DAILY MARKET REPORTS
- U.S. stocks bounced higher Monday, attempting to chip away at some of their losses for the year, as investors eyed signs of progress in trade negotiations between the U.S. and China.
- President Trump tweeted over the weekend that he and Chinese President Xi Jinping had recently talked by phone and made “big progress” in trade talks that are due to wrap up on March 1.
- A team of U.S. trade officials is expected in Beijing the week of Jan. 7 for several days of talks.
- The U.S. is urging Beijing to fill in the details of the trade and investment proposals that Chinese officials have made recently.
- Meanwhile, data on Monday indicated China’s manufacturing sector contracted in December, hitting its lowest level in nearly three years.
- The official manufacturing purchasing managers index (PMI) unexpectedly fell to 49.4 in December from 50.0 in November, data from the National Bureau of Statistics showed Monday.
- The result was the lowest since February 2016 and fell short of the forecasts of many economists.
- The reading adds to recent data indicating that economies in Europe and China are slowing, sparking worries that the malaise could spread to the U.S. despite relatively steady numbers on the American economy.
US FINANCIAL MARKET
U.S. companies repatriate over half a trillion dollars in 2018, but pace slows
- U.S. companies have sent home over half a trillion dollars of cash they held overseas in 2018 to take advantage of tax changes, but data suggest the pace is slowing, potentially removing a key source of support for Wall Street.
- Dollar repatriation in the July-September period fell to $93 billion, around half of second-quarter volumes and less than a third of the $300 billion or so sent home from January to March, U.S. current account data shows.
- Repatriation flows released by the U.S. Treasury International Capital, show Treasury bond holdings falling in locations that are well known as low-tax jurisdictions or overseas bases of U.S. companies.
GE drags premier U.S. corporate debt, which posts worst year since 2008
- The stock market’s gyrations have grabbed the year-end headlines, but another key financial market, investment-grade U.S. corporate debt, is turning in its worst yearly performance since the financial crisis a decade ago.
- GE’s bonds have crashed by around 14 percent – a monumental underperformance in bond market terms.
- Analysts worry this could signal worse times ahead for investment grade credit overall.
- According to the BofA/Merrill Lynch index, the sector’s total 2018 return is negative 2.5%, the largest drop since 2008.
- U.S. companies feasted on low interest rates in the decade since the crisis, leaving corporate balance sheets leveraged to the hilt with some $9.1 trillion of debt, almost double the 2007 total of $4.9 trillion.
Wells Fargo to pay $575 million in settlement with U.S. states
- Wells Fargo has agreed to pay $575 million to all 50 states and the District of Columbia to settle claims that a fake-account scandal in its retail bank and improper auto-loan and mortgage charges harmed customers.
- The bank has paid out more than $4 billion in settlements and fines since September 2016, much of it stemming from problems that came to light following the sales scandal.
- The settlement with the state attorneys general will include a customer redress program for those who may not have been refunded by the bank or other refund programs under settlements with federal regulators.
‘Aquaman’ Continues Box-Office Reign as ‘Vice’ Sputters
- Moviegoers had no trouble sorting Hollywood offerings into the naughty or nice pile this holiday season, with hits like “Aquaman” driving business and new releases such as “Vice” falling flat.
- The DC Comics superhero once again topped the box office, collecting an estimated $51.6 million in the U.S. and Canada this weekend for a domestic total of $188.8 million.
- “Aquaman,” distributed by AT&T’s Warner Bros, continues to pull in audiences overseas, where international grosses have added $560 million. “Aquaman” is now the highest-grossing movie in China in the studio’s history, collecting $260 million.
Amazon Plans to Add Whole Foods Stores
- Amazon.com is planning to build and expand Whole Foods stores across the U.S., people familiar with the plans said, to put more customers within range of the e-commerce giant’s two-hour delivery service.
- The push would bring Whole Foods to more suburbs and other areas where the natural grocer is quickly adding customers since the merger.
- That is a shift from the layoffs and slowing store growth Whole Foods experienced for several years before Amazon bought it in 2017 for roughly $13.5 billion.
Amazon, to Win in Booming Rural India, Reinvents Itself
- Amazon.com is building a logistics network from scratch to target customers in India’s rural backwaters—the home of more than 800 million people, many of whom have little access to retailers.
- Most are new to online shopping and often don’t have smartphones, credit cards or even delivery addresses.
- Last year India’s rural shoppers accounted for more than $400 billion of retail sales.
- Barclays estimates Amazon in India recorded more than $7 billion in gross merchandise volume, an e-commerce measure of the amount of business transacted, in the fiscal year that ended in March.
US ECONOMY & POLITICS
U.S. Presses China on Trade Proposals
- The U.S. is urging Beijing to fill in the details of a slew of trade and investment proposals Chinese officials have made recently, as the two sides try to resolve a trade battle that has rocked global markets.
- Since President Trump and Chinese President Xi Jinping met in Buenos Aires on Dec. 1, Beijing has pledged to cut tariffs, buy more U.S. goods and services, ease restrictions on foreign companies operating in China and further open sectors for foreign investment.
- On Saturday, President Trump tweeted that he and Mr. Xi had just talked by phone and made “big progress” in the talks. “Deal is moving along very well,” Mr. Trump tweeted. “If made, it will be very comprehensive, covering all subjects, areas and points of dispute.”
Shutdown Enters a New Week as House Democrats Ponder Next Move
- The partial government shutdown entered its second week and is headed into the new year, with little push in either party to budge on border-wall funding and Democrats weighing their next steps when they take over the House in days.
- White House officials said that negotiations over President Trump’s desired wall funding have broken down, and with most lawmakers gone from Washington over the holidays, little progress has been made for more than a week.
- The shutdown has affected nine of 15 federal agencies, forcing about 380,000 employees to take unpaid leave, also known as furlough, while other workers, deemed essential employees, are set to work without pay.
Senator Says Trump Is Re-Evaluating Quick Syria Withdrawal
- President Trump is re-evaluating a rapid pullout of U.S. troops from Syria but remains committed to pursuing the withdrawal he announced earlier this month, Sen. Lindsey Graham said Sunday after a White House meeting.
- The president’s decision earlier this month marked an abrupt shift in U.S. Middle East policy and helped prompt the resignation of Defense Secretary Jim Mattis amid broad concerns in Washington a withdrawal could squander gains made by U.S. allied forces and allow Islamic State militants to regain a foothold in the country.
- A White House official said that national security adviser John Bolton’s upcoming trip to Israel and Turkey will provide an opportunity for an important dialogue with pivotal U.S. allies about the region.
Federal Judge Allows Affordable Care Act to Remain in Effect During Appeals
- A federal judge who recently declared the Affordable Care Act unconstitutional stayed his ruling to allow for appeals, keeping the Obama-era health law in effect while litigation continues.
- U.S. District Judge Reed O’Connor in Fort Worth, Texas, wrote in a ruling issued Sunday that he stands by his earlier conclusion that the entire law is invalidated by congressional repeal of its fines on people who remain uninsured.
- However, because “many everyday Americans would…face great uncertainty” if that ruling were immediately put into effect, Judge O’Connor issued a stay to allow for appeals.
Elizabeth Warren Launches Exploratory Committee for 2020 Presidential Bid
- Massachusetts Sen. Elizabeth Warren on Monday announced the formation of an exploratory committee for president, making a formal move toward running for the 2020 Democratic nomination.
- Ms. Warren, long among the highest-profile members of the Democratic Party’s liberal wing, is one of at least two dozen candidates who might seek the party’s presidential nomination.
- A federal exploratory committee will allow Ms. Warren to travel the country and raise money from supporters before launching a formal campaign.
Russia Detains American on Spying Charge
- Russian authorities said Monday they had detained a U.S. citizen for alleged spying, setting the tone for more confrontation between the two countries in the new year.
- American Paul Whelan was arrested on Dec. 28 while “carrying out spying activities,” Russian security agency the FSB said in a brief statement without providing further details.
- Russia’s Foreign Ministry told state media it had informed the U.S. embassy about the arrest. The U.S. embassy in Moscow and the State Department didn’t immediately respond to request for comment.
Medicare Can’t Cut Drug Subsidy Payments For Hospitals, Court Rules
- A federal judge in Washington, D.C., has blocked the federal government from cutting drug subsidies to certain hospitals, a decision that could restore hundreds of millions of dollars in lost payments.
- The subsidies are designed to help eligible hospitals pay for certain cancer drugs and other medications. Starting this past January, the Department of Health and Human Services reduced the payments.
- Hospitals sued over the move shortly before it went into effect.
- It is unclear whether hospitals will be able to recoup all or some of the sums they had already lost. The Health Department has estimated Medicare, the federal health-insurance program for the elderly, and its beneficiaries saved $1.6 billion from the cuts.
Miners Cut Back in Largest U.S. Coal Region
- Miners in the nation’s largest coal-producing region are leaving more of the fossil fuel in the ground as prices fall for alternatives, including natural gas, and demand erodes from power-generation customers.
- Coal production from the Powder River Basin, an arid region spread over parts of Wyoming and Montana that produces about 40% of all U.S. coal, has declined by one-third between 2008 and 2017. It is expected to continue to drop in 2019.
- The Powder River Basin is expected to produce 338 million tons of coal in 2018, but that total is projected to fall to 329 million tons in 2019, according to a December report from Seaport Global analyst Mark Levin.
