Most of the markets advanced with China leading the way. The U.S. trade delegation will head to China and conduct further negotiations with the Chinese Commerce Ministry next Monday and Tuesday. There were further reasons for market optimism. The Caixin Chinese Dec. Services PMI beat expectations and reached a 6 month high. Also, Chinese Premier Li stated the nation will “step up countercyclical adjustments of macro policy.” Japan reopened from a 4 day break and played “catch down.”
The majority of sectors advanced with real estate, financials, telcos and utilities better by more than 1%. IT was lower by more than 1% weighed down by Japanese Apple suppliers. As a group, they fell by c. 5%.
Well after the local close, the PBoC cut its reserve ratio by 1% point. It will be implemented in two steps: a 0.5% point reduction on Jan. 15th and another 0.5% on Jan. 25th. This will result in the rate reducing to 13.5%.
Other Headlines of Importance
- Ping An Bank’s +5.0% NI rose 7% last quarter. The bank saw NPL improvement and will adhere to stricter rules to identify non-performing loans.
- In addition to the Ping An Bank results, Chinese financials rose with a local analyst indicating state funds are buying the sector.
The region’s markets had a solid start to the day thanks to the trade hopes. They made further gains after the Chinese reserve ratio cut. The icing on the cake was the strong U.S. macro data. The major indices ended the day near their respective highs. Given today’s gains, most are are now up for the year. Breadth was very bullish with only 19 of the Euro Stoxx 600 names to the downside.
All sectors advanced. Basic resources more than 5%. Autos and industrials by 4%. Even defensives, which underperformed, gained more than 1%.
As a general comment, most of the region’s Services and Composite PMI results lagged consensus. However, Italy was the exception. All the Chinese and trade news have the cyclical commodities advancing on solid gains.
Snippets from the Region
- BMW +3.9% CEO Kreuger confirmed the company’s FY ’18 margin target remains “at least 7%.” He added FY ’19 forecasts will be provided in March.
- Bayer +6.7% had a U.S. Federal judge limit evidence plaintiffs may present in RoundUp cancer cases.
- Press reports allege Mediaset -2.0% may buyout Mediaset Espana +1.5%.
- Volvo +4.4% is taking a SEK 7b provision related to a defective emissions-control part. However, Citigroup had estimated the charge would be as much as SEK 10b.
On Our Side of the Pond
- The 116th U.S. Congress opened with the Democrat led House passed spending bills that would reopen most of the currently closed government operations. However, it has no funding for Pres. Trump’s border wall. Therefore, the President is expected to veto the measures.
- U.S payroll data showed strong beats in all three categories: non-farm, manufacturing, and private.
On the Markets’ Agenda for Next Week
- The Sino-U.S. trade talks will be front and center.
- The U.S. budget impasse will also remain a focal point.
- Macro data includes: a rate decision in Israel, Swiss and Chinese foreign reserves, German and U.S. factory orders.
Markets and Macro
|AU||CBA Australia PMI Services||Dec F||—||52.7||52.2||—|
|AU||CBA Australia PMI Composite||Dec F||—||52.9||52.4||—|
|UK||BRC Shop Price Index YoY||Dec||—||0.30%||0.10%||—|
|HK||Nikkei Hong Kong PMI||Dec||—||48||47.1||—|
