January 15, 2020 / 9:00 AM / 9 days ago

Daily Briefing: New Year rally takes a pitstop

LONDON (Reuters) - The record-breaking new year's surge for world stocks paused on Wednesday as investors awaited the signing in Washington later today of the U.S.-China Phase 1 trade deal, more fourth-quarter U.S. bank earnings and Chinese gross domestic product readings at the end of the week.

Traders work on the floor at the New York Stock Exchange, January 14, 2020. REUTERS/Brendan McDermid

There were few new developments on the trade deal beyond Tuesday’s reported details of Chinese commitments to buy tens of billions of dollars’ worth of more U.S. services and agricultural and manufacturing goods.

Some market feathers were ruffled when U.S. Treasury Secretary Steven Mnuchin said existing tariff increases would not be rolled back until Phase 2 talks get underway, something now not expected until after the U.S. presidential election in November.

But that was widely expected and the market pause more likely reflects the fact that optimism stemming from the deal has been priced in by the 4% to 5% surge in global equity indices since the deal was first announced.

MSCI’s all-country index is down less than 0.1% on the day – just off the record high set Tuesday. Asia’s main markets were all down about half a percent. Australia’s benchmark index bucked the trend to rise 0.4% amid gains by gold stocks.

Wall Street’s S&P 500 set a record high on Tuesday but closed lower on the day. Both JPMorgan and Citi posted better-than-expected fourth-quarter results, helped by re-invigorated bond trading revenues. Wells Fargo disappointed. Bank of America, Goldman Sachs and asset manager Blackrock are among the big names reporting later on Wednesday.

U.S. and European futures were lower, with the dollar weaker. The safe-haven Japanese yen recovered some ground as dollar/yen slipped below 110.

U.S. core inflation data for last month was soft again and showed little or no pressure on the U.S. Federal Reserve to tighten its monetary stance again any time soon.

With sterling recovering some of its early-week losses, focus shifted to the latest speeches by Bank of England officials to see how much momentum was building behind another cut in UK interest rates as soon as Jan. 31 as December inflation numbers are released.

Monetary Policy Council member Michael Saunders speaks in Northern Ireland later, with the deputy governor for financial stability, Jon Cunliffe, speaking in London.

With Brexit now expected at the end of the month, at least three policymakers - including Governor Mark Carney - have held out the chance or a rate cut over the coming months if the UK economy does not bounce back from the weakness of late 2019.

In emerging markets, Lebanon's political and financial crisis worsened. Security forces fired tear gas at protesters who gathered around the central bank. Garbage dumps in the city were set on fire and storefronts and cash machines smashed.

Riot police officers stand behind riot shields amid a cloud of tear gas during protests against the economic crisis outside a Bank of Beirut office, January 14, 2020. REUTERS/Mohamed Azakir

The heavily indebted country has been without a government since Saad al-Hariri resigned as prime minister in October following massive protests. Black-market pound rates are some 50% to 60% below the official rate, and doubts are growing about the government’s ability to meet upcoming bond redemptions in full.

In European corporate news, ASM’s fourth-quarter sales beat guidance. In the UK, Tullow Oil was expected to take a $1.5 billion writedown. Shares in Chr. Hansen were expected to fall as much as 5% after a trading update.

Balfour could also be under pressure after the U.S. Air Force raided its Oklahoma City offices as part of an investigation into asbestos contamination. Persimmon and Vistry’s trading updates will be closely watched; UK housebuilders are considered one gauge of how the country will do after Brexit.

In Germany, shares in Fraport are down close to  3% after passenger traffic fell in December. France's Capgemini raised its bid for Altran, whose shares were suspended yesterday.

— A look at the day ahead from EMEA Markets Editor Mike Dolan. The views expressed are his own —

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