Here is what you need to know before US markets open after a long weekend.
China is growing at its slowest pace since 2009. The Chinese economy grew at an annualized rate of 6.8% for the December quarter, its weakest since Q2 2009. Additionally, industrial production rose 5.9% year-over-year, missing the 6.0% gain that was expected. Fixed asset investment was also light, coming in at 10.0% versus expectations of 10.2%. The Chinese yuan ended unchanged at 6.5787 per dollar.
Iran’s oil sanctions have been lifted. The US and other major powers have removed sanctions on Iran’s exports after the previously isolated Islamic republic complied with the nuclear deal. According to Reuters, the sanctions removed about 2 million barrels per day or production, dropping Iran’s output to just more than 1 mb/d. On Monday, Iran issued an order to increase its production by 500,000 barrels per day.
The IEA says the world will remain oversupplied with oil. According to the IEA, “Persistent oversupply, bloated inventories and a slew of negative economic news pressured prices” to their lowest levels in 12 years at the start of 2016. Warm weather and a slowdown in commodity-dependent economies caused demand to slow to 1 mb/d in the fourth quarter, and the IEA expects demand of 1.2 mb/d in 2016. “We conclude that the oil market faces the prospect of a third successive year when supply will exceed demand by 1 million bpd and there will be enormous strain on the ability of the oil system to absorb it efficiently,” the IEA said. West Texas Intermediate crude oil is uo 2.3% at $31.10.
France declared a “state of economic emergency.” French President Francois Hollande says the country will spend more than €2 billion ($2.2 billion) to combat high unemployment. Hollande promised the money wouldn’t come from a tax increase, and would instead come from savings. According to AFP, the new plan will pay a €2,000 bonus to any company with less than 250 employees that hires a new employee for at least six months. “What planet are Francois Hollande and his government living on if they think it is enough to write a check of 1,000 or 2,000 euros to a company that takes someone on?” asked Republican Guillaume Larrive.
UK inflation hit a 12-month high. Inflation in the United Kingdom edged up 0.2% year-over-year in December. The reading was the highest in 12 months after the previous 11 were stuck in a tight range between down 0.1% and up 0.1%. According to the Office for National Statistics, “Movements in transport costs, particularly air fares and to a lesser extent motor fuels, were the main contributors to the rise in the rate.” The British pound is stronger by 0.2% at $1.4265.
Germany’s ZEW topped forecasts. The January reading fell to 10.2 from December’s 16.1, but that was still enough to beat the 8.2 print that economists were forecasting. “The beginning of the new year is characterised by capital market turmoil in China, which has also led to significant share price declines in Germany,” said Professor Sascha Steffen, head of the “International Finance and Financial Management” Research Department at ZEW. “As in the previous year, weak economic growth in China and other important emerging markets puts a strain on Germany’s economic outlook.” The euro is weaker by 0.2% at 1.0870.
Morgan Stanley beat on the top and bottom lines. The investment bank announced diluted earnings of $0.39 per share, topping the $0.32 Bloomberg consensus. Revenue of $7.70 billion outpaced the $7.63 billion that was anticipated. “A strong overall performance in the first half of the year was impacted by difficult market conditions in the second half that dampened trading activity,” CEO James Gorman said.
Bank of America reported a mixed quarter. The firm announced earnings of $0.28 per share, edging out the $0.27 Bloomberg consensus. Revenue of $19.5 billion was shy of the $19.8 billion that was expected. “The 2015 results were our highest earnings in nearly a decade, reflecting the work we’ve done to develop a straightforward operating model focused on responsible growth and doing more business with each customer and client” CEO Brian Moynihan said. “We saw solid customer activity in loan growth, deposits, and wealth management asset flows, and we returned more capital to our shareholders.”
Stock markets around the world are seeing big gains. China’s Shanghai Composite (+3.2%) paced the advance in Asia and France’s CAC (+2.6%) leads the way up in Europe. S&P 500 futures are up 30 at 1,905.
US economic data is light. The NAHB Housing Market Index is due out at 10 a.m. ET and Net Long-Term TIC Flows will be released at 4 p.m. ET. The US 10-year yield is up 4 bps at 2.08%.
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