The US stock market (Dow future) surged more than +200 points early Wednesday on earnings boost from Goldman Sachs (NYSE:GS) and Bank of America (NYSE:BAC) (BOA). The risk-on sentiment was also boosted by a $22B M&A deal in the fintech sector, whereas, Fiserv (NASDAQ:FISV), a US Fintech service provider will buy payment processor FDC. Earlier in the EU session, Dow future was under stress and was almost flat on lingering geopolitical uncertainty about US-China trade truce and US shutdown coupled with Brexit, which could affect global growth in the coming days.
On early Wednesday Asian session, global cues were positive on hopes of China stimulus and a record amount of liquidity injection (CNY 560B net) by the PBOC to support the system liquidity, which was falling rapidly. The PBOC has injected record amount of cash into the market to “maintain reasonably ample liquidity” in the banking system. China’s central bank- the PBOC said the act was to provide support for the current peak period for tax payments. And it came at a time when “the banking system’s overall liquidity is falling rapidly”.
The PBOC action is seen as an indication that China is serious about its stimulus talks and may also introduce other targeted fiscal stimulus like tax cuts to shore up the economy.
On Tuesday, there was a report that the USTR Lighthizer, a known China Hawk sees little progress in last week's US-China trade talks on key structural issues and IP protections despite China’s huge purchase of US Soybeans. This is contrary to Trump’s consistency in China optimism (to support the US stock market).
The US stock market is also under stress on lingering US shutdown and political drama with so signs of compromise from either side. Meanwhile, the White House economic team has doubled its estimate of shutdown costs to the economy from -0.1% per two weeks to -0.1% per week due to greater loses from private contractors, who were also out of work and certain other government functions.
The White House estimate is more aggressive than the Wall Street (-0.04%/week), maybe to put Democrats under pressure to budge. On Tuesday, Trump tweeted: “Why is Nancy Pelosi getting paid when people who are working are not?”
Meanwhile, as the US shutdown enters the 26th day, there was a report that the White House has ordered thousands of furloughed Federal employees back to work without pay in an attempt to limit the impact of the partial shutdown that continues to show no sign of resolution. President Trump is due to sign legislation on Wednesday that will provide workers with back-pay after the shutdown drama ends.
Elsewhere on Wednesday, the US House Speaker Pelosi has requested Trump to reschedule State of the Union address because of the partial government shutdown. In a letter to President Trump, Pelosi said, "Sadly, given the security concerns and unless government re-opens this week, I suggest that we work together to determine another suitable date after government has reopened for this address or for you to consider delivering your State of the Union address in writing to the Congress on January 29th." Pelosi added because the Secret Service is the lead agency for security and it has not been funded due to the shutdown, the address should be put off. It now seems that the US shutdown and political saga will go on till at least January.
US 30
The Dow future (DJ-30) is currently trading around 24155.00, surged by almost +0.71% (+171.00); it made a session low-high of 23960.00-24221.00 so far on Wednesday. Banks and financials are helping.
Pivot: 24350 Support: 24050 23900 23750Resistance: 24500 24700 24900 Scenario 1: STRONG ABOVE 24350 AND SUSTAINING ABOVE 24500-24900, DJ-30 MAY FURTHER SURGE TO 25050/25200/25550/25700 IN THE NEAR TERM Scenario 2: WEAK BELOW 24300-24250 AND SUSTAINING BELOW 24050-23750, DJ-30 MAY FURTHER PLUNGE TO 23650/23395/23250/22900 IN THE NEAR TERM Comment: SHORT TERM RANGE:21400/22500-24250/26700
US 500
The S&P 500 future (SPX-500) is currently trading around 2618.12, jumped by almost +0.50% (+12.62); it made a session low-high of 2602.50-2623.88 so far on Wednesday.
Pivot: 2635 Support: 2600 2585 2555Resistance: 2655 2695 2715 Scenario 1: STRONG ABOVE 2635 AND SUSTAINING ABOVE 2655-2715, SPX-500 MAY FURTHER SURGE TO 2790/2825/2900/2945 IN THE NEAR TERM Scenario 2: WEAK BELOW 2625 AND SUSTAINING BELOW 2600-2555, SPX-500 MAY FURTHER PLUNGE TO 2520/2505//2485/2450 IN THE NEAR TERM Comment: SHORT TERM RANGE:2315/2440-2635/2900
US Tech 100
The Nasdaq-100 future (NQ-100) is currently trading around 6690.00, edged up +0.20% (+13.50); it made a session low-high of 6664.25-6733.12 so far on Wednesday.
Goldman Sachs
Goldman Sachs (GS), which mainly boosted Dow on Wednesday, is currently trading around 194.06, surged by +7.85% on the blockbuster earnings report card (Q4); it made a session low-high of 185.60-195.47 so far.
The investment bank GS reported the Q4 EPS at $6.04, better than expected $4.45 on revenue of $8.08B, higher than the expectations of $7.55B. GS beats earnings forecasts for the Q4 as a surge in revenues at its investment banking (M&A advisory) and lending division (consumer banking/low-income housing/private equity) offset an 18% fall in fixed income revenues/bond trading (y/y) and a $516m litigation hit (mostly related to Malaysian scandal of 1MDB). The CEO Solomon later apologized to the Malaysian people for the 1MDB scandal.
GS posted pre-tax profits of $2.708B for 2018, beating the market estimate of $2.39B but down 13% (y/y). Quarterly revenues of $8.08B were 1% lower than a year earlier, but comfortably above the $7.51B expected by the market.
For GS, excluding the impact of the US corporate tax overhaul, the adjusted EPS was $4.83 vs $4.45 expected. The bank cited "significantly higher net interest income" (NII) from a year earlier in that business tied to its debt securities business, where Goldman lends to big corporate clients. The unit also benefited from $1.26 billion of gains in private equity stakes.
The GS CEO Solomon said in a statement: "We are pleased with our performance for the year, achieving stronger top and bottom line results despite a challenging backdrop for our market-making businesses in the second half. We are confident that we are well positioned to support an even larger universe of clients, continue to diversify our revenue mix and deliver strong returns for our shareholders in the years ahead”.
Overall, the US banks and financials are benefiting from higher bond yields and the Fed’s hawkish monetary policies (higher interest rates) despite the market meltdown in Q4. In January, GS surged almost +17% (till date) against Q4-2018 plunge of around -27% and 2018 slump of around -35%.