Friday January 6 Daily Market Primer

• ·         156K jobs added in December, lower than the expected 175K
• ·         Average hourly wage growth is strong
• ·         The yuan is dropping and China is threatening
• ·         Happy Anniversary: The Daily Market Primer is one year old today

Happy Friday.  US stocks mostly fell, with the Dow and S&P down and the Nasdaq up slightly.  Financial stocks fell, bonds rallied, the dollar weakened, and the yuan surged.  Equity markets were mostly down around the world, but the US is opening down slightly.

	LAST	CHANGE	% CHANGE
DJIA	19,899.29	-42.87	-0.21%
Nasdaq	5,487.94	10.93	0.20%
S&P 500	2,269.00	-1.75	-0.08%
Russell 2000	1,371.94	-16.02	-1.15%
Global Dow	2,575.27	-3.71	-0.14%
Stoxx Europe 600	364.45	-1.19	-0.33%
Nikkei 225	19,454.33	-66.36	-0.34%
UK: FTSE 100	7,198.23	2.92	0.04%
CBOE Volatility	11.63	-0.04	-0.34%
Australia: S&P/ASX 200	5,755.60	2.30	0.04%
China: Shanghai Composite	3,154.32	-11.09	-0.35%
Hong Kong: Hang Seng	22,503.01	46.32	0.21%
Europe Dow	1,596.81	-6.48	-0.44%
India: S&P BSE Sensex	26,759.23	-119.01	-0.40%
France: CAC 40	4,880.38	-20.26	-0.41%
Germany: DAX	11,565.89	-19.05	-0.16%
Italy: FTSE MIB	19,588.03	-54.78	-0.28%
Spain: IBEX 35	9,461.90	-26.30	-0.28%
U.S. 3 Month	0.523	0/32
U.S. 2 Year	1.182	-1/32
U.S. 5 Year	1.871	-4/32
U.S. 10 Year	2.366	-4/32
U.S. 30 Year	2.958	-7/32
Germany 2 Year	-0.723	-1/32
Germany 10 Year	0.259	-8/32
Crude Oil	54.22	0.46	0.86%
Brent Crude	57.32	0.43	0.76%
Natural Gas	3.225	-0.043	-1.32%
S&P GSCI	399.72	1.88	0.47%
E-mini S&P 500	2262.75	-1.5	-0.07%

 Heading into 2017, Growth is strong, confidence is ticking up in the US and Europe, we are only seeing whiffs of cyclical inflation, and at the US political environment is somewhat erratic from a communications standpoint.  The jobs report was a touch light, but the prior gain was revised up from 178 to 204K, and there was a jump in hourly earnings, to 2.9%, showing a little more tightness in the labor markets.   Regarding growth, we have seen final PMI reports this week and they are really strong across the board, with the US at 54.7, Europe at 54.9, the UK at 56, Japan saw an uptick, and the China data was noisy, but mostly positive.   We are positioned for growth with the overweight to risk assets, and positioned to an uptick in inflation.  The market looks relatively quite this morning, and futures ticked up after the jobs report.

The German economy, the largest in Europe, showed strong economic performance in November, here are the details from the FT http://bit.ly/DuetscheEcon. China indicated they will not back down from a trade war should the US start one.   The incoming congress has had a busy week making plans to dismantle the Affordable Care Act, and President Elect Trump has said he will as Congress to pay for the boarder wall.  The Wall Street Journal ran a story about Mr. Trumps business debts (Debt Everywhere, below). 

Here’s the news:

Yuan falls

The offshore yuan fell as much as 1.1 percent to 6.8623 a dollar in Hong Kong, the most in a year, following a 2.5 percent surge over the past two sessions. Traders are now expecting further depreciation of the currency, with Benjamin Fuchs, chief investment officer at BFAM Partners in Hong Kong saying the tightening of capital controls risks eroding confidence in the currency. Goldman Sachs Group Inc. says it expects the yuan to grind lower throughout the year.

