Monday January 9 Daily Market Primer

• ·         US stocks rose Friday after the market digested the December jobs number
• ·         UK may be headed for a hard Brexit
• ·         Presidential cabinet confirmations start this week
• ·         Chrysler commits $1 billion

US stocks rose Friday, making another run to Dow 20K but falling short.  The market opened down but then reacted favorably to the Friday jobs number, which included lower than expected new jobs in December and an uptick in the closely watched hourly wages, a sign of labor market tightening.  Stocks are mixed in international markets, mostly up in Asia but down in Europe this morning.  US futures are slightly in the red and the market just opened down.

	LAST	CHANGE	% CHANGE
DJIA	19,963.80	64.51	0.32%
Nasdaq	5,521.06	33.12	0.60%
S&P 500	2,276.98	7.98	0.35%
Russell 2000	1,367.28	-4.65	-0.34%
Global Dow	2,572.75	-9.91	-0.38%
Stoxx Europe 600	363.60	-1.85	-0.51%
Nikkei 225	19,454.33	-66.36	-0.34%
UK: FTSE 100	7,224.16	14.11	0.20%
CBOE Volatility	11.90	0.23	1.97%
Australia: S&P/ASX 200	5,807.40	51.80	0.90%
China: Shanghai Composite	3,171.24	16.92	0.54%
Hong Kong: Hang Seng	22,558.69	55.68	0.25%
Europe Dow	1,579.34	-23.95	-0.12%
India: S&P BSE Sensex	26,726.55	-32.68	-1.49%
France: CAC 40	4,875.01	-34.83	-0.71%
Germany: DAX	11,550.04	-48.97	-0.42%
Italy: FTSE MIB	19,340.90	-346.81	-1.76%
Spain: IBEX 35	9,463.20	-52.70	-0.55%
U.S. 3 Month	0.518	0/32
U.S. 2 Year	1.206	0/32
U.S. 5 Year	1.899	4/32
U.S. 10 Year	2.389	8/32
U.S. 30 Year	2.977	20/32
Germany 2 Year	-0.738	1/32
Germany 10 Year	0.287	4/32
Crude Oil	52.89	-1.1	-2.04%
Brent Crude	55.93	-1.17	-2.05%
Natural Gas	3.216	-0.072	-2.19%
S&P GSCI	393.39	-4.79	-1.20%
E-mini S&P 500	2270	-1.5	-0.07%

The definitions of passive and active investing may be blurring a bit, as the Barron’s cover story this weekend titled “Stockpickers Delight”, which highlighted seven highly recommended mutual funds, included the DFA Large Cap Value fund on the list, which we would consider to be in the category of quantitative, engineered strategies rather than fully active http://bit.ly/Barrons7Funds.

There may be a consensus building that the UK will have a hard Brexit, after the ambassador to the EU Sir Ivan Rogers resigned last week just months before trade negotiations are due to begin, and based on comments by PM Theresa May in Sky News interview on Sunday.  PM May implied that getting full control over immigration will take precedence over single market membership, which could be bad for trade in the long run.  The pound dropped over 1%.  She seems to be trying to walk back some of those remarks today.  The yuan is falling after spiking last week, and Chinese foreign currency reserves continue to drop.  Fiat Chrysler said it will invest $1 billion to expand a US plant and create 2000 jobs, as Mr. Trump’s high pressure tactics seem to be showing early results.  Mr. Trump has been tweeting this morning about the Golden Globes and the auto industry, lashing out a Meryl Streep for her speech last night and thanking Fiat Chrysler and Ford.

Here’s the news:

Sterling slides

The British pound was trading 1.1 percent lower at $1.2148 as of 4:55 a.m. ET following comments over the weekend from Prime Minister Theresa May which stoked fears that the U.K. will lose access to Europe's single market. In an interview with Sky News she said that regaining control of immigration and lawmaking are a greater priority than membership of the single market. Meanwhile, data from Halifax this morning showed U.K. home prices had a strong end to 2016, but the U.K. mortgage lender warned growth is likely to slow in 2017.

