Friday January 13 Daily Market Primer

• ·        US stocks dropped
• ·         Big bank s report
• ·         Fiat follows VW

Happy Friday.  US stocks dropped yesterday as financial stocks showed nervousness ahead of big bank earnings today, and policy concerns crept into the market.  JPM, BofA, and Blackrock all report today.   JPM earnings just hit the tape and the bank earned $6.7 billion, or $1.58 per share after adjustments, beating the consensus number of $1.44.  Banks stocks are trading up on the news.  Stocks fell in China and Hong Kong but Europe is having a good day.  S&P futures pointed up and the market just opened…up.

	LAST	CHANGE	% CHANGE
DJIA	19,891.00	-63.28	-0.32%
Nasdaq	5,547.49	-16.16	-0.29%
S&P 500	2,270.44	-4.88	-0.21%
Russell 2000	1,361.07	-12.23	-0.89%
Global Dow	2,600.05	19.97	0.77%
Stoxx Europe 600	364.64	2.13	0.59%
Nikkei 225	19,287.28	152.58	0.80%
UK: FTSE 100	7,315.06	22.69	0.31%
CBOE Volatility	11.45	0.19	1.69%
Australia: S&P/ASX 200	5,721.10	-45.80	-0.79%
China: Shanghai Composite	3,119.29	-17.46	-0.56%
Hong Kong: Hang Seng	22,829.02	-106.33	-0.46%
Europe Dow	1,610.86	29.59	-0.03%
India: S&P BSE Sensex	27,238.06	-9.10	1.87%
France: CAC 40	4,909.95	45.98	0.95%
Germany: DAX	11,595.31	74.27	0.64%
Italy: FTSE MIB	19,437.27	280.68	1.47%
Spain: IBEX 35	9,491.00	83.60	0.89%
U.S. 3 Month	0.518	0/32
U.S. 2 Year	1.165	1/32
U.S. 5 Year	1.836	4/32
U.S. 10 Year	2.337	6/32
U.S. 30 Year	2.939	14/32
Germany 2 Year	-0.726	0/32
Germany 10 Year	0.307	1 24/32
Crude Oil	52.67	-0.34	-0.64%
Brent Crude	55.67	-0.34	-0.61%
Natural Gas	3.335	-0.032	-0.95%
S&P GSCI	396.44	-1.7	-0.43%
E-mini S&P 500	2266.5	3	0.13%

Fiat-Chrysler is in trouble for emissions cheating, in an incident that involves 100,000 cars but carries an estimated $4.7 billion fine, which is the same number imposed on VW this week.  Other costs for replacing vehicles and lawsuits are sure to pile up.  Fiat, unlike VW, is issuing strong denials.  Janet Yellen gave a speech where she said the US economy is in pretty good shape.  And, the NFL is determined to make LA a football town, as the San Diego Chargers are moving north to LA.

Moving into 2017, better than expected growth outside of the US is supportive of Developed ex-US equities, and capital is at risk in bond portfolios as interest rate increases can outpace returns from higher yields in the short term.  While slow inflation, higher than expected inflation is a risk.   A second policy risk is a trade war, but at this time the risk looks manageable since a trade war would harm both sides.  

Here’s the news:

Fiat defends itself

Shares in Fiat Chrysler Automobiles NV are recovering some of yesterday's more-than 18 percent plunge after Chief Executive Officer Sergio Marchionne dismissed the U.S. Environmental Protection Agency allegations that it violated pollution laws as "unadulterated hogwash." He described the situation as entirely different to the case which cost Volkswagen AG more than $20 billion. Despite yesterday's setback, shares in Fiat have gained more than 40 percent since the election of Donald Trump.

PBOC balancing act

China has stepped up efforts to restrict yuan outflows by asking some banks to stop processing cross-border payments until they're balanced on both sides, according to people familiar with the matter. Data released overnight showed that the country's exports remain tepid, with overseas shipments dropping 6.1 percent while imports rose 3.1 percent, leaving a $40.8 billion trade surplus.

