>>> Asîan Update

Asia Market Update: Trump trades barbs with N. Korea, dollar slightly stronger; Upcoming FOMC minutes in focus

***Headlines/Economic Data***
General Trend:
-Asian currencies continue to exhibit strength in the new year. Thai Baht (THB) hits strongest level since April 2015; PBoC set yuan (CNY) at strongest since May 2016; Taiwan Dollar (TWD) continues to trade at over 4-year highs

Japan
-Nikkei 225 closed for holiday
Looking ahead: Equity markets in Japan resume trading on Thursday, following 3-day holiday; Japan Dec final manufacturing PMI to be released

Korea
-Kospi opened +0.2%
-Semiconductors track earlier gains in the US: Samsung Electronics +1.5%, Hynix +1.4%
-Posco Steel +5%, Hyundai Steel +2.6% (US Dow Jones Iron & Steel index rose 4.6% on Tuesday; positive broker commentary)
-073240.KR (Kumho Tire) +11%: KDB set up task forces to deal with Kumho Tire restructuring and M&A
-LG Display (034220.KR) +3%: To begin supplying OLED panels for over 15M new iPhone units which are expected to be unveiled in H2, says a press report.
-009540.KR Hyundai Heavy +9.5% (Issued FY18 sales guidance)**Reminder: On Dec 27, 2017 the company’s share price declined by over 28%, as it announced a plan to raise KRW1.29T in capital.
-(KR) Bank of Korea (BOK) Gov Lee: Reiterates stance of closely monitoring FX movements
- (KR) Korean press comments on rising number of mortgages in South Korea despite govt's measures to slow the housing market
(KR) Bank of Korea (BoK) sells KRW2.4T in 2-year monetary stabilization bonds: yield 2.06%
-(KR) Moody's: domestic and global credit impact of Korea conflict would depend on duration and severity
-(KR) North Korea Official: Kim Jong Un has given order to open boarder hotline between the Koreas at 06:30GMT to discuss inter-Korean dialogue
-(KR) South Korea Q4 Foreign Direct Investment (FDI) y/y: +49.8% v -9.0% prior; 2017 FDI record high

China/Hong Kong
-Hang Seng opened +0.5%, Shanghai Composite flat
-Hang Seng Services Index +1.7% (strength in airlines), Consumer Goods +1.5% (automakers gain), Materials +1.3%, Information Technology +1.2%; Telecom -1% (China Mobile -1.4%), Utilities -0.1%
-(CN) China researcher suggests China should allow yuan to fall this year; sees 2018 GDP at 6.5% -21st Herald
-(CN) PBOC may resume open market operations (OMO) in H2 of Jan - Chinese press
-(CN) China Securities Times Op Ed: PBOC should stabilize yuan fx rate
-(CN) Survey of analysts expects China to raise money market rates 3 times - financial press
-(CN) China PBoC: Skips OMO for 8th straight session; Net drains CNY90B v CNY290B prior
-USD/CNY (CN) China PBoC sets yuan reference rate at 6.4920 v 6.5079 prior (strongest setting since May 2016)
-(HK) Overnight HK$ HIBOR -66bps (most since Nov 1st); 1-week HK$ HIBOR -47bps (most since Oct 2008); 1-month HK$ HIBOR -7bps (most since Jan 2009)
Looking ahead: China Dec Caixin Services PMI to be released on Thursday

Australia/New Zealand
-ASX 200 opened +0.2%; closed: +0.2%
-ASX 200 Resources Index +1.4%, Energy +0.6%;Financials -0.2, Consumer Discretionary -0.5%
-MWY.AU Guides FY18 H1 earnings to be lower due to delayed export shipments; -3%
-YOW.AU Cuts FY18 Rev to +17% y/y (prior 55%); Names Mark Schuessler new CEO; -33%

Other Asia
-(PH) Philippines Central Bank (BSP): May tweak monetary stance if there is a 2nd CPI effect; To restore 28-day term deposits in due time

North America
-US equities ended higher: Dow +0.4%, S&P500 +0.8%, Nasdaq +1.5%, Russell 2000 +0.9%
S&P500 Energy Sector +1.6%, Consumer Discretionary +1.5%
-SEMI: Sees 2018 global fab equipment spending $63B, +11% y/y; 2017 global fab equipment spending $57B, +41% y/y (record high)
-(US) Sen Hatch (R-UT): plans to retire from the Senate at the end of term; Hatch was first elected to the Senate from Utah in 1976
Looking ahead: US Dec ISM manufacturing PMI to be released on Wednesday, along with Dec FOMC Minutes and Weekly API Crude Oil Inventories.