Yuan volatility

The Chinese currency's lively start to the year continued overnight, with the offshore yuan dropping 0.4 percent by 5:20 a.m. ET, adding to a 0.9 percent fall on Friday. Last week, a short squeeze helped the currency to a record weekly advance. Over the weekend, the People’s Bank of China revealed that the country's foreign reserve holdings fell for a sixth month in December to $3.01 trillion, down from a record $4 trillion in June 2014. Fan Gang, an adviser to the People's Bank of China, said that additional measures to stem capital outflows are unlikely.

Fed hawks

With just over a year remaining on Janet Yellen's current term as chair of the Federal Reserve, comments from three of her potential successors at this this weekend's annual American Economic Association meeting are noteworthy. Glenn Hubbard of Columbia University, along with Stanford University’s John Taylor and Kevin Warsh, are all seen by Fed watchers as potential future chairs should President-elect Donald Trump decide not to re-nominate Yellen. All three criticized the U.S. central bank for trying to do too much, and suggested interest rates would be higher if they were in charge.

Markets mixed

Overnight, the MSCI Asia Pacific excluding Japan Index gained 0.1 percent, with Japanese markets closed for a holiday. In Europe, the Stoxx 600 Index was 0.4 percent lower at 5:22 a.m. ET while U.K. stocks traded higher as the pound fell. S&P 500 futures dropped 0.1 percent.

U.K. woos Trump

British Foreign Secretary Boris Johnson is in Washington this week as the U.K. seeks to strengthen ties with the incoming administration. The president-elect tweeted yesterday that he is looking forward to meeting Theresa May following his inauguration. Meanwhile, speculation is mounting that the PEOTUS will follow through on threats to label China a currency manipulator at the new review in April, despite the country only meeting one of the three criteria specified by the Obama administration. Theresa May is aiming for a "hard Brexit." In a Sky News interview on Sunday, the UK prime minister said the Brexit would be about "getting the right relationship" with the European Union and "not about keeping bits of membership." The British pound is at a three-month low, down 0.9% at 1.2173 versus the dollar. Beppe Grillo is changing his tune in Italy. The leader of Italy's populist Five Star movement wants to end its eurosceptic alliance with Britain's UKIP party and enter into a pro-European Union alliance, AFP says. China spent about $72 billion defending the yuan in December. While China's foreign-exchange reserves fell by about $41 billion to $3.01 trillion, the amount of net capital outflows, and subsequent intervention from the People's Bank of China, was nearly twice as much, Wei Li, a China and Asia economist at Commonwealth Bank of Australia, wrote in a note to clients. Goldman Sachs says there are 3 big risks for 2017. Goldman Sachs chief economist Jan Hatzius is optimistic for 2017 but said in a speech in London on Monday that trade protectionism, European politics, and China were the three risks to his outlook. McDonald's unloads its business in China. The fast-food giant sold 20-year rights to the majority of its business in Hong Kong and China to Citic and Carlyle Group for up to $2.1 billion, Reuters reports. The first iPhone was unveiled 10 years ago Monday. Check out Steve Jobs onstage at the Macworld conference in 2007 announcing the first iPhone. The Detroit auto show begins. The 2017 North American International Auto Show in downtown Detroit opens Monday and runs until January 22. Stock markets around the world trade mixed. China's Shanghai Composite (+0.5%) led in Asia, and France's CAC (-0.8%) lags in Europe. The Dow Jones Industrial Average is on track to open slightly lower near 19,945. Earnings reporting is light. Apollo Education reports after markets close. US economic data trickles out. Consumer credit will be released at 3 p.m. ET. The US 10-year yield is down 3 basis points at 2.39%. Full Speed Ahead The Republican-controlled Senate is moving quickly this week to help President-elect Donald Trump staff his administration, brushing aside concerns from Democrats and a government-ethics watchdog. Republicans have set at least nine confirmation hearings for the week, including five on Wednesday, the same day the Senate is expected to hold a series of rapid-fire votes in connection with a budget measure that advances the Republican effort to repeal the Affordable Care Act. Also Wednesday, Mr. Trump is scheduled to hold his first news conference since the election. Meanwhile, Congressional Republicans’ worries over Mr. Trump’s views on Russia are deepening, with GOP hawks saying they still have questions about approving Rex Tillerson for secretary of state days before his confirmation hearing. The longtime Exxon-Mobil CEO has worked extensively with Russia. And we chronicle how a quiet tycoon, Robert Mercer, and his daughter have become power brokers in Mr. Trump’s Washington. Trump Motors Fiat Chrysler said Sunday it will invest $1 billion in two existing U.S. plants, creating what it says will be 2,000 new jobs, as auto makers face heat from Mr. Trump to manufacture more vehicles in the U.S. Some of the sector’s most powerful scions, including Ford Chairman Bill Ford and Toyota President Akio Toyoda, also have signaled in the week leading up to Detroit’s auto show that they support seeing more Made in the U.S.A. labels in America’s driveways. About half the parts on a typical “American” car now come from foreign sources, and Mr. Trump’s repeated threats to impose a border tax on imported vehicles have auto makers on the defensive. GM CEO Mary Barra said Sunday the company won’t move small-car production to the U.S. from Mexico in the wake of criticism from Mr. Trump. The Junk Rolls On An uptick in earnings among riskier U.S. companies is bolstering investors’ confidence that an epic rally in junk bonds can last a little longer. Some analysts say junk bonds—issued by companies that are often small and burdened by debt—could do much better than might be expected after such a strong year. The average junk bond yield was 5.86% Thursday, a two-year low but above the sub-5% levels it reached in 2014. Despite the low yields, many investors still view junk bonds as attractive at a time when the 10-year Treasury note yield is below 2.5% and stock valuations are widely seen as inflated. Of the six large banks we surveyed, four project positive returns for junk bonds in 2017. But retirees would be wise to dig a little deeper to better understand the current risks.

