Asian Markets

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.

European Markets

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