- The drop in demand is expected despite the Trump administration’s efforts to boost the coal industry by easing regulations.
EUROPE & WORLD
China factory activity shrinks for first time in over two years, 2019 looks tougher
- China’s factory activity contracted for the first time in over two years in December, highlighting the challenges facing Beijing as it seeks to end a bruising trade war with Washington and reduce the risk of a sharper economic slowdown in 2019.
- The official Purchasing Managers’ Index (PMI) – the first snapshot of China’s economy each month – fell to 49.4 in December, below the 50-point level that separates growth from contraction, a National Bureau of Statistics (NBS) survey showed.
- A PMI sub-index on overall factory output prices fell to 43.3 in December from 46.4, signaling earnings erosion. A gauge on overall production fell to 50.8, the lowest since February, from 51.9.
- A sub-index for total new orders contracted for the first time in at least a year, falling to 49.7 amid persistently weak demand at home and softening global growth.
China Has the World’s Worst Stock Market With $2.4 Trillion Loss
- The benchmark Shanghai Composite Index is 25 percent below where it started this year, making it the worst-performing major stock market in the world.
- The breakout of a trade war between the U.S. and China has wiped out $2.4 trillion this year, while a deleveraging drive has squeezed margin debt to just one-third of its peak in 2015.
- Investors haven’t been this disengaged with stock trading in years. Average daily turnover on both the Shanghai and Shenzhen exchanges fell to about 368 billion yuan ($53.7 billion) this year, the lowest since 2014, data compiled by Bloomberg show.
- Just 239.1 billion yuan of shares traded on Friday, about 1/10 of its peak in 2015.
- All 10 industry groups on the CSI 300 index fell on the year, the broadest decline since 2011, according to data compiled by Bloomberg. That’s a stark reversal from last year, when all sector gauges rose.
China’s Xi, in New Year’s address, says pace of reform won’t ‘stagnate’
- The pace of reform in China will not stagnate and it will open its door wider still to the outside world, President Xi Jinping said on Monday in his New Year message, as he also warned of challenges ahead.
- Xi has repeatedly pledged his support for reform this year, as China marks 40 years since landmark changes to its economic model, amid mounting pressure to improve market access for foreign companies as a trade war with the United States weighs.
- In a speech carried by all major state media, Xi said that in 2018 China had pushed more than 100 important reform measures.
- Xi made no specific mention of the trade war with the United States, noting that 2019 would bring “opportunities and challenges”.
China Pushes for Primacy in Space
- China is poised to realize an ambitious mission to the far side of the moon, the most immediate of many planned milestones in its effort to challenge America’s half-century-long supremacy in space.
- In a first for any country, the Chang’e-4 probe is set to touch down on the “dark side” of the moon on or around Jan. 3, according to state media, and dispatch a rover in a vast crater to explore the moon’s interior.
- While impressive in itself, the mission is a step toward bolder objectives: China plans to operate a manned lunar base by 2030 and lead the world into a new age of space exploration.
- A late entrant to the space race, China conducted its first manned space flight in 2003, 42 years after the Soviet Union and the U.S. first achieved the feat.
Expats Flee Saudi Fund, Bemoan Crown Prince Control
- Saudi Arabia’s flagship government investment arm has suffered several prominent defections by Western executives, hampering its enlarged responsibilities to help transform the country’s economy.
- The roughly $200 billion fund’s British head of legal, its Swiss chief of public investments and a Spanish private-equity associate all resigned this year after fewer than 18 months in their roles, said people familiar with the exits.
- Senior staffers who have jumped have complained about the crown prince’s micromanagement, an unclear investment strategy and an erratic working environment at odds with the culture of banks and investment houses in London and New York.
TODAY in HISTORY
- Thomas Edison gave the first public demonstration of an electric incandescent lamp. (1879)
- President Truman officially proclaimed the end of hostilities in World War II. (1946)
- The Marshall Plan expired after distributing more than $12 billion in foreign aid. (1961)
This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S&P 500, are unmanaged and may not be invested into directly. Sources: Reuters, Bloomberg, the Wall Street Journal.
Content posted by third parties on this site is screened in order to protect clients’ privacy and comply with regulatory requirements. Content containing sensitive personal information, inappropriate language, information about specific investments, misleading information, information about other companies or websites, or information related to litigation will be removed. Content posted by third-parties on this site remains the responsibility of the party posting the content and is not adopted or endorsed by Pence Wealth Management or LPL Financial. Any opinions or statements posted by third parties are their own and may not be representative of the experience of others and are not indicative of future performance or success. Third party content on this site does not reflect the views of LPL Financial and have not been reviewed by LPL Financial as to accuracy or completeness.