Daily Markets: 'Phase One' Trade Deal To Be Signed Today; Investors Wonder About Its Details

China and US flags flying alongside each other - Bloomberg photo
Credit: Tomohiro Ohsumi/Bloomberg

Today’s Big Picture

Today is the day many have been waiting for as China and the US are expected to officially ink their phase one trade deal later this morning. In a potential “buy the rumor, sell the news moment,” Asian equities finished the day lower, and European equity indices are currently mixed, but little changed as are US equity futures. Weighing on the market’s trade deal mood are recent comments that existing tariffs on “billions of dollars” of Chinese goods coming into the US are likely to remain in place until after the US presidential election and the completion of the phase two agreement. Moreover, it’s being reported US and China have “an understanding” that no sooner than 10 months after the signing of the agreement, the US will “review progress and potentially consider additional cuts on tariffs affecting $360 billion of imports from China.”  

To some this likely raises some questions over the scale and scope of the phase one agreement, the full text of which is expected to be released in conjunction with the signing. We have a very good idea of many across Wall Street and the investment community will be doing later today as well as what will likely fill the cable news channels. We have our highlighters at the ready to dig into the nitty-gritty of the agreement and determine its impact on the overall market as well as specific industries.

Outside of the US-China trade deal, the US Senate is expected to hold a floor vote later this week on USMCA and The New York Times is reporting security camera footage shows “two missiles fired 30 seconds apart took down Flight 752.”  We will monitor developments for both and what they could mean for the market as the December quarter earnings season heats up further in the coming days. 

Data Download

December machine tool orders for Japan jumped just over 10% compared to November, but on a year over year basis fell 33.6%.

November Industrial Production for the Eurozone rose 0.2% MoM, falling short of the +0.3% forecast. On a YoY basis, November industrial production fell 1.5%, coming below the -1.1% forecast. November marked the 13th consecutive month of contraction of the industrial economy in the Eurozone. 

Data published by the Federal Statistics Office showed that as expected the German economy grew +0.6% in 2019, marking the weakest expansion since 2013, and compares to 1.5% in 2018.

In the US, we have the usual weekly Wednesday reports —  EIA Crude Oil Inventories and MBA Mortgage Applications Index — on deck as well as the December Producer Price Index, and the January Empire Manufacturing Index. Later this afternoon, we’ll receive the latest Fed Beige Book, which will contain an anecdotal snapshot of the economic ongoings at each of the 12 Fed member banks. While the CME FedWatch Tool shows a low probability of a rate cut through the first nine months of 2020, today’s Beige Book report will be fodder for the Fed’s next monetary policy meeting on Jan 28-29. 

Stocks to Watch

PNC's (PNCDecember quarter GAAP EPS came in at $2.97, $0.03 better than expected; revenue for the quarter rose 6.2% to a better than expected $4.61 billion. Net interest income of $2.5 billion fell 1% due to lower loan and securities yields, which was offset by lower rates on deposits and borrowings. Of note, the company sees average loans rising 4%-5% in 2020 and revenue growth for the year up in the “low single digits.”

Despite its December quarter revenue falling 1.7% year over year Bank of America (BAC) reported better than expected December quarter GAAP EPS of $0.74. CFO Paul Donofri shared “Solid client activity in growing loans and gathering deposits helped us offset spread compression”

Blackrock (BLK) reported December quarter non-GAAP EPS of $8.34, well ahead of the consensus forecast; revenue for the quarter climbed almost 16% YoY to $3.97 billion. 

US Bancorp (USB) reported December quarter earnings of $1.15 per share, $0.06 better than the $1.09 consensus. Revenue for the quarter rose 3.9% YoY to $5.92 billion vs. the $5.78 billion consensus.

Even though United Health (UNH) reported December quarter revenue that rose just over 4% YoY, missing expectations in the process, the company reported better than expected Non-GAAP EPS of $3.90. United guided 2020 Non-GAAP EPS in the range of $16.25-$16.55 vs. the $16.45 consensus.

Yamana Gold (AUY) announced December quarter and full-year preliminary 2019 production results that exceeded guidance for gold, silver, and gold equivalent ounces.

Adding to the brick & mortar retail woes we’ve shared over the last few days, this morning Target (TGT) reported its holiday comp sales missed expectations, rising 1.4%. "Continued strength in multiple categories was offset by softer-than-expected performance in key holiday categories including electronics, toys, and portions of home, which together account for approximately one-third of the company's holiday season sales." Digital comp sales for the holiday season rose 19% YoY.  Despite the holiday miss and January quarter comp sales that are expected to be up 1.4% vs. the +3.8% consensus, Target reaffirmed its January quarter EPS guidance of $1.54-$1.74 vs. the $1.65 consensus. 

Bloomberg reports that as part of its efforts to “refocus on the lab,” Pfizer (PFE) is planning to spin out via an IPO its consumer-health joint venture with GlaxoSmithKline (GSKin “three to four years.”

Timberland focused real estate investment trust Rayonier (RYN) has agreed to acquire timber resource company Pope Resources (POPE) in a cash and stock deal valued at $554 million.

Yesterday Amazon (AMZN) lifted its temporary suspension of FedEx’s (FDX) ground delivery service for Prime shipments by third-party sellers. Shares of FedEx gained 2%.

Apple (AAPL) found itself in the President’s Twitter cross-hairs yesterday after Attorney General William Barr claimed that Apple had not done enough to help the FBI get into password-protected iPhones used by the shooting suspect in the December Pensacola Navy base. Shares lost 1.3%.

Shares of Beyond Meat Inc (BYND) rose as high as 17% during yesterday's trading and were briefly halted for volatility. After hours the company announced a supply chain agreement with plant protein company Roquet. Shares finished after-hours trading up 5.7%.

Shares of Criteo (CRTO) dropped to a 52-week low during normal trading hours and continued their slide for an 18% drop by the end of extended trading after Google (GOOGLannounced that it would end support for third-party cookies.

Nektar Therapeutics (NKTR) shares were down as much at 20.4% in after-hours trading after an FDA panel unanimously rejected the use of an opioid product from the company to treat chronic back pain.

American Airlines (AAL) pushed back the return of Boeing's (BA) 737 Max to June 4, in line with United Airlines (UAL).

Shares of Walt Disney (DIS) benefited from a report issued by mobile analytics firm Sensor Tower that showed the Disney+ mobile app was downloaded 40.9 million times across Apple's App Store and the Google Play store for Android, with the vast majority of interest coming from the US. We'd note the findings do not reflect demand from smart TVs, gaming consoles and devices like Roku (ROKU) and Apple TV, which stream video to televisions

Shares of Shake Shack (SHAK) moved more than 6% higher yesterday following the company’s presentation at the ICR Conference that discussed new chicken products and a veggie burger as well as plans to enter China, South Korea, and Singapore. 

The National Security Agency found a major software flaw in Microsoft’s (MSFT) Windows operating system one that could potentially expose computer users to significant breaches, surveillance or disruption. In response, Microsoft is rolling out a patch to fix the flaw found in Windows 10 and the 2016 and 2019 versions of Windows Server.

After today’s US equity markets close, investors will likely focus on December quarter earnings from Alcoa (AA) as well as managements end market comments. Alcoa is expected to report EPS of -$0.23 on revenue of $2.5 billion. Other companies to report include:

  • Kinder Morgan (KMI) is expected to report EPS of $0.26 on revenue of $3,620.5 million.
  • Eagle Bancorp (EGBN) is expected to report EPS of $1.07 on revenue of $80.2 million.

For a more detailed look at upcoming earnings reports as the December quarter earnings season heats up, we recommend checking in with Nasdaq’s earnings calendar page

On the Horizon

    • Upcoming IPOs:
        • 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 (LIZItargets 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.
    • Dates to mark:
        • January 13-16: ICR Conference 2020
        • January 13-16: The JPMorgan Chase (JPM) Healthcare Conference 
        • Jan 28-29: Federal Reserve FOMC Meeting

Thoughts for the Day

“Life is not always a matter of holding good cards, but sometimes playing a poor hand well.” ~ Jack London


Beyond Meat (BYND) is a constituent in Tematica Research’s Cleaner Living Index

Microsoft (MSFT) and Target (TGT) are constituents in Tematica Research’s Thematic Dividend All Stars Index

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 serves as the Chief Macro Strategist for Tematica Research. With over 20 years of experience in finance, her focus is on macroeconomic influences that create investing headwinds or tailwinds. Lenore co-authored the book Cocktail Investing and in addition to her Tematica work, provides M&A consulting services for companies in Europe looking to expand globally. 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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