Morning Minutes 01/04/2019

Morning Minutes

Markets Rebound as Focus Turns to Trade Talks and Strong Employment Growth

January 4, 2019
8:45 am EST

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Market Commentary By:
Colin Cieszynski, CFA, CMT
Chief Market Strategist
+1 (647) 282-4428

The wave of weakness that took Apple (AAPL) shares down 10%, the NASDAQ down 3% and the Dow Industrials down 660 points already appears to be yesterday’s news as the seesaw battle for domination between bulls and bears to start the year continues.

Two overnight developments sparked a big turnaround in Asia Pacific markets that has continued into European and North American trading. China announced that formal trade talks with the US are expected to commence next week with a meeting scheduled for January 7-8 in Beijing. China also announced it is cutting reserve requirements for its banks again in a bid to accelerate lending and get its economy moving again. China’s weakening economic situation has been one of the factors dragging markets down lately and the potential for progress has sparked a relief rally. The Hang Seng jumped 2.25% overnight, while Shanghai rallied 2.40%. The news also has had a positive impact on commodity prices with copper climbing 1.65% and WTI crude oil gaining 1.80%.

In Europe, major indices are in the green led by a 1.40% gain for the FTSE and a 1.90% rally for the Dax. In North America, US index futures have clawed back a significant portion of yesterday’s losses with Dow futures up 280 points or 1.25%. Yesterday the S&P/TSX fell only about 1.00% compared with the 2.50% to 3.00% plunges made by US indices and could benefit from continued gains in commodity prices.

When looking at how the markets react to news, I usually consider hard numbers (GDP, retail sales, payrolls, etc) to be more important than soft numbers (opinion polls, PMI, consumer confidence, etc). Yesterday, the soft number miss in US Manufacturing PMI (54.1 vs street 57.9) overshadowed the strong hard number ADP Payrolls report (271K vs street 178K).

Today the pendulum appears to be swinging back to hard numbers dominating sentiment. US Nonfarm payrolls were spectacular, increasing by 312K, nearly double the 177K street estimate and well above my 225K guess which I thought was aggressive. Average hourly earnings, increased by 3.2% over year, more than the 3.0% street estimate, indicating that even though energy price inflation has come off in recent months, wage inflation hasn’t gone away. Canada jobs grew by 9.3K in December, better than the 5K street estimate and the 10K decline I had been thinking.

SIA Wealth In The Media:

Chief Market Strategist Colin Cieszynski appeared on BNN yesterday talking about recent North American market action.

Why the TSX is doing better than U.S. markets so far

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