Europe
-(UK) UK reportedly considering joining the Trans Pacific Partnership (TPP) following Brexit - FT
-(EU) ECB's Nowotny (Austria): sees a risk of a European stock market bubble - press interview

***Levels as of 01:00ET***
- Nikkei225 closed, Hang Seng +0.0%; Shanghai Composite +0.5%; ASX200 +0.2%, Kospi +0.3%
- Equity Futures: S&P500 +0.1%; Nasdaq100 +0.1%, Dax +0.2%; FTSE100 +0.0%
- EUR 1.2066-1.2042; JPY 112.39-112.17; AUD 0.7837-0.7806;NZD 0.7109-0.7073
- Feb Gold +0.0% at $1,316/oz; Feb Crude Oil +0.0% at $60.38/brl; Mar Copper -0.5% at $3.26/lb

>>> US Close Dow +1.42% S&P +0.83% Nasdaq +1.50% +0.94%


Closing Market Summary: 2018 Gets Underway with Another Record Finish

U.S. equities began 2018 on a positive note, jolted by a sense of optimism for the new year.

The major stock indices mostly reclaimed the losses registered ahead of the extended New Year's weekend, with the tech-heavy Nasdaq (+1.5%) settling above the 7000 mark for the first time ever. The S&P 500 (+0.8%) also finished at a new record high, while the Dow Jones Industrial Average (+0.4%) underperformed.

Beneath the eye-catching headlines of new all-time highs, Tuesday's session was rather dull as trading volume remained relatively light following the holidays; just 815 million shares changed hands at the New York Stock Exchange. Equities registered most of their gains at the opening bell and, outside an uptick in the final minutes, trended sideways for the rest of the day.

Advancing stocks outnumbered declining stocks by 1.6 to 1, and, more importantly, the size of the gains easily outweighed the magnitude of the losses. The consumer discretionary, technology, health care, energy, and materials sectors--which comprise around 60% of the broader market combined--climbed more than 1.0% apiece.

Meanwhile, the consumer staples, utilities, telecom services, and real estate groups--which make up just 16% of the broader market combined--lost between 0.6% and 0.9%. The heavily-weighted financial sector also finished in the red, but its loss was modest at 0.1%.

Chipmakers had a solid day, bouncing back from some profit taking at the end of 2017; the PHLX Semiconductor Index jumped 2.8%. Names like Advanced Micro (AMD 10.98, +0.70) and Micron Technology (MU 43.67, +2.55) were among the top performers, adding 6.8% and 6.2%, respectively.

Retailers also put together a positive performance, evidenced by the 1.8% increase in the SPDR S&P Retail ETF (XRT 46.01, +0.83). Target (TGT 67.63, +2.38) tacked on 3.7% amid speculation that Amazon (AMZN 1189.01, +19.54) could make a bid for the big-box retailer sometime this year.

Elsewhere, the Euro Stoxx 50 (-0.5%) posted its sixth consecutive loss despite an in-line reading for the December Eurozone Manufacturing PMI (60.6). Conversely, equity indices in the Asia-Pacific region finished Tuesday on a mostly higher note, with Hong Kong's Hang Seng (+2.0%) pacing the advance.

Outside the equity markets, U.S. Treasury yields climbed across the curve, with the benchmark 10-yr yield jumping six basis points to 2.47%, and West Texas Intermediate crude futures held steady at $60.36 per barrel as anti-government protests in Iran continued. The U.S. Dollar Index tumbled 0.5% to 91.55, hitting a three-month low.

Investors did not receive any economic data on Tuesday, but they will receive several economic reports on Wednesday, including the weekly MBA Mortgage Applications Index at 7:00 ET and both the ISM Manufacturing Index for December (consensus 58.0) and Construction Spending for November (consensus +0.7%) at 10:00 ET.

In addition, the minutes from the December FOMC meeting will cross the wires at 14:00 ET, and December auto and truck sales will be released throughout the day.

  • Nasdaq Composite: +1.5% YTD
  • Russell 2000: +0.9% YTD
  • S&P 500: +0.8% YTD
  • Dow Jones Industrial Average: +0.4% YTD

FT Lex : Costs of capital: that’s Wacc

Costs of capital: that’s Wacc
Corporate cash will grow, but how this is deployed will be key

For many companies, it is a rite of January to re-visit corporate cost of capital. Dramatic changes in the US tax regime, an unstoppable bull market in equities, and gradually rising interest rates makes the start of 2018 a good time for businesses to determine if their hurdle rates have shifted.

According to the textbook calculation of the weighted average cost of capital (Wacc) between debt and equity, changes in US Treasury yields and in the corporate tax rate have immediate formulaic effects on the rate that investment projects must exceed to generate shareholder value.

