PBoC, ECB & FED Pledge to Stick Around, UK May Faces a 'No Confidence Vote', Bank Earnings Mixed

What You Need to Know Today

• China, the ECB & FED aren't going anywhere

• Bank Earnings continue to be a mixed bag – C beats, JPM misses, BLK misses, BAC beats  and GS?

• BREXIT FAILS and today May faces a vote of ‘No Confidence’

• GS sees a sharp slowdown for 2019

OK, OK….so here is how it goes……Stocks fell on Monday (stick with me here – I know it’s Wednesday but there wasn’t a note yesterday)  after Chinese macro data brought all the concerns of a global slowdown back to the front burner – Specifically Chinese exports – revealed an unexpected slowdown in December – suggesting that uncertainty over a trade deal is beginning to take its toll…..Igniting once again the idea that a slowdown by the second largest economy in the world will eventually spill over into Europe and then the US. 

The Dow gave up 86 pts after being down as much as 230 pts right after the opening….the S&P and Nasdaq had a similar track – falling 13 pts and 65 pts respectively – after being lower as well.  Talk of a slowing China, the end of the bull mkt  and a coming recession continues to dominate the 2019 conversation –  The IMF (Int’l Monetary Fund) cut their global forecast for 2019 and now a recent institutional investor survey (with 500 respondents) done by Natixis – revealed that the majority of the investors polled expect that the bull mkt is about to come to an end – sometime in 2019 while 41% of those polled are said to be ‘reducing allocations to US equities’.  And not to be outdone – our friends at GS are predicting ‘no recession in 2019’ but expect one helluva slowdown……Goldman’s Petey Oppenheimer had this to say at the GS Global Strategy Conference in Frankfurt, Germany –

“It’s still our view that we’re not headed for a recession in any  one of the major economies.  At the end of the year, there was a particularly sharp downgrade in expectations for the US and while there has been a big tightening of policy and financial conditions in the US, we don’t see a recession, but we do see a pretty sharp slowdown.”

And now it is earnings season – first we got Citibank’s report – (they jumped the line and announced on Monday ahead of the traditional kick off by JPM – and fyi – Jamie is not happy about that) – Their report as you know by now did beat the ‘lowered number’ by slashing compensation expenses – they missed terribly on trading revenues – citing the 4th qtr volatility being tough on their trading desks –  leaving so much of the trading to the ‘LOW COST ALGORYTHMS’ which created wild and sometimes uncontrollable swings in the mkts – (which only reinforces the idea that you get what you pay for…- but THAT is another story).   CFO Johnny Gerspach did make some positive comments during his conference call – notably about China – saying that while

“there is a slowdown in China, it’s not the type of slowdown we would consider to be particularly disruptive”.  

What?  Those comments are in direct contrast to what we are expecting…right? Everyone is expecting that China will be the culprit for any negative earnings report  - but in HIS statement – he essentially said that C is not that concerned about any slowdown in China vis a vis their business

And then it was Tuesday!  US futures were pointing UP (I’ll come back to that)  – and then WFC &  JPM came to the confessional – asking for forgiveness…as they both missed the number.  JPM reported earnings…..coming in at $1.98 vs. the expected $2.20 – and this is significant for Jamie – since he never misses the estimates in fact – JPM has beaten the estimates for 15 straight qtrs. (clearly someone did not get the memo about how they were supposed to cut the estimates to $1.96 BEFORE yesterday – so that it would appear as if they beat the number)….…..Sales and trading revenues were $1.86 bil vs. the exp $2.29 bil, total 4th qtr revs of $26.8 bil vs. the estimate of $26.9 bil.

The stock traded lower in the pre-mkt  and remained in negative territory until about 11:45 am….when during the conference call word had It that despite all of the noise – the underlying business performance and economic trends remain in good shape.  They focused on the positive - net interest margin rose by 10% to $14.4 bil –  And BOOM!  The stock goes from negative to positive and ended the day UP 75 cts to $101.68.  and in this mornings WSJ- the headline is not about the miss – it is about how banks are finding the ‘sweet spot’ in higher rates! (accentuating the positive) 

