Stocks making the biggest moves premarket: CVS Health, Garmin, Gannett, Apple & more

Peter Schacknow

5-6 minutes

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Check out the companies making headlines before the bell:
CVS Health – CVS reported adjusted quarterly profit of $2.14 per share, beating the $2.05 consensus estimate. However, revenue fell short of forecasts, and CVS also gave a weaker than expected full year outlook due to deterioration in its long-term care business.
Garmin – The maker of GPS devices posted adjusted quarterly earnings of $1.02 per share, 22 cents a share above estimates. Revenue also came in above Wall Street forecasts, with Garmin reporting strength in its fitness and outdoor product lines.
Gannett – The USA Today publisher fell 2 cents a share short of estimates, with adjusted quarterly profit of 44 cents per share. Revenue also missed forecasts. Gannett notes improvement in its digital business and said it remains committed to a goal of achieving more than half its ad revenue from digital sources.
Apple – The company is hoping to combine its apps for the iPhone, iPad, and Mac by 2021, according to a Bloomberg report.
Wolverine World Wide – The maker of shoe brands like Sperry, Hush Puppies, and Saucony earned an adjusted 52 cents per share for its latest quarter, 3 cents a share above estimates. Revenue came in below forecasts, however, and the company's 2019 adjusted earnings forecast range falls largely below current consensus.
Owens-Corning – The maker of insulation and other construction materials beat estimates by 12 cents a share, with adjusted quarterly profit of $1.38 per share. Revenue came in above estimates, as well.
Southwest Airlines – Southwest is investigating a surge in maintenance-related flight disruptions, according to Chief Operating Officer Mike Van de Ven. He issued a statement saying the increase had come despite no change in the airline's maintenance programs or policies. Separately, Goldman Sachs downgraded the stock to "sell" from "neutral," citing both valuation and a deterioration of profit margins due to its new flights to Hawaii.
NxStage — The Federal Trade Commission approved the acquisition of the U.S.-based home dialysis equipment maker by Germany's Fresenius Medical Care. The companies agreed to sell NxStage's bloodline tubing business in order to win approval for the $2 billion transaction.
Tesla – Tesla is planning to launch a leasing option for its Model 3 automobile, according to the news website Electrek. The site quotes an email sent to employees saying they would be able to lease a Model 3 within two weeks, although it did not specify when consumers will have that option.
Teva Pharmaceutical – Teva settled with the US in a case involving the drugmaker's agreements with rivals. The government had charged that those agreements kept cheaper generic drugs off the market.
LendingClub – LendingClub reported adjusted quarterly profit of three cents per share, a penny a share above estimates. The online lender's revenue was slightly below Wall Street forecasts. The company's 2019 revenue forecast of $765 million to $795 million falls below the consensus estimate of $796 million.
Herbalife Nutrition – Herbalife came in 2 cents a share, ahead of estimates with adjusted quarterly profit of 63 cents per share. The health products maker's revenue came in slightly below consensus, however. Herbalife also raised its sales growth forecast for 2019.
Cadence Design – The maker of electronic design software reported adjusted quarterly profit of 52 cents per share, 5 cents a share above estimates. Revenue also beat Wall Street forecasts. Cadence gave stronger-than-expected earnings and revenue guidance for the current quarter and full year.

Source: CNBC

In facts: India, Pakistan troop strength and weapons - How militaries stack up

3-4 minutes

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Updated: 20 Feb 2019, 05:30 PM IST

How militaries stack up

Tensions between India and Pakistan have escalated sharply after a suicide bombing in the disputed region of Kashmir killed 40 Indian paramilitary police, an attack claimed by Pakistan-based militant group Jaish-e-Mohammad.
The neighbours have twice gone to war over Kashmir since independence in 1947. Here is how their militaries stack up.

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Agencies

Military budget

In 2018, India allocated four trillion rupees ($58 billion), or 2.1 percent of its gross domestic product (GDP), to support its 1.4 million active troops, according to the International Institute for Strategic Studies (IISS).
Last year, Pakistan spent 1.26 trillion Pakