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Wall Street Breakfast: Will The Trump Trade Persist?
Jan. 23, 2017 6:48 AM ET|
Includes: AAP, AAPL, AMZN, AZO, BHP, BSWQY, BX, DAL, DORM, FDML, FXCOF, GOOG, GO



The post-election story in markets has largely been about what campaign promises will be turned into reality. The possibility of tax cuts, higher inflation and appointees to a Fed more inclined to raise interest rates has led to higher bond yields, a stronger dollar and record highs for stock market indices, but disappointment may follow if legislation fails to materialize. Also on watch are the executive actions President Trump will take this week.

Economy

The greenback is giving up some gains against a backdrop of uncertainty surrounding the new president's policies, as well as his recent remarks about the impact of dollar strength. Trump's inaugural address on Friday highlighted his "America first" mantra, but disappointed investors hoping for details on his plans to stoke growth, spend on infrastructure and reduce taxes.

British Prime Minister Theresa May is set to visit Donald Trump in Washington on Friday, making her the first foreign leader to meet with the newly inaugurated president. The future of NATO, the EU, and a potential trade agreement between the two countries are likely to be key topics of discussion. The U.S. is already Britain's second-largest trading partner by country, after Germany.

A cross-party group of MPs is plotting to thwart Theresa May's "hard Brexit" plans amid fears that U.K. businesses could soon have to pay huge export tariffs on goods they sell to the EU. The scheme comes ahead of tomorrow's Supreme Court verdict on whether a parliamentary vote is needed to trigger Brexit. If a vote is required, the MPs will seek to amend legislation to make an extreme Brexit option impossible.

Trade will also be part of the agenda for President Trump's meeting with Mexico's Pena Nieto along with immigration and security, Press Secretary Sean Spicer told reporters. The leaders spoke by phone on Saturday and discussed meeting on Jan. 31. Trump is also looking to begin NAFTA negotiations with Canadian Prime Minister Justin Trudeau and vowed to pull the U.S. out of the Trans-Pacific Partnership.

China's stimulus programs have boosted economic growth, but they're also creating stability risks, Fitch said in a research report. "Short-term growth targets have been prioritized over some areas of structural reform, particularly efforts to reduce the economy's dependence on credit-intensive investment." Aggregate financing, which grew 12.4% in 2016 (excluding equity), rose faster than nominal GDP of 8%, pushing up the country's debt-to-GDP ratio.

Turkish MPs have approved a constitutional reform package, which would make President Erdogan the head of the executive and axe the post of prime minister. The proposals were said to ensure simpler and more effective leadership, but critics fear they will edge Turkey toward one-man rule. Hours after the bill was approved, Erdogan announced the "real and final decision" would be subject to a referendum, expected to be held in April.

Kuwait has picked six banks to advise on its first international debt sale as the OPEC member joins other Gulf nations shoring up public finances after the slump in oil prices. Saudi Arabia, Qatar and Abu Dhabi raised more than $30B from global bond markets in 2016, while Iraq just announced the sale of $1B in bonds guaranteed by the U.S.

OPEC and non-OPEC countries meeting in Vienna on Sunday struck a positive note regarding their agreement to cut oil output as a committee set to monitor the deal met for the first time. "Compliance is great - it's been really fantastic," Saudi Energy Minister Khalid Al-Falih told reporters. Producers have cut oil supply by 1.5M barrels a day, more than 80% of their collective target, since the deal came into effect on Jan. 1.

Stocks

A host of Dow components are set to report Q4 earnings, beginning with McDonald's (NYSE:MCD) before today's opening bell. Overall, 30% of the index will report results this week, with the potential to sustain the run that the Dow has made since the Trump rally began. Is Dow 20,000 still in sight?

Foxconn is mulling a joint investment with Apple (NASDAQ:AAPL) topping $7B for a highly automated display facility in the U.S. The production site would eventually create 30,000 to 50,000 jobs, Foxconn (OTC:FXCOF) CEO Terry Gou told the press, according to Nikkei. While American manufacturing is typically more expensive, Gou claimed that growing demand for larger display panels made U.S. production a better option than importing parts from China.

The SEC is investigating whether Yahoo's (NASDAQ:YHOO) two massive data breaches should have been reported sooner to investors, but were only revealed after two-plus years, WSJ reports. Both breach disclosures also came after the company agreed to sell its core business to Verizon (NYSE:VZ) in July, raising questions about whether the deal would be renegotiated or possibly even terminated.

After four months of testing on over 200,000 phones, Samsung Electronics (OTC:SSNLF) has determined that two separate sets of bad batteries caused its flagship Note 7 to catch fire. "We have taken several corrective actions to make sure this never happens again," said DJ Koh, Samsung's mobile chief. As a result, the firm isn't planning to unveil the Galaxy S8 at next month's Mobile World Congress to ensure the product is free of defects.

All of United Airlines' domestic flights were grounded for more than two hours Sunday night because of a computer outage, the FAA declared as scores of angry travelers sounded off on social media. United (NYSE:UAL) said the issue affected a technology that sends text messages to pilots in the cockpit, which provides information like weight and balance calculations.

Emirates will soon begin flying to the U.S. with a stopover in Greece, its second so-called fifth freedom flight and a move that could anger rivals who say the Dubai-based firm is competing unfairly. Delta (NYSE:DAL) and other U.S. airlines have accused Gulf carriers of receiving tens of billions of dollars in subsidies, and had urged the former Obama Administration to halt the Open Skies agreement.

Uber has gained two former Alphabet (GOOG, GOOGL) executives to work on the ride-sharing behemoth's engineering team. Former Google head of search, Amit Singhal, will be heading up the Maps and Marketplace departments at UBER, while advising top brass on their efforts to build out the company's self-driving technology. Meanwhile, former Google VP of engineering, Kevin Thompson, will report to Singhal as Uber VP of marketplace engineering.

A growing manufacturer-retailer rift? Amazon (NASDAQ:AMZN) has struck new contracts with auto parts makers Robert Bosch (OTC:BSWQY), Federal-Mogul (NASDAQ:FDML), Dorman Products (NASDAQ:DORM) and Cardone Industries in recent months, according to the NY Post. The e-commerce giant's increased focus could put pricing pressure on Advance Auto Parts (NYSE:AAP), AutoZone (NYSE:AZO), Monro Muffler Brake (NASDAQ:MNRO), Genuine Parts (NYSE:GPC) and O'Reilly Auto Parts (NASDAQ:ORLY).

Saudi Basic Industries Corp. has signed an agreement to acquire the 50% that it doesn't already own in Shell Arabia, a unit of Royal Dutch Shell (RDS.A, RDS.B), for $820M. The venture, known as SADAF, was established in 1980 and operates six petrochemical plants with total annual output of over 4M metric tons a year. Shell's head of exploration, Ceri Powell, is also likely to resign next month, according to Reuters.

The eyes of the metals industry will be on Chile this week when a new pay deal will be put to workers at Escondida, the world's biggest copper mine. In the first nine months of 2016, Escondida produced 750K tons of copper, so the impact of a strike would likely reverberate. Although employees have already rejected an initial offer from operator BHP Billiton (NYSE:BHP), a final proposal will be delivered today with a vote scheduled for tomorrow.

Betting on strong returns from property investments in the region, Blackstone (NYSE:BX) is readying a new Asia-focused real estate fund that aims to raise a record $5B or more. The fund will likely launch in the next 12-16 months, sources told Reuters, with investments in assets such as warehouses and shopping malls in China, India, Southeast Asia and Australia.

Today's Markets

In Asia, Japan -1.3%. Hong Kong +0.1%. China +0.4%. India +0.3%.
In Europe, at midday, London -0.4%. Paris -0.3%. Frankfurt -0.4%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.2%. Crude -1.4% to $52.49. Gold +0.5% to $1211.
Ten-year Treasury Yield flat at 2.47%

Today's Economic Calendar

No events scheduled.
Companies reporting earnings today »
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