Featured Chart: KBW Bank Index vs. S&P 500
Shares in US financial companies may have risen 33% last year, the most since 1997, but they are still dramatically underperforming relative to the S&P 500 since 2007. Banks in particular have been hampered by weak demand for loans, increasing regulation, and an excessively low interest rates - which crimp margins. This last item, low interest rates, has some investors thinking about a higher allocation to bank stocks going forward. With the 10-year US Treasury make noise around the psychologically important 3% yield, banks should be more profitable in their bread-and-butter strategy of lending long and borrowing short.
Gold in the Headlines:
The New Year has begun on a gloomy note for gold jewellers. A 10% import duty along with a 1% VAT and a high premium of $125 per troy ounce have made Indian gold costlier and less attractive to non-resident Indians (NRIs) who are now buying gold jewellery from Gulf countries where sales have increased by 50%-60%.
Gold analysts are the most bullish in a year on speculation that investors are reducing near-record bearish bets after the biggest plunge in prices since 1981.
Gold Predictions for 2014 - Huffington Post
There are now only two outcomes for the current fiscal, monetary and economic conditions; and they are both bullish for gold.
A large trade in the gold futures markets on Monday briefly pushed prices down more than $30 and triggered circuit breakers on the Comex division of the New York Mercantile Exchange.
Overnight Macro Developments:
China - the government will take steps designed to reign in the shadow banking system - WSJ
China IPOs to resume - two Chinese firms plan to raise a combined 1.02B yuan in IPOs this week in a move that will mark the official resumption of equity listings in the country - Reuters
Alibaba will launch an online payments service w/SINA; the move follows Alibaba's deal last year to buy an 18% stake in SINA's Weibo -WSJ
Japan - Abe to designate special economic zones in Mar - Kyodo
Eurozone inflation for Dec - the headline was in-line at +0.8% Y/Y but the core number came in +0.7% (vs. the St +0.8%) - Bloomberg
German unemployment numbers come in better; unemployment falls 15K vs. the St modeling a 1K decline
US/Saudi Arabia - an influential member of the Saudi royal family said Obama "made mistakes" w/regards to Syria - CNBC
Jobless benefits - the Senate will hold an important procedural vote at 10amET Tues on whether to extend emergency unemployment benefits; Senate Dems think they are within 1-2 votes of the 60 needed to end debate on the matter - Reuters
Puerto Rico - US sees influx of citizens from Puerto Rico as island's population continues to shrink - WSJ
SYY/US Foods - the WSJ discusses how restaurants increasingly are nervous about the SYY/US Foods deal as it would give the combined firm enormous clout over the industry - WSJ
Apartments: US apartment vacancies fell to their lowest levels in more than a decade; however, rent increases were moderated by slow income growth - Reuters
Trading slump threatens Wall St; the WSJ discusses how FICC trading has slumped on Wall St and many are beginning to wonder whether the business will ever revive. Equities has been an area of relative strength - WSJ
Coal: The WSJ writes that despite the boom in nat gas, coal isn't fading away anytime soon. The article points out that coal remains the biggest source of fuel for creating electricity in the US and that coal exports are increasing rapidly. The EIA thinks that US coal production is projected to remain relatively constant of the next 30 years - WSJ
Indian officials are in discussions to cut a record high import duty on gold and relax rules on exports, government sources said, after the measures helped narrow the country's trade deficit and now threaten to encourage smuggling. India imposed the curbs last year when overseas gold purchases - the country's second most expensive import after oil - pushed its current account deficit to a record and undermined the rupee currency - Reuters
Barclays sees the price of gold at $1,310 per ounce in 2014, saying the yellow metal may not rise further unless interest rates remain low for some time and demand from China increases. "Slower-than-expected tapering, weaker equity markets and a softer dollar could help to revive gold in the short term," the bank said - Reuters
Canadian gold producer and explorer Kirkland Lake Gold Inc said on Monday it has started a strategic review and is considering selling assets or shares, sending its stock down more than 8 percent in early trading. Gold miners are under pressure after the gold price posted its biggest annual decline in 32 years in 2013, falling 28 percent - Reuters
GBI Data Points*:
In the trading days following New Years, the Chinese quietly announced that their PMI dropped to 50.5 in December versus 50.8 in November. While a number above 50 still indicates growth, momentum has clearly slowed which is evident when looking at a chart of the Shanghai Property Index - usually a good proxy for construction demand.
In addition, the services PMI dropped to a 28-month low of 50.9 in December which took the 4Q average to 52.0, down from 52.2 in 3Q. However, labor market conditions for the fourth consecutive month and several business reforms are coming down the pipeline.
Chinese Yuan 12m Forward
For now, policy makers don't appear to be panicked and the Chinese Yuan (NYSEARCA:CNY) continues to strengthen steadily. You would have to think that if the Politburo was genuinely concerned about growth, a weaker CNY would be their first move. In fact, the SHPROP sell-off appears to be hitting bulk commodities like copper and iron ore, which might give Chinese builders a discount when conditions normalize.