Ok – so back to yesterday’s mkt action…..futures were higher in the pre-mkt – Overnight China had announced a broad range of stimulus plans & tax cuts to help support their economy (apparently responding to the negative news on Monday)  – sending mkts in Asia and Europe higher….even as the uncertainty over BREXIT and  trade lingers.  The feel good tone then carried over to the US and it was Risk On…..amazingly – the WFC & JPM misses did not panic the action in the broader mkt. Why?  Because everyone chose to focus on the PBoC (Peoples Bank of China) news…..They pledged to stimulate the Chinese economy!  That is positive.   Shares of TECH companies surged…..the XLK – Tech ETF – rose by 1.5%, individual names did even better -  AAPL up 2%, AMZN up 3.5%, GOOG up 3%, NFLX up 6%, FB up 2.4%, TWTR up 1.8%, MSFT +2.9%.....The idea here is that TECH will do better if the Chinese economy does better and after the beating the TECH has taken over the past 3 months – there is real value in these names for the long term buyer and BANG!  Here we go…..By the end of day - The Dow added 155 pts – closing above 24k and just below resistance at 24,387, the S&P was up 27 – closing at 2610 and just below its resistance at 2630, the Nasdaq tacked on 117 pts ending the day at 7023 ABOVE its resistance at 6,997 (bullish) and the Russell added 12 pts to end the day at 1,445 – just kissing its resistance at 1,452. 

And this morning Asian and European mkts are mixed…..while US futures are up 6 pts …..after a volatile session overnight…..(they had been up as much as 15 pts……) – investors are focusing on the latest central bank policy statements – you see - overnight ECB (European Central Bank) Pres – Uncle Mario Draghi joins in and said that stimulus is still needed in the Eurozone – this surely after the UK Prime Minister Terry May lost her BREXIT vote (no surprise) – but he wants to make sure that the European economy does not begin to falter and that the algo’s do not rip the place apart – like they did in the US -  as the UK is at a dangerous crossroads with the EU as investors must now factor in all of the political turmoil that is just ahead…….the UK Parliament is holding a ‘no confidence vote’ on her and her gov’t at 7 pm tonight – (that would be 2 pm EST.) FTSE -0.61%, CAC 40 +0.05%, DAX – 0.14%, EUROSTOXX -0.10%, SPAIN -0.09% and ITALY + 0.50%.

As I said – US futures are mostly higher…both the Dow and S&P are up – 30 and 5 pts respectively while the Nasdaq is flat. The mood in the mkts remains fairly optimistic – after China, the EU and the US central banks have ALL said that they aren’t going away anytime soon.  And while the fundamentals have not really changed there is plenty of political issues around the world that could – in the short term – cause mkts to remain unsettled.  Think US Gov’t shutdown – now in its 26th day, think political uncertainty in Germany, Italy and France and the political uncertainty in the US as the 2020 Presidential election cycle gears UP.  So far we have Tulsi Gubbard (D, HI), Julian Castro (D & former Housing & Urban Develop Sec),  Lizzy Warren (D; MA) & John Delaney (D, MD) and now Kirsten Gillenbrand (D: NY) in the race and just wait until we get someone from the GOP to toss their name in the hat as they challenge their own party to reconsider replacing Donny.   With dozens more expected to toss their names into the ring we can expect it to be another long, divisive primary season…..Didn’t we just do this? 

Expect to hear more about the financials today as we get earnings from USB, PNC, & GS……Eco data includes Mortgage Apps – Retail Sales and other gov’t report are postponed due to gov’t shutdown – and this is causing some analysts to raise the warning flag about the economic headwinds that the shutdown will create if this drags on for much longer….and that will begin to change the fundamentals and weigh on stocks.      

Look for the S&P to trade in the 2575/2630 range. 2600 was proving to be a difficult level for the mkt to pierce but we did manage to break thru yesterday….so the real test will be the 50 dma at 2630. 

Oil traded higher yesterday as both Russia and OPEC vow production cuts and US rig counts fall – suggesting less US production – Look US rigs went from 888 to 873 – Give me a break….Some strategists are suggesting that the 15 rig count fall could potentially dent our growth – currently at 2 mil barrels/day –  Come on! More noise…at 2 mil barrels /day we are the world’s top oil producer and we apparently have plenty of oil to produce…. This morning – oil is down slightly – nothing new – just more talk of economic malaise and oversupply……Now oil did trade right up to resistance at $52.28 and has backed off – I would suggest we find support at $50 with resistance at the trendline - $52.28.