Today’s Big Picture
One day after the US and China inked their phase one trade agreement, Asian equity indices finished on a mixed note, and European equities are also mixed while US equity futures point to a positive open as investors dig into and attempt to digest the eight-part, 96-page agreement. The long and short of it is there are several positives to be had including China committing to $200 billion in additional purchases of U.S. goods, "enhanced" intellectual property protections, and enforcement mechanisms.
However, the agreement has left in place U.S. tariffs on about $370 billion in Chinese goods with possible reductions subject to forthcoming negotiations that will are expected to tackle Chinese subsidies to domestic companies and Beijing's oversight of Chinese state-owned firms. The next round of trade deal negotiations was expected to begin immediately per comments from President Trump, but China has yet to confirm that timing, which alongside lingering intellectual property concerns, is likely leaving some thinking the agreement is a half-step measure. Over the coming days, we expect more analysis to be had as well as follow up comments, which should offer more clarity to investors on the puts and takes of the agreement.
Later today, the US Senate is slated to vote on the new U.S.-Mexico-Canada Agreement, which is expected to pass with overwhelming bipartisan support.
Data Download
Core machinery orders in Japan, which exclude those of ships and electrical equipment, rebounded 18% MoM in November, crushing the expected increase of 3.2%. On a YoY basis,
Germany's Consumer Prices rose 0.5% MoM in December, bouncing back from the 0.8% drop in November. The sequential increase reflected higher prices for package holidays and food costs, particularly for meat, fruit, and vegetables, which was mitigated by the drop-in energy prices.
China's banks extended CNY 1.14 trillion in new yuan loans in December, down from 1.39 trillion the previous month. China's outstanding yuan loan increased 12.3% YoY in December, down a tick from the 12.4% growth recorded in November and the expected rate of 12.4%.
Turning to the US economic data for today, before US equity markets open, we’ll get the December Retail Sales report, the January reading for the Philly Fed Manufacturing Index and the weekly Jobless Claims report. Following several disappointing December same-store sales reports in recent days, investors will be carefully thumbing through the December Retail Sales report, which is expected to show a 0.2% increase MoM and 3.3% YoY. After the market opens, we'll receive the NAHB Housing Market Index for January, which is expected to inch up slightly month over month to 76, and the weekly EIA Natural Gas Inventories report.
Later this evening several economic data points will be had for China including December quarter GDP, December Industrial Production and December Retail Sales.
Stocks to Watch
Morgan Stanley (MS) shares are jumping higher in pre-market trading following much better than expected December quarter results. EPS for the quarter rose 46% YoY to $1.30, head and shoulders above the $0.99 consensus estimate.
Signet Jewelers (SIG) reported same-store sales that rose 1.6% for November and December, led by North American same-store sales that rose 2.0%. Digging into the details, we find a familiar pattern - the company's e-commerce sales rose 13.5% during the holiday period while its brick and mortar same-store sales were down 0.2%.
Shares of PPG Industries (PPG) are down in pre-market trading following December quarter results that missed EPS expectations despite reporting in-line quarterly revenue. In its 2020 guidance, the company shares its Performance Coatings business “will be impacted due to lower production rates by an aerospace customer.” If we break out our decoder ring, odds are that customer is Boeing (BA).
In somewhat related news, Southwest Airlines (LUV) has joined a growing number of airlines that have extended the removal of Boeing 737 MAX flights. Southwest has removed them from its schedule through June 6.
Taiwan Semiconductor (TSM) reported December quarter earnings of NT 4.47 per share, NT 0.35 better than the NT 4.12 consensus; revenue for the quarter rose 9.5% YoY to NT 317.24 billion, besting the NT 303.2 billion consensus.
OrganiGram Holdings (OGI) announced a supply agreement with Medical Cannabis by Shoppers Drug Mart, the online medical cannabis platform. Per the agreement, Organigram will provide Shoppers with a wide range of products including dried flowers, oils, and other future derivative products as they become available.
Chinese online consumer finance company Qudian (QD) withdrew its 2019 guidance and will not issue guidance in the near term amid uncertainty related to the recent regulatory and operating environment. During the December quarter regulatory developments included further restrictions on loan collection practices, more stringent user data privacy rules and the requirements for P2P lending platforms to orderly exit their P2P businesses. Also, Qudian’s Board approved a new share repurchase program to repurchase up to $500 million shares for the coming 30-month period.
