by Eli Wright
Friday's nonfarm payrolls headline number showed that 227K jobs were added to the US economy in January but those results were blunted by an uptick in the unemployment rate to 4.8%. Average hourly wage growth also disappointed, rising 0.1% compared to the 0.3% gain expected. The US dollar fell on the news. Its recent slide continues. The Dollar Index finished the week down 0.6% at 99.73.
Gold and oil bounced higher to end week, but copper and iron ore fell on Friday after China's central bank surprised markets and raised interest rates in what appears to be an effort to deflate asset bubbles and reduce longer-term financial risk.
Though US equity markets started the week on unsteady footing when the Dow, NASDAQ and S&P 500 all moved lower in reaction to the the confusion caused by Trump's hastily enacted immigration and refugee ban, Friday's presidential move to roll back restrictions put in place by the Dodd-Frank Act buoyed markets, in particular financials. The Dow Industrials Index saw its biggest daily gain in two months, and Tech Indices including the NASDAQ 100 are now near all-time highs. The Dow recovered to closed the week down just 0.1% while the SPX and NASDAQ both finished up 0.01%
The FOMC’s less than hawkish stance in Wednesday’s monetary policy statement brought into question the possibility of three interest rate hikes during 2017. While the Fed did point to several signs of a strengthening US economy, including improving business and consumer sentiment, job growth, and increasing inflation during recent quarters, they also said that “near-term risks to the economic outlook appear roughly balanced,” an indication they are unsure where the economy might be headed in the short-term. This too weighed on the dollar.
Dollar slips against FX majors
The US dollar ended the week lower against most of the majors – and finished January down 2.6%, its worst January performance in 30 years.
The euro is currently at 1.0783, encountering strong resistance at 1.08. However, the single currency could see a boost after Germany’s Finance Minister Wolfgang Schaeuble said in a newspaper interview that the euro’s exchange rate is too low for Germany and that “the ECB must make policy that works for Europe as a whole.”
The yen is trading at 112.65. The safe haven Japanese currency has been gaining as risk-off sentiment grows. Additionally, despite leaving monetary policy and interest rates unchanged on Monday, the Bank of Japan raised its growth forecast to 1.4% from the 1.0% target it cited last October.
Sterling is one of this week’s underperformers, down to 1.2484 versus the dollar. The cable has been driven lower by disappointing UK construction and services PMI. Additionally, though the Bank of England upgraded their UK growth forecast during their policy meeting on Thursday, the central bank kept interest rates at current historic lows. In his speech, BoE Governor Mark Carney cautioned that, “the Brexit journey is really just beginning. While the direction of travel is clear, there will be twists and turns along the way.”
Major commodities gain
Crude oil rose 1.3% on the week, to close at $53.86. Brent is at $56.80. Despite weekly US crude oil inventories rising by a reported 6.466M, and US rig counts climbing by 17 to 583, which would normally drag prices down, worries over fresh US sanctions on more than two dozen Iranian, Chinese, and Emirati individuals and business for supporting Iran’s ballistic missile program are providing support.
Gold jumped 2.5% this week to $1,221.85, propelled by the weaker dollar and trader demand for safe havens.
Earnings reports show growth – and upside
Last week was a busy week for quarterly financial reports. More than 20% of S&P 500 companies reported, including Apple (NASDAQ:AAPL), ExxonMobil (NYSE:XOM), Facebook (NASDAQ:FB), and Amazon (NASDAQ:AMZN).
- Apple reported Q1 2017 earnings per share of $3.36 on $78.35B in revenue, thanks to higher iPhone sales in the holiday quarter and 18.4% growth in Apple’s services business.
- ExxonMobil Q4 EPS came in at $0.41 against an estimate of $0.70; quarterly profits fell 40% YoY after a more than $2B writedown charge in the value of some of their assets.
- Facebook Q4 2016 EPS came in $1.41 vs an expected $1.11. revenue also beat expectations, coming at at $8.81B vs an expected $8.46 billion.
- Amazon's Q4 EPS, at $1.54, came in better than the expected $1.14. However, their holiday season sales and revenue from their cloud-computing division AWS came in lower than expected, at $43.74B vs $44.6B, disappointing investors.
With more than half of all S&P 500 companies having reported earnings, YoY profit growth is currently estimated at eight percent.
Of note, during after-earnings conference calls this month, questions about President Trump and the affect his policies may have on companies appear to have been front and center—most companies urged patience; criticism was muted.