Yellen bullish?

Federal Reserve Chair Janet Yellen said that she sees no serious short-term obstacles to the U.S. economy and that inflation is "pretty close" to policy makers' 2 percent target. She also defended the 2010 Dodd-Frank act, which the incoming administration have said they will seek to dismantle. On Wall Street today, all eyes will be on bank earnings with JPMorgan Chase & Co., Bank of America Corp., Wells Fargo & Co. and BlackRock Inc. all announcing results.

Markets rise

Overnight, the MSCI Asia Pacific Index fell less than 0.1 percent, while Japan's Topix index added 0.6 percent, with airbag maker Takata gaining 16 percent as it nears a settlement with the U.S. In Europe, the Stoxx 600 Index was 0.5 percent higher at 5:26 a.m. ET and carmakers and health-care stocks recovered. S&P 500 futures gained 0.1 percent.

Big data day

U.S. PPI and retail-sales data for December is due to be released at 8:30 a.m. ET, with analysts expecting a jump to 0.7 percent in the headline sales number, up from November's 0.1 percent increase. At 10:00 a.m. business inventories data for November and the latest University of Michigan Sentiment numbers will be published. Outside the U.S., DBRS's decision on Italy's sovereign rating, which is due to be published after market there close, will be closely watched as a cut in the rating would lead to increased refinancing costs for Italian banks at the ECB. China's trade surplus shrinks. Data released by China's Customs Bureau showed that the value of exports fell 6.1% year-over-year in US dollar terms while the value of imports slumped 3.1% YoY. As a result, China's trade surplus narrowed to $40.82 billion in December from $44.61 billion in November. Bank of Korea cuts its growth forecast. The central bank held its key interest rate at 1.25%, as expected, and lowered its 2017 growth forecast to mid-2% this year from its October forecast of 2.8%. The Korean won ended stronger by 0.8% at 1174.98 per dollar. Anthony Scaramucci has a spot in the Trump White House. Scaramucci, the founder of the hedge fund SkyBridge Capital, has been named an assistant to President-elect Donald Trump, serving as a liaison to Wall Street, according to The Wall Street Journal. Morgan Stanley lays off bankers and cuts bonuses.The investment bank laid off an undisclosed number of senior bankers and slashed bonuses by 15% as a result of a decline in revenue generated by dealmaking, Reuters reports. Nintendo tumbled after unveiling its new gaming console. Shares of Nintendo tumbled 5.8% after the company officially released details about its new gaming console, the $299 Nintendo Switch. Airbus takes the sales crown from Boeing. Airbus booked 321 net orders in December, running its 2016 total to 731, beating the 668 orders won by Boeing. Stock markets around the world are up. Japan's Nikkei (+0.8%) outperformed in Asia, and France's CAC (+0.8%) leads the charge in Europe. The S&P 500 is set to open higher by 0.4% near 2,273. 3 big banks report. Bank of America, JPMorgan Chase, and Wells Fargo will release their quarterly results ahead of the opening bell. US economic data flows. Retail sales will be released at 8:30 a.m. ET and University of Michigan consumer confidence will cross the wires at 10 a.m. ET. The US 10-year yield is down 1 basis point at 2.35%. US markets are closed Monday in observance of Martin Luther King Jr. Day. They will reopen on Tuesday. Divergent Views Donald Trump’s picks for top national security posts have diverged from the president-elect’s positions on key issues during confirmation hearings a week before the inauguration. Retired Gen. James Mattis, the secretary of defense nominee; Rex Tillerson, named to be secretary of state; and Rep. Mike Pompeo (R., Kan.), the CIA director nominee, all made statements at the hearings that differed from views Mr. Trump has expressed, staking out positions that might help them win approval from the Senate but could set them on a collision course with the incoming White House. Gen. Mattis expressed little hope that Washington would develop a substantive partnership with Moscow, as Mr. Trump has suggested. Meanwhile, we report that three Republican senators—Sens. John McCain, Lindsey Graham and Marco Rubio—have lingering concerns about voting to confirm Mr. Tillerson. Fooled by Fiat? U.S. regulators accused Fiat Chrysler of using software on its diesel-powered Jeep Cherokees and Ram pickups that allowed them to spew illegal amounts of pollution into the air, the latest broadside from the government over emission standards. The EPA delivered a violation notice to Fiat Chrysler accusing it of using illegal software in 104,000 vehicles. The accusation could cost the company $4.63 billion in fines, the EPA has estimated, which is equivalent to the cost of building a couple of new assembly plants or developing new product programs. Officials stopped short of saying Fiat Chrysler’s software was designed to cheat emissions tests, but they said they were continuing to investigate why the car maker failed to disclose the software and whether it was intended to fool regulators. No Easy Cure Congress has begun the work of replacing the Affordable Care Act, and that means lawmakers will soon face the thorny dilemma that confronts every effort to overhaul health insurance: Sick people are expensive to cover, and someone has to pay. The 2010 health law forced insurers to sell coverage to anyone, at the same price, regardless of their risk of incurring big claims. That provision was popular. Not so were rules requiring nearly everyone to have insurance, and higher premiums for healthy people to subsidize the costs of the sick. If policyholders don’t pick up the tab, who will? The available options all have downsides. Mr. Trump and GOP leaders on Capitol Hill pledged this week to move swiftly to not only repeal but also replace the Affordable Care Act, but it will be a difficult promise to keep. And Then There Were Two After two decades of arguing that the league didn’t need Los Angeles, the NFL is doubling down on Tinseltown. The San Diego Chargers on Thursday said the team is heading up the coast to Los Angeles, the country’s second-biggest market and a city that only last year welcomed the Rams from St. Louis. The move caused an outpouring of grief in San Diego, where the team was based for 55 years, and capped a tumultuous 12 months for the NFL in which three of its franchises either moved or took steps to do so. In a big gamble, the NFL has now tethered the futures of two struggling franchises to the sprawling Los Angeles metropolitan area that previously failed to support professional football and features a bevy of other entertainment options.

