The Market Today

TODAY’S CALENDAR

Important 24 Hours for Economy and Markets – FOMC Meeting: The FOMC will announce its monetary policy decision at 1:00 p.m. CT today, followed by a press conference for Chairman Powell at 1:30 p.m.  Markets are expecting a dovish result with the Committee transitioning from mechanical rate to hikes to a period of “patience.”  Specifically, all eyes will be on the phrase “some further gradual increases.”  This would presumably be the easiest place to reflect the new, patient approach.  Additionally, it appears that momentum is growing for a potential change in the balance sheet run-off.  While this could be addressed in the policy discussion of the Official Statement, Powell may choose to discuss the issue in his press conference.  The challenge for the Fed today will be striking a dovish enough tone to satisfy markets while also keep future rate hikes still in-play.

 

Important 24 Hours for Economy and Markets – U.S. China Trade Talks Resume: Trade talks kick off today between senior Trump administration officials and Chinese Vice Premier Liu He.  News is likely to be floated early on how the talks are progressing. Markets have shown significant sensitivity to any trade policy news, particularly as it relates to U.S. – China trade.  Forced technology transfers, intellectual property laws, foreign ownership rules, and enforcement mechanisms are all likely to be key topics.

 

ADP Shows Jobs Continuing to Beat Expectations: January’s ADP report topped expectations and, despite a mixed record of predicting the official jobs data from the BLS, poses upside risk to Friday’s nonfarm payroll figure (165k total, 175k private). ADP estimated the private economy added 213k jobs in January, easily clearing the 181k economists were expecting, while December’s 271k was dialed back to a still-strong 263k. The more than 475k jobs added over the last two months is among the best readings in several years and is especially impressive considering the elevated uncertainty that has buffeted markets in recent months. Looking at the details, goods-producing sectors were surprisingly, and potentially unsustainably strong, with a monthly gain of 68.2k jobs, near the top end of this cycle’s range. Manufacturing posted its best month since March 2012 with 33.4k new jobs added. As for services industries, job growth was a less-stellar 144.7 and saw slower activity across all sectors except financial activities and leisure and hospitality. While January’s pace may be hard to repeat consistently throughout the year, the pace is still above what the Fed believes is needed in a full-employment economy.

 

Home Sales: Pending Home Sales for the month of December will be released at 9:00 a.m. CT.  Sales are expected to have risen 0.5% MoM but to end the year down 7.0%.

 

TRADING ACTIVITY

Yesterday – Stocks Closed Mixed on Earnings: Treasury yields slid Tuesday to close near their lows as the major equity indices fluctuated in response to corporate earnings. A split sector decision left the S&P 500 0.2% lower on the day as industrials rose 1.4% in response to several positive earnings releases from within the sector. 3M was among those to top expectations and help offset concerns created by a poor report from Caterpillar on Monday. Shares of 3M made the biggest points contribution to the Dow while Caterpillar recovered 2% after Monday’s 9% slide. On the other end of the sector ladder, tech dragged the most after Verizon missed on revenues and investors awaited Apple’s after-market earnings release. Apple sent ripples through markets on January 2 that after warning revenues would be less than previously estimated because of weakness in China. Actual results were better than expected and boosted the company’s stock price as much as 6% after hours. Elsewhere, the Dow rose 0.2% on the boost from industrials while tech’s down day pushed the Nasdaq down 0.8%. Outside of the U.S., the British Pound posted its third-largest drop of the year after the U.K. parliament voted down amendments to consider extending the Brexit deadline. They did, however, approve separate amendments to avoid a no-deal exit and to drop the Irish backstop, a key sticking point the EU immediately said was a nonstarter. The net result was the 10-year Treasury yield falling 3.4 bps to 2.71%, a two-week low.

 

Overnight – Lots of Action in Washington as Corporate Earnings Keep Pouring In: Global markets moved in different directions overnight as one of the week’s most important meetings will soon commence while the other draws nearer to its conclusion. Top officials from Beijing traveled to Washington this week to meet with U.S. counterparts in an effort to further progress from a three-day meeting earlier in January between more junior trade officials. A ceasefire on new tariffs was put in place on December 1 but will lapse on March 1 if no deal is reached, potentially leading to 10% tariffs on $200 billion of Chinese imports being raised to 25%. As trade policymakers embark on their discussions, U.S. monetary policymakers will bring theirs to an end. The Fed will release an updated Statement after lunch and Fed Chair Powell will hold his first of eight scheduled press conferences this year. Markets will also be faced with an important day for corporate earnings. Excepting a big disappointment in China and weakness in iPhone sales, Apple’s earnings report yesterday was upbeat and has lifted shares more than 5% overnight. Nasdaq futures have responded with a 0.9% gain. Dow futures jumped to new overnight highs and were up more than 1% after Boeing’s 4Q results and 2019 forward guidance easily exceeded estimates. Visa, U.S. Steel, Facebook, and PayPal will all release after markets close. Treasury yields have moved up modestly and are near their session highs with the 2-year yield up 0.6 bps and the 10-year yield 1.2 bps higher.

 

NOTEWORTHY NEWS

Consumer Confidence Extended Its Recent Decline: Consumer confidence dropped more than expected in January as consumers became more cautious about the future. The Conference Board’s confidence index fell 6.4 points in January (December was revised down 1.5 points) to 120.2, the lowest level since July 2017. The current assessment was essentially unchanged from December while expectations tumbled 10.4 points to the lowest level since October 2016. Combined with the prior two months declines, the 27.8-point drop in expectations is the largest three-month decline since 2001. The differential between the number expecting better business conditions and the number expecting conditions to worsen hit its narrowest level since 2013. Income expectations hit their second weakest level in 18 months. And consumers expect net fewer jobs (% more – % fewer) six months from now for the first time since October 2016. Recent market volatility likely played some small part in the decline, as the share expecting stock prices to decline hit the highest level since 2012. The results mirrored trends in a consumer survey from the University of Michigan, which fell to a new low since President Trump was elected, and reinforces concerns that growing uncertainties could cause activity to slow from its brisk 2018 pace.