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17Jan2018 Open Market Commentary: Wall Street Opens Moderately Higher, Bitcoin Falls Further, WTI Crude Trading In The Mid 63 Handle

Written by Gary

DOW surges triple digits on better-than-expected earnings (SPY +6%). Bank of America rises and Bitcoin slumps below $10,000, half its peak price, as regulatory fears grow.


Here is the current market situation from CNN Money

European markets are mixed. The CAC 40 is higher by 0.04%, while the DAX is leading the FTSE 100 lower. They are down 0.21% and 0.19% respectively.

What Is Moving the Markets

Here are the headlines moving the markets.

World shares pull back from record highs, set for second fall of 2018

LONDON (Reuters) - World shares pulled back from record highs on Wednesday, set for only their second day of losses in 2018 as lower commodity prices and a string of downbeat updates from companies dampened the mood in global markets.

Exclusive: GM, DHL use a Chinese plant to lead manufacturing change

LIUZHOU, China, (Reuters) - Inside General Motors Co's vehicle assembly plant in this southern China city, many workers wear the red-and-yellow uniforms of DHL, the logistics company.

Bank of America net profit slumps on $2.9 billion tax charge, adjusted income beats

(Reuters) - Bank of America Corp's net profit nearly halved compared with a year earlier as it booked a $2.9 billion charge stemming from the new federal tax law although it beat analysts' estimates when adjusted for the charge.

Bitcoin slumps to $10,000, half its peak price, as regulatory fears grow

LONDON/TOKYO (Reuters) - Bitcoin skidded a further 12 percent on Wednesday, marking an almost halving in value from its peak price, with investors spooked by fears regulators could clamp down on the volatile cryptocurrency that skyrocketed last year.

Rolls-Royce shares jump as commercial marine unit goes on the block

LONDON (Reuters) - Britain's Rolls-Royce said on Wednesday it was considering the sale of its commercial marine business, which has been hit by weak demand in offshore oil and gas markets, as part of a restructuring of the company into three core units.

Goldman posts first quarterly loss in 6 years on tax hit; trading slumps

(Reuters) - Goldman Sachs Inc on Wednesday posted its first quarterly loss in six years on a huge tax charge but adjusted profit trumped analysts' estimates, as strength in the investment banking business cushioned the blow from a slump in trading.

Exclusive: J&J attracts Chinese interest for diabetes business in potential $3-4 billion deal - sources

HONG KONG (Reuters) - Chinese bidders are circling a diabetes care business owned by the world's largest healthcare company Johnson & Johnson in a deal that could fetch up to $4 billion, five people with direct knowledge told Reuters.

Futures higher as investors weigh bank earnings

(Reuters) - U.S. stock futures pointed to a higher open for Wall Street on Wednesday as investors assessed earnings of Bank of America and U.S. Bancorp.

Britain needs to give companies more time to save Carillion-linked jobs: union

LONDON (Reuters) - The British government needs to allow more time for firms to take on workers whose jobs are threatened by the collapse of outsourcer Carillion , the head of one of Britain's biggest trade unions said on Wednesday.

FBI Agents Hand-Delivered Mueller Subpoena To Steve Bannon's Home

Tuesday was a difficult day for former White House Strategist Steve Bannon, who has seen his political influence and reputation as a "kingmaker" evaporate since the first excerpts of Michael Wolff's book "Fire and Fury" were published earlier this year.

Bannon endured 10 hours of testimony before the House Intelligence Committee on Tuesday while refusing to answer any questions about his time in the White House or the transition, per the White House's orders. The New York Times also reported that he had been served with a subpoena last week to testify before the grand jury in special counsel Robert Mueller's probe into Russian collusion after refusing the offer of an informal interview.

Today, NBC News has reported some new details about Bannon's legal situation that underscore the difficult situation the former Breitbart executive, who was ousted by the Mercer family as his political allies chafed at some of his more self-aggrandizing comments.

Bannon's subpoena, as it turns out, was hand-delivered by FBI agents who showed up at his home last week to deliver the subpoena and discuss the Russia probe with Bannon. However, the agents were unaware that Bannon had retained counsel just hours before their visit, and subsequently redirected the subpoena to Bannon's lawyer...

FBI agents showed up at Steve Bannon's Washington home last week intent on serving him with a subpoena to appear before a grand jury investigating possible ties between President Donald Trump's campaign and Russia, according to a source familiar with the proceedings.

The agents were unaware at the time that Bannon had retained Washington la ...

Trader: "What The Hell Is Going On With Equities? Here Is The Simple Answer"

Confused about the market's relentless melt up, if briefly slowed down by yesterday's odd hiccup which saw the biggest intraday reversion in two years?

Don't worry, you are not alone: as Bloomberg's macro commentator and former FX trader, Richard Breslow writes, "all I heard yesterday morning was, "What the hell is going on with equities?"

In light of recent reports that pension funds - such as Norway's, the world's largest - and various sovereign wealth funds are becoming increasingly activist in stocks, in many cases with leverage, not to mention central banks such as the SNB which keeps buying and the BOJ which holds 75% of Japanese ETFs, the simple answer is staring everyone in the face.

