by Eli Wright
Markets returned from the New Year holiday yesterday in mixed fashion. The U.S. dollar ended the day lower, but Wall Street indices were all broadly higher and the FTSE broke the 7,200 level in intraday trading to reach a new record high. Today, equity markets are a mixed bag.
In Asia overnight, the Nikkei, boosted by the higher dollar, rose 2.51% to 19,594.16, a new 52-week high. Only six companies in the Japanese index totaled losses yesterday, the largest of which came from Toshiba Corp (T:6502), which has lost 40% of it’s market value since mid-December. The Shanghai Composite gained 0.73%, to 3,158.76. The Hang Seng, however, took a breather after a four-day rally, ending 0.21% lower, at 22,104.
In Europe this morning, the FTSE is down 0.07% to 7,171.50 after smashing its way to an all-time record high yesterday. The DAX is down 0.18% to 11,563.50, and the Euro Stoxx 50 is 0.05% lower, at 3,315.50.
On Wall Street yesterday, all the majors recovered from last week’s dip and posted gains. The Dow rose 0.6% to 19,881.76 while the S&P 500 and NASDAQ both gained 0.85% to 2,257.83, and 5,429.08 respectively.
All three indices remain higher in pre-market trading: the Dow is up 0.09%; the S&P is up 0.08%, and the NASDAQ is 0.12% higher.
U.S. Treasury yields are all slightly higher this morning. As of this writing, the 2-year yield 1.23%; the 10-year yield is 2.465%; and the 30-year yield is 3.051%.
Forex
The U.S. dollar popped yesterday against a basket of currencies, but it ended the day sharply lower, with the Dollar Index at 103.08.
The euro was yesterday’s worst-performing currency and it’s currently near 14-year lows. Many analysts expect the euro to reach dollar parity in 2017. However, thus far, $1.034 appears to be providing strong support, and since hitting that level yesterday, the single currency has bounced back to $1.043.
Of importance for the euro, CPI (YoY for December) came in better than expected, as did a spate of other EU and UK economic data.
Sterling hit a two-month low versus the greenback, but it too, has rebounded, to $1.23, as this morning's Construction PMI, as shown in the calendar above, came in better than expected.
This morning, USD is trading lower against virtually all the major currencies.
As the chart above indicates, Bitcoin is continuing its healthy gains, up 2.9% in early morning trade, to $1,061.
December Fed Meeting Minutes will be released at 2 PM ET later today. The minutes will detail the meeting in which the FOMC raised interest rates for the first time in a year and indicated that they plan to increase rates three more times in 2017. Investors looking for clues about the market’s direction in 2017 are hoping for the meeting minutes to shed some light on the Fed’s view of the incoming administration’s plans for tax cuts and fiscal stimulus.
Commodities
Oil climbed to an 18-month high yesterday as major oil producers started reducing output in fulfillment of their OPEC deal requirments. Kuwait has cut output by 130,000 bpd, while Oman has decreased production by 45,000 bpd. Crude is currently trading at $52.87 while Brent is at $56.02.
Will OPEC’s cuts be enough to keep prices rising? It looks like essentially it will be a “Goldilocks versus three bears” scenario.
Goldilocks in this scenario sees OPEC/non-OPEC nations remaining committed to their deal, reducing oil output by two million bpd in a bid to drive prices higher.
On the other hand, the three bears are:
- Falling demand for oil as China, the world’s second-largest consumer of oil, waits longer to find bargains before purchasing.
- Non-OPEC production rising, as just last week in the US, Baker Hughes reported rig counts rising by five.
- OPEC production rising. Already, Libya, one of two OPEC nations (the other being Nigeria) exempt from production cuts, has announed that output is now 685,000 bpd, up from up from around 600,000 bpd last month. They want to raise production to 900,000 bpd by March. Additionally, countries can play games with numbers, and actual cuts might only equate to 60-80 percent of the intended reduction.
In precious metals, gold has climbed 0.06% to $1,162.85 this morning, driven by the dollar pullback. Silver is higher as well, up 0.21%, to $16.443.
Stocks
Boosted by higher oil prices, many energy companies did well yesterday, and the Energy Index gained 1.15%, outperforming the S&P 500 by 0.3%.
Marathon Petroleum (NYSE:MPC) gained 5.12%; Newfield Exploration (NYSE:NFX) rose 4.1%; and Devon Energy Corporation (NYSE:DVN) ended the day yesterday 3.1% higher. All three companies are even higher pre-market trading. Marathon is up 7.4%; Newfield is up 3.23%; and Devon is up 2.67%.
However, not all oil companies did well: Southwestern Energy (NYSE:SWN) fell 7.86% and Range Resources (NYSE:RRC) lost 5.12%. Both firms are down approximately 2.45% more in pre-market trading.
In other news, Trump took to Twitter again yesterday to let the world know his innermost thoughts on General Motors (NYSE:GM) and Obamacare.
The President-elect attacked GM for getting away with manufacturing cars in Mexico and avoiding border taxes once the completed automobiles return to the USA.
GM shares fell 1% in pre-market trading, but the car maker quickly brushed aside the concerns—after all, GM's chairman and chief executive, Mary Barra, is one of Trump’s economic advisors—and the stock was up 0.89% at the close.
Also of car-making importance, Ford (NYSE:F) announced yesterday that it was canceling plans for a new $1.6 billion factory in San Luis Potosi, Mexico. Instead, it will invest $700 million—and add 700 new jobs—to expand its plant in Flat Rock, Michigan. Shares of Ford Motor Company rose 3.79% on the day.
Mr. Trump also went after the Affordable Care Act.
More than 20 million Americans have gained medical coverage under the Affordable Care Act and health care facilities have benefited as result, since they now suffer fewer losses from uninsured patients.
Some of the big stocks that could be impacted if changes to Obamacare are made include Community Health Systems (NYSE:CYH), which owns 188 hospitals; Hospital Corporation of America (NYSE:HCA), which manages 166 hospitals, Tenet Healthcare (NYSE:THC), which owns 70 hospitals and hundreds of outpatient clinics; LifePoint Health (NASDAQ:LPNT), which owns 56 hospitals; and Universal Health Services (NYSE:UHS), which manages 28 hospitals and clinics.
However, yesterday at least, health care stocks—and these companies in particular—were completely unfazed by Trump’s Twitter attack. As indicated in the chart above, the Health Care Index gained almost 1.4% on the day. Community Health Systems rose 3.94%; HCA was up 0.59%; Tenet Healthcare gained 3.77%; LifePoint increased 2.2%; and Universal Health finished 0.31% higher.
Perhaps markets are learning to take presidential Twitter attacks with a grain or two of salt.