Stocks are no longer the most actively traded securities in stock markets.

The moneymen with $50 billion headed where banks fear to tread.

Trump's gift to Mario Draghi.

Europe's biggest fund manager says U.S. stock bulls got it wrong.

Preparing for Brexit just got harder.

Davos wonders if it is part of the problem.

Inside the Fed's head: The 2011 transcripts.

Federal Reserve Shows Greater Unity on Path for Interest Rates

California Storms Bring Destruction and Drought Relief

European Elections Test ECB President Mario Draghi

Exploring a Brexit That Isn’t Binary

Amazon Touts Job-Creation Plans, Patching Up Rift With Trump

Takata to Plead Guilty to Criminal Wrongdoing in Air-Bag Probe

Life Insurers Draw on Data, Not Blood

The Market Has Already Started to Dump Trump

Last night at a meeting with educators, Federal Reserve Chair Janet Yellen said there were no serious short-term problems facing the U.S. economy. Indeed we're in a weird period of smooth sailing, not just for the U.S. economy but for the entire world. The chart below is one I've been watching and bringing up for awhile. It shows the Citi Economic Surprise Indexes for the U.S., Japan, the U.K., the euro area, China, and emerging markets. A surprise index measures not the absolute performance of the economy, but the performance of the economy relative to economists' expectations. Not only is every line positive (meaning the data is beating expectations), but they've all been positive since the beginning of December. As you can see on this noisy five-year chart, that's unheard of in recent times. There have been brief flickers here and there when each line is above zero, but nothing sustained like this. It's really a remarkable streak. And not only that, most of the lines are still trending up. These are mean-reverting indexes -- because the positive news eventually prompts economists to get too optimistic -- but still it's a remarkable occurrence.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief