(GS) Daimler: Story intact despite softer free cash flow; Buy

* Source of opportunity
Post Daimler’s FY15 results we lower our group EBIT by -0.1%/-3%/-10% in
2016-18E with the downgrades focused primarily in Mercedes (softening FX
tailwinds on negative Rouble effects) and Trucks (weaker LatAm and Europe
volumes partly offset by positive FX). Perhaps more importantly the
company’s new capex guidance (we model PP&E of €6.6 bn / €7.4 bn in
2016/17E) results in lower free cash flow estimates (we see avg. underlying
2016-18E FCF at €5.5 bn vs. €7.1 bn previously). We commensurately reduce
our 2016E DPS to €3.75 from €4.0, and as such we now see Daimler yielding
5.9% vs. 6.3% prior.

* Catalyst
We still see Daimler as the most attractive German OEM. With truck
demand still a risk, we think Mercedes profitability is robust, with the EClass
family rolling out this year and addressing the poor profitability of the
outgoing product. We also see a smoother product cycle vs. previous years
with SUVs broadening the portfolio and supporting margins.

* Valuation
Our 12-month price target remains unchanged at €87 and is based on 2016E
ROIC of 14.0%; we assume 0.7x EV/IC equals ROIC/FMCC. The negative
impacts from lower earnings and cash generation are offset by lower
pension liabilities (now €7.4 bn vs. €11.5 bn previously). The reduction in
liabilities is due to a cash injection of €1.2 bn plus the benefit of increasing
discount rates.

* Key risks
Cyclical pressure in trucks (especially in the key NAFTA market); the product
cycle weighing more than expected on volumes/pricing; China end-market
weakness; diesel fallout; higher cost headwinds (CO2 compliance
costs/expansion costs); and adverse currency (i.e. a stronger euro) are the
key downside risks.

