Business Maverick

January 14: Five Things You Need to Know to Start Your Day

By Bloomberg 14 January 2020
Caption
Chinese one-hundred yuan banknotes are arranged for a photograph in Hong Kong, China on Monday April 15, 2019. Photographer: Paul Yeung/Bloomberg

The U.S. plans to lift China’s status as a currency manipulator as the two countries inch ever-closer to a trade deal, Tesla tops $500 a share for the first time, and the performance of U.S. large-cap equities has proven that big has never been better for stock investors. Here are some of the things people in markets are talking about today.

Manipulator No More

President Donald Trump’s administration has lifted its designation of China as a currency manipulator, removing an obstacle to a trade deal the two nations are set to sign this week. The nation has made “enforceable commitments” not to devalue the yuan and has agreed to publish exchange-rate information, the administration said. The Treasury Department’s semi-annual foreign-exchange report, which was delayed as the U.S. and China finalized a “phase one” trade pact, named no major U.S. trading partner among the 20 economies it monitors for potential manipulation. Treasury Secretary Steven Mnuchin first formally attached the label to China in August, a move that further escalated the trade war with Beijing. Meanwhile, the strengthening yuan is smashing every key level in sight.

Market Optimism

Asian stocks looked set to follow U.S. shares higher Tuesday on optimism over the signing of the U.S.-China trade deal. The yuan is trading near its highest since July. Futures pointed higher in Japan, Hong Kong and South Korea. Technology shares sent the S&P 500 and Nasdaq Composite Index to closing all-time highs. Treasury yields ticked higher and the yen fell, while the dollar edged higher. As investors await the signing of the phase-one trade agreement on Wednesday in Washington, focus is beginning to return to corporate results. Some of the biggest U.S. banks kick off earnings season Tuesday, amid forecasts that overall corporate profits will show the smallest growth in three years.

Big Is Better

At least one thing is clear after a tumultuous start to the year: For stock investors, bigger has never been better. As the S&P 500 Index once again tests its record high, the top five publicly-traded American companies now make up a record 18% share of the benchmark’s capitalization — higher than the tech bubble, Morgan Stanley said on Monday. U.S. large-cap equities have jumped to near the highest in more than 10 years against small caps in the early days of this new decade. Companies that make the most money overseas are near the highest since April versus domestic peers, Goldman Sachs baskets show. The surge in Apple, Microsoft, Alphabet, Amazon and Facebook is good news for anyone simply chasing the index higher, but to some strategists it’s a sign investors have just lost their appetite for risk amid fears the economic cycle will slow.

Tesla Tops $500

Tesla shares surged above $500 for the first time on Monday, leaving analyst targets to play catch-up with the electric-vehicle maker’s share price, which has doubled from October. Oppenheimer analyst Colin Rusch raised his price target on the stock to a Street-high $612 from $385 on Monday, saying that after many initial stumbles, Tesla has “reached critical scale sufficient to support sustainable positive free cash flow.” Rusch’s move marked the latest in a string of similar boosts by Tesla analysts over the past week. Shares of the company continued to rise after fourth-quarter vehicle deliveries surpassed expectations and a Chinese official said the government won’t significantly scale back electric-vehicle subsidies this year.

More Fallout

Hong Kong’s protests are spurring more asset managers from the city to ask about opening offices in Singapore, according to consultants. While the unrest isn’t the only factor, the development adds to signs that Singapore is picking up business in part due to the protests. The list includes a private equity gathering that’s shifting to Singapore this year, family office advisers getting calls about clients looking into the logistics for moves and Hong Kong parents eyeing Singapore schools. Global valuation and corporate finance adviser Duff & Phelps has seen a rise in applications from Hong Kong asset managers to open offices in Singapore, and law firm Shook Lin & Bok LLP has seen a “surge in enquiries and actual instructions” from Hong Kong firms looking to set up fund management companies in Singapore since August. Protests in Hong Kong have dragged on for more than six months, and Hong Kong’s government forecasts that the economy contracted 1.3% in 2019.

What We’ve Been Reading

This is what’s caught our eye over the past 24 hours.

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