The Friday Market Minute

  • Global stocks continue to rise, pulling Asia to a five week high, as a dovish Fed and U.S. China trade talk progress keeps bulls in charge.
  • Fed Chair Powell repeats need for "patience" as dovish tilts adds nearly 6% in added value to U.S. stocks since last week's payroll data.
  • Global oil prices extend gains into an 10th session, the longest winning streak since 2010, as a weaker dollar, OPEC cuts and trade talk progress drive crude to a four-week high.
  • December inflation data may test Fed's mettle today if robust job and wage gains trigger fast consumer prices. 
  • U.S. stocks riding five-day gain, but S&P 500 futures are indicating a modest 5 point pullback ahead of inflation data at 8:30 am eastern time.

Market Snapshot

Global stocks traded cautiously higher Friday, as the 2019 equity rally extended into a sixth day fueled by a dovish message from the U.S. Federal Reserve Chairman and renewed hopes that trade talks with China will deliver a near term deal between the world's two biggest economies. 

Fed Chairman Jerome Powell's comments in a question-and-answer session at the Economic Club of Washington yesterday reiterated the central bank's the need for "patience" in assessing the need for future rate hikes, a message that have driven U.S. stocks some 5.6% higher since Powell first expressed it last week in Atlanta.

"We have the ability to be patient and watch patiently and carefully," Powell said yesterday in Washington, given the low levels of domestic inflation and suddenly muted risk levels in U.S. equities, in or to "figure out which of these two narratives is going to be the story of 2019."

That support was followed by comments from U.S. Treasury Secretary Steven Mnuchin, who told reporters that the current U.S. government shutdown would not slow the progress of trade talks between Washington and Beijing, and that China's Vice Premier, Liu He,"will most likely come and visit us later in the month" in order to keep the discussions going.

Stocks in Asia were able to ride the twin bullish conditions of fruitful trade talks and easy monetary policy to a five week high Friday, as the MSCI ex-Japan index rose 0.41% into the final hours of trading while the Nikkei 225 advanced 0.97% to take its five-day gain to just under 4%. Europe stocks also opened firmer, with the Stoxx 600 rising 0.1% by mid-day in Frankfurt to take its weekly gain to 1.1%.

Early indications from U.S. equity futures, however, suggest the five-session rally on Wall Street could stall, with contracts tied to the Dow Jones Industrial Average I:DJI indicating a 58 point opening bell gain and those linked the S&P 500 I:GSPC guiding to an 8 point pullback for the broader benchmark.

Activision Blizzard Inc. (ATVI) - Get Report shares were indicated sharply lower after the video game company famous for its 'Call of Duty' franchise said it would be splitting with design and development partner Bungie.

Bungie will take full control of the Destiny game franschise -- once the most successful of all time -- following the split, with Activision citing an inability to meet targets for return on investment on an earlier earnings conference call. Activision had paid royalties for Destiny, and partly subsidized its development, as part of a reported ten year contract.

Starbucks Inc. (SBUX) - Get Report shares were also softer, falling nearly 2% after Goldman Sachs cut its rating on the stock to "neutral", citing concerns over the pace of growth in China, where the world's biggest coffee chain is targeting a significant expansion.

Retail investors, however, are starting to find their way back into domestic stocks, a move which could underpin markets heading into the teeth of the U.S. corporate earnings season next week. Refinitiv's Lipper research service said more than $8.74 billion in new money flowed back into U.S.-based equity funds in the week ending January 9, with a further $8.4 billion finding its way into fixed income portfolios. 

S&P 500 earnings are expected to grow by around 14.5%, according to I/B/E/S data from Refinitiv, before slowing to just 3.9% in the first quarter of 2019, a figure that would be significantly below the 26.8% growth rate recorded over the same period last year.

The Fed's dovish tilt has put sharp downward pressure on the U.S. dollar, which has fallen around 1.5% against a basket of six global currencies since the start of the month, as bets on 2019 rate hikes fade in the wake of slowing economic data.

Wage growth and job additions, however, have remained solid, with 312,000 people finding work last month, according to the Bureau of Labor Statistics, and average hourly earnings rising by an annual 3.2%, the fastest pace in a decade.

Investors will get a chance to see if those gains have filtered through into fast consumer prices, with inflation data for the month of December set to be released at 8:30 am eastern time. Any uptick could spark a debate about the Fed's patience, and add upward pressure to U.S. government bond yields, which drifted higher yesterday after weaker-than-expected demand in an auction of 30-year paper from the Treasury.

Benchmark 10-year notes yields were seen trading at 2.728% in early European hours, while 30-year bonds were marked at 3.037%.

Global oil prices were also on the march higher, extending gains into an 10th session -- the longest winning streak since 2010 -- as the impact of 1.2 million barrels per day in OPEC production cuts, as well as U.S.-China trade talk progress and a weaker dollar push crude prices to the highest levels in a month.

Brent crude contracts for March delivery, the global benchmark, were marked 17 cents higher from their Thursday close in New York and changing hands at $61.85 per barrel, on pace for their best weekly gain in two years. WTI contracts for February were marked 25 cents higher at $52.84 per barrel, the highest since December 4.