>>> US Close Dow-1.56% S&P-1.17% Nasdaq-0.12% Russell+0.45%

Closing Market Summary: Indices Stage Reversal But Still Close Lower

The major averages ended the Wednesday affair off their lowest levels as a rebound effort gained traction during the afternoon. The reversal in equities was partly fueled by recovering oil prices, but more likely, a short-term oversold market invited participants to take on more risk. Despite the rebound effort, the major indices ended in negative territory with the Dow Jones Industrial Average (-1.4%) trailing the S&P 500 (-1.1%) and the Nasdaq (-0.4%) .

Ahead of today's session, the People's Bank of China disappointed market participants by not enacting new stimulus measures in light of yesterday's GDP report. The release showed that China's economy grew 1.6% quarter-over-quarter in Q4 and 6.8% year-over-year, and elicited speculation that China would institute new stimulus provisions. Asian and European indices sold off in response to inactivity from the central bank, dragging oil prices lower with them. Oil was down more than 6.5% before recovering to a 3.7% decline at $28.35/bbl.

In front of the pack, health care (+0.2%), technology (-0.6%), materials (-0.7%), and consumer discretionary (-1.0%) outperformed while energy (-2.9%), utilities (-2.3%), financials (-2.1%), and telecom services (-1.6%) displayed the steepest declines.

Prior to the open, Goldman Sachs (GS 153.75, -3.07) reported bottom-line results that may not compare to estimates due to litigation charges on above-consensus revenue. Initially, investors focused on revenue falling 5.5% year-over-year, but soon turned their focus to the company's limited oil and gas exposure. During the company's conference call, the firm disclosed $10 billion dollars of total exposure to the energy sector with reserves in the high single digits. Goldman outperformed the broader sector with its loss being limited to 2.0%. Other large banks were likely impacted by recent disclosures of increased loan loss reserves to deal with their own exposure to the oil and gas industry. This is evidenced by Citigroup (C 40.49, -1.45) and JPMorgan Chase (JPM 55.51, -1.50) declining 3.5% and 2.6% after both banks disclosed expanded loan loss reserves.

Switching to the health care space, the sector climbed to the top of the leaderboard thanks to a reversal in biotechnology.  This reversal was evidenced by the 3.5% gain in the iShares Nasdaq Biotechnology ETF (IBB 285.49, +7.65), which was down as much as 1.1% inter day. Elsewhere in the space, large-cap components AbbVie (ABBV 57.15, +2.16) and UnitedHealth (UNH 114.79, +2.21) outperformed with respective advances of 3.9% and 2.0%.

In the consumer discretionary space, large-cap Amazon (AMZN 571.77, -2.71) rallied off of its session low, narrowing its loss to 0.5%. Elsewhere in the space, Dow component Nike (NKE 59.04, +0.72) rose 1.2% and reclaimed its 200-day moving average (57.50). Netflix (NFLX 107.74, -0.15) also staged a sharp reversal after a poor initial response to its earnings as domestic growth concerns outweighed a bottom-line beat.

In the technology space, heavy-weights Microsoft (MSFT 50.79, +0.23) and Apple (AAPL 96.82, +0.16) were able to overcome heavy selling pressure and end their days in positive territory. Fellow large-cap constituents Facebook (FB 94.35, -0.91) and Alphabet (GOOGL 718.56, -0.52) were unable to move past their flat lines, but were able to mount sharp reversals. 

Today's affair generated one of the highest volume totals of the year with more than 1.4 billion shares changing hands at the NYSE floor. 

Treasuries began their day sharply higher as the selloff in equities attracted safe haven flows. By the close the major indices had trimmed their deepest losses and the benchmark note pulled back from its high with the yield on the 10-yr note lower by seven basis points at 1.99%. 

Economic data included the weekly MBA Mortgage Index, December CPI, December Core CPI, December Housing Starts, and December Building Permits.