Here is Breslow's explanation:

Stocks Are Rallying for a Very Simple Reason

All I heard yesterday morning was, "What the hell is going on with equities?" They were of course looking like they had become untethered from reality and wanted to simply go to infinity and beyond. Then, at day's end, I kept being asked, "What the hell is going on with equities?" They had, by then, come down to Earth. At least for an afternoon.

The year-to-date move has been so impulsive that for once the setback wasn't described as the beginning of the end or a technical canary. And no one tried to tell me how much wealth had been lost since brunch. Instead it was helpfully described as a healthy correction. After all, prices were already threatening to surpass some of the more conservative full-year forecasts. And that might have proved to be inconvenient for a number of analysts.

So what the dickens is happening? Yes, the global economy is doing well. But we knew that. The U.S. tax changes have caused investors to ratchet up their earnings forecasts. Share buybacks that are expected to be super-si ...

"New California" Conservative Movement Declares Independence As First Step Towards 51st State

A group called "New California" has taken its first step towards carving the Golden State in two - issuing a "declaration of independence" which would incorporate most of the state's rural counties - while coastal counties from the northern San Francisco Bay Area to the southern tip of Los Angeles would remain part of the existing state.

Quoted by CBS, founder Paul Preston said "Well, it's been ungovernable for a long time. High taxes, education, you name it, and we're rated around 48th or 50th from a business climate and standpoint in California."

"There's something wrong when you have a rural county such as this one, and you go down to Orange County which is mostly urban, and it has the same set of problems, and it happens because of how the state is being governed and taxed," Preston said.

The group is serious about this effort - printing pamphlets (here and here and here) citing authority granted in the U.S. Constitution "to provide a republican form of government as guaranteed by Article IV, Section 4," which co-founder Robert Paul Preston says has not been the case in California for a long time. "There's something wrong when you have a rural county such as this one, and you go down to Orange County which is mostly urban, and it has the same set of problems, and it happens because of how the state is being governed and taxed," Preston said.

"when a long train of abuses and a ...

Goldman Reports Worst Revenue In 2 Years As Bond Trading Crashes 50%

Just like all other banks before it, Goldman took a charge as a result of Tax Reform, amounting to $4.4 billion or less than the $5 billion expected, which hit net income, resulting in a net loss of $1.93 billion or a GAAP EPS loss of $5.51. Excluding the tax-related charge, Goldman's EPS was $5.68 in Q4, above consensus estimate of $4.91.

However, while Q4 earnings at the banks were largely a wash due to tax reform, it was the top line that was troubling: here Goldman reported $7.834 billion in Q4 revenue, which while modestly better than the $7.61 billion expected, was the lowest quarterly print since the first quarter of 2016.

And while the bank's Investment Banking division was a surprising outlier to the upside, generating $2.14BN in Q4 revenue, far above the $1.64BN expected, and saved the bank's quarter, the rest of the income statement was a disaster, with Goldman's FICC, i.e. bond, FX and commodity revenue, printing just $1.00 billion, well below the $1.28BN est., and a shocking 50% plunge from the $2.00Bn reported a year earlier. And as a result of the plunge in bond revenues, total institutional client services tumbled 34% Y/Y.

Putting this number in context, the last time Goldman printed a $1 billion quarterly figure for the business, the world was in the throes of the financial crisis.

Equity trading was as bad, with $1.37BN in revenue missing estimates of $1.51BN, and down 14.1% from a year ago.

Total Q4 trading revenue of $2.37BN was below the $2.76BN expected, and the worst since the financial crisis.

Finally, Goldman's prop lending group, Investing and Lending, helped modestly, reporting $1.658BN in revenue, an increase of 12% Y/Y, but a drop of 12% from last quarter.

Fear the Unknown at General Electric

GE's nasty surprise raises deeper fears about the company and doubts about whether a breakup would preserve value for investors.

UnitedHealth Cashes In on Tax Cut

Tax reform lived up to the hype for health insurers, as industry bellwether UnitedHealth reported higher-than-expected revenue in the fourth quarter and raised its forecast for 2018 by 17%.

Where Banks and Tech Are Going Head to Head

New rules in Europe have opened a battleground between big tech and big banks over who will control consumers' wallets.

Capitol Report: Short-term funding bill would delay medical device, 'Cadillac' taxes | McCain tells Trump 'stop attacking the press'

House Republicans' short-term funding bill would delay Obamacare taxes; Sen. John McCain tells President Donald Trump to stop attacking the press; and the House will begin two days of hearings on earmarks.

NewsWatch: The big lesson stock traders can learn from the crypto meltdown

Our call of the day suggests less schadenfreude and more attention to what bitcoin is telling this market. Our chart of the day, meanwhile, has an eye on a mining ETF that could be in for some big wins.

Called to Account: GE shocks market with multibillion-dollar loss in legacy reinsurance business

Chief Executive John L. Flannery is 'deeply disappointed at the magnitude of the charge' in the company's legacy reinsurance portfolio.

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To contact me with questions, comments or constructive criticism is always encouraged and appreciated:

gary@econintersect.com

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