Friday January 20 Daily Market Primer

• ·         Stocks dropped
• ·         Soros is gloomy
• ·         Yellen speaks²
• ·         China GDP = 6.8%

Happy inauguration day.  Stocks fell on Thursday, as the stock market seems to be running  out of gas ahead of the inauguration.  That’s five down days in a row for the Dow.  Janet Yellen gave her second speech this week, repeating her support for gradual changes in monetary policy and again mentioning the risk that the economy could overheat.  She also said that the Fed is not behind the curve on raising rates.  George Soros predicted a Trump Slump, infighting  in the new  administration, the disintegration of the EU, and the fall of UK PM Theresa May in a TV interview from Davos.  I’m glad I missed it. So far, I haven’t seen a reply on Mr. Trump’s Twitter.  Markets are mostly up overnight and the S&P500 is up slightly this morning.

	LAST	CHANGE	% CHANGE
DJIA	19,732.40	-72.32	-0.37%
Nasdaq	5,540.08	-15.57	-0.28%
S&P 500	2,263.69	-8.20	-0.36%
Russell 2000	1,345.74	-12.81	-0.94%
Global Dow	2,577.70	1.99	0.08%
Stoxx Europe 600	363.03	0.18	0.05%
Nikkei 225	19,137.91	65.66	0.34%
UK: FTSE 100	7,210.70	2.26	0.03%
CBOE Volatility	12.42	-0.06	-0.48%
Australia: S&P/ASX 200	5,654.80	-37.40	-0.66%
China: Shanghai Composite	3,123.14	21.84	0.70%
Hong Kong: Hang Seng	22,885.91	-164.05	-0.71%
Europe Dow	1,597.80	-10.45	-1.00%
India: S&P BSE Sensex	27,034.50	-274.10	-0.65%
France: CAC 40	4,858.75	17.61	0.36%
Germany: DAX	11,615.08	18.19	0.16%
Italy: FTSE MIB	19,531.46	40.50	0.21%
Spain: IBEX 35	9,417.10	38.00	0.41%
U.S. 3 Month	0.515	0/32
U.S. 2 Year	1.246	-1/32
U.S. 5 Year	1.987	-3/32
U.S. 10 Year	2.503	-8/32
U.S. 30 Year	3.073	-16/32
Germany 2 Year	-0.686	-2/32
Germany 10 Year	0.413	-10/32
Crude Oil	51.94	0.57	1.11%
Brent Crude	54.75	0.59	1.09%
Natural Gas	3.284	-0.076	-2.26%
S&P GSCI	396.81	1.85	0.47%
E-mini S&P 500	2267.25	5.75	0.25%

China’s Q4 GDP came in at a slightly better than expected 6.8% (annualized), which is a positive for China and Emerging Markets.  Also, data shows capital controls are working.  The Shanghai index rose .7%.  London does a big business in clearing euro denominated derivatives, and that business could be at risk post Brexit.  This article by Bloomberg explains the clearing business and what’s at stake for the UK if they loose it http://bit.ly/LondonClearing.  Beleaguered PM Theresa May spoke out in favor of free trade and met with senior bankers thinking of leaving London in Davos yesterday.  

Initial Jobless Claims were 234K yesterday, lower than the expected 254K.  Treasury Secretary nominee Steve Mnuchin surprised with his positons in favor of Dodd Frank and Fannie Mae/Freddy Mac at his confirmation hearing.  And, I  don’t need to tell you, the inauguration of the 45^th US President is today, and the press is full of opinion pieces on the meaning of the Trump movement and presidency.  Here’s five things to watch from Politico http://bit.ly/Inaguration5things.

Here’s the news:

Inauguration day

The president-elect of the United States will become the 45th president in a ceremony today in Washington. Press Secretary Sean Spicer said that Donald Trump would act on promises to withdraw from the Trans-Pacific Partnership trade deal and renegotiate NAFTA very shortly after his inauguration.

Yellen repeats message

Federal Reserve Chair Janet Yellen again backed gradual rate hikes in her second speech in two days, saying the central bank can't afford to let the economy run hot. While the path for U.S. monetary policy seems as certain as it can be, the path for fiscal policy is much less so. Yesterday in Washington, U.S. Treasury Secretary-nominee Steven Mnuchin endorsed a strong U.S. dollar in the long run, while bemoaning the currency's present strength. With anticipation of a Trump stimulus spurring the recent rally in the greenback, fiscal policy looks set to become the key driver of exchange rates.

Chinese GDP

New data show growth in the Chinese economy accelerated for the first time in two years, rising to 6.8 percent in the three months through December. Retail sales were the main driver of the increase, with industrial production coming in slightly below expectations. In other good news for policy makers, it seems that capital controls are starting to pay off as yuan outflows plummeted in December.

Markets rise

Overnight, the MSCI AC Asia Pacific Index gained 0.1 percent while Japan's Topix index closed 0.4 percent higher ,despite a strengthening yen. Europe's Stoxx 600 Index added 0.1 percent by 5:39 a.m. ET in quiet trading ahead of today's inauguration. S&P 500 futures increased 0.2 percent.

Davos

The last day of a World Economic Forum meeting in Davos that has been dominated (if not attended) by Donald Trump is underway. Yesterday's highlights included an interview with U.K. Prime Minister Theresa May, in which she offered her strongest support yet for London's financial center.  Trump is being sworn in. Donald Trump will take the oath of office and become the 45th president of the United States. The inauguration will take place at noon ET. Yellen warns against running the economy 'hot.' Speaking at the Stanford Institute for Economic Policy Research on Thursday evening, Federal Reserve Chair Janet Yellen said, "I think that allowing the economy to run markedly and persistently 'hot' would be risky and unwise." China GDP beats. Data released by the National Bureau of Statistics showed that the Chinese economy grew at a 6.8% year-over-year clip in the fourth quarter, ahead of the 6.7% that economists had anticipated, as high-tech industries provided a boost. The data marked the first time since Q2 2014 in which gross domestic product was higher than in the previous quarter. Germany's finance minister says Trump needs to follow trade rules. Speaking at the World Economic Forum in Davos, Switzerland, Germany's finance minister, Wolfgang Schaeuble, said, "I don't think a big trade war will break out tomorrow, but we will naturally insist that agreements are upheld." Treasury yields have been quietly racing higher. Overnight selling has the US 10-year yield higher by 3 basis points at 2.50%. The benchmark yield has climbed 18 bps since Tuesday's close. IBM's revenue falls but tops estimates. The company said revenue fell by 1.3% to $21.77 billion, edging out the $21.64 billion that Wall Street was expecting. Revenue from cloud computing was up by 33% across all segments. Jaime Dimon got a pay raise. JPMorgan's CEO received $28 million of compensation in 2016, a 3.7% boost from the previous year, Reuters reports, citing a release from the bank. Stock markets around the world are up. China's Shanghai Composite (+0.7%) led in Asia, and France's CAC (+0.4%) is among the leaders in Europe. The S&P 500 is on track to open higher by 0.4% near 2,270. Earnings reports trickle out. General Electric, Proctor & Gamble, and Schlumberger are among the names set to release their quarterly results ahead of the opening bell. US economic data is light. Markit manufacturing PMI and existing-home sales will cross the wires at 9:45 a.m. ET and 10 a.m. ET, respectively, and the Baker Hughes rig count will be released at 1 p.m. ET. Mr. Trump Goes to Washington When Donald Trump is sworn in as the 45th president of the U.S. on Friday, it will mark the climax of a decadelong political uprising in a nation still hurting from the 2008 recession and frustrated by a gridlocked government. The New York businessman, who won with an unorthodox campaign of blunt attacks and bold promises, is poised to take some of that strategy to the White House, with a management style one GOP strategist calls “deliberate chaos.” Washington officials, event organizers and law enforcement are hoping to prevent a different kind of chaos from the many protesters expected to descend on the capital. Follow The Wall Street Journal’s live coverage throughout the day. Hearing Test Testifying before a Senate committee Thursday, Mr. Trump’s pick for Treasury secretary, Steven Mnuchin, offered positions on a range of issues at odds with those of some Republicans. He defended Fannie Mae and Freddie Mac, urged Congress to quickly raise the nation’s borrowing limit and affirmed the strength of the U.S. dollar, which Mr. Trump recently called “too strong.” It didn’t win over Democrats, who pressed him on his role in foreclosures while head of OneWest Bank and about financial disclosures that omitted nearly $100 million in real-estate holdings. The confirmation hearing for former Texas Gov. Rick Perry, Mr. Trump’s pick for energy secretary, was more polite—and even humorous—though he did face scrutiny on issues from budget cuts to nuclear waste and climate change. He said he regrets his call several years ago to eliminate the department he now has been tapped to lead. Bounding Bonds Bonds backed by certain risky single-family mortgages topped $1 trillion for the first time in November, as concerns rose about one corner of the housing market. Nonbank lenders’ share of bonds backed by these loans—which are insured by the Federal Housing Administration and typically made to borrowers with low credit scores—grew to 80% from 9% in the six years through last July, as banks retreated. That is worrisome for Ginnie Mae, the government-owned corporation that guarantees the bonds backed by FHA loans. Its departing chief, Ted Tozer, has said nonbank lenders may lack the financial wherewithal to withstand future stress in housing, which could leave taxpayers saddled with their losses. Ratings firm Moody’s Investors Service has also voiced unease, but mortgage bankers say concerns are overblown.

Soros says markets to slump with Trump, EU faces disintegration.

U.K. retail sales fell 1.9 percent in December, the fastest pace in almost five years.

No politicians have managed to get the better of Putin.

The green bond giant wakes up.

JPMorgan boosts Dimon's annual pay to $28 million.

President Obama did look at minting the coin. Mall Closures Ripple Through Small-Town America Islamic State Steps Up Oil and Gas Sales to Assad Regime U.S. Bombers Hit ISIS in Libya The Trump Factor in Companies’ Jobs Pledges: Analyzing the Numbers Bitcoin Trading Faces Greater Scrutiny in China

There remains much debate about whether or not inflation is really here, or whether the upward moves we've seen merely reflect some combination of temporary blips, baseline effects, and a rise in commodities. Yesterday on Bloomberg TV, Ed Hyman, the Chairman of Evercore ISI, argued that this inflation moves is "the real deal." As of 10 days ago, he says, he decided that "inflation is turning up." The smoking-gun data point for him is the Output Prices measure of the Eurozone Composite PMI. This chart (below) represents actual pricing power for firms in Europe, and so unlike some other price measures it's not merely a chart that reflects rising commodity costs. And it's not just in Europe where this is happening. In the latest Empire Fed manufacturing survey, firms reported their best pricing power in years, this month. Remember there are lots of ways to measure inflation, and as with all data points there's going to be a lot of noise. But evidence that businesses are able to pass on higher costs looks like a pretty important signal.

Source: Bloomberg, BI, WSJ, Politico