Markets: It was a volatile start to 2019, with the market gyrating over the past 3 days, hit by Apple Inc (NASDAQ:AAPL)'s downward earnings revision, but finally settling up for the week, thanks to Friday’s big 3%-plus rally, sparked by rising crude prices, and an upbeat payrolls report, in addition to news of new U.S.-China trade talks.
China’s factory activity contracted for the first time in over two years in December, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington and reduce the risk of a sharper economic slowdown. The Purchasing Mgr.’s Index – the first snapshot of China’s economy each month – fell to 49.4 in December, below the 50-point level that separates growth from contraction. It was the first contraction since July 2016 and the weakest reading since February 2016. Analysts had forecast it would dip to 49.9 from 50.0 the previous month.
The Japanese yen hit its highest level since March against the U.S. dollar on Wednesday evening after what some traders are calling a “flash crash.
At around 5:35 p.m. ET on Wednesday, Japan’s currency traded around 104.80, up about 4 percent in a sudden move. Earlier in the day, the yen traded around 109 per dollar. The currency traded at 107.74 versus the dollar on Thursday morning ET, down more than 1 percent.
Charles Perrin, a trader at J.P. Morgan, said the jolt happened shortly after Apple slashed its first-quarter guidance. Apple, which cited an unexpected slowdown in China, plunged more than 8 percent Thursday morning, also sending global stocks plummeting and stoking fears of a global economic slowdown. The yen in sometimes viewed as a safe haven currency during times of global tumult.”
High Dividend Stocks Going Ex-Dividend Next Week: BDN, T, VZ, CIO, OCCI.
U.S. companies have sent home over half a trillion dollars of cash they held overseas in 2018 to take advantage of tax changes, but data suggest the pace is slowing, potentially removing a key source of support for Wall Street. Dollar repatriation in the July-September period fell to $93 billion, around half of the second-quarter volumes and less than a third of the $300 billion or so sent home from January to March, U.S. current account data shows.
The repatriation bonanza followed new regulations that allowed the U.S. government to tax profits accumulated overseas, regardless of where the money was held. Prior rules allowed companies to “defer” U.S. tax on worldwide profits unless they repatriated the money.
The change offered a powerful incentive to bring home some of the $3 trillion U.S. firms were believed to hold in jurisdictions ranging from Ireland to Switzerland, either in cash or in securities such as U.S. Treasuries. Shrinking repatriation is likely to affect markets because the flows helped fund this year’s record $1 trillion in U.S. share buybacks. A Jefferies analysis of a Federal Reserve paper looking at the use of repatriated cash concluded it had significantly enhanced buybacks, effectively placing a floor under stock markets.
The last quarter of 2018 was the worst 4th quarter for the S&P 500 index since the end of 2008 when the Lehman Brothers crisis erupted.” (Reuters)
Volatility: The VIX fell -29% this week, ending at $21.38.
Currency: The U.S. dollar fell versus most major currencies this week, but fell versus the Swiss franc and the euro.
Market Breadth: 28 Dow 30 stocks fell this week, versus 21 rising last week. 73% of the S&P 500 rose this week, versus 60% rising last week.
Economic News: An unexpectedly upbeat payrolls report helped to lift the market on Friday, with payrolls adding 312K jobs in December, vs. the much lower 182K forecasted.
Week Ahead Highlights: U.S. and China will hold mid-level talks next week. We’ll also get a look at the Fed meeting notes from December, which may shed more light on future rate hikes.
Next Week’s US Economic Reports: Some of the economic reports due out next week may be delayed, due to the government shutdown.
Sectors: Energy led the pack this week, with defensive Utilities and Real Estate trailing.
Futures:
WTI Crude rose 6.6% this week, finishing the week at $48.31, while Natural Gas fell 8.17%.
WTI Oil rose to above $48 a barrel on Friday after China said it would hold trade talks with the US and a survey showed China’s services sector expanded in December, while signs of lower crude supply also lent support.