China's up for a fight

Currency concerns aside, authorities in China are making it clear that they are prepared for a trade war with the U.S. should President-elect Donald Trump take punitive measures against the world's second-biggest economy. The options being looked include subjecting U.S. companies with large Chinese operations to tax or antitrust probes, according to people familiar with the matter. The PEOTUS hasn't made many comments on China recently, instead using his Twitter account to try to move car manufacturing from Mexico.

Markets slip

Overnight, the MSCI Asia Pacific Index dropped 0.3 percent, with Japan’s Toyota Motor Corp. among the region's biggest fallers, following a Trump tweet about the company. In Europe, the Stoxx 600 Index was 0.2 percent lower at 5:25 a.m. ET as investors awaited the U.S. jobs report. S&P 500 futures were broadly unchanged.

How to spot an OPEC cut

Traders have a challenge in trying to spot when the announced OPEC production cut deal translates into on-the-ground reductions. The big problem is both the quality and timeliness of production data. The best data — stockpiles — are also those which are published with the longest lag, while upstream and midstream data tend to be based on estimates. For the moment, prices remain the clearest indicator of where OPEC's cuts are happening. Friday is jobs day in America. The US economy is expected to have added 170,000 nonfarm jobs as the unemployment rate ticked up to 7.4%, according to a survey of economists by Bloomberg. Additionally, average hourly earnings are expected to have climbed 2.8% year-over-year. The data will cross the wires at 8:30 a.m. ET. A new king of auto sales has been crowned in China. Honda saw sales surge 24% year-over-year to 1.25 million vehicles in 2016, surpassing its rival Toyota as the No. 1 automaker in China, Reuters says. Australia's first recession in 25 years could be on hold. The country recorded a surprise trade surplus in November, the first since March 2014, and if repeated in December it is expected to add enough to fourth-quarter growth to prevent the country's first recession since 1991. The Australian dollar is little changed at .7341 against the dollar. A 2nd Scottish referendum isn't happening. Prime Minister Nicola Sturgeon has abandoned her plans to hold a second referendum to keep Scotland in the European Union, saying she had accepted "reality." The British pound is down 0.3% at 1.2364 versus the dollar. Bitcoin is crashing again. The cryptocurrency crashed by as much as 23% on Thursday, touching a low of $888.99 per coin before finishing the day near $968. Selling has picked back up Friday, with bitcoin lower by 13.5% at $886. Public. The low-cost carrier has hired Deutsche Bank, JPMorgan, and Evercore to help with its initial public offering, The New York Times says. There's finally some good news from the retail sector. Gap announced that sales at stores that have been open at least one year rose by 4% versus a year ago, compared with the 1.7% drop that analysts were anticipating, and raised its full-year profit forecast. Shares traded higher by as much as 10% in Thursday's after-hours session. US mall vacancies were flat in the fourth quarter. Vacancies held at 7.8%, Reuters reports, citing data compiled by the market researcher Reis. Stock markets around the world are mostly lower. China's Shanghai Composite (-0.4%) lagged in Asia, and France's CAC (-0.5%) trails in Europe. The S&P 500 is on track to open higher by 0.2% near 2,268. US economic data is heavy. Aside from the jobs report, the trade balance will be released at 8:30 a.m. ET, and both factory orders and durable-goods orders will cross the wires at 10 a.m. ET. The Baker Hughes rig count will be announced at 1 p.m. ET. The US 10-year yield is up 1 basis point at 2.35%. Putin’s Plans Top U.S. intelligence officials said Thursday the public will soon learn more about how and why the Russian government carried out an unprecedented campaign to interfere in the 2016 U.S. election by hacking political institutions and individuals. “There is actually more than one motive” behind the purported Russian operation, James Clapper, the director of National Intelligence, said in the first public hearing about the suspected hacking. The question of motive has moved to the center of a political firestorm in Washington after CIA officials said last month that the hacking and publication of emails from the DNC and Hillary Clinton’s campaign were intended to help President-elect Donald Trump win the White House. Mr. Trump for months has insisted that the intelligence agencies have no proof Russia was behind the cyber campaign. A report about the operation compiled by the intelligence agencies will be publicly released next week. Debts Everywhere We report that the debts of Mr. Trump and his businesses are scattered across Wall Street banks, mutual funds and other financial institutions, broadening the tangle of interests that pose potential conflicts for his administration. Hundreds of millions of dollars of debt attached to Mr. Trump’s properties, some of them backed by his personal guarantee, were packaged into securities and sold to investors over the past five years. Mr. Trump had previously disclosed that his businesses owe at least $315 million to 10 companies. According to the Journal’s analysis, Trump businesses’ debts are held by more than 150 institutions. They bought the debt after it was sliced up and repackaged into bonds—a process known as securitization, which has been used for more than $1 billion of debt connected to Mr. Trump’s companies. As a result, a broader array of financial institutions now are in a potentially powerful position over the incoming president. Malpass is front-runner for Treasury international post David Malpass, a former economic adviser in the administrations of George H.W. Bush and Ronald Reagan, is most likely to be chosen as undersecretary for international affairs at the Treasury Department, according to the transition team of President-elect Donald Trump. Malpass has worked as chief economist at Bear Stearns.  Bloomberg (05 Jan.),  BoE economist admits Brexit forecasting mistakes Andrew Haldane, chief economist at the Bank of England, admitted that the central bank was wrong to forecast a slowdown in the UK economy due to the country's Brexit decision in June. Haldane said the economy has performed strongly since the vote and the bank's forecasting models failed to take into account of what he called "irrational behavior." The Guardian (London) (05 Jan.),    Report: Investment in alternative funds down Fundraising by alternative investment funds declined from $637 billion in 2015 to $602 billion in 2016, according to a report from research firm Preqin. The drop came despite an increase in fundraising by private equity funds.  Pensions & Investments (free access for SmartBrief readers) Eurozone inflation prompts calls for ECB rate rise Economists in Germany are calling on the European Central Bank to raise the interest rate after data showed that inflation unexpectedly jumped 1.1% across the eurozone in December. Consumer prices rose particularly sharply in Germany, prompting bank and government economists to urge the ECB to end its expansionist strategy. Reuters (05 Jan.)  UBS debuts 2 triple-leveraged oil ETNs UBS has brought to NYSE Arca two triple-leveraged exchange-traded notes giving investors the opportunity to profit from rising or falling oil prices. The UBS ETRACS ProShares Daily 3x Long Crude ETN gives investors 300% of the Bloomberg WTI Crude Oil Subindex ER, while the UBS ETRACS ProShares Daily 3x Inverse Crude ETN delivers 300% of the inverse of the subindex. ETF.com (05 Jan.)

