Monday January 23 Daily Market Primer

• ·         Stocks rose on inauguration day, but finished the week down
• ·         Dollar is weaker as investors worry about trade
• ·         China not positioned to take the lead on trade

Stocks rose on Friday after President Trump was sworn in, but finished down for the second week in a row.   Treasury yields fell slightly.  The dollar is weaker in reaction to the “America First” inauguration speech, at a six week low against the US dollar index, which measures the dollar against a basket of six major currencies.  Asian and European markets mostly fell on Monday, except for China.  S&P futures are pointing slightly down this morning.

	LAST	CHANGE	% CHANGE
DJIA	19,827.25	94.85	0.48%
Nasdaq	5,555.33	15.25	0.28%
S&P 500	2,271.31	7.62	0.34%
Russell 2000	1,351.85	6.10	0.45%
Global Dow	2,589.14	2.98	0.12%
Stoxx Europe 600	361.45	-1.13	-0.31%
Nikkei 225	18,891.03	-246.88	-1.29%
UK: FTSE 100	7,150.81	-47.63	-0.66%
CBOE Volatility	12.11	0.57	4.94%
Australia: S&P/ASX 200	5,611.00	-43.80	-0.77%
China: Shanghai Composite	3,136.77	13.64	0.44%
Hong Kong: Hang Seng	22,898.52	12.61	0.06%
Europe Dow	1,600.49	-2.51	0.31%
India: S&P BSE Sensex	27,117.34	82.84	-0.16%
France: CAC 40	4,831.19	-19.48	-0.40%
Germany: DAX	11,581.91	-48.22	-0.41%
Italy: FTSE MIB	19,389.77	-89.69	-0.46%
Spain: IBEX 35	9,321.50	-58.60	-0.62%
U.S. 3 Month	0.495	-0/32
U.S. 2 Year	1.172	1/32
U.S. 5 Year	1.907	4/32
U.S. 10 Year	2.443	7/32
U.S. 30 Year	3.028	15/32
Germany 2 Year	-0.678	0/32
Germany 10 Year	0.396	9/32
Crude Oil	52.48	-0.74	-1.39%
Brent Crude	54.86	-0.63	-1.14%
Natural Gas	3.187	-0.024	-0.75%
S&P GSCI	397.01	-2.4	-0.60%
E-mini S&P 500	2261	-5	-0.22%

President Trump got off to a combative start with his speech on Friday, at the CIA, and with his surrogates press appearances over the weekend, and global markets are so far taking it in stride.  The senate will vote on his CIA Director and Energy Secretary nominees this week.  Earnings season continues, and McDonald's is out this morning with slightly better than expected results.  The SEC is investigating Yahoo for not reporting its big data breaches sooner.  I wonder what took so long.

If the US pulls back from global free trade, will China assume a leadership position?  Apparently not, according to this note out this morning from Evercore/ISI:

Here’s the news:

Dollar falls

The U.S. dollar was lower against all G-10 currencies this morning as traders became increasingly nervous President Donald Trump will pursue protectionist trade policies following his inauguration speech on Friday. Emerging market stocks and currencies also gained, and are headed for the highest level in 11 weeks. Analysts are watching the yen to gauge whether early Trump optimism is waning, with the 115 yen to the dollar level seen as an inflection point. The weaker dollar and policy uncertainty is also lifting gold, which was at $1213.27 an ounce at 5:13 a.m. ET.

Treasury showdown

Hedge funds and institutional investors are taking opposite sides of the Treasury market. Speculators upped their bearish bets, with leveraged funds' short positions on five-year notes exceeding longs by a record 1.1 million contracts, data compiled by the U.S. Commodity Futures Trading Commission show. Institutional investors, on the other hand, boosted their long positions in the same notes to an all-time high in January. The winner in this showdown will be decided by what kind of policies the new president decides to implement.

OPEC shrugs off Trump

The two biggest OPEC suppliers of crude to the U.S. said that despite Trump's stated commitment to achieve energy independence, the U.S. will still need to import oil. Investors seem to be siding with OPEC, with bets on rising West Texas Intermediate prices reaching the highest level since June 2014. A barrel of WTI for March delivery was trading lower at $52.42 as of 5:40 a.m. ET.

Markets slip

Overnight, the MSCI Asia Pacific Index gained 0.3 percent, while Japan's Topix index dropped 1.2 percent on the weaker dollar. In Europe, the Stoxx 600 Index was 0.3 percent lower at 5:45 a.m. ET, with exporters and banks leading the losses. S&P 500 futures fell 0.2 percent.

