by Eli Wright
Rising political uncertainty in both the US and Europe continues to drive global risk-off sentiment. Gold has advanced, up near a two month high at $1,232.25 while stock markets are mixed, as investor interest moves away from equities, at least for now. Aside from jitters surrounding upcoming elections in France and Germany, the ongoing uncertainty in the wake of some of President Trump’s executive actions have riled markets.
Oral arguments are scheduled today in San Francisco at the U.S. Court of Appeals for the Ninth Circuit before it comes down with its final ruling, after the Justice Department sought to have the court reinstate Trump’s travel ban. If there's unhappiness with the final ruling on either side of the argument—which appears likely—the battle could move next to the US Supreme Court.
Additionally 127 companies, many of them tech companies—including FANG giants Facebook (NASDAQ:FB), Apple (NASDAQ:AAPL), Netflix (NASDAQ:NFLX), and Google (NASDAQ:GOOGL)—filed an amicus brief yesterday opposing the immigration ban, arguing that “the Order inflicts significant harm on American business, innovation, and growth” and makes it more difficult and expensive for U.S. companies to recruit, hire, and retain some of the world’s best employees. A broad array of public and privately-held companies, not all of them in the tech space, participated including Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC), Levi Strauss, Tesla (NASDAQ:TSLA) and Chobani.
Trump’s attempts at Dodd-Frank reform are also coming under attack, though not from the US financial industry. ECB President Mario Draghi warned yesterday against loosening banking rules. “The last thing we need at this point in time is the relaxation of regulation,” Draghi said. “The idea of repeating the conditions that were in place before the [2008] crisis is something that is very worrisome.”
Overnight in Asia, the Nikkei declined 0.35%, to 18,910.78; the Shanghai Composite fell 0.11%, to 3,153.65; and the Hang Seng edged 0.02% lower, at 23,343.00.
In Europe, the FTSE is up 0.64%, at 7,217.55, the DAX is 0.6% higher, at 11,579.50; and the Stoxx 50 has gained 0.28%, to 3,248.
On Wall Street yesterday, the Dow dropped 0.09%, to 20,052.42; the S&P 500 fell 0.21%, to 2,292.56; and the NASDAQ closed down 0.06%, at 5,663.55.
In premarket trading, the Dow, S&P, and NASDAQ have all inched higher, approximately 0.03% apiece.
US Treasury yields are back where they were two weeks ago: the 2-year yield is 1.157%; the 10-year yield is 2.406%; and the 30-year yield is 3.051%.
Forex
The Dollar Index is higher, up 0.67% to 100.58, against several major currencies.
The euro has been driven lower, down 0.73% to 1.0671, as German Industrial Production for December disappointed, falling 3%; expectations were for it to rise 0.3%. The single currency is feeling additional pressure as the IMF reviews the terms of Greece’s bailout and debates whether austerity measures need to be expanded. Below 1.07, the euro's next level of support is at 1.056.
Sterling is down 0.8%, to 1.2367 as the UK parliament's Brexit debate regarding the the triggering of Article 50 enters day two. The pound could next test support at 1.225. On the upside, it could rise to 1.249.
USD/JPY is up 0.39% this morning, to 112.18. However, with risk aversion on the rise, safe haven currencies could see a boost, and the pair, which is currently near a two-month low, could fall below 111.
JOLTs Job Openings come out later this morning. The expectation calls for 5.568M vacancies, but a surprise in either direction could impact the dollar’s trajectory.
Commodities
Crude oil slipped 1.5% yesterday. It was the commodity’s largest decline in two weeks. It’s currently 0.49% lower at $52.75, while Brent is down 0.46% at $55.46.
Prices have gone up since OPEC agreed to limit production at the end of November. However, as the chart below shows, as oil prices climbed, the US oil rig count increased as well, albeit with a bit of a lag. This could put a long-term drag on prices. As Scott Barlow noted in the Globe and Mail:
“I suspect that the number of bullish futures trades will decline in the weeks ahead once it becomes clear that the limited short-term upside for the commodity price doesn’t warrant the risk.
Source: Globe and Mail
Gold is up 0.05% this morning, near a 12-week high of $1,232.55 as risk-off sentiment, as well as among other things, bets on a less hawkish Fed have boosted demand for the yellow metal. Gold could retest support at $1,220 or try to challenge resistance at $1,260.
Stocks
Disney and GM are among the large-caps reporting earnings today:
Disney (NYSE:DIS) is expected to announce Q1 2017 earnings per share of $1.50 on revenue of $15.26B. Its earnings number would represent an 8% YoY decline. ESPN subscriptions, which fell during the previous quarter, will be a key metric. Investors will also look for positive results from Disney’s resorts and parks, as well as from their movie segment, since Rogue One: A Star Wars Story garnered more than $1 billion globally at the box office.
General Motors (NYSE:GM) is expected to report Q4 2016 EPS of $1.12 on $42.71 in revenue. The car manufacturer has shown both revenue and income growth over the past year, and although Trump’s proposed trade policies have concerned automakers, GM’s future outlook appears bright. They recently announced plans to invest approximately $1 billion dollars in their US business, potentially creating thousands of new jobs. The company is also scheduled to roll out the Chevy Bolt later this year, an affordable electric car that would represent the automotive markets first real competitor to Tesla's (NASDAQ:TSLA) Model 3.
Teva Pharmaceuticals (NYSE:TEVA) bears watching today as well. Its CEO, Erez Vigodman, resigned after just three years at the helm. He'll be replaced on an interim basis by Chairman Yitzhak Peterburg.The company's shares declined by 1% after hours. The world's largest generic drug maker by sales, has been plagued by a run of bad headlines lately: along with paying a $519M fine on bribery charges late last year, they remain under investigation for for price fixing in collaboration with other big Pharma companies; and last month, four patents protecting their blockbuster multiple sclerosis drug Copaxone were invalidated. Teva shares, which closed yesterday at $34.35, are down 2.15% in pre-market trading.