Odd Lots Podcast. Here's what's going to happen in 2017.

One of Wall Street's legendary bulls has turned bearish.

Older Americans are retiring in droves.

McDonald's sells 80 percent of its China operations.

Meet some alternatives to the Big Mac index.

There's no free ride for bitcoin in China.

Ray Dalio has a solution to fake news.

Why Wages Have Lagged Behind the Global Jobs Recovery Northern California Faces Severe Flooding Threat as East Coast Digs Out Iran Starts to Modernize Air Fleet With First Airbus Jet Since End of Sanctions Why Apple’s Critics Are Right This Time Magic Eludes Bubble-Caller Jeremy Grantham, as Assets at GMO Drop by More Than $40 Billion China Foreign-Exchange Reserves Keep Dropping On Friday, the Office of the Director of National Intelligence released a report on alleged Russian interference in the U.S. election. While many viewed this report as being about "hacking," what's astonishing is how much of the document is not about hacking in any traditional sense of the word. Several pages, for instance, are devoted specifically to covering the activities of RT, the Kremlin-financed cable network that's been perceived to be anti-Clinton and anti-establishment. There's also a discussion of Russian-financed social media "trolls" who ostensibly played a role in making Clinton look bad online. The report did contain allegations of more cloak-and-dagger technical activity, but this was essentially a document exploring the new media landscape, even going as far as to include a chart about how well RT does relative to other TV networks on various social media platforms! The day before the report came out, New York University internet researcher danah boyd (she goes by an uncapitalized version of her name) published a post titled "Hacking the Attention Economy" that explores exactly this gap between the classical definition of hacking and the more media-oriented version as described by the DNI. Essentially it argued that a new wave of hackers are more interested in confusing and scrambling information that's already out in the open, rather than breaking into closed systems. The collapse of the media hierarchy and the rise of social media and user-generated content has given anyone the ability to invade and distort information pathways. So while the world may steel itself against traditional cyber-threats, the human element is as exposed as ever.