Big Brexit week

At 4:30 a.m. ET tomorrow the U.K. Supreme Court will rule on whether parliament or the government can trigger Article 50 of the Lisbon Treaty to start the two-year countdown to the Britain's exit from the European Union. On Thursday, U.K. GDP data for 2016 will be released. Economists expect the economy performed well in the period, despite the referendum. Prime Minister Theresa May will become the first foreign leader to meet the new president on Friday, when she is due to visit the White House. Trump says he will soon begin renegotiating NAFTA. President Trump has announced that he plans to speak with the leaders of Canada and Mexico to renegotiate the 23-year-old trade deal, Reuters reports. "We are going to start renegotiating on NAFTA, on immigration, and on security at the border," Trump said on Sunday. Britain's stock market has seen quite the reversal. The FTSE started 2017 with a record-breaking 14-day winning streak, 12 of which produced record-high closes, but the recent strength of the pound has pushed it into negative territory for the year. Hong Kong is the most expensive city in the world to live in. That's according to the 13th Annual Demographia International Housing Affordability Survey, which says that Hong Kong's housing market is the least affordable in the world. China biggest bitcoin exchanges will charge for transactions. Starting on Tuesday, China's three largest bitcoin exchanges will begin charging a flat fee of 0.2% on each transaction, Reuters reports. The SEC is investing Yahoo. The Securities and Exchange Commission is looking into whether Yahoo should have told investors about its two data breaches sooner, The Wall Street Journal reports. We now know why the Samsung Galaxy Note 7 was overheating and exploding. A report released by Samsung on Sunday night said the Galaxy 7 overheated and exploded because of a poor battery design and a rush to release an upgrade of the phone. Blackstone is getting ready to launch a new Asia real-estate fund. The fund, which aims to raise at least $5 billion, will invest in assets like shopping malls and warehouses around China, India, and Southeast Asia, a person familiar with the subject told Reuters. Kate Spade is attracting interest. The rivals Coach and Michael Kors are considering a bid for the luxury handbag maker, two people familiar with the matter told Bloomberg. Stock markets around the world are lower. Japan's Nikkei (-1.3%) trailed in Asia, and Britain's FTSE (-0.4%) lags in Europe. The S&P 500 is set to open little changed near 2,267. Earnings reporting remains light. Halliburton and McDonald's report ahead of the opening bell, while Yahoo releases its quarterly results after markets close. New World Order Mr. Trump is taking immediate steps to reorder U.S. economic alliances, setting up meetings with the leaders of Mexico and Canada to follow through on plans to renegotiate the two-decade-old North American Free Trade Agreement. He has vowed to withdraw the U.S. from the 12-nation Trans-Pacific Partnership, a trade deal signed by the Obama administration but not ratified by Congress. His advisers say the plan is to use the threat of tariffs to win concessions from some countries, while negotiating bilateral deals with like-minded strategic allies. He will host U.K. Prime Minister Theresa May Friday to lay the groundwork for such a pact, though some experts have said the actual negotiations could be difficult and drawn-out. Yahoo’s Security Headache The U.S. Securities and Exchange Commission is examining whether Yahoo’s disclosure of two massive data breaches complied with civil securities laws, according to people familiar with the matter. A 2014 breach that compromised the data of at least 500 million users wasn’t disclosed until last September, a delay Yahoo hasn’t explained. In mid-December, Yahoo said it had recently discovered an August 2013 breach that exposed the data of more than 1 billion users. Legal experts say the SEC has been looking for a case to clarify what type of conduct would run afoul of its 2011 guidance requiring companies to disclose material information about cybersecurity risks and cyber incidents if they determine investors could be affected.

China slams western democracy as flawed.

A bunch of companies are at risk from a U.S.-China trade war.

The Trump era may force Europe into deciding what it wants.

Pound bulls are emboldened thanks to sterling's recent advance.

This time is different, European corporate-profit edition.

On over-thinking NAIRU. U.S. Eyes Michael Flynn’s Links to Russia Benoît Hamon Takes Lead in France’s Socialist Primary in Setback to Party Moderates United Airlines Says It Has Resolved Problem That Grounded Domestic U.S. Flights Investors Taper Bullish Bets, as Trump Takes Office China-Mongolia Mining Deal: Economic Windfall or Environmental Threat?

The big news on Friday, away from Trump’s inauguration, came from China. The country announced that it had comfortably hit its 2016 growth targets ahead of a politically-important year that will see the 19th National Communist Party Congress. Somewhat lost amid the build-up, however, was news out of the rust-belt district of Liaoning.  There, Governor Chen Quifa admitted that the province fabricated economic data from 2011 to 2014. As Bernstein analysts note, the announcement was not very surprising for China-watchers given a previous Liaoning governor was none other than Li Keqiang, who famously called China’s GDP data "man-made." Keqiang suggested that people attempting to gauge China’s growth should focus instead on things like electricity consumption and railway volumes -- a piece of advice that gave rise to the Keqiang Index still used today. Even if you think China has enough domestic levers to pull in order to keep its economy chugging along reasonably well ahead of the Party meeting, that still leaves a big risk in the form of external factors including a stronger U.S. dollar, a tightening Federal Reserve, and, of course, Trump.

Source: Bloomberg, BI, WSJ, Evercore ISI