Author: marketsp

  Summary and Price Action Rundown

Global risk assets are rebounding for a second straight session as investors hope for a limited impact of the Wuhan virus and focus on key US corporate earnings reports. S&P 500 futures point to a 0.4% gain at the open as the index continues to rebound from Monday’s steep loss of 1.6%, with the downside from its record high earlier this month at 1.6%. Investors are attempting to look past the probably short-lived economic impact of the viral outbreak emanating from central China though reports of its spread are keeping volatility relatively elevated (more below). Overnight, equities in Asia rebounded in tandem with the S&P 500 but gains were only modest, while mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, stocks are also moderately higher. Elevated uncertainty remains supportive of Treasuries, with the 10-year yield hovering just above three-month lows at 1.63%, while the dollar is once again little changed. Crude oil is retracing a portion of its steep downtrend, with Brent regaining $60 per barrel.

Market Sentiment Stabilizes Despite Spreading Wuhan Virus

Global market resilience is on display again today though investors continue to monitor increases of reported infections and fatalities and note the apparently lengthy incubation period, difficulty in detection, and high contagiousness. With reported cases rising to 6,057 and deaths increasing to 132, investors are continuing to monitor the expanding contagion, but investor concerns have eased as the most recent news, while troubling, suggests that the coronavirus should be roughly analogous to SARS, which had a limited impact on growth and equity markets over the medium term. Though price action is reflective of building investor optimism, official Chinese statements on the situation remain cautious, with Premier Li overnight calling the outbreak “grim and complex.” Market participants also note that Hong Kong officials are now blocking travel to and from the mainland. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last as long as ten days in some cases. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, are set to remain shut beyond their scheduled reopening on Friday to the following Monday, at the earliest, although reports indicate that other business are preparing to stay closed for longer. Cases outside of China remain limited thus far.

 Corporate Earnings Continue to Support Equities

Amid a busy calendar of fourth quarter (4Q19) corporate reports, some disappointments have occurred this week, but they remain the exception to broadly upbeat results. Apple reported a strong set of figures after yesterday’s closing bell, centered around strong iPhone sales, sending its stock 2.1% higher in pre-market trading. Starbucks also topped estimates but the impact of the virus on its sales in China are clouding the outlook, with its shares 1.6% lower ahead of the market open. Yesterday, shares of 3M plunged 5.7% after reporting disappointing quarterly earnings and revenue and announcing 1,500 job cuts across the company. Drugmaker Pfizer posted a similar downside surprise, with its stock closing down 5.1% and Harley-Davidson fell 3.0% after the company reported a continuing decline in its US sales, citing demographics headwinds. In other corporate news, Boeing secured more than $12 billion in financing to help fund its efforts to fix the 737 Max. Today’s reports include McDonalds, Microsoft, Facebook, Boeing, and Tesla. Of the 122 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 66% have beaten sales estimates. The rest of the week features Amazon, UPS, Coca-Cola, Caterpillar, ExxonMobil, UPS, and Honeywell.

          Additional Themes

Fed Decision Due – Ahead of today’s meeting of Federal Reserve, futures markets are pricing in no chance of a rate cut and negligible odds of a hike, as Fed officials have continued to signal a pause in their monetary easing cycle that included three consecutive rate cuts and a restart of asset purchases to expand the balance sheet in the second half of last year. Expectations are for a continued dovish tone, and futures reflect the restart of rate cuts later this year. Recently, various current and former Fed officials have made public statements seeking to dispel the relatively widespread perception among market participants that the renewed asset purchases and other efforts to inject liquidity into short-term funding markets, are a stealthy form of quantitative easing (or QE) and are fueling the ongoing rise in US equity prices. For context, the timing of this new asset buying program neatly coincides with a steep 15% gain in the S&P 500.

Mixed US Economic Data – December’s core durable goods orders fell 0.9% on the month, while the market was expecting no change. Home prices were strong, however, as the S&P CoreLogic Case-Shiller National Home Price Index Nationally, home prices rose 3.5% annually in November, up from 3.2% in October, after seeing decreases for much of 2019.

Summary and Price Action Rundown

Global risk assets are steadying this morning after yesterday’s sharp selloff despite ongoing fears over the expanding outbreak of the SARS-like virus in China and overseas, as investors attempt to focus on incoming corporate earnings reports. S&P 500 futures indicate a 0.4% gain at the open as the index attempts to rebound from yesterday’s 1.6% decline, which put the loss from its record high earlier this month at 2.6%. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread cloud global growth expectations and market sentiment generally (more below). Overnight, equities in Asia again posted losses of around 1-3%, though mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, however, stocks are slightly higher but trading with a cautious tone. Elevated safe haven demand alongside a cloudier global growth outlook are supporting Treasuries, with the 10-year yield hovering around 1.60%, a three-month low, while the dollar is flat. Crude oil remains in a steep downtrend, with Brent at its lowest level since October, below $59 per barrel, despite signals yesterday that OPEC is already discussing options for further output cuts to support prices.

Uncertainties Over the Spread of the Wuhan Virus Keep Markets on Edge

Investors are bracing for further increases of reported infections and fatalities given the apparently lengthy incubation period, difficulty in detection, and high contagiousness. With reported cases jumping to 4,474 and deaths increasing to 107, investors are nervously continuing to monitor the expanding contagion. Last evening, Chinese President Xi addressed the issue in cautious public comments and market participants noted that Hong Kong officials are now restricting travel to and from the mainland as efforts to stem the outbreak continue to expand. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last an average of ten days and as long as fourteen days in some cases. This concerning revelation, combined with reports that five million people departed the Wuhan area in the days before travel restrictions were imposed, has intensified already heightened uncertainty about the scope of the outbreak. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, are set to remain shut beyond their scheduled reopening on Friday to the following Monday, at the earliest, although reports indicate that other business are preparing to stay closed for longer. Cases outside of China remain limited thus far, with isolated infections in the US and elsewhere.

 Corporate Earnings Season Enters Key Period

Analysts continue to expect this week’s calendar of fourth quarter (4Q19) corporate reports to provide support for equities, but the stakes are higher as disappointments will be magnified in the currently cautious market mood. Today features reports by Apple, 3M, Starbucks, Pfizer, LVHM, and Lockheed Martin, as the busiest week of earnings season picks up momentum today. Yesterday’s relatively short list of reporting companies kicked off this potentially pivotal week of corporate reports on a mixed note. Homebuilder DR Horton topped both earnings and sales estimates, sending its shares up 2.0% to dramatically outperform broader markets yesterday, even as December data on US new home sales surprised to the downside. Sprint, however, posted uneven results, undershooting on sales despite bettering earnings forecasts, and its shares sank 4.1% to a multi-year low. Whirlpool, which reported after the closing bell, also had a mixed 4Q, similarly missing on sales but exceeding earnings estimates, and its shares are down 1.3% in pre-market trading. Beyond today’s reports, the rest of the week features more major industry leaders, including Microsoft, Facebook, Amazon, McDonalds, Boeing, UPS, Coca-Cola, Caterpillar, ExxonMobil, Tesla, UPS, and Honeywell.

          Additional Themes

Economic Data Due – As investors continue to speculate over the potential global growth fallout from the coronavirus, US durable goods orders for December will be in focus today. In November, new orders unexpectedly fell 2.1% month-on-month (m/m) while the market was expecting a 1.5% rise. This also followed a weak October where orders only grew 0.2% m/m. US 4Q GDP is due on Thursday and Friday brings December income, spending and price data.

Investors Monitor US Political Developments – Although the impeachment process has had scant apparent impact on financial markets, given no clear erosion of Republican support for President Trump in the Senate, details from former National Security Council Director John Bolton’s upcoming book have added an incremental degree of intrigue to the proceedings. The strong assumption remains that the Senate will vote to keep President Trump in office. Meanwhile, analysts are also monitoring Senator Sanders’ surge in Iowa but, like impeachment, US political dynamics are likely to remain a backburner issue for investors until later this year.

Summary and Price Action Rundown

Global risk assets retreated sharply overnight as investor concerns over the expanding outbreak of the SARS-like virus in China and overseas deepened following a weekend of disquieting developments. S&P 500 futures point to a 1.4% lower open to start the week after Friday’s cautious decline of 0.9%, which would put the index about 2.5% below its record high from earlier this month. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread cloud global growth expectations and market sentiment generally (more below). Overnight, equities in Asia posted losses of 1-3%, though mainland Chinese and other regional stock markets remain closed for the Lunar New Year holiday. In the EU, stocks are posting declines of similar magnitude. The rising risk aversion is driving demand for safe havens like Treasuries, with the 10-year yield down 6 basis points to 1.63%, a three-month low, while the dollar is edging higher. Crude oil is continuing its downtrend, with Brent at its lowest level since October, below $59 per barrel, and OPEC is already discussing options for further output cuts to support prices.

Continued Spread of Wuhan Virus Dispels Market Calm

As numbers of reported infections and fatalities continue to rise, alongside indications of severe contagiousness, investors are increasingly doubtful that tight travel controls around the epicenter of the virus in Wuhan and other official measures in China will succeed in stemming the spread. With reported cases rising to 2,794 and deaths increasing to 80, investors are nervously continuing to monitor the expanding contagion. Over the weekend, analysts focused on reports detailing the highly contagious nature of the virus, which unlike SARS can spread during an asymptomatic gestation period that is estimated to last an average of ten days and as long as fourteen days in some cases. This concerning revelation, combined with reports that five million people departed the Wuhan area in the days before travel restrictions were imposed, has intensified already heightened uncertainty about the scope of the outbreak. Outside of Asia, where the infections and equity losses have been concentrated, risk appetite had remained generally resilient until last Friday’s sobering reports that sixteen Chinese cities and roughly 46 million people were under varying degrees of travel restrictions. Meanwhile, mainland markets, which closed starting last Friday for the Lunar New Year holiday, will stay shut beyond their scheduled reopening on Friday. Cases outside of China remain limited thus far, with isolated infections in the US, Canada, France, Japan, Thailand, Singapore, South Korea, Taiwan, Hong Kong, Vietnam, Malaysia, and Macau.

 Corporate Earnings Season Enters Key Period

Analysts continue to expect this week’s calendar of fourth quarter (4Q19) corporate reports to provide support for equities, but the stakes are higher as disappointments will be magnified in the current climate of rising risk aversion. Last week’s array of earnings was broadly upbeat but featured some uneven results. On Friday, shares of chip giant Intel soared 8.1% after 4Q19 earnings and revenue handily beat consensus expectations. More importantly, Intel management forecast better-than-expected results for 1Q20. Meanwhile, shares of American Express rose 2.8% after reporting 4Q19 earnings which beat expectations with a “well-balanced mix” of fee, spending and lending revenues. However, results were not so rosy at competitor Discover Financial whose shares plummeted as much as 10% before recovering in late trading after the credit card company reported the total net charge-off rate in their loan book rose to 3.19%. Also, consumer lender Synchrony Financial fell 9.9% after missing revenue projections. Of the 86 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 66% have beaten sales estimates. The busiest segment of earnings season still lies ahead, with Apple, Microsoft, Facebook, Amazon, McDonalds, Boeing, UPS, Coca-Cola, Caterpillar, ExxonMobil, Starbucks, Lockheed Martin, Tesla, Whirlpool, UPS, Pfizer, 3M, and Honeywell among the key reports due this week.

          Additional Themes

Setback for Italian Populists Supports Local Bonds – Yesterday, a regional election in Emilia-Romagna proved to be a bulwark for the Democratic Party as a challenge from the right-wing populist Lega party fell short. With the fragile national ruling coalition of the Democratic Party and Five Star on increasingly shaky ground following the resignation of the Five Star leader earlier this month, analysts had speculated that a Lega win in traditionally left-leaning Emilia-Romagna could spark early elections. Italian bonds are posting a strong rally today, retracing much of their recent sell-off relative to German bunds.

Disappointing German Economic Data – The Ifo Institute’s survey of Germany’s business climate relapsed with a downside surprise for January, further clouding analysts’ nascent EU economic optimism that had already been dented by virus fears.

Summary and Price Action Rundown

Global risk assets steadied overnight as investors remain wary and reactive to news of the expanding outbreak of the SARS-like virus in China while parsing US corporate earnings and some key global economic data this morning. S&P 500 futures indicate a 0.2% higher open after another directionless session yesterday, which would put the index back to its record high from Friday. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread cloud global growth expectations and market sentiment generally. Overnight, equities in were mostly higher, but mainland Chinese stock markets have begun a week-long closure for the Lunar New Year holiday. In the EU, stocks are outperforming amid upbeat corporate news. Treasuries are ceding some gains from their recent rally though investor demand for safe havens remains elevated, while the dollar is edging up as central bank easing expectations depress the pound and the euro (more below). Crude oil remains under pressure, with Brent at its lowest level in over a month, below $62 per barrel, as analysts continue focus on worsening demand risks and ample US shale oil supply.

Investor Sentiment Holds Up Despite Ongoing Virus Outbreak

Numbers of reported infections and fatalities continue to rise, but investors are hopeful that mandatory screening and tight travel controls around the epicenter of the virus in Wuhan will stem the spread. With reported cases rising to 881 and deaths increasing to 26, investors are warily continuing to monitor the expanding contagion. Outside of Asia, where the infections and equity losses have been concentrated, risk appetite remains generally resilient as analysts assess the effectiveness of China’s intensifying efforts to contain the spread. Reports this morning indicate that ten Chinese cities and roughly 40 million people are under varying degrees of travel restrictions and many public and private venues are cancelling events. Meanwhile, mainland markets will be closed for a week starting today for the Lunar New Year holiday. Cases outside of China remain limited thus far, with isolated infections in the US (Washington state), Japan, Thailand, Singapore, South Korea, Taiwan, Hong Kong, and Macau.

 Corporate Earnings Remain Broadly Supportive of Stocks

The second week of fourth quarter (4Q19) corporate reporting season is closing out on a generally upbeat note as investors look ahead to key releases next week. Shares of Intel are 6.0% higher in pre-market trading, heading for a new 20-year high, after the chip giant handily topped both earnings and revenue forecasts for 4Q19 and management conveyed a positive outlook for this year. Results for last quarter were also supportive for shares of US pipeline operator Kinder Morgan yesterday, as well as for US railroad operator Union Pacific. There was some unevenness to yesterday’s results, however, as insurance giant Travelers, investment bank Raymond James, consumer bellwether Procter & Gamble, and mining giant Freeport MacMoRan posted varying degrees of disappointments for investors. Of the 79 S&P 500 companies that have reported 4Q19 results, 73% have topped earnings expectations and 67% have beaten sales estimates. American Express reports this morning to close the week. The busiest segment of earnings season still lies ahead, with Apple, Microsoft, Facebook, Amazon, McDonalds, Boeing, UPS, Coca-Cola, Caterpillar, ExxonMobil, Starbucks, Lockheed Martin, Tesla, Whirlpool, UPS, Pfizer, 3M, and Honeywell among the key reports due next week.

          Additional Themes

Mixed EU Economic Data – January’s preliminary composite purchasing managers’ index (PMI) for the EU undershot estimates, printing 50.9 to match the prior month’s reading versus a consensus forecast of improvement to 51.2. For context, PMI readings above 50 denote expansion. The underlying details were somewhat more encouraging than the headline figure, however, as the manufacturing PMI, which has been the main source of weakness in the region, improved to 47.8, beating estimates of 46.8 and December’s 46.3. Services PMI dipped to 52.2 versus expectations for this gauge to remain steady at 52.8. Importantly, Germany’s manufacturing and services PMI readings both posted upside surprises, although the former remained in contractionary territory at 45.2. This follows yesterday’s decision by the European Central Bank (ECB) to keep policy settings on hold. This morning, however, President Lagarde indicated that ECB policy is not on “autopilot,” which sent the euro lower, as most analysts expect that any additional moves would be further accommodation.

Better UK Economic Data – The UK’s January PMI readings beat projections on both the manufacturing and service segments, which dampened expectations for a rate cut by the Bank of England (BoE) next week, though futures still see 48% odds of a move from 0.75% to 0.5%.

 Next Week – In addition to earnings and the BoE and Fed meetings, analysts will be attuned to US 4Q GDP, December’s US income, spending, and price data, and China’s December PMI.

Summary and Price Action Rundown

Global risk assets were mostly lower overnight as investors continue to monitor China’s efforts to contain the outbreak of a SARS-like virus while awaiting more US corporate earnings and a European Central Bank meeting this morning. S&P 500 futures point to a flat open after yesterday’s choppy session, which would hold the index just below its record high from Friday. Investors continue to ponder the ramifications of the viral outbreak emanating from central China as reports of its spread dampen global growth expectations and market sentiment generally. Overnight, equities in Asia turned lower again, with mainland Chinese stocks leading to the downside before a week-long closure for the Lunar New Year holiday. Meanwhile, EU stocks are dipping ahead of the European Central Bank decision. Treasuries are extending their recent rally as investors seek safe havens, while the dollar remains flat. Crude is continuing to slide as analysts focus on demand risks and ample US shale oil supply. 

Concerns Over the Virus Outbreak Keep Global Equities in Check

While numbers of reported infections and fatalities continue to rise, investors are hopeful that newly implemented mandatory screening and tight travel controls around the epicenter of the virus in Wuhan will stem the spread. With reported cases rising to 555 and deaths increasing to 17, alongside the first infection in Hong Kong, investors are wary of expanding contagion. Outside of Asia, where the infections and equity losses have been concentrated, risk appetite remains generally resilient as analysts assess the effectiveness of China’s intensifying efforts to contain the spread. Reports over the last day have focused on tightened travel restrictions around the epicenter of the outbreak in Wuhan and the surrounding cities, as well as mandatory screening. The Shanghai Composite sank 2.8% overnight to put losses at 3.9% since the first reports of the outbreak. Meanwhile, the renminbi continued its slide below its recent five-month highs versus the dollar, losing 0.4% overnight for a three-day decline of 1.0%. For context, mainland markets will be closed for a week starting tomorrow for the Lunar New Year holiday. Experts note that the holiday poses a substantial risk of dramatically widening the outbreak given that tens of millions of Chinese travel home or to a vacation destination for the holiday week. Cases outside of China remain limited thus far, with isolated infections in the US (Washington state), Japan, Thailand, South Korea, Taiwan, Hong Kong, and Macau.

 Corporate Earnings Remain Broadly Upbeat Despite Some Uneven Results

Yesterday’s fourth quarter (4Q19) corporate reports again featured a number of high-profile upside earnings surprises, although some disappointments were in the mix. Shares of Capital One jumped 4.5% after the bank reported 4Q earnings of $2.49 a share, which topped analyst’s estimates of $2.37. The beat was driven by higher loan and deposits along with strength in the credit card business. However, shares of regional bank Zions fell 4.1% after reporting a fourth straight quarter of declining loan balances. Northern Trust also saw its share price fall, losing 3.3% in trading yesterday as earnings per share of $1.70 came in below expectations of $1.77 along with rising expenses that were above analyst’s estimates. After Tuesday’s closing bell, Netflix issued nuanced results, with earnings beating estimates but new subscribers coming in lower than expected, sending its shares down 3.6% yesterday. Meanwhile, IBM impressed analysts, beating both sales and profit projections on strong cloud computing business, lifting its shares 3.4%. Of the 64 S&P 500 companies that have reported 4Q19 results, 71% have topped earnings expectations and 67% have beaten sales estimates. Intel, Comcast, Proctor & Gamble, American Airlines, Discover, Southwest, and Freeport McMoRan all issue earnings today, while American Express reports tomorrow to close the week.

          Additional Themes

European Central Bank (ECB) in the Spotlight – In her second meeting as head of the ECB, President Lagarde is set to detail the upcoming strategic policy review that she is spearheading, which is due to be published in about a year. She has indicated that the focus of the review will be on the ECB’s approach price stability, while tackling climate change will be a key consideration. Otherwise, policy settings are expected to remain fixed at today’s meeting. This comes after the Bank of Canada (BoC) left its benchmark interest rate unchanged at 1.75% yesterday but shifted to a more accommodative tone, sending the Canadian dollar 0.7% lower versus the US dollar since the meeting. Next week, the Bank of England meets, with futures markets pricing in 58% odds of a cut in the policy rate from 0.75% to 0.5%.

 Crosstalk on EU Car Tariffs – Although the tone from the World Economic Forum in Davos has been generally constructive, analysts are parsing mixed signals from the Trump administration on the possibility of imposing tariffs on EU autos. While President Trump stated yesterday that he would be “very surprised” if he had to implement tariffs on European cars, he and other administration officials have reiterated to threat to do so in the absence of a trade deal.

Summary and Price Action Rundown

Global risk assets retraced some of yesterday’s losses overnight amid hopes that China’s augmented public health efforts will limit the outbreak of a SARS-like virus, while investors continue to monitor signs of a nascent global growth rebound and upbeat US corporate earnings. S&P 500 futures indicate a 0.3% gain at the open, which would return the index nearly to its record high from Friday as investors bet on a limited spread of the virus from its origin in Wuhan, China. US equities have been buoyant this month as investors focus on easing global trade tensions, an increasingly positive tone in fourth quarter earnings reports, and some encouraging global economic readings in recent days. Overnight, equities in Asia began today’s rebound, though EU stocks are underperforming as resurgent Italian political uncertainty weighs on its domestic equities (more below). Despite the more optimistic tone in markets today, Treasuries are retaining yesterday’s rally, while the dollar is flat. Crude is lower again today as analysts focus on the downside risk to demand and ample US shale oil supply.

Concerns Over the Virus Outbreak Ease as China Boosts Response

Although numbers of reported infections and fatalities continue to rise, investors are hopeful that newly implemented mandatory screening and tight travel controls around the epicenter of the virus in Wuhan will stem the spread. With reported cases rising to 440 and deaths increasing to nine, alongside the first infection in Hong Kong, investors are wary of expanding contagion but risk appetite remains resilient as authorities boost their response. For context, yesterday’s initial reports of the coronavirus, which is being compared to the SARS outbreak from seventeen years ago, derailed the ongoing rally for global stocks. During the US session, midday news of the first US case, located in Washington state, reversed an early session rebound for the S&P 500, with shares of luxury goods companies and airlines underperforming. Experts note that the Chinese Lunar New Year holiday, which begins this Friday, poses a substantial risk of dramatically widening the outbreak given that tens of millions of Chinese travel home or to a vacation destination for the holiday week. The Shanghai Composite rebounded 0.3% overnight after falling 1.4% yesterday, while the renminbi steadied after declining 0.5% from five-month highs versus the dollar. For our independent MPP viewpoint on the potential ramifications of this outbreak on markets, policy, and the economy, (as well as other key macro issues of the day) please sign up for our Markets Policy PRO subscription https://marketspolicy.com/markets-policy-professional/

 US Corporate Earnings Continue to Impress

Fourth quarter (4Q19) corporate results remain supportive of US equities amid more high-profile upside earnings surprises. After yesterday’s closing bell, Netflix issued nuanced results, with earnings beating estimates but new subscribers coming in lower than expected. Investors are focusing on the positive outlook from management, however, and Netflix shares are up 2.1% in pre-market trading. Meanwhile, IBM impressed analysts, beating both sales and profit projections on strong cloud computing business, sending its shares 4.2% higher ahead of today’s opening bell. Last week, shares of JPMorgan, Morgan Stanley, Goldman Sachs, and Citi all rallied after their results, kicking off 4Q19 earnings season on a positive note. Other reporting companies that impressed investors last week include rail giant CSX, financial services mainstay Charles Schwab, and asset management leader BlackRock. Trucker JB Hunt, oilfield services provider Schlumberger, and industrial bellwether Fastenal were among the few disappointments, and shares of each experienced only moderate downside. Of the 54 S&P 500 companies that have reported 4Q19 results, 71% have topped earnings expectations and 67% have beaten sales estimates. Today’s reports feature Johnson & Johnson, Northern Trust, Baker Hughes, and Raymond James. Progressive, American Airlines, Discover, Intel, Southwest, M&T Bank, Proctor & Gamble, Starbucks, Travelers and American Express all report later this week.

Additional Themes

Italian Political Uncertainty – Signs that the fragile coalition government formed by the populist Five Star party and its unnatural allies in the moderate Democratic Party may be in its final days are weighing on local assets, although price action remains moderate. The benchmark Italian equity index is down 0.3% with shares of local banks leading to the downside with losses of 1.7%. However, Italian bank stocks recently touched their best level since September 2018 earlier this month, so they remain well shy of 2019’s lows. Italian bonds are also lagging, but their yield spread over German bunds (a key market-based indicator of Italian sovereign risk) is only 2 basis points wider to 1.63% today, barely wider than its best level in two years.

 Trump Touts Tax Cuts – In remarks from the World Economic Forum at Davos this morning, President Trump indicated that his administration would issue a middle class tax cut proposal in the coming days. He also made relatively balanced comments on the dollar, the Fed, and trade.