  • The MBA Mortgage Index showed a seasonally adjusted increase of 9.0% in mortgage applications.
  • Total CPI declined 0.1% in December (consensus 0.0%) with the indexes for both energy and food declining for the second month in a row.
  • Excluding food and energy, core CPI was up 0.1% (consensus +0.2%).  
    • This was the smallest increase in core CPI since August
    • Total CPI is up 0.7% year-over-year, versus 0.5% in November, and core CPI is up 2.1% year-over-year versus 2.0% in November..
  • Building permits decreased to a seasonally adjusted annualized rate of 1.232 million in December (consensus 1.289 million).
    • Housing starts decreased 2.5% in December to a seasonally adjusted annual rate of 1.149 million (consensus 1.197 mln) which left them up 6.4% year-over-year. 
    • The number of units under construction increased to 981,000 in December from 965,000 in November.
  • Building permits dipped to 1.232 million (consensus 1.200 mln) from a downwardly revised 1.282 million (from 1.289 mln) in November
    • The dip was much smaller than expected thanks to a 1.8% pickup in permits for single-family units.

Tomorrow, weekly initial claims (consensus 280k) and the January Philadelphia Fed Survey (consensus -4.0) will cross the wires at 8:30 ET.

  • Russell 2000 -12.0 YTD
  • Nasdaq -10.7% YTD
  • Dow Jones -9.5% YTD
  • S&P 500  -9.0 YTD 

FT : France to rule on Orange-Bouygues Telecom deal

France to rule on Orange-Bouygues Telecom deal

Orange’s potential merger with Bouygues Telecom would require approval only from French competition authorities, and not the European Commission, said people familiar with the situation — increasing the chances of a deal.
At least two people with knowledge of the matter have said that Orange, France’s biggest mobile operator by subscribers, would qualify for scrutiny solely by national regulators because it meets a criterion that two-thirds of its European revenues come from France.

A €10bn acquisition of Bouygues Telecom, France’s third-biggest mobile operator, by Orange would drastically change the telecoms landscape in France: reducing the number of competitors from four to three; potentially ending a three-year price war; and setting conditions for higher spending on infrastructure.
But when Orange confirmed that discussions were taking place earlier this month, doubts surfaced as to whether an eventual proposal would be a subject for Brussels or Paris.
Since then, UK competition authorities have indicated that they will give the green light to the sale of Orange’s EE stake to BT. That approval helps tip Orange’s revenue profile in favour of qualifying for French competition scrutiny only.
In comments last week, Stéphane Richard, Orange’s chairman and chief executive, said examination of any deal in Paris or Brussels would make little difference. However, analysts have indicated that such a deal would stand a much greater chance of success if examined in France.
European Commission regulators are widely seen as favouring higher competition as a way of keeping prices low for consumers. Margrethe Vestager, the competition commissioner, blocked a proposed telecoms merger in Denmark in September, in her only ruling in the sector since taking up the post.
By contrast, analysts have suggested that French competition authorities would be more likely to weigh other factors in a potential Orange-Bouygues deal, such as stimulating investment in the telecoms sector.
“Examination of a deal in France would mean that authorities could balance up consumer issues against investment,” said Jerry Dellis, telecoms analyst at Jefferies. “Certain industrial policy objectives can be taken into account.”
Emmanuel Macron, France’s economy minister, has said that he is “not religious” on the issue of market consolidation, and the government, which is also Orange’s largest shareholder with a 23 per cent stake, is known to want more investment in telecoms infrastructure.
Nevertheless, even with home regulatory advantage, people familiar with the talks said there were still several difficult hurdles to overcome. Not least of these is the need for Orange to strike agreements with the country’s two other competitors — Numericable-SFR and Free — to offload some of Bouygues Telecom’s network, and allay domestic competition concerns.

(BFW) Altice Buying Cablevision Needs Connection Mandates, Cogent Says



In order to shield against the potential for any anti-consumer interconnection practices
following the merger, Cogent urged the Commission to find that the public interest requires
Altice to adopt a policy akin to the interconnection policy Charter has announced and clarified in
connection with its pending acquisition of TWC. While such a policy can and should be tailored
to the particular network attributes of the Altice/Cablevision network, what matters most is that it
reflect an unambiguous commitment to an interconnection protocol that will ensure robust
connectivity for consumers and avoid the sort of congestion and packet loss that leads directly to
degraded service.