>>> Obama to propose $10-a-barrel oil tax


President Barack Obama is about to unveil an ambitious plan for a “21st century clean transportation system.” And he hopes to fund it with a tax on oil.
Obama aides told POLITICO that when he releases his final budget request next week, the president will propose more than $300 billion worth of investments over the next decade in mass transit, high-speed rail, self-driving cars, and other transportation approaches designed to reduce carbon emissions and congestion. To pay for it all, Obama will call for a $10 “fee” on every barrel of oil, a surcharge that would be paid by oil companies but would presumably be passed along to consumers.
There is no real chance that the Republican-controlled Congress will embrace Obama’s grand vision of climate-friendly mobility in an election year—especially after passing a long-stalled bipartisan highway bill just last year—and his aides acknowledge it’s mostly an effort to jump-start a conversation about the future of transportation. But by raising the specter of new taxes on fossil fuels, it could create a political quandary for Democrats. The fee could add as much as 25 cents a gallon to the cost of gasoline, and even with petroleum prices at historic lows, the proposal could be particularly awkward for Hillary Clinton, who has embraced most of Obama’s policies but has also vowed to oppose any tax hikes on families earning less than $250,000 a year.
During Obama’s first year in office, he was so concerned about the politics of taxes that he scuttled a Democratic transportation bill just to avoid a debate over a gasoline-tax hike. Now in his last year in office, he seems to be actively courting a similar debate. A White House memo outlining his plan suggested that its $10-a-barrel fee would not only be necessary to pay for his sustainable transportation dreams, but would do some good on its own by increasing fossil-fuel prices and creating “a clear incentive for private-sector innovation to reduce our reliance on oil and invest in clean-energy technologies that will power our future.”
Two senior administration officials authorized to discuss the plan described it as a sharp departure from unsustainable asphalt-driven Washington policies that date back to President Eisenhower’s creation of the interstate highway system, as well as an aspirational next step for a climate-conscious president who has already ratcheted up fuel-efficiency standards for cars and trucks, doled out unprecedented green energy subsidies, cracked down on carbon pollution from power plants, and pushed through a global climate deal in Paris. They said that transportation accounts for 30 percent of U.S. emissions, and that Obama’s plan would boost spending on green transportation infrastructure by about 50 percent. They also argued that the U.S. transportation system, long the envy of the world, has become an economic drag that imposes $160 billion in hidden taxes on businesses and commuters while stranding Americans in traffic for 7 billion hours every year.
Former Pennsylvania governor Ed Rendell, who was briefed about the plan in his role as co-chair of the pro-infrastructure group Building America’s Future, called it the boldest transportation blueprint since Eisenhower envisioned the interstates.
“Since then we’ve just been bumping along, doing short-term fixes, and I give them a lot of credit for laying out this kind of long-term investment,” said Rendell, a Democrat who has been a frequent Obama critic. “I also give them credit for having the guts to say how they would pay for it all. That’s very unusual in this area.”
The biggest chunk of Obama’s proposed new spending, about $20 billion a year—roughly equivalent to the EPA and Interior Department budgets combined—would go to “enhanced transportation options,” especially alternatives to driving and flying. That would include subways, buses, light rail, freight rail modernization projects, and a major expansion of the high-speed rail initiative that Obama launched in his 2009 stimulus bill. It would also include a 150 percent increase for a more popular stimulus program known as TIGER, which provides competitive grants for multi-modal transportation projects with measurable economic and environmental benefits.
Obama’s plan will also include about $10 billion a year to encourage local, regional and state governments to plan and build smarter infrastructure projects, including incentives to reduce carbon emissions through land-use planning, public transit, electric-vehicle charging, and other strategies. There would be a Climate Smart Fund to reward states that make greener choices with existing federal dollars, as well as competitive grant programs to promote region-wide planning, more livable cities, and infrastructure projects with greater resilience to climate impacts.
Finally, Obama will call for more than $2 billion in annual investments in clean transportation research and development, including efforts to deploy self-driving cars, charging stations for electric vehicles, greener airplanes, and other climate-friendly technologies. The thinking is that traditional transportation bills—including the five-year, $305 billion FAST Act that Obama signed in December after 36 consecutive short-term patches—basically pour federal dollars into band-aids for a decrepit system. The White House memo envisions a new approach that would develop a “more integrated, sophisticated and sustainable transportation sector,” financing forward-looking projects like rapid bus lines under development in Indianapolis and Richmond, or a massive transit expansion in Denver.
“We’re still living in a vision that was great for its time, but not for this time,” one senior administration official said. “This is a new vision. We’re realistic about the near-term prospects in Congress, but we think this can change the debate.”
Those near-term prospects are basically nil; Obama’s entire budget request is expected to be dead on arrival on GOP-controlled Capitol Hill. And Obama’s call for a barrel fee reminiscent of the gasoline taxes and carbon taxes that are anathema to so many Republicans would be especially dead on arrival, even though it would be phased in over five years, and would include relief for low-income families and Northeastern households that transition away from heating oil. Most politicians love infrastructure spending, but most politicians, especially Republican politicians, do not love raising taxes to pay for that spending. The FAST Act, for example, was mostly paid for with budgetary gimmicks, to the extent it was paid for at all. The Obama plan also floats the notion of using revenues from corporate tax reform to help pay the tab, but the headline proposal is the $10-a-barrel fee.
Even Rendell, a strong supporter of Hillary Clinton, declined to speculate whether she would embrace Obama’s plan. But he noted that Ronald Reagan—“a very wise man”—supported gas tax hikes. Eventually, he said, America will have to decide whether it wants to drag its transportation system into the 21st century.
“Obviously, it’s tough sledding this year,” he said. “But this is a great blueprint to hand the next administration, no matter whose administration it is.”


>>> What to look at today - 5th of February 2016

Dow+0.15% S&P+0.44% Nasdaq-0.10% Russell+0.44%
US Market Closed slightly higher as shaky trading in oil weighed on the market, WTI crude ended its day 2.1% lower at $31.62/bbl. After yesterday's close, Fed Governor Lael Brainard argued for a gradual pace to future rate hikes as, "recent developments reinforce the case for watchful waiting". materials (+2.8%), industrials (+1.7%), and financials (+0.9%) leading the pack. On the flipside, consumer staples (-0.9%) and consumer discretionary (-0.6%) ended with the largest losses. health care space (-0.5%), biotechnology showed relative strength today, evidenced by the 0.3% uptick in IBB Volume were in line with more than 1bil shares traded. US After Hours MFLX +40%, UBNT +18.3%, KIRK +2.4%, DATA -41.8%, LNKD -29.7%, GIGA -28.6%, OUTR -22.1%, DECK -9.5%, LGF -5.5% following earnings/guidance, BCRX+5.8% on baker boost stake, MT-12% on potential cap increase, HES-7% on stokc offering. Asian equity markets are mixed and less volatile, tracking more subdued tone on Wall St heading into the non-farm payrolls. Nikkei225 is the big underperformer, as Econ Min Ishihara noted virtuous cycle is becoming effective in Japan economy while Fin Min Aso voiced support in negative rate policy of the BOJ despite JGB market turbulence. Aso added policy will be implemented so that the market can absorb JGB issuance. After a Fitch warning on China overnight that capital outflows and sharp declines in official foreign reserves continue to add to currency pressures, the PBoC did not live up to some expectations of another aggressive devaluation going into the holiday week. PBoC Gov Zhou also reiterated that China will maintain prudent monetary policy stance, while another researcher forecast Lunar New Year liquidity to be ample.

Nikkei -1.32% Hang Seng +0.64% Shanghai -0.18%

Eur$ 1.1194 CNH 6.5802 CNY 6.5691 JPY 116.80 GBP 1.4559 CHF 0.9942 RUB$76.8829 WTI $31.71 -0.02%

S&P-0.14% EuroStoxx-0.17% Dax-0.25% SMI+0.18%

Macro :
- Hedge Fund Standard Pacific Capital Said to Shut Down: Reuters
- ECB Sees Gaps in Regulation on Banks’ Own-Funds Requirements

Keep an eye on :
- MT NA : ArcelorMittal to Raise $3b Capital, Sees $4b Debt Reduction (-12% post market)
- MT NA : ArcelorMittal Sees $6.2b in Impairments, Charges in FY15
- BNP FP : BNP Paribas 4Q Net Misses; Plans CIB, RWA, Cost Reductions
- BNP FP : BNP Paribas CFO Sees Dividend Payout Next Year Remaining at 45%
- CABK SM : CaixaBank Hasn’t Taken Decision on Banco BPI Stake
- CSGN VX : Credit Suisse’s Ambitious 2018 Targets at Risk, UBS Says; PT Cut
- ENGI FP : Engie’s Mestrallet Gets 2-Year Extension as Chairman: Echos
- FAGR BB : Fagron to Raise EU220m in Placement, Share Sale; Equity Negative
- IIA AV : Immofinanz Expects Abt EU400m Writedown on Russian Properties
- NRE1V FH : Nokian Renkaat 4Q Profit Beats Estimates
- UG FP : PSA Peugeot Citroen Said Mulling 850 Job Cuts: Le Figaro
- RWE GY : RWE to Write Down More Than EU1b in 2015: Rheinische Post
- SAN FP : Sanofi Names Gilead’s Muzammil Mansuri to Executive Committee
- SAS SS : Swedish Pilots Union Calls for Action Against SAS Supplier Flybe
- SBMO NA : J O Hambro Reports 1.84% Short Position in SBM Offshore: Filing
- SYMC US : Elliott Management Said to Take Large Stake in Symantec: WSJ (+9% After Hours)
- HO FP : Paris Prosecutors Start Probe into $1.2b Malaysia Arms Deal: FT
- UCG IM : UniCredit Reachs Accord With Unions on 2,700 Voluntary Job Exits
- UCG IM : Cerberus, UniCredit Revisit Talks Over Bank Austria: Standard
- UMI BB : Umicore 2015 Adj. EPS of EU2.27 Beats Ests., Raises Dividend
- DG FP : Vinci CEO Huillard Says France Is ‘Not in Good Shape’
- VOLVB SS : Volvo 4Q Net Misses Est., Restructuring Nearly Complete
- VOW3 GY : Volkswagen Puts Plans for Small SUV ‘Taigun’ on Ice, Focus Says