Global automotive supplier Magna International (MGA) expects its 2020 revenue to be in the range of $40.5-43.5 billion with light vehicle production of 16.3 million units in North America and 20.8 million units in Europe.
Under the first phase of the U.S.-China trade agreement, Visa (V), Mastercard (MA), and American Express (AXP) get access to China's payments markets.
GeekWire reports Apple (AAPL) has acquired Xnor.ai, a Seattle startup specializing in low-power, edge-based artificial intelligence tools.
JPMorgan Chase (JPM) reported its December credit-card charge-off rate rose to 2.28% from November’s 2.20% and the three-month average of 2.03%. Meanwhile, its delinquency rate ticked down to 1.13% in December from 1.17% in November but continues to hover near the three-month average of 1.15%.
Shares of XPO Logistics (XPO) jumped in after-market trading following the announcement its Board authorized a review of strategic alternatives, including the possible sale or spin-off of one or more of XPO's business units.
Last night after the market closed, Alcoa (AA) reported December quarter EPS of -$0.31, missing the consensus of -$0.22. Revenue for the quarter fell 27.2% YoY to $2.44 billion, also missing the $2.49 billion consensus. In 2020, Alcoa expects a balanced alumina market ranging between -100 thousand metric tons to +700 thousand metric tons. Compared to 2019, the bauxite market is projected to be in a smaller surplus in 2020, with Chinese stockpile projected to continue, ranging between 8-12 million metric tons.
After today’s US equity markets close, we expect quarterly earnings from
- CSX (CSX), which is expected to report EPS of $0.98 on revenue of $2.9 billion;
- Consensus expectations have People’s United Financial (PBCT) reporting EPS of $0.32 on revenue of $490.9 million;
- Progress Software (PRGS) is expected to report EPS of $0.75 on revenue of $118.3 million.
For a more detailed look at upcoming earnings reports, we recommend checking in with Nasdaq’s earnings calendar page.
On the Horizon
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- Upcoming IPOs:
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- Clinical stage biopharmaceutical company I-MAB (IMAB) will offer 7.4 million shares in the $12-$15 range and trade on the NYSE.
- China-based mobile app developer LIZHI (LIZI) targets a 4.1 million share offering in the $11-$13 price range. After the IPO, the shares are slated to trade on the Nasdaq.
- Vertically integrated real estate finance company Velocity Financial (VEL) will look to offer 7.3 million shares in the $14-$16 range and trade on the Nasdaq.
- For a complete list of upcoming IPOs by month, please visit the Nasdaq IPO Calendar.
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- Dates to mark:
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- January 13-16: ICR Conference 2020
- January 13-16: The JPMorgan Chase (JPM) Healthcare Conference
- Jan 28-29: Federal Reserve FOMC Meeting
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- Upcoming IPOs:
Thoughts for the Day
“We can complain because rose bushes have thorns, or rejoice because thorn bushes have roses.” ~ Abraham Lincoln
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Chris Versace
Christopher (Chris) Versace is the Chief Investment Officer and thematic strategist at Tematica Research. The proprietary thematic investing framework that he’s developed over the last decade leverages changing economic, demographic, psychographic and technology landscapes to identify pronounced, multi-year structural changes. This framework sits at the heart of Tematica’s investment themes and indices and builds on his more than 25 years analyzing industries, companies and their business models as well as financial statements. Versace is the co-author of “Cocktail Investing: Distilling Everyday Noise into Clear Investing Signals” and hosts the Thematic Signals podcast. He is also an Assistant Professor at NJCU School of Business, where he developed the NJCU New Jersey 50 Index.
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Lenore Elle Hawkins
Lenore Elle Hawkins has, for over a decade, served as a founding partner of Calit Advisors, a boutique advisory firm specializing in mergers and acquisitions, private capital raise, and corporate finance with offices in Italy, Ireland, and California. She has previously served as the Chief Macro Strategist for Tematica Research, which primarily develops indices for Exchange Traded Products, co-authored the book Cocktail Investing, and is a regular guest on a variety of national and international investing-oriented television programs. She holds a degree in Mathematics and Economics from Claremont McKenna College, an MBA in Finance from the Anderson School at UCLA and is a member of the Mont Pelerin Society.
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