"If Assets Remain Correlated, They'll Be A Depression": Ray Dalio Says QE4 Just

"If Assets Remain Correlated, They'll Be A Depression": Ray Dalio Says QE4 Just Around The Corner

CNBC’s Andrew Ross Sorkin and Becky Quick, donning their finest goose down bubble coats to remind viewers they’re reporting live from scenic Davos, generously took some time out of their busy schedules to chat with Ray Dalio on Wednesday and unsurprisingly, the “zen master” again predicted the Fed will reverse course and embark on more QE.
Dalio begins by noting that the Fed’s move to inflate financial assets by pumping money into the system means there’s an “asymmetric risk on the downside.”
The rationale is simple: the trillions in fungible, excess cash the Fed unleashed in the wake of the crisis has driven asset prices into bubble territory and at this juncture, there’s essentially nowhere to go but down.
That, Dalio says, will create a “negative wealth effect”, the opposite of Bernanke’s infamous virtuous circle wherein Americans would supposedly spend more and thus boost the economy if only the Fed could repair the damage their 401ks suffered in 2008.
In short, Dalio reiterated his contention that the Fed will ultimately be forced into QE4 and that the much ballyhooed tightening cycle will essentially amount to a one-off, “just to show you we could do it,” blip on the ZIRP radar screen. “Every country in the world needs easier monetary policy,” Dalio said, before noting that central banks now have less room to ease. He made similar comments in September of last year in an interview with Bloomberg TV.
Dalio also said he’s concerned that the Fed isn’t concerned. When Becky Quick suggested the FOMC is more vigilant than the market might think, Dalio responded with this: “I hope you’re right.”
As for the fact that the historical relationships between asset classes (volatilities and correlations) that are used to construct optimal "risk-parity" funds in order that 'risk' is balanced and hedged across bonds and stocks have all broken down dramatically causing funds like Bridgewater’s vaunted "All Weather" portfolio to sink, Dalio warned that if assets remain correlated and things continue to move in the “wrong” direction, “they’ll be a depression.”
That, he concluded, is why MOAR QE, and thus a return to the “full-Krugman” regime, is a virtual certainty.
So much for the "beautiful deleveraging."

WSJ : Saudi Aramco Set for Chinese Energy Deals

Saudi Aramco Set for Chinese Energy Deals

State-owned oil group eyes refinery pacts with China’s CNPC and Sinopec

RIYADH—Saudi Arabian Oil Co. is in advanced talks with two of China’s leading energy companies over a number of energy projects to help increase the Saudi state-owned oil group’s sales in Asia.

The talks, which are at an advanced stage, include projects with China National Petroleum Corp. and Sinopec and involve refineries in the city of Qingdao and in the provinces of Yunnan and Sichuan, according to Saudi Aramco Chairman Khalid al-Falih.
“We are hoping for other projects with Sinopec, especially in China.,” Mr. al-Falih said on Wednesday. “We are hoping that Aramco will expand its investments in the refining, marketing and petrochemicals sectors,” he said.

Mr. al-Falih comments follow Tuesday's visit by Chinese President Xi Jinping to Riyadh against a backdrop of evolving Chinese ties with the region. After Saudi Arabia, Mr. Xi starts a two-day stay in Egypt on Wednesday night before heading to Iran.

Saudi Arabia, the world’s leading oil-producing country, remains a steady supplier to China, but today, Chinese oil imports are growing faster from Russia, Iraq and other producers.

Imports of Saudi Arabian crude by China rose just 2% in the first 11 months last year, compared with overall Chinese import growth of about 9%, according to customs data. Imports from Russia—China’s No. 2 supplier after Saudi Arabia—meanwhile jumped nearly 30%.

Low oil prices have rocked the Saudi economy, prompting the kingdom to cut popular subsidies for gasoline and other energy products. Its longtime alliance with the U.S. has been challenged by the American-led deal to lift sanctions on Iran which is increasing its own oil exports. Iran made a move on Tuesday to claw back market share it lost in Europe during sanctions, cutting crude prices to much of the continent following similar moves by Saudi Arabia this month.

Saudi Arabia has sought to tighten ties to Chinese customers through the building of refineries in tandem with Chinese companies. Aramco has been in yearslong talks with CNPC about building a 260,000-barrels-a-day refinery in Yunnan province, but little progress has been made. Aramco is also in talks to acquire a stake in a CNPC refinery as well as retail assets, people familiar with the matter have said.

Oil prices slid on Wednesday, with U.S. oil futures falling to their lowest level since 2003, dragged down by a slide in global financial markets and continued concerns about the glut of crude.

Fears about an economic slowdown in China, the world’s second biggest economy, have rattled financial markets at the start of the year and added to the bearish sentiment on the oil market.