>>>Europe : Brokers Upgrade & DOwngrade - 5th of February 2016

>>> Up
*AENA RAISED TO BUY VS NEUTRAL AT GOLDMAN
*BUREAU VERITAS RAISED TO EQUAL WEIGHT AT BARCLAYS
*FLUGHAFEN ZUERICH RAISED TO BUY VS NEUTRAL AT GOLDMAN
*ING RAISED TO BUY VS REDUCE AT KEPLER CHEUVREUX
*KERING RAISED TO SECTOR PERFORM AT RBC CAPITAL
*UBI BANCA RAISED TO BUY AT HSBC
*WACKER CHEMIE RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE

>>> Down
*ABB CUT TO ADD VS BUY AT ALPHAVALUE
*DAIMLER CUT TO ADD VS BUY AT ALPHAVALUE
*FRAPORT CUT TO SELL VS NEUTRAL AT GOLDMAN

>>> PT Change


>>> Initiation
*CREDIT SUISSE RESUMED AT NEUTRAL AT MEDIOBANCA; PT CHF20

>>> Call
>> Stock
*AIRBUS GROUP ADDED TO GLOBAL FOCUS LIST AT CREDIT SUISSE
*FEMSA REMOVED FROM GLOBAL FOCUS LIST AT CREDIT SUISSE
*GAMESA REMOVED FROM KEY BUYS LIST FOR SMID CAPS AT CITI
*NORDEX ADDED TO KEY BUYS LIST FOR SMID CAPS AT CITI

(CS) AIRBUS GROUP (OP, TP EUR80.0): We reiterate our OP rating and TP of EUR80.

AIRBUS GROUP (OP, TP EUR80.0): We reiterate our OP rating and TP of EUR80. We also add Airbus to the European and Global Focus Lists. The 11% share price drop YTD offers attractive levels to buy into a strong FCF story for the next few years and potentially allows share buybacks of up to EUR15bn. Airbus should generate EUR24bn of cumulative FCF over 2016-20E. This should be driven by the increase in A320 output, a reduced cash drain from A350 and A400M and the improvement in the USD hedge rate. The large bulk of this FCF should come in 2018 and beyond. Given the cash needs of the business, we estimate that it would allow Airbus to envisage share buybacks of up to EUR15bn between 2017 and the end of the decade.

>>> Asian Update

Asian Market Update: Australia retail sales slow but RBA minutes still show a neutral stance; PBoC sets Yuan firmer heading into holidays


***Economic Data***
- (AU) AUSTRALIA DEC RETAIL SALES M/M: 0.0% (5-month low) V 0.4%E; Q4 Q/Q: 0.6% V 0.9%E
- (AU) AUSTRALIA JAN AIG PERFORMANCE OF CONSTRUCTION INDEX: 46.3 V 46.8 PRIOR; 2nd month of contraction
- (ID) INDONESIA Q4 GDP Q/Q: -1.8% V -1.9%E; Y/Y: 5.0% V 4.8%E
- (PH) PHILIPPINES JAN CPI M/M: 0.2% V 0.2% PRIOR; Y/Y: 1.3% V 1.4%E
- (TW) TAIWAN JAN CPI Y/Y: 0.8% V 0.8%E; WPI Y/Y: -4.8% V -5.1%E
- (JP) JAPAN JAN OFFICIAL RESERVE ASSETS: $1.25T v $1.23T PRIOR

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 -2.1%, S&P/ASX -0.2%, Kospi flat, Shanghai Composite -0.1%, Hang Seng +0.6%, Mar S&P500 -0.2% at 1,904

***Commodities/Fixed Income***
- Apr gold -0.1% at $1,156/oz, Mar crude oil +0.1% at $31.76/brl, Mar copper -0.8% at $2.11/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 3.5 tonnes to 693.6 tonnes; highest since Oct 29th; 4th straight increase
- (CN) PBoC to inject CNY60B in 14-day reverse repos and CNY90B in 28-day reverse repos
- (AU) Australia MoF (AOFM) sells A$800M in 2.75% 2019 Bonds; avg yield: 1.9020%; bid-to-cover: 3.02x
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5314 V 6.5419 PRIOR; strongest setting since Jan 6th; 20th straight firmer setting relative to Close
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs, ¥450B in 5-10yr JGBs

***Market Focal Points/FX***'
- Asian equity markets are mixed and less volatile, tracking more subdued tone on Wall St heading into the non-farm payrolls. Nikkei225 is the big underperformer, as Econ Min Ishihara noted virtuous cycle is becoming effective in Japan economy while Fin Min Aso voiced support in negative rate policy of the BOJ despite JGB market turbulence. Aso added policy will be implemented so that the market can absorb JGB issuance.

