Futures Slide, Global Rally Fizzles; Oil Set For Longest Rally On Record

Speaking of earnings, next week we’re due to get Q4 reports from 35 S&P 500 companies including the banks. So this should give investors something else to focus on other than the repetitive trade-related headlines of late. As an early preview, Q4 earnings growth is expected to be 11.4% which compares to around 25% growth reported in each of the prior three quarters according to data from Factset. Still, if Q4 comes in in-line this would be the fifth straight quarter of double digits earnings growth. It’s worth also noting that over the past five years on average, actual earnings have exceeded estimated earnings by nearly 5%. So history would suggest that there is upside to forecasts.

The partial government shutdown in the US is also busy repeating and has now entered its 21st day, tying the longest-ever shutdown, with around 800k federal workers expected to not receive their paychecks today. Indeed, there was a big uptick in jobless claims in DC last week, as furloughed workers are entitled to unemployment benefits until the shutdown is resolved, so we’re beginning to see the effects of the standoff in the macro data. Another side-effect of the shutdown is the delay to some of the GDP-sensitive data releases which is making life harder for economists to get a comprehensive read of how the US is tracking in the last couple months. With the Fed emphasizing data dependency this is clearly proving an issue. Today’s December CPI report won’t be affected however with the consensus expecting a +0.2% mom core reading which should be enough to hold the annual rate at +2.2% yoy. Our US economists expect the same which should keep Fed rate hikes in play this year if various uncertainties are resolved.

To Asia now where markets are largely tracking Wall Street’s gains last night with the Nikkei (+0.97%) leading the way, followed by the Hang Seng (+0.18%), Shanghai Comp (0.16%) and Kospi (+0.61%). Sentiment has also been given a boost by an overnight tweet from a WSJ journalist confirming that China’s Vice Premier Liu He is scheduled to visit US for trade talks on Jan 30 and 31st. Meanwhile, China’s onshore yuan is up +0.58% to 6.7495, the highest since July 2018 with the weakness in US dollar (-0.19%) also contributing to the rise. Futures in the US are however slightly down as we type (S&P 500 -0.11%).

Back to yesterday where in Europe the STOXX 600 more than fought off an early decline at the open to close up +0.34%. There were gains also for the DAX (+0.26%) and FTSE MIB (+0.63%) although the CAC (-0.16%) underperformed not helped by a soft French industrial production print (-1.3% mom vs. 0.0% expected). Bonds were a touch stronger (Bunds -2.2bps) with the ECB minutes confirming that the board did discuss changing the communication on language to acknowledge economic risks as tilting to the downside, although holding fire at the meeting. There was also a reference to TLTROs, which may have helped an index of bank stocks to outperform, gaining +0.75%.

In other news, PM May confirmed late afternoon yesterday that the UK is still in talks with the EU over the backstop and that government is still seeking support for a deal across parliament. Yesterday Labour leader Corbyn said that he would take a confidence motion when it can succeed (so not necessarily immediately after next week’s vote, should May lose) and also that his party would not rule out an Article 50 extension should Labour come to power. Overall though there wasn’t much new in Labour’s policy on Brexit yesterday and Sterling nudged down -0.33% by the end of play. Across the pond it’s worth adding that President Trump said that he will not attend Davos later this month as a result of the government shutdown. An indication maybe that the shutdown will continue for a while longer, or alternatively perhaps the ski conditions aren’t up to scratch yet.

Finally, looking at the rest of the day ahead, this morning and shortly after this hits your emails we’re due to get the December Bank of France industrial sentiment reading followed later by a data dump out of the UK which includes November trade balance, industrial and manufacturing production, construction output and monthly GDP data. This afternoon in the US the aforementioned US CPI report will no doubt be the big highlight, especially with the monthly budget statement postponed due to the partial government shutdown. Meanwhile, we’ll finally get a rest from all the Fedspeak with no speeches due however over at the ECB we are due to hear from Mersch and Visco.

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