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25Jan2018 Market Commentary: All Street Equities Lose Steam, Caterpillar Convulses Lower, US Jobless Claims Rise From 45-year Low, Labor Market Tightening

Written by Gary

US equities markets opened higher, but no new records (SPY +0.05%). DOW up almost 100 points, but struggles to maintain record altitude of prior sessions.


Here is the current market situation from CNN Money

What Is Moving the Markets

Here are the headlines moving the markets.

Wall Street gains on solid earnings, dollar drop

NEW YORK (Reuters) - U.S. stocks opened higher on Thursday, buoyed by solid earnings reports and a decline in the dollar after comments from European Central Bank President Mario Draghi.

At Davos, delegates talk down Trump but bet big on America

DAVOS, Switzerland (Reuters) - Since Donald Trump won the U.S. presidency, business has been booming for Monaco-based businessman Manfredi Lefebvre d'Ovidio.

Exclusive: J&J out of race for Pfizer's $20 billion consumer unit as deadline looms

LONDON/NEW YORK/FRANKFURT (Reuters) - Johnson & Johnson has pulled out of the race to buy Pfizer's consumer health business, leaving GlaxoSmithKline and Reckitt Benckiser among those preparing bids, according to sources familiar with the matter.

U.S. new home sales post largest drop in nearly 1-1/2 years

WASHINGTON (Reuters) - Sales of new U.S. single-family homes fell more than expected in December, recording their biggest drop in nearly 1-1/2 years, likely as the boost from the replacement of flood-damaged houses in parts of the South affected by hurricanes faded.

U.S. has not moved an inch during the NAFTA talks, say sources

MONTREAL (Reuters) - U.S. negotiators have held firm in their demands for a wide-ranging overhaul of NAFTA, three sources close to the talks said on Thursday, raising questions about whether any real movement is happening at the latest round of negotiations on the treaty.

U.S. jobless claims rise from 45-year low; labor market tightening

WASHINGTON (Reuters) - The number of Americans filing for unemployment benefits rebounded from a 45-year low last week, though by less than expected, pointing to tightening labor market conditions.

Nestle, Atari settle lawsuit over Kit Kat campaign

(Reuters) - Nestle SA has settled a lawsuit in which Atari SA accused the Swiss food company of using the hit 1970s video game "Breakout" without permission to sell Kit Kat bars.

Caterpillar profit beats estimates on buoyant global demand

(Reuters) - Caterpillar Inc's profit trounced forecasts for the seventh straight quarter on Thursday as buoyant global demand from construction, mining and energy industries drove a 35-percent surge in equipment sales.

American Airlines profit falls as labor, fuel costs surge

NEW YORK (Reuters) - American Airlines on Thursday reported an 11 percent drop in quarterly profit from a year earlier as labor and fuel costs bloated operating expenses, sending shares lower in premarket trading. American, the No. 1 U.S. carrier by passenger traffic, reported fourth-quarter net profit of $258 million, or 54 cents per share, down $31 million from $289 million, or 56 cents a share, a year earlier.

Goldman Shows What A Market Crash Will Do To The Economy

There is a simple reason why for the past decade, despite all the rhetoric central bankers have been focusing on just one thing - reflating risk assets in general and the stock market in particular - because if you get stocks higher, everything else will eventually follow; call it the "wealth effect and confidence pass thru channel."

This observation forms the basis of a report released overnight by Goldman's economics team, which claims that the 26% increase in the stock market since the start of 2017 "has been the most important driver of the recent easing in financial conditions, which are now at their easiest level since 2000", something we showed yesterday.

So what has been the stock market's contribution to the economic rebound since the Trump election? Here Goldman estimates that "higher equity prices are currently boosting GDP growth by nearly +0.6pp, and account for about two thirds of the +1pp growth impulse from overall financial conditions."

Of course, the market impulse has to continue - i.e., the market has to keep rising - or else the economic response becomes muted: "Our base case is that the equity impulse to growth decelerates to +0.3pp by Q4 as equity price gains slow" Goldman explains.

For the econometricians, here are some further insights from Goldman on the favorable economic effect from rising stocks

We have argued that the most important reason for the acceleration in growth last year and for growth optimism in 2018 is the sharp positive swing in the impulse from financial conditions, which are now at their easiest level since April 2000. The run-up in the equity component of the FCI has accounted for rughly half of the 137bp index easing in 2017 and 80% of the of 32 ...

Swissy Surges After SNB Signals "Intervention" Needed

The Swiss Franc is surging this morning against the dollar and euro following comments by the SNB President on FX intervention. Notably Jordan's comments come as EURCHF nears its pre-peg-break "carnage" levels.

Swiss National Bank President Thomas Jordan says interventions needed for adequate monetary conditions, according to interview with CNBC... and that sparked a plunge in EURCHF (Swiss strength)...

So what next for the Euro and the Franc?

How long before China does the same?

Treasury Yield Spike Sparks Plunge In Stocks

US equities were trading higher - in their ubiquitous manner - when suddenly the 10Y Yield spiked to 2.67% seemingly sparking a sudden round of panic-selling in stocks, pushing all the major indices into the red for the day.

The driver appeared to be the yield spike...

https://www.zerohedge.com/sites/default/files/inline-images/20180125_10Y.jpg

And then as stocks were slammed, so bonds rallied, pushing yields back down...

https://www.zerohedge.com/sites/default/files/inline-images/20180125_10Y2.jpg

Have we reached the equity market's Maginot Line with regard to bonds?

"It Is Frankly Scary" - Bill White Warns Global Financial System Faces "Perfect Storm"

Authored by Ambrose Evans-Pritchard via The Brisbane Times,

The world financial system is as dangerously stretched today as it was at the peak of the last bubble but this time the authorities are caught in a "policy trap" with few defences left, a veteran central banker has warned.

Nine years of emergency money has had a string of perverse effects and lured emerging markets into debt dependency, without addressing the structural causes of the global disorder.

https://www.zerohedge.com/sites/default/files/inline-images/20180125_ammo.jpg

"All the market indicators right now look very similar to what we saw before the Lehman crisis, but the lesson has somehow been forgotten," said William White, the Swiss-based head of the OECD's review board and ex-chief economist for the Bank for International Settlements.

Professor White said disturbing evidence of credit degradation is emerging almost daily. The latest is the disclosure that distressed UK construction group Carillion quietly raised £112 million ($195 million) through German Schuldschein bonds. South African retailer Steinhoff also tapped this obscure mark ...

The Strong Case for Health-Care Spinoffs

Spinoffs and asset sales may benefit shareholders more than chasing growth in a frenzied health-care deals market

Activist Investors In It for the Long-Term---Just Kidding

Activist investors who broke up the $15 billion Clariant-Huntsman merger promised a long-term approach to creating value. Three months later, they've sold.

United May Drag Industry Into Price War

United Continental's plans to increase capacity has investors worrying that airlines are losing their discipline.

Encore: Does America have a fertility problem?

Is the drop in fertility due to the Great Recession or is it a permanent change?

Market Snapshot: Dow struggles to maintain record altitude as Caterpillar convulses lower

U.S. stocks lose steam Thursday morning, with the Dow Jones Industrial Average gave up a 100-point gain and the broader benchmarks slipping into negative territory,

Sen. Tammy Duckworth is one of a growing number of women having babies in their 40s

Fortysomething women are reversing a 40-year trend.

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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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