Mega cap technologies led equities higher yesterday, the result of NFLX’s profit report. Next Wednesday January 29 three of the Magnificent Seven releases earnings; MSFT, TSLA and META. Was yesterday’s NFLX results a one-off event or the start of something better?
The inverse of previous days, most of the companies in the S & P 500 declined in value. Poor breadth has been a major concern, and several earlier trading sessions had the advance widening.
Changing topics, what will the impact of tariffs? Several times I have rhetorically asked whether the currency markets will adjust accordingly, defined as a decline or rise in the respective currency to offset the impact of the tariffs.
In some regards there has been some focus on the currency dynamic, specifically regarding China, for the fact that the incoming Treasury Secretary is very focused on the possibility of using a currency accord to achieve policy objectives.
Bloomberg states that during the Treasury Secretary’s confirmation, Scott Bessent attempted to quantify the impact of currency fluctuations.
He offered data suggesting that for every 10% increase in tariffs, the currency adjusts 4%. The Yuan has already dropped 4% relative to the dollar since the election, so some would argue this pricing has already begun.
The world is vastly different than 95 years ago when the Smoot Hawley tariffs were implemented, a benchmark that some are using to gauge the inflationary impact and other implications of wide-ranging tariffs. Global currency and debt markets today are interlinked.
Perhaps the only appropriate statement to make is the outcome is unquantified, lacking recent precedents to form an opinion.
What will happen today?
Last night the foreign markets were mixed. London was down 0.06%, Paris up 0.43%, and Frankfurt up 0.28%. China was up 0.51%, Japan up 0.79% and Hang Seng down 0.40%.
Futures are mixed. Dow and NASDAQ futures are up 0.25% and down 0.50%, respectively. The 10-year is off 7/32 to yield 4.64%.