- After a Fitch warning on China overnight that capital outflows and sharp declines in official foreign reserves continue to add to currency pressures, the PBoC did not live up to some expectations of another aggressive devaluation going into the holiday week. Instead, the central bank set Yuan higher - in fact the same level where it was before the Jan 6th mini-devaluation. PBoC also injected more another CNY150B in liquidity thru 7- and 14- day repos. Overnight, PBoC Gov Zhou also reiterated that China will maintain prudent monetary policy stance, while another researcher forecast Lunar New Year liquidity to be ample. Over the weekend, markets will look for another record high decline in FX reserves in January, with consensus of outflows just above $100B yet again. On the corporate front, China security firms saw some selling after their monthly reports due to diminished performance from volatility in the equity markets.

- Australia retail sales slowed to a 5-month low flat level, but AUD held up well due to concurrently released RBA policy meeting minutes. Gov Stevens acknowledged that low inflation could provide room for easier policy, but largely maintained the view of reasonable prospects for continued growth in economy along with expectations of employment rebound in non-mining sector. RBA said China poses key risk to Australia economy, though policymakers "still have scope to respond if the economy turns out to be much weaker than expected."

- In FX, USD/JPY was rangebound to 50pips below 117, AUD/USD fell 40pips to 0.7180 on retail sales but quickly bounced back above 0.72, and NZD/USD saw the most selling with a 60pip move lower below 0.6690.

***Equities***
US equities / ADRs:
- MFLX: Enters into definitive merger agreement to be acquired by Suzhou Dongshan Precision Manufacturing Co., Ltd. for $23.95/shr; +40.0% afterhours
- UBNT: Reports Q2 $0.58 v $0.51e, R$161.9M v $155Me; +20.1% afterhours
- SYMC: Reports Q3 $0.26 v $0.24e, R$909M v $906Me; Announces $500M Silver Lake investment; $400M cost savings program; +8.8% afterhours
- HIG: Reports Q4 $1.07 adj v $0.98e, total consolidated Rev $4.51B v $4.62B; +7.4% afterhours
- TEAM: Reports Q2 $0.11 adj v $0.04e, R$109.7M v $102Me; Guides Q3 $0.05-0.06 v $0.02e, R$113-115M v $106Me; -2.1% afterhours
- HBI Reports Q4 $0.44 v $0.46e, R$1.41B v $1.53Be; -9.5% afterhours
- DECK: Reports Q3 $4.78 v $4.70e, R$795.9M v $836Me; Announces office consolidation measures; -9.8% afterhours
- OUTR: Reports Q4 $1.00 v $0.67e, R$527M v $514Me; Guides initial FY16 $5.00-6.30 v $7.90e; -16.6% afterhours
- LNKD: Reports Q4 $0.94 v $0.79e, R$862M v $861Me; Guides initial FY16 $3.05-3.20 v $3.73e, Rev $3.60-3.65B v $3.92Be; -28.7% afterhours
- GIGA: Reports Q3 -$0.09 v $0.01 y/y, R$11.9M v $14.1M y/y; -28.6% afterhours
- DATA: Reports Q4 $0.33 v $0.16e, R$202.8M v $201Me; -35.8% afterhours

Notable movers by sector:
- Consumer discretionary: McDonald's Holdings Co Japan 2702.JP +0.5% (Jan result); Japan Tobacco Inc 2914.JP +0.9% (FY15 result); LG Corp 003550.KR -2.2% (Q4 result)
- Consumer staples: CJ CheilJedang Corp 097950.KR -7.0% (Q4 result)
- Financials: Haitong Securities 600837.CN -2.4% (Jan result); CITIC Securities 600030.CN -2.5% (Jan result); GF Securities Co 000776.CN -2.2% (Jan result); Huatai Securities Co Ltd 601688.CN -1.7% (Jan result); Future Land Development Holdings1030.HK -3.9% (FY15 result)
- Industrials: Isuzu Motors 7202.JP -1.8% (9-month result speculation); Mazda Motor Corp 7261.JP -6.3% (9-month result); Hyundai Heavy 009540.KR +3.4% (Q4 result); Ibiden 4062.JP -9.2% (9-month result)
- Technology: Sharp Corp 6753.JP +8.8% (Hon Hai to hold new conference about talks, 9-month result); Toshiba Corporation 6502.JP -12.5% (9-month result)
- Materials: Baoshan Iron & Steel Co 600019.CN +1.2%, Angang Steel 47.HK +1.0% (China to cut steel industry capacity); Itochu Corp 8001.JP +1.7% (impairment); Whitehaven Coal WHC.AU -5.6% (H1 result)

