05Feb2019 Midday Update: Wall Street Stocks Slip, DOW Up 90 Points, Tech Leads US Stocks Higher, Dollar Advances, Small-cap Stocks Shrug Off Debt Concerns

Here is the current market situation from CNN Money

North and South American markets are mixed today. The IPC is up 1.64% while the S&P 500 gains 0.07%. The Bovespa is off 0.78%.

Merck CEO Frazier plans to testify at Senate drug pricing hearing

U.S. drug company Merck & Co Inc said on Tuesday that its Chief Executive Ken Frazier plans to testify at a Senate hearing later this month examining rising prescription drug prices.

Canadian canola runs into Chinese delays after Huawei arrest

A political dispute between China and Canada over the arrest of a Huawei executive is slowing canola shipments through Chinese ports and causing some importers to hesitate to buy from their biggest supplier, according to interviews with a dozen traders.

U.S. warns European allies not to use Chinese gear for 5G networks

The United States sees the European Union as its top priority in a global effort to convince allies not to buy Huawei equipment for next-generation mobile networks, a U.S. State Department Official said on Tuesday.

Boeing makes ‘significant investment’ in supersonic jet developer Aerion

Boeing Co said on Tuesday it made a significant investment in supersonic business jet developer Aerion, as the world’s biggest planemaker looks to tap into rising demand for high-end aircraft that can reduce travel time.

Small-cap stocks shrug off debt concerns, for the moment

Small-cap stocks were among the biggest losers during the stock market’s rout late last year as investors worried about high leverage, but they have outperformed in 2019’s rebounding market, with shares of debt-laden companies leading the charge.

Appaloosa steps up pressure on Allergan to split chairman, CEO roles

Hedge fund Appaloosa LP on Tuesday urged pharmaceutical company Allergan Plc to split its chairman and chief executive roles, arguing that an independent chair could help CEO Brent Saunders boost the company’s sagging share price.

HSBC cuts dozens of investment banking jobs: source

HSBC is preparing to lay off dozens of staff in its global banking and markets business, a source with direct knowledge of the matter told Reuters on Tuesday.

Ralph Lauren steps up Instagram game, tops holiday sales forecasts

A marketing blitz involving supermodels and Instagram helped Ralph Lauren woo more customers and report another quarter of better-than-expected sales and earnings, sending its shares up over 12 percent on Tuesday.

Fish help fuel bumper cannabis crops for Canadian producer

The unlikely combination of freshwater fish and cannabis is producing outsized medical marijuana crops that Green Relief Inc aims to capitalize on, as the Canadian company plots a stock market listing and global expansion.

Bank of America: “Powell Has Boxed Himself Into A Corner”

A little under a month ago we explained why, with the Fed Chair having capitulated to the market, pausing the tightening cycle and with rate cuts now imminent even as inflation continued to rise, “Powell May Not Know It Yet, But The Fed Is Now Trapped.”

Fast forward to today when our assessment of the dilemma facing Powell – whose 1 year anniversary as Fed chair is today, one day after he spent his 66th birthday eating stake with president Trump – has trickled down to Bank of America which in an overnight note writes that “Powell is getting boxed” and explains:

The abruptness of Chair Powell’s policy U-turn did not help the Fed’s credibility (some have argued it’s the largest shift in Fed policy intentions in history absent a market shock), and the Fed will have an uphill battle in communicating a hike if so intended. In this sense, Powell seems to have boxed himself into a corner, compared to either Yellen or Bernanke, whose high market sensitivity and complete policy flexibility (with inflation risks far in the distance) helped create the low vol bubble.

And speaking of the low vol bubble, Bank of America highlights something that Morgan Stanley first observed last October, namely that the “Buy The Dip” strategy is dead, and writes that “central banks’ unprecedented policy created the low vol bubble through multiple channels, including direct purchase of risk assets, incentivizing investors to sell volatility for yield by keeping rates low, encouraging share buybacks through easy debt financing, but most importantly their verbal (at minimum) support for financial markets during periods of stress.”

It does not take rocket science then to infer that Powell’s recent shift from insensitivity to caring about financial markets is vol negative, and could help the VIX no …

Strong 3Y Auction Stops Through For First Time Since March 2018

The refunding auction deluge is upon us with today’s $38 billion in 3Y notes pricing moments ago, in what was a strong auction which stopped at a high yield of 2.502%, the lowest since April 2018, and stopping through the When Issued 2.505% by 0.3bps. This was the first stopping through 3Y auction since April 2018, and followed 10 consecutive auctions which tailed as investors were less than eager to buy short-term debt during the Fed’s actively tightening phase which however is now officially over.

The internals were solid as well, with the Bid to Cover rising from 2.44 in January to 2.55, which was just below the 6 month auction average of 2.578.

The Indirects takedown also rebounded, rising from 41.9% in January to 45.7%, just below the recent auction average of 46.2. And with Directs taking down 18.5%, also above last month’s 17.7% and well above the 6 auction average of 17.7%, it left Dealers holding 35.9%, the lowest Dealer allotment since January 2018.

Overall a strong auction, and an indication that this week’s 10Y and 30Y auctions should all price with little indigestion.

Putin Orders “Symmetrical Measures” After INF Treaty Pullout: New Missile Systems By 2021

So now the race is on — a dangerous new Cold War style arms race between Russia and the United States that is. Reuters has issued an alarming report which highlights “Russia will race to develop two new land-based missile launch systems before 2021 to respond to Washington’s planned exit from a landmark nuclear arms control pact, it said on Tuesday.”

Image source: Reuters/National Review

The Intermediate-Range Nuclear Forces Treaty (INF) effectively collapsed over the weekend following the US announcing Friday that it’s suspending all obligations under the treaty. Predictably Moscow’s response was swift with President Vladimir Putin saying in a Saturday meeting with his foreign and defense ministers that Russia will now pursue missile development previously banned under its terms.

Putin said “ours will be a mirror response” in a tit-for-tat move that the Russian president ultimately blames on Washington’s years-long “systematic …

‘Peak Employment’ – Tracking The Boomers

Authored by Chris Hamilton via Econimica blog,

Math, being math, is pretty helpful in figuring out problems. Today’s problem is how long employment (and associated economic activity) can move upward. Math seems to suggest mid 2019 is the likely terminus for both the growth in employment and likely economic activity. I’ll detail why 2019 can offer an increase of just 65 thousand potential new employees per month and why this will put the brakes on the US economy.

The most reliable gauge of changing economic demand is the changing population. Even more telling is the growth in employment, broken down among the different age segments that make up the workforce. The chart below details the year over year change in employment since 1970 among 15-24yr/olds (yellow columns), 25-54yr/olds (blue column), and 55-64yr/olds (red columns). Lastly, the black line represents the total 15-64yr/old population change. The decelerating total population growth among the working core should be pretty well known. However, the decelerating employment growth among 15-24 and 25-54yr/olds should be noted while the substitution of the 55-64yr/old employees also pointed out.

January 2019 ISM and Markit Services Indices Decline

Written by Steven Hansen

The ISM non-manufacturing (aka ISM Services) index and the Markit PMI Services Index continued their growth cycle but declined.

What a blockbuster year for tech IPOs could mean for home prices

Slack, Lyft, Uber and Pinterest are some of the hot companies expected to go public in 2019.

The Fed: Dallas Fed president preaches the ‘value of patience’ on interest rates amid economic headwinds

The president of the Dallas Fed on Tuesday preached “the value of patience” in the latest sign the central bank is content to sit back a few months before making a move on interest rates.

The Technical Indicator: Bull trend strengthens, S&P 500 approaches 200-day average

Technically speaking, the U.S. benchmarks’ nearly straightline 2019 rally attempt has accelerated in recent sessions, writes Michael Ashbaugh, fueled partly by the Federal Reserve’s dovish-leaning policy shift.