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Broader indices close higher in the US stock market today

  
Analysis, US Market
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The Dow lags

The broader US indices (S&P and NASDAQ) are closing higher after recovering from earlier losses and fears from the coronavirus.  The Dow lagged with the indice down marginally.
The final numbers are showing:
  • S&P index +3.79 points or 0.11% at 3325.54. The hi reached 3326.88. The low extended to 3301.87
  • NASDAQ index rose 18.709 points or 0.20% at 9402.47. The high reached 9409.199. The low extended to 9334.129
  • Dow fell -26.18 points or -0.09% at 29160.09. The high reached 29190.47. The low extended to 28966.98

European shares are ending the session in the red

  
Analysis, Global Indices
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Major indices move lower in trading today

The major European stock indices are closing the day in the red, erasing earlier gains.
The provisional closes are showing:
  • German DAX, -0.3%. It was up about 0.60% the highs
  • France’s CAC, -0.6%. It reached the high of +0.40%
  • UK’s FTSE, -0.6%. It peaked at +0.36%
  • Spain’s Ibex, -0.4%. It was up around 0.22% at the highs
  • Italy’s FTSE MIB -0.6%.  It rose by 0.29% at session highs
In the European debt market, the benchmark yields are mostly lower. France 10 year notes move back below the 0.0% level and is trading at -0.007% currently (low yield reach -0.019%).
Major indices move lower in trading today_

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Full text of the January 22, 2020 Bank of Canada rate decision

  
  Analysis
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The latest Bank of Canada decision

  • Prior statement here

Bank of Canada maintains overnight rate target at 1 ¾ percent

The Bank of Canada today maintained its target for the overnight rate at 1 ¾ percent. The Bank Rate is correspondingly 2 percent and the deposit rate is 1 ½ percent.The global economy is showing signs of stabilization, and some recent trade developments have been positive. However, there remains a high degree of uncertainty and geopolitical tensions have re-emerged, with tragic consequences. The Canadian economy has been resilient but indicators since the October Monetary Policy Report (MPR) have been mixed.

Data for Canada indicate that growth in the near term will be weaker, and the output gap wider, than the Bank projected in October. The Bank now estimates growth of 0.3 percent in the fourth quarter of 2019 and 1.3 percent in the first quarter of 2020. Exports fell in late 2019, and business investment appears to have weakened after a strong third quarter. Job creation has slowed and indicators of consumer confidence and spending have been unexpectedly soft. In contrast, residential investment was robust through most of 2019, moderating to a still-solid pace in the fourth quarter.

Some of the slowdown in growth in late 2019 was related to special factors that include strikes, poor weather, and inventory adjustments. The weaker data could also signal that global economic conditions have been affecting Canada’s economy to a greater extent than was predicted. Moreover, during the past year Canadians have been saving a larger share of their incomes, which could signal increased consumer caution. This could dampen consumer spending but help to alleviate financial vulnerabilities at the same time.

Looking ahead, Canadian business investment and exports are expected to contribute modestly to growth, supported by stronger global activity and demand. The Bank is also projecting a pickup in household spending, supported by population and income growth, as well as by the recent federal income tax cut. In its January MPR, the Bank projects the global economy will grow by just over 3 percent in 2020 and 3 ¼ percent in 2021. For Canada, the Bank now forecasts real GDP will grow by 1.6 percent this year and 2 percent in 2021, following 1.6 percent growth in 2019.

While the output gap has widened in recent months, measures of inflation remain around 2 percent. This is consistent with an economy that, until recently, has been operating close to capacity. The Bank expects inflation will stay around the 2 percent target over the projection horizon, with some fluctuations in 2020 from volatility in energy prices. Meanwhile, labour markets in most regions have little slack and wages continue to firm.

In determining the future path for the Bank’s policy interest rate, Governing Council will be watching closely to see if the recent slowdown in growth is more persistent than forecast. In assessing incoming data, the Bank will be paying particular attention to developments in consumer spending, the housing market, and business investment.

European shares close lower on China virus concerns

  
Analysis, Global Indices
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German DAX unchanged

The coronavirus concerns have sapped upside momentum from European shares. The falls come despite economic data out of Europe that was not bad.   UK employment data was strong and German/EU ZEW sentiment data was also better-than-expected.

The provisional closes are showing:
  • German DAX, unchanged
  • France’s CAC, -0.54%
  • UK’s FTSE 100, -0.57%
  • Spain’s Ibex, -0.57%
  • Italy’s FTSE MIB, -0.6%
In the European debt market, the benchmark 10 year yields are ending mostly lower with Italian yields up marginally.  France’s 10 year yield move back toward the 0.0% level. The low reached 0.001%.
German DAX unchanged_
In other markets,
  • gold slid earlier to a low price of $1546.41, but has rebounded and currently trades at $1557.19. That’s down about $3.50 or -0.23%
  • WTI crude oil futures are down $0.25 or 0.43% of $58.29
In the US stock market the NASDAQ index turned positive after opening lower and traded to it a new all-time high.
The current prices are showing:
  • S&P index -3.04 points or -0.09% 3326.60
  • NASDAQ index +5.068 points or 0.06% at 9394.20
  • Dow industrial average -41.7 points or -0.14% at 29306.64
In the US debt market yields are lower led by declines in the 10 year yield up -4.6 basis points. The yield curve is also flattened with the 2 – 10 spread falling to 23.74 basis points from 26.23 basis points on Friday..

BOJ announce no change to monetary policy settings, as expected

  
Analysis, Economy
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Bank of Japan monetary policy meeting for January 2020 has concluded

As expected, policy unchanged:
  • keeps monetary policy steady
  • maintains short-term interest rate target at -0.1%
  • maintains 10-year JGB yield target around 0%
  • maintains forward guidance on interest rates, says they will remain at current or lower levels for as long as needed to guard against risk momentum for hitting price goal may be lost
I’ll have more on this separately

A look at the best/worst major currencies this week is worrisome

  
Analysis, Forex
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Swiss franc strength isn’t what you expect to see in a run-away week for stocks

Swiss franc strength isn't what you expect to see in a run-away week for stocks
It’s rare to see the Swiss franc and Japanese yen at opposite ends of the FX leaderboard. They generally move in the same direction because they’re both low yielders and safe-haven currencies.
So what happened? One argument is that this was a Swiss idiosyncratic move:
  • The US added Switzerland to the FX watchlist for manipulation. That diminishes the chances of large-scale intervention
  • Technical breaks in EUR/CHF and USD/CHF added to momentum
  • Russian political drama added to the bid for CHF
I wouldn’t disagree with any of those factors but it’s still a stark difference. The other argument is that this run-up in risk is driven by leverage from cheap money, retail chasing momentum and year-end effects.
Ultimately, the market will have to answer but I just can’t get behind this run in risk until we see a bit more alignment in equities with FX and bonds.
CHFJPY

US equities close higher again with a strong finish to cap a great week

  
Analysis, US Market
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US equity performance on Friday

  • S&P 500 up 13 points to 3329 or +0.4%
  • DJIA +0.2%
  • Nasdaq +0.3%
On the week:
  • S&P 500 +1.9%
  • DJIA +1.8%
  • Nasdaq +2.3%
The gains have been non-stop in large caps but it hasn’t been quite the same party in small and mid-caps. I’ll be watching the Russell 2000 in the weeks ahead as it approaches resistance.
US equity performance on Friday

Overnight US Market : Major indices close at record levels and near intraday highs

  
Analysis, US Market
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NASDAQ index rises 1.06% as buying continues

The major US indices are closing at record levels and near session highs as well.
The final numbers are showing:
  • the S&P index up 27.61 points or 0.84% at 3316.89. The high reached 3317.11. The low extended to 3302.82
  • the NASDAQ index rose 98.438 points or 1.06% at 9357.13. The high was at 9357.92. The low extended to 9301.32
  • The Dow rose 267.35 points or 0.92% at 29297.53. The high reached 29243.00. The low extended to 29131.95

Happy days are here again and again and again.

Alcoa reports Q4 revenues at $2.44B vs $2.47B estimate

  
  Analysis
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Alcoa earnings

  • Revenues estimates ranged from $2.45B to $2.52B
  • EBITDA $346M vs $334.3m expected
  • Loss per share of 33-cents vs 21-cent estimate (31-cents ex-items)
  • Alcoa sees 2020 global aluminum demand +1.4-2.4%
  • Final 2019 aluminum demand -0.4% to -0.2% vs -0.4 to -0.6% AA estimate
  • Expects 2020 global aluminum surplus between 600K to 1m metric tons
  • Full year 2019 net loss of $1.125 billion or $6.07 per share
  • Full year adjusted loss of $184m
In October, the CEO said he expected a big rebound in aluminum demand this year. At the time he said the global economy “will come roaring back once this uncertainty is behind us.” I wouldn’t say 1.4-2.4% will cut it. At some point global growth will have to pickup or there will be more plant closures and factory layoffs.
Shares are down to $19.73 from $20.18 in the after-market.
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