>>> US After Hours Summary: MFLX +40%, UBNT +18.3%, KIRK +2.4%,


After Hours Summary: MFLX +40%, UBNT +18.3%, KIRK +2.4%, DATA -41.8%, LNKD -29.7%, GIGA -28.6%, OUTR -22.1%, DECK -9.5%, LGF -5.5% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: MFLX +40%, UBNT +18.3%, KIRK +2.4%, NTGR +1.7%, MTD +1.4%, TTMI +1.1%

Companies trading higher in after hours in reaction to news:  SCLN +16.7% (announced final resolution with SEC and DOJ, says exploring a range of strategic alternatives), BCRX +5.8% (Baker Bros. boosts active stake to 20.5% (Prior 19.5%).

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance:  DATA -41.8%, LNKD -29.7%, GIGA -28.6%, OUTR -22.1%, SWIR -19.7%, GNW -19.4%, YRCW -16%, HBI -10.9%, DECK -9.5%, LGF -5.5%, ASYS -4.6%, LPTH -3.9%, ATHN -3.7%, RNG -3%, UEPS -1.9%

Companies trading lower in after hours in reaction to news:  LINE -27.5% (announced process to explore strategic alternatives related to its capital structure), MT -11.9% (planning EUR 3 bln capital increase, according to Bloomberg), HES -6.8% (commenced concurrent 25 mln common stock offering and 10 mln depositary shares offering), ZBH -1.6% (filed mixed securities shelf offering for an undisclosed amount and for a common stock offering by selling stockholders for an undisclosed amount; also announced it will offer ~11.03 mln shares of common stock on behalf of selling stockholders, plans to repurchase $250 mln of the shares offered).

>>> US Close Dow+0.15% S&P+0.44% Nasdaq-0.10% Russell+0.44%


Closing Market Summary: Indices End Modestly Higher

The stock market ended its Thursday session on a modestly higher note as shaky trading in oil weighed on the market as a whole. Today's trade saw the continued influence of a few other repeat players, as central bank policies, mixed earnings results, and weaker than expected economic data remained in focus ahead of tomorrow's Employment Situation Report for January. The Dow Jones Industrial Average (+054%) was able to end its day ahead of both the S&P 500 (+0.2%) and the Nasdaq Composite (+0.1%).

After yesterday's close, Fed Governor Lael Brainard argued for a gradual pace to future rate hikes as, "recent developments reinforce the case for watchful waiting". This dovish tone was echoed internationally as the Bank of England left their existing policy stance unchanged. Shortly before today's open, futures were anchored by a collection of weaker than expected data. Initial jobless claims were reported above analyst expectations, nonfarm productivity came in below estimates, and unit labor costs rose faster than expected.

A rally in crude oil was able to lift futures as the commodity climbed above the $33.00/bbl price level heading into today's session. The rally in the energy component acted as a counterweight to the detrimental data for part of the session. However, as speculation regarding production cuts between OPEC and non-OPEC states declined, so did the commodity. Despite tailwinds from a falling dollar, WTI crude ended its day 2.1% lower at $31.62/bbl.

Only four sectors were able to end their day in positive territory with materials (+2.8%), industrials (+1.7%), and financials (+0.9%) leading the pack. On the flipside, consumer staples (-0.9%) and consumer discretionary (-0.6%) ended with the largest losses.

Money center banks were able to help the larger rebound effort in the financial sector, as JPMorgan Chase (JPM 58.40, +0.99) and Wells Fargo (WFC 48.25, +0.65) outperformed. Elsewhere, MetLife (MET 39.75, -2.20) underperformed the broader sector after missing analyst expectations in it Q4 earnings report.

The industrials space was able to take advantage of the weakening U.S. Dollar Index. Constituents saw an easing of currency headwinds that US companies have faced when attempting to gain pricing power, as falling import prices have negatively affected their core businesses. Large-caps General Electric (GE 29.18, +0.51) and Boeing (BA 123.61, +1.74) showed relative strength with gains of 1.8% and 1.4%, respectively.

In the consumer discretionary space, retailers showed relative weakness after the group reported same store sales before today's open. L Brands (LB 88.57, -6.60) declined 6.9% after reporting that it missed its January estimates. Meanwhile, Kohl's (KSS 41.52, -9.61) plunged 18.8% after the company reported that sales were volatile in Q4 and that January was particularly soft as lower demand for cold-weather goods led to lower store traffic.

Energy (UNCH) companies ConocoPhillips (COP 35.32, -3.31) and Occidental Petroleum (OXY 66.98, -1.15) both reported earnings misses before today's session. Occidental was able to limit its losses after it stated that maintaining operations funding and dividends are the company's top priority. Meanwhile, ConocoPhillips declined 8.6% after it announced that it would be cutting its dividend.

In the health care space (-0.5%), biotechnology showed relative strength today, evidenced by the 0.3% uptick in the iShares Nasdaq Biotechnology ETF (IBB 264.69, +0.69). Celgene (CELG 101.93, +2.44) lead the sub-group after climbing 2.5% today.

Investor participation was true to recent form with more than a billion shares changing hands at the NYSE floor. 

Treasuries ended their day near their highs with the yield on the 10-yr note lower by three basis points at 1.85%

Today's economic data included the Challenger Job Cuts report, weekly Initial Claims, the preliminary Q4 Productivity and Unit Labor Cost and December's Factory Orders.

  • January Challenger Job Cuts totaled 75,114 up 41.6% year-over-year
  • Initial claims for the week ending January 30 increased by 8,000 to 285,000 (consensus 275,000).
    • This reading remains true to the range of 250,000 to 300,000 which has bounded the reading since July 2014.
    • Today's reading pushed up the four-week moving average from 282,750 to 284,750, which is the highest since July 2015.
  • Continuing claims for the week ending January 23 decreased by 18,000 to 2.255 million (consensus 2.253 million). 
    • The four-week moving average increased by 5,250 to 2.253 million.
  • The preliminary report on Q4 productivity showed productivity decreased at a 3.0% annual rate (consensus -1.7%)
  • This was the largest drop in productivity since the first quarter of 2014.
    • Output increased a mere 0.1% while hours worked increased 3.3% while productivity is up just 0.3% year-over-year.
    • Annual average productivity increased 0.6% from 2014 to 2015, with output and hours increasing 2.8% and 2.2%, respectively.
    • Productivity has increased at an annual rate of less than 1.0% in each of the last five years well below the long-term rate of 2.1% from 1947 to 2015.
  • Fourth quarter unit labor costs increased 4.5% (consensus +3.8%), reflecting a 1.3% increase in hourly compensation and a 3.0% decrease in productivity.
    • That was the largest jump in unit labor costs since the fourth quarter of 2014.
    • Third quarter nonfarm business productivity was revised down to 2.1% from 2.2% while unit labor cost growth was revised up to 1.9% from 1.8%.
  • Factory orders declined 2.9% in December (consensus -2.6%) on the heels of a downwardly revised 0.7% decline (from -0.2%) for November.
    • That is the largest month-over-month decline since December 2014. This the fourth decline in the last five months for factory orders, which are down 6.6% year-over-year.
    • New orders for manufactured durable goods were down 5.0% versus a previously reported 5.1% decline in the Durable Orders report for December. 

Tomorrow's economic data includes the January Nonfarm Payrolls report (consensus 188k) and December's Trade Balance (consensus -$43.5 billion), which will be reported at 8:30 ET. Meanwhile, December Consumer Credit (consensus $16.50 billion) will cross the wires at 15:00 ET.

  • Russell 2000 -10.6% YTD
  • Nasdaq -9.9% YTD
  • S&P 500 -6.3% YTD
  • Dow Jones -5.8% YTD