jobless for six months or longer last year, the highest since record keeping began in 2000 - Korean press
China/Hong Kong
-Hang Seng opened +0.3%, Shanghai Composite -0.2%
-Info Technology +2%, Services +1.1% (supported by strength in gaming sector), Energy +1.4%, Materials +1.5%, Financials +1.3%, Property/Construction +1%
- (CN) China is unlikely to loosen property controls – CSJ
- (CN) Ratio of treasuries in China FX reserves is not likely to fall - Chinese press
- (CN) China debt yield may stay high and continue to rise – CSJ
- (CN) China PBOC Official Ruan Jianhong: To keep prudent and neutral monetary policy; Low M2 growth may become new normal - China Daily
-(CN) China President Xi: China and US should properly settle trade issue - Xinhua
- (CN) China PBoC OMO: Injects CNY320B in 7, 14 and 63-day reverse repos v CNY150B injected in 7 and 14-day prior: Net injects CNY270B v CNY50B drained prior; Raises 63-day reverse repo rate to 2.95% from 2.90% prior
- USD/CNY (CN) PBoC sets yuan reference rate at 6.4372 v 6.4574 prior (Strongest setting since Dec 11th 2015)
Australia/New Zealand
-ASX 200 opened +0.1%; closed -0.5%
- Rio Tinto: Opened higher but has since pared gains after Q4 production update and guidance
Energy -1%, Telecom -1%, Utilities -1%, Resources -0.5%, Financials -0.3%
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 123.5 v 122.0 prior
- (AU) Australia AOFM announces new benchmark 2.75% 2029 bond
- (AU) Australia Dec Motor Vehicle Sales m/m: 4.5% v 0.1% prior; y/y: 6.7% v 2.1% prior
- (NZ) New Zealand Dec Non-Resident Bond Holdings: 61.1% v 60.4% prior
-(NZ) ANZ’s NZ Market Focus report: productivity will need to rise if recent GDP growth is to be maintained
- Baby formula firm Bellamy's (BAL.AU) Announces Conditional Acquisition of Camperdown; Raises FY18 Rev +30-35% y/y (prior 15-20% y/y); EBITDA Margin 20-23% (prior 17-20%); +22%
- Fonterra (FCG.NZ) Reports Dec collections Total New Zealand 176.1M v 186.3M y/y; Fonterra Australia 16.1M v 12.6M y/y
- Rio Tinto (RIO.AU) Reports Q4 Pilbara iron ore shipments 90.0Mt v 89.7Mte v 87.7Mt y/y; Pilbara iron ore production 87.9Mt, +3% y/y
Other Asia
- (IN) India 10-year bond yield has risen by over 9bps on session: Reserve Bank of India (RBI) Acharya said banks shouldn't be repeatedly surprised with higher yields, Interest rate risks of banks can't be managed by regulator.
- (PH) Philippines Central Bank (BSP) Chief Espenilla: CPI could trend higher than anticipated; faces primary challenges managing risks to CPI view
- (TW) Taiwan said to consider allowing foreign banks to issue Taiwan Dollar (TWD) denominated bonds – local media
North America
- (US) GOP leaders said to be weighing spending deal to Feb 16th
Looking Ahead: Corporate earnings are expected from companies including Citi, CSX and UnitedHealth
Europe
- (UK) EU draft documents shows revised directives for EU chief negotiator Michel Barnier with more stringent conditions for a post-Brexit transition deal – FT
- (UK) Chancellor of Exchequer Hammond (Fin Min): Britons want to keep European economic model - UK press
- (UK) PM May planning speech to outline Brexit policy in February - UK press
- (UK) PM May's EU Withdrawal Bill expected to move to the House of Lords this week and pass - financial press
- (UK) BOE’s Tenreyro: UK productivity growth could beat expectations; faster UK wage growth alone would not necessarily point to rate hike, productivity is important too; Expected to vote for "a couple more" quarter-point rises in the next three years if the economy performs in line with the BOE's expectations. - speaking at Queen Mary University of London
- (DE) Germany SPD Schulz: SPD leadership is united behind exploratory result; optimistic majority will vote for talks with Merkel; Notes ‘successful’ exploratory talks with Germany Chancellor Merkel.
- (FR) Bank of France said it already held some of currency reserves in yuan (CNY); vast majority of reserves remain invested in US dollar denominated assets
- (GR) Greece parliament approves austerity measures
- (EE) ECB’s Hansson (Estonia): Appropriate to end asset purchases after September if growth and inflation continue to evolve in-line with the central bank’s expectations - German press
- (EU) Moody's: Forecast policy rates to approach 1% for the ECB and 2% for the BoE and 3% for the US Fed by 2021.
- Fiat: CEO Marchionne: Have no intention of breaking up the company or selling individual brands to China or other parties
- BMW: Expects slight global sales growth in 2018 on new models - US financial press; Cites CFO at Detroit Auto Show.
- Continental: Said to hire JPMorgan as adviser regarding possible break-up - financial press
- Schaeffer: CEO: Guided Q4 Rev ~€3.5B, +8.5% y/y; 2017 Rev €14.0B, +5.9% y/y
Looking Ahead: UK Dec CPI due for release
***Levels as of 01:00ET***
- Nikkei225 +1%, Hang Seng +1.0%; Shanghai Composite +0.2%; ASX200 -0.5%, Kospi +0.8%
- Equity Futures: S&P500 +0.3%; Nasdaq100 +0.2%, Dax +0.2%; FTSE100 +0.1%
- EUR 1.2279-1.2248; JPY 110.98-110.48; AUD 0.7975-0.7949;NZD 0.7307-0.7281
- Feb Gold +0.4% at $1,340/oz; Feb Crude Oil +0.4% at $64.53/brl; Mar Copper -0.4% at $3.25/lb