TRADING THE WEEK: New Year, Same Concerns

Wall Street traders are looking at the New Year through old glasses, as many of last years concerns – tepid economic growth, Trump-o-nomics and interest rates remain the focus.

This week traders slowly returned to the market for a holiday-shortened week. According to one floor trader in New York there is guarded optimism for new market-friendly policies and lower capital gains and corporate tax rates continue to drive markets higher, thanks in part to expectations of what President-elect Trumps economic policies will be. As proof, the trader noted that the Nasdaq closed at an all-time high on Thursday.

The Dow Jones continues to try to find the elixir to break through the largely physiological 20,000 resistance level, added Larry Peruzzi, Managing Director of International Trading at the Mischler Financial Group. The Wednesday FOMC meeting minutes gave us a ‘do as I say not as I do’ moment when they stated that they may need to accelerate the pace of rate hikes but that their economic projections are highly uncertain. Bottom line is rates will rise someday, maybe.

One sub-component of the report which did bear scrutiny was the rise in hourly earnings – posting a gain of 10 cents to $26, representing a 2.9 percent annualized gain. Traders said that this could translate into as many as three separate interest rate hikes in the near future.

Trading on U.S. equity exchanges was modest last week as traders opted to stay somewhat dormant after the employment data. Trading levels averaged 6.52 billion shares per day for the week ended January 6, according to Bats Global Markets data.

Looking to this week, Peruzzi noted that fourth quarter earnings season will start – but the real action likely wont happen until after the January 16^thMartin Luther King Jr. He said that last weeks retail store closing news will make this Fridays retail sales numbers a report of great interest. Also, this Friday the Fed will be watching the December PPI report and November business inventories data.

It will be interesting to see what affect the markets rally over the last 2 months will have on Fridays Michigan sentiment numbers, Peruzzi added. We should see the current condition sentiment at 10 year highs. And lets not forget Fed watchers will be busy on Thursday as Harker, Evans, Lockhart, Bullard and Yellen all are giving speeches.

In other market news, independent broker ITG today released a survey where it posed several questions to buy-side traders about how they will contend with the looming Markets in Financial Instruments Directive II (MiFID II), a sweeping set of European Union financial regulations scheduled to come into force on January 3, 2018.

Less than half those surveyed, 43%, of asset managers expect MiFID II to have a direct impact on them. However, when it came to how managers will pay for research, the numbers were significantly higher. Nearly 60% of those surveyed plan to continue paying for research using commission sharing arrangements (CSAs), while 33% expect to use a combination of both CSA and RPA for payments and 8% plan to set up a new RPA ahead of the MiFID II start date.

I expect to see more CSA usage in the future from North American asset managers and RPAs to grow in popularity in Europe, ITGs Jack Pollina said. I also expect to see the concept of unbundling continue to increase here in the U.S.

Also mega money manager BlackRock reported that global investors poured $375 billion into exchange-traded funds in 2016, a global record that came as investors looked to cut costs. According to Reuters, the total, which is preliminary, compares with $348 billion in 2015 and includes a record $286 billion haul in the United States, home to the funds’ biggest market.

Lastly, President-elect Donald Trump nominated Jay Clayton, a partner at Sullivan & Cromwell LLP, to become the new chairman of the Securities and Exchange Commission.

This Weeks U.S. Economic Indicators of Interest: