Friday January 27 Daily Market Primer

• ·         新年快乐
• ·         Everyone is talking trade
• ·         US Q4 GDP = 1.9%

Happy Lunar New Year (新年快乐­).  Stocks were mixed on Thursday as the Dow rose but the other major indices fell slightly.  Markets were up a little in Asia as China shuts down for the long Lunar New Year.   European markets are all down this morning as British PM Theresa May is in Washington to meet with President Trump.  S&P futures are down just a bit at the moment.

	LAST	CHANGE	% CHANGE
DJIA	20,100.91	32.40	0.16%
Nasdaq	5,655.18	-1.16	-0.02%
S&P 500	2,296.68	-1.69	-0.07%
Russell 2000	1,375.60	-6.84	-0.49%
Global Dow	2,621.44	-5.00	-0.19%
Stoxx Europe 600	365.47	-2.03	-0.55%
Nikkei 225	19,467.40	65.01	0.34%
UK: FTSE 100	7,157.98	-3.51	-0.05%
CBOE Volatility	10.66	-0.15	-1.39%
Australia: S&P/ASX 200	5,714.00	42.50	0.75%
China: Shanghai Composite	3,159.17	9.61	0.31%
Hong Kong: Hang Seng	23,360.78	-13.39	-0.06%
Europe Dow	1,615.72	-21.02	0.63%
India: S&P BSE Sensex	27,882.46	174.32	-1.28%
France: CAC 40	4,838.23	-29.01	-0.60%
Germany: DAX	11,818.03	-30.60	-0.26%
Italy: FTSE MIB	19,328.75	-110.90	-0.57%
Spain: IBEX 35	9,441.00	-71.80	-0.75%
U.S. 3 Month	0.503	0/32
U.S. 2 Year	1.236	0/32
U.S. 5 Year	1.977	-1/32
U.S. 10 Year	2.518	-4/32
U.S. 30 Year	3.102	-10/32
Germany 2 Year	-0.654	0/32
Germany 10 Year	0.479	2/32
Crude Oil	53.43	-0.35	-0.65%
Brent Crude	55.73	-0.51	-0.91%
Natural Gas	3.275	-0.122	-3.59%
S&P GSCI	398.26	-2.42	-0.60%
E-mini S&P 500	2292.75	-1.25	-0.05%

US Q4 GDP is out, and the economy grew at 1.9%, which is slower than expected.  Consumer spending is steady at 2.5%, but slow trade dragged down growth.  Exports fell 4.3% in the fourth quarter, down from a 10% increase in Q3. The 2016 full year growth rate is 1.6%, the weakest since 2011.  Initial unemployment claims came out yesterday at 259K, up 22K from the prior week and a little worse than forecast.

President Trump threatened Mexico with a 20% boarder tax, which he says will make Mexico pay for the Wall, Mexican president Nieto cancelled his trip to the US, and Theresa  May will meet with Mr. Trump today to discuss bilateral US-UK trade post-Brexit.   Mr. Trump is a known Brexit fan.  Meanwhile, UK Chancellor Philip Hammond said in an interview on Sky News that the UK can’t really make any trade deals until 2019 due to existing EU treaty obligations.

Earnings season marches on. Southwest Airlines jumped 9% on stronger than expected revenue and profits.  Alphabet (I’m not going to say AKA Google anymore) disappointed on earnings with quarterly revenue of $26 billion, and earnings 0f $9.36 per share vs. $9.67 expected.  “Other revenue”, which includes the fast growing cloud computing business, was up 62%.  Still looks pretty good to me, but the stock fell 2% after hours.  And, apparently $200 billion market cap Verizon isn’t big enough, so they are thinking about merging with $100 billion Charter Communications, which took over Time Warner Cable in May 2016.

Here’s the news:

Trade spat

A week is a long time in politics, with President Donald Trump now seemingly on the cusp of a trade war with one of his country's biggest trading partners only seven days after his inauguration. The cancellation of a proposed meeting between Mexican President Enrique Pena Nieto and the POTUS via Trump's personal Twitter account — chased up with threats to impose a 20 percent tariff on Mexican imports —has put further pressure on the peso.

Earnings

Alphabet Inc.'s revenue beat analysts' estimates, but its profits per share missed expectations due to the company paying a much larger tax rate than anticipated. Alphabet, along with Microsoft Corp. and Intel Corp., which also reported results yesterday, continue to show that cloud services remain the biggest growth area in tech. In Europe, UBS Group AG kicked off a run of bank earnings releases this morning saying all its money-management units saw net redemptions in the last quarter. Shares in the bank were 3.2 percent lower by 5:22 a.m. ET.

U.S. GDP

The economy is expected to have ended 2016 with a 2.2 percent annualized growth rate, according to the median estimate of economists in a Bloomberg survey. While that rate would be fairly typical of the country's Obama-era expansion, it is far below the level promised by President Trump, who is looking to introduce protectionist policies and prune regulations to boost the economy. Fourth-quarter gross domestic product data will be released at 8:30 a.m. ET.

Markets slip

Overnight, the MSCI Asia Pacific Index was broadly unchanged while Japan's Topix index closed 0.3 percent higher. In Europe, the Stoxx 600 Index had slipped 0.5 percent by 5:33 a.m. ET, with banks leading the losses following the UBS results. S&P 500 futures are pointing to a lower open.

Coming up...

While GDP is the big number of the day, durable goods orders for December, also released at 8:30 a.m. ET, will be worth watching for a recovery from November's -4.5 percent print. At 10:00 a.m. the latest University of Michigan sentiment numbers will published. Also worth watching will be developments in Greece following failure  to agree on a way forward at the latest Eurogroup meeting. The Mexican peso is little changed. The peso fell by as much as 1.3% on Thursday after Mexican President Enrique Peña Nieto canceled a meeting scheduled for next week with President Donald Trump following Trump's insistence that Mexico would pay for a border wall. After falling by another 0.8% to 21.3806 per dollar early Friday, the peso is little changed at 21.2050. Lunar New Year celebrations are underway. Markets in China and across much of Asia will be shuttered over the next week in celebration of the Lunar New Year. The UK won't be able to make trade deals until at least 2019. Speaking with Sky News on Friday, Chancellor Philip Hammond said, "Of course we want to strengthen our trade ties with the very many trade partners we have around the world, but we're very mindful of our obligations under the treaty, and we will follow them precisely." Those comments effectively rule out any trade deals being made until the UK terminates its membership in the European Union, which is expected to occur in March 2019. The British pound is down by 0.4% at 1.2547 against the dollar. Japan's core consumer prices fell at their slowest pace in almost a year. Japan's nationwide core consumer price index, which includes oil but excludes fresh food, fell 0.2% year-over-year in December, making for the smallest drop since February, Reuters reports. The Japanese yen is weaker by 0.4% at 114.98 per dollar. Alphabet's earnings miss. Google's parent company earned an adjusted $9.36 a share, missing the $9.67 that was expected by the Bloomberg consensus. Revenue, however, climbed 22% year-over-year to $26.06 billion, easily beating the Wall Street estimate of $25.2 billion. Microsoft beats on the top and bottom lines. Microsoft earned an adjusted $0.84 a share on revenue of $25.8 billion. Revenue from its Productivity and Business Processes unit, which includes the fast-growing Office 365 cloud productivity suite, jumped 10% versus a year ago to $7.4 billion. Starbucks slashed its 2017 revenue forecast. The coffee giant announced first-quarter results that were mostly in line with Wall Street estimates but said it saw 2017 revenue growth of 8% to 10%, down from its previous estimate of a double-digit rise, Reuters reports. Stock markets around the world trade mixed. Japan's Nikkei (+0.3%) gained in Asia, and France's CAC (-0.5%) trails in Europe. The S&P 500 is set to open little changed near 2,297. Earnings reporting is moderate. American Airlines, Chevron, Colgate-Palmolive, and Honeywell are among the names set to release their quarterly results ahead of the opening bell. US economic data is heavy. Gross domestic product and durable goods will be released at 8:30 a.m. ET, and University of Michigan consumer confidence will cross the wires at 10 a.m. ET. Finally, the Baker Hughes rig count will be announced at 1 p.m. ET. The US 10-year yield is up 1 basis point at 2.51%. Border Fight President Trump has triggered the biggest diplomatic rift in decades between the U.S. and Mexico, engaging in a sharp-edged Twitter exchange with Mexican President Enrique Peña Nieto Thursday that led Mr. Peña Nieto to cancel a visit to Washington next week. The White House later floated the idea of a 20% import tax to pay for Mr. Trump’s promised wall along the length of the Mexican border, whose cost he has vowed will be covered in full by Mexico, one way or another. The cancellation of the meeting puts on hold the U.S. leader’s stated plan to renegotiate the North American Free Trade Agreement—if he doesn’t withdraw the U.S. from it altogether. The prospects have both workers and industrialists scrambling in Mexico’s Nafta capital, Monterrey. The Mexican peso tumbled against the U.S. dollar on Thursday and continued dropping in Asian trading Friday. The potential damage to the Mexican economy may spill over to the U.S. in unpredictable ways. Cable Connection Verizon has made a preliminary approach to Charter Communications about uniting two giants—the nation’s largest wireless carrier and second-largest cable company, respectively—that are both seeking growth in a rapidly consolidating media and telecom sector. We report that Verizon and advisers are studying a potential deal, though there is no guarantee one will materialize. It would combine Verizon’s more than 114 million wireless subscribers and what remains of its landline business with Charter’s cable network, which provides television to 17 million customers and broadband connections to 21 million. While Verizon executives have said they aren’t interested in traditional cable-TV or satellite-TV services, they are big believers in wires that power high-speed internet. Charter would offer a large, dense fiber-and-cable network that could bolster Verizon’s coming fifth-generation wireless services. Comeback Continent Investors are gaining faith that Europe’s long-sluggish economy is on an upswing. After months of reacting to expectations for higher growth, inflation and interest rates in the U.S., they have turned their focus to Europe—finally set to take part in a global recovery, economic data suggest. Yields on German 10-year government bonds rose to 0.49% Thursday, closing at their highest level in a year, and French and Italian bond yields are at their highest since September and July 2015, respectively. By one measure, European stocks broadly are hovering at levels last touched in December 2015. With eurozone growth and inflation expectations picking up, policy makers and investors are discussing the prospect of an end to the European Central Bank’s extraordinary monetary-stimulus measures.

Bond veterans recall bear markets past.

The ghost of the 1990s is haunting the dollar.

The world's biggest real-estate buyers are suddenly short of cash.

Betting on Nordic rain pays better than your average hedge fund.

Trump's White House needs a proofreader.

2017 is shaping up to be a volatile year for markets. Donald Trump and Republicans Strain to Set Agenda Facing Replacement, Top State Department Officials Resign Theresa May Faces Tricky Balancing Act in Talking Trade With Trump Google Parent Alphabet Finds New Growth Beyond Search A Default in China Spreads Anxiety Among Investors Military Brass Fill Donald Trump’s National Security Council

The curious case of Constellation Health and Blackstone’s former top deal maker.

You could make the argument that Twitter, which is due to report earnings on February 9, is more relevant than at any point in its history. It's the preferred social platform of Donald Trump, and news is being made on it constantly. Yesterday we got a major taste of Twitter diplomacy as plans for a meeting between President Trump and his Mexican counterpart Enrique Peña Nieto broke down for all to see. Yet Twitter (the stock)  remains in the doldrums, fairly close to its all-time lows. Not only are the company's shares performing badly, there's a sense that it's not as enjoyable as it used to be. As my colleague Matt Levine put it the other day, in a tweet, the site is now "emphatically not fun." The reason it's not as fun as it used to be is the same reason it's more relevant than ever: the site has become a gigantic discussion about one thing. Just as a perfectly steady, metronomic heartbeat is a sign of sickness, so too is a conversation that never deviates.

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