(JPM on equities) Higher bond yields shouldn’t necessarily weigh on equity multiples. Yields are rising from historically depressed levels and the increase is occurring fro the “right reasons” (strong labor trends and overall economic growth). Corporate earnings, which remain robust, are more relevant for equity multiples. The best way to hedge this yield risk is through rotation out of Growth and into Value style. It is very difficult to see Eurozone underperform the US if the Growth-Value rotation does materialize this year.
(The Hill) US gov’t shutdown – the shutdown extended into Monday although there is some optimism that a deal could be reached soon. The Senate will take a procedural vote at 12pmET today (Mon 1/22) that would fund the gov’t until 2/8; McConnell assured Democrats he would take up immigration as separate legislation if the issue isn’t addressed in a yearlong funding package.
(JPM on global growth) Economic tailwinds remain in place but a shift could occur in the coming quarters. Global economic/financial conditions are very favorable and a powerful positive feedback loop is now underway (as growth, sentiment, and financial market conditions reinforce each other) but the seeds of an eventual slowdown will likely be sown in the coming quarters as labor markets tighten further, labor bargaining power increases, and core inflation and central bank policy rates move higher.
(WSJ) NAFTA talks this week critical – the latest round of negotiations kicked off Sunday 1/21 in Montreal and Canadian and Mexican officials hope to achieve enough progress so as to avoid Trump withdrawing from the trade pact. While Trump has remained critical of NAFTA in public, behind the scenes the White House has actually softened its tone (Mexico is said to be open to increasing the amount of regional content in light vehicles eligible for duty-free trade from 62.5% now to ~70% although this is still below the 85% demanded by Washington; Canada meanwhile thinks more pieces of the car, including software, should count towards the regional content total).
(Bloomberg) The annual World Economic Forum shindig in Davos kicks off today, with the great and the good from the world of business, politics and entertainment descending on the Swiss town to discuss what is wrong with the world and how they can fix it. The attendance of Donald Trump at the event may fall victim to the government shutdown, should the impasse extend through the week. The mostly male corporate and political personalities who descend on the Alpine resort each year don’t have a great track record at foretelling the future. (Recall last year when Davos’s primary message was that “the business world could ignore Donald Trump’s tweets”).
(WSJ) US shale producers to stay disciplined despite surging crude prices – shale mgmt. teams are focusing more on investor demands for returns and cash generation and as a result the industry is staying disciplined on output despite the recent spike in oil prices.
(WSJ) Saudi Arabia’s oil minister said the OPEC-Russian production cooperation should extend beyond 2018 and become a permanent feature of the crude market.