|JN||Nikkei Japan PMI Mfg||Dec F||—||52.6||52.4||—|
|CH||Caixin China PMI Composite||Dec||—||52.2||51.9||—|
|CH||Caixin China PMI Services||Dec||53||53.9||53.8||—|
|IN||Nikkei India PMI Services||Dec||—||53.2||53.7||—|
|IN||Nikkei India PMI Composite||Dec||—||53.6||54.5||—|
|US||Wards Total Vehicle Sales||Dec||17.24m||17.50m||17.40m||—|
|UK||Nationwide House PX MoM||Dec||0.10%||-0.70%||0.30%||0.40%|
|UK||Nationwide House Px NSA YoY||Dec||1.50%||0.50%||1.90%||—|
|FR||CPI EU Harmonized MoM||Dec P||0.10%||0.10%||-0.20%||—|
|FR||CPI EU Harmonized YoY||Dec P||2.00%||1.90%||2.20%||—|
|FR||CPI MoM||Dec P||0.10%||0.00%||-0.20%||—|
|FR||CPI YoY||Dec P||1.80%||1.60%||1.90%||—|
|SP||Markit Spain Services PMI||Dec||53.7||54||54||—|
|SP||Markit Spain Composite PMI||Dec||53.7||53.4||53.9||—|
|IT||Markit/ADACI Italy Services PMI||Dec||50.1||50.5||50.3||—|
|IT||Markit/ADACI Italy Composite PMI||Dec||49.3||50||49.3||—|
|FR||Markit France Services PMI||Dec F||49.7||49||49.6||—|
|FR||Markit France Composite PMI||Dec F||49.4||48.7||49.3||—|
|GE||Unemployment Change (000’s)||Dec||-13k||-14k||-16k||—|
|GE||Unemployment Claims Rate SA||Dec||5.00%||5.00%||5.00%||—|
|GE||Markit Germany Services PMI||Dec F||52.5||51.8||52.5||—|
|GE||Markit/BME Germany Composite PMI||Dec F||52.2||51.6||52.2||—|
|EC||Markit Eurozone Services PMI||Dec F||51.4||51.2||51.4||—|
|EC||Markit Eurozone Composite PMI||Dec F||51.3||51.1||51.3||—|
|CH||Reserve Requirement (Major Ban||15-Jan||—||14.00%||14.50%||—|
|CH||Reserve Requirement (Major Ban||25-Jan||—||13.50%||14.00%||—|
|UK||Net Consumer Credit||Nov||1.0b||0.9b||0.9b||0.8b|
|UK||Net Lending Sec. on Dwellings||Nov||4.0b||3.5b||4.1b||—|
|UK||Money Supply M4 MoM||Nov||—||0.00%||0.70%||—|
|UK||M4 Money Supply YoY||Nov||—||0.80%||1.00%||—|
|UK||M4 Ex IOFCs 3M Annualised||Nov||—||1.70%||2.30%||2.20%|
|UK||Markit/CIPS UK Services PMI||Dec||50.7||51.2||50.4||—|
|UK||Markit/CIPS UK Composite PMI||Dec||50.8||51.4||50.7||50.8|
|UK||Official Reserves Changes||Dec||—||$1387m||$534m||—|
|EC||CPI Core YoY||Dec A||1.00%||1.00%||1.00%||—|
|EC||CPI Estimate YoY||Dec||1.70%||1.60%||2.00%||—|
|IT||CPI EU Harmonized MoM||Dec P||0.10%||-0.10%||-0.20%||-0.30%|
|IT||CPI NIC incl. tobacco MoM||Dec P||—||-0.10%||-0.10%||-0.20%|
|IT||CPI NIC incl. tobacco YoY||Dec P||1.50%||1.10%||1.70%||1.60%|
|IT||CPI EU Harmonized YoY||Dec P||1.40%||1.20%||1.60%||—|
|US||Revisions: Seasonally Adjusted Household Survey data|
|CA||Net Change in Employment||Dec||10.0k||9.3k||94.1k||—|
|US||Change in Nonfarm Payrolls||Dec||184k||312k||155k||176k|
|US||Two-Month Payroll Net Revision||Dec||—||58k||—||—|
|CA||Hourly Wage Rate Permanent Employees YoY||Dec||1.60%||1.50%||1.50%||—|
|US||Change in Private Payrolls||Dec||185k||301k||161k||173k|
|US||Change in Manufact. Payrolls||Dec||20k||32k||27k||—|
|CA||Full Time Employment Change||Dec||—||-18.9||89.9||—|
|CA||Part Time Employment Change||Dec||—||28.3||4.1||—|
|US||Average Hourly Earnings MoM||Dec||0.30%||0.40%||0.20%||—|
|US||Average Hourly Earnings YoY||Dec||3.00%||3.20%||3.10%||—|
|CA||Industrial Product Price MoM||Nov||0.00%||-0.80%||0.20%||—|
|CA||Raw Materials Price Index MoM||Nov||—||-11.70%||-2.40%||-2.30%|
|US||Average Weekly Hours All Employees||Dec||34.5||34.5||34.4||—|
|US||Labor Force Participation Rate||Dec||—||63.10%||62.90%||—|
|US||Markit US Composite PMI||Dec F||—||54.4||53.6||—|
|US||Markit US Services PMI||Dec F||53.4||54.4||53.4||—|