Biggest Stock Market Gainers Last Week
The S&P's top ten gainers for the week were:
Mead Johnson Nutrition (NYSE:MJN) shares surged 18% last week, as the baby formula manufacturer confirmed rumors they were in talks for a $16.7B takeover by the UK's Reckitt Benckiser (LON:RB).
Arconic (NYSE:ARNC), the Alcoa (NYSE:AA) spinoff that supplies engineered products to aerospace and automotive markets, gained 14.6%. Despite weaker-than-expected EPS in their Q4 2016 earnings report this past week, revenue was $12.39B – 4 times more than the expected $3.01B.
Macy’s (NYSE:M) rose 12.3% as rumors surfaced of a possible takeover by Canada's Hudson's Bay Company (TO:HBC), which already operates such US retailers both Lord & Taylor and Saks Fifth Avenue. Neither company confirmed the rumors.
Affiliated Managers (NYSE:AMG), an investment management group, rose 9.47% as Q4 2016 EPS came in at $3.80, 20% more than expected.
Mettler-Toledo (NYSE:MTD), a provider of scales and other analytical instruments, gained 9.34% after reporting Q4 2016 earnings per share of $5.28, 73% better than expected.
Avery Dennison (NYSE:AVY), a manufacturer of labels, tags and other packaging materials, rose 8.16%. The company reported Q4 2016 EPS of $0.99, in line with company expectations.
Four pharma giants round out the top ten: AmerisourceBergen (NYSE:ABC) and Allergan (NYSE:AGN) gained 8.3%; Endo International (NASDAQ:ENDP) rose 7.89%; and Mylan (NASDAQ:MYL) finished up 6.96%.
Biggest Losers Last Week
The S&P 50’s biggest losers on the week were:
Under Armour (NYSE:UA), the designer, developer and distributor of sports apparel and footwear was the S&P’s worst performer, losing 28.72% on the week as Q4 2016 EPS and revenue both disappointed.
Hanesbrands (NYSE:HBI), manufacturer of basic apparel, fell 17.05%. Despite Q4 2016 earnings per share of $0.53—nearly double what had been expected—revenue came in 7% below expectations.
A similar theme played out for high-end clothing designer Ralph Lauren (NYSE:RL), which posted Q3 2017 earnings per share of $1.86 – 2.3 times more than expected. However, the company missed revenue expectations by 15%. Shares fell 13.4%
Pitney Bowes (NYSE:PBI), a provider of e-commerce solutions, posted Q4 2016 revenue of $887.1, four percent below expectations. Shares were down 16.95% on the week.
United Parcel Service (NYSE:UPS) shares fell 9.43%; the package delivery service just missed Q4 2016 revenue targets.
E-TRADE (NASDAQ:ETFC), an online stock brokerage, fell 9.15% after settling charges for allegedly destroying customer records.
International Paper (NYSE:IP) lost 7.55% after reporting a 16% YoY decline in Q4 2016 earnings.
Edwards Lifesciences (NYSE:EW), which specializes in developing and producing medical equipment including artificial heart valves, fell 7.02%. Fourth-quarter earnings per share and revenue both came in below-target.
MetLife (NYSE:MET) fell 6.91% as the insurance provider missed expectations on both Q4 EPS and revenue.
Cognizant (NASDAQ:CTSH), an IT services and consulting company, finished the week down 6.47%. The company is scheduled to release Q4 2016 earnings on February 8.
What to expect in the week ahead
Politics will likely be a major market driver once again this week, as investors look to see what new tricks President Trump has up his sleeve. Markets may also be keeping an eye on the Middle East to see whether tensions between the USA and Iran ratchet up after last Friday's reactivation of US sanctions. If the face-off grows hotter, markets could get spooked.
Earnings season continues: Media giant Twenty-First Century Fox (NASDAQ:FOX) and toymaker Hasbro (NASDAQ:HAS) report on Monday; US automotive giant General Motors (NYSE:GM) reports on Tuesday; specialty pharma manufacturer Allergan (NYSE:AGN) and big pharma stalwart GlaxoSmithKline(NYSE:GSK) on Wednesday; markets will hear from Twitter Inc (NYSE:TWTR) on Thursday.
It’s a relatively light week for the US on the economic calendar though global events will have some influence on local and possibly world markets. Of interest:
- Royal Bank of Australia’s rate statement tomorrow
- US Trade Balance and JOLTs Job Openings on Tuesday
- EU economic forecasts tentatively scheduled for Wednesday
- Weekly US Initial Jobless Claims on Thursday
- UK Manufacturing Production and Trade Balance, as well as Canadian Employment Change on Friday