BOE's Haldane says 'fair cop' on getting Brexit forecasts wrong.

Goldman's bet on emerging currencies is BRICS without the 'C.'

Where to find the biggest market moves in 2017.

Why an infrastructure ETF may be a bad way to play an infrastructure boom.

Here's why Bitcoin buyers are nervous about China.

People are bailing on Chris Christie's New Jersey. How's your state holding up?

An app that will send you alerts when Trump tweets about stocks you own. Trump Says ‘No Way’ to Toyota Plant in Mexico Markets Dangerously Price in Perfection in Trump’s Era Bitcoin’s Big Day: From New Highs to a Bear Market In the year's first week of trading one thing that stands out is the move in interest rates. As I'm writing this, the yield on the US 10-year Treasury is 2.35 percent. That's well above where they were before the election, but it's meaningfully below where they were in the middle of December. That rate is now significantly below where it was at the time of the Fed meeting, where they raised rates and raised the 2017 dots. So what gives? This was supposed to be the year of Trumpflation. Bloomberg strategist Mark Cudmore, in a chat that will air on TV later, points out that the decline in rates comes even amid very strong data. This week we've already seen really solid PMIs, car sales, construction spending, pricing data and more. Basically, the data is looking strong (we'll see about today's Jobs Report) but the markets have reversed some of their post-election trades. Keep an eye on this to see how it resolves.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, P&I, Reuters, FT, The Guardian, ETF.com