Trade of the Day: Stocks, futures pause ahead of phase one deal; safe havens gold, yen and US Treasuries gain
Quote of the Day: “This week, 24 S&P 500 companies are scheduled to report results for the fourth quarter. In terms of estimate revisions for companies in the S&P 500, analysts made larger cuts than average to earnings estimates for Q4 2019 during the quarter. The bottom line is that notwithstanding the auto strikes and Boeing, the inventory correction is drawing to an end. The signing of the US-China trade deal ought to remove a substantial degree of uncertainty. 4Q19 results season may be less about earnings and more about sales surprises and margins. In our view the results will lend themselves to scalable businesses and cyclicals in 2020,”said Jefferies global strategist Sean Darby in a note.
Stock of the day: Innovent Biologics Inc. rose as much as 6.6% after it said it had struck a deal with US company Coherus for out-licensing a $45 million upfront payment and a “double digit percent” royalty payment.
Number of the Day:. $2 trillion – market capitalization forecast for Apple by Wedbush analyst Dan Ives by the end of 2021. He told CNBC 2019 was just the beginning phase of a “transformational 5G super cycle,” while the demand for iPhone 11 has been stronger than expected. That would make Apple the first US company to exceed the $2 trillion mark. It is currently at $1.3 trillion.
Tip of the Day: “Our base case remains that we haven’t yet seen the highs in the equity market for this bull run. As we have argued in recent months, we expect a recovery in earnings around Q2 2020. In the meantime, dovish central banks are providing support to compensate for a delayed recovery in fundamentals. Research shows that a year of stellar returns – the MSCI World Index rose 30% in 2019 – is often repeated in the following year, due to a number of positive factors. This means 2020 could prove to be just as successful for stocks, despite the headwinds.,” said Peter van der Welle, Robeco Strategist.
Asian markets stumbled as investors paused ahead of the US-China trade deal after US trade officials said there would be no future reduction in tariffs. “There are no other oral or written agreements between the United States and China on these matters, and there is no agreement for future reduction in tariffs,” Treasury Secretary Steven Mnuchin and US Trade Representative Robert Lighthizer said in a joint statement.
The two sides sign the phase one trade agreement on Wednesday and the US will maintain 25% tariffs on $250 billion of Chinese imports and a 7.5% levy on another $120 billion. China
MSCI Asia Pacific ex-Japan index was down 0.4%, Nikkei 225 benchmark was down 0.45% and Hang Seng index declined 0.39%. But Australia’s S&P ASX 200 rose 0.47% propelled by gains in gold, industrials and energy stocks.
Europe was trading softer and Wall Street futures also indicate a subdued start after the message that tariffs on Chinese goods will remain until after the presidential election in November. The sentiment was also dampened after an earnings miss by investment bank Goldman Sachs and a guidance cut by retailer Target.
“The turn of the year has seen a number of risk factors decrease. The US/China trade war is not currently escalating, both the US and Iran appear to want de-escalation following recent tension, even Brexit is “getting done.” Furthermore central banks’ liquidity remains ample, and even rising. So is it plain sailing for the higher risk markets such as equities and high-yield bonds? Well, maybe not,” said Marija Veitmane, senior multi-asset strategist at State Street Global Markets. “This week earnings’ season for the fourth quarter of 2019 begins and analysts are busy revising expectations down. Current expectations for the S&P 500 are expected to contract by 1.5%, which would be the fourth consecutive quarter of declining earnings.”