The tax deduction from interest expense is suddenly worth less, and deductibility of interest expense is also capped by law. This makes debt capital notionally more expensive. The theoretical impact of recent events are trickier to parse for the cost of equity. According to the capital asset pricing model, the jump in 10-year US Treasury yields (up from roughly 2 per cent to 2.5 per cent in the second half of 2017) makes equity capital more expensive, by raising the risk-free rate.

There is no explicit mention of corporate tax in the cost of equity equation. However, the surge in US equity prices on the back of the tax cuts and the accompanying rise in price-to-earnings ratios indicates that stockholders are in effect demanding a lower rate of return.

How this give and take on cost of equity and cost of debt balances out will be one of the great questions of the year. It is clear that companies will be awash in more cash. How they deploy that cash will show whether their cost of capital has changed. More spending on capital projects, wages and M&A signals a lower hurdle rate. A dividend and buyback windfall for shareholders suggests that baselines have not really moved. With no clear cut evidence that the cost of capital has fallen — the opposite seems more likely — or that companies are in any way capital constrained, expect shareholders seeking near-term payouts to be the big winners this year

>>> US Unusual Options Activity

Unusual Options Activity


Bullish Call Activity:

  • WFT Jan 4 calls are seeing interest with the underlying stock down 16% following Friday's close of U.S. Hydraulic Fracturing business (volume: 7750, open int: 52.0K, implied vol: ~62%, prev day implied vol: 47%) -- we noted activity in the Jan 4 calls last month (. Co is confirmed to report earnings February 2 before the open.
  • FL Feb 55 calls (volume: 1220, open int: 10, implied vol: ~37%, prev day implied vol: 34%) -- co is confirmed to report earnings on March 2 before the open.
  • FOXA Weekly Jan05 35.5 calls (volume: 2960, open int: 90, implied vol: ~31%, prev day implied vol: 3%) -- co is expected to report earnings early February. Disney transaction expected to close by June 30, 2018.

Bearish Put Activity:

  • KO Jan 46 puts (volume: 1860, open int: 280, implied vol: ~11%, prev day implied vol: 9%)  -- Over 1300 contracts traded in a single transaction. Co is confirmed to report earnings on Feb 13 before the open.
  • URBN Jan 35 puts (volume: 2770, open int: 240, implied vol: ~37%, prev day implied vol: 36%) -- Co is scheduled to present at ICR Conference on January 8th. Company typically reports holiday sales first week of January. Co is expected to report earnings in early March.

Sentiment: The CBOE Put/Call ratio is currently: 1.11... VIX: (9.90, -1.14, -10.3%).
January 19 is options expiration -- the last day to trade January equity options.

>>> Spotify IPO : Reportedly Wixen Music Publishing files $1.6B suit against Spo

Reportedly Wixen Music Publishing files $1.6B suit against Spotify over music licensing infringement - Hollywood Reporter 
- Wixen Music Publishing filed lawsuit on Dec 29th alleging Spotify is using Petty's "Free Fallin," the Doors' "Light My Fire," and tens of thousands of other songs without a license and compensation- Seeking at least $1.6B in damages 

NYT : Father in Costa Rica plane crash worked at giant hedge fund

The father of the family killed in a fiery Costa Rican plane crash was a senior investor at Bridgewater Associates, the giant hedge fund headed by billionaire Ray Dalio.

Bruce Steinberg — who, along with his wife, Irene, and three sons, Zachary, William and Matthew, was among 12 people killed in the charter plane crash on New Year’s Eve — was a senior member of the Connecticut-based fund’s research team.

Steinberg, 50, was also a graduate of Columbia Business School.

“The Bridgewater family lost Bruce Steinberg (a senior investor at Bridgewater and a wonderful man) and his family in a plane crash in Costa Rica. Right now, we are each processing this devastating tragedy in our own ways,” Dalio tweeted Monday.

“At this time I will be devoting my attentions to doing this and helping others,” added Dalio, who founded the $150 billion fund.
Rabbi Jonathan Blake, of the Westchester Reform Temple, where the Steinbergs were members, also mourned the family on social media, calling them “devoted members” of the synagogue.

“This tragedy hits our community very hard,” Blake wrote in a Facebook post Sunday.

Blake also spoke to The Post on Sunday.

“All the Steinbergs will be remembered by their Scarsdale and the temple community as among the most devoted to the welfare of the Jewish community and the beauty of the Jewish tradition,” Blake said.

“They will be deeply missed.”

The family was also involved with the UJA-Federation of New York, AJC (American Jewish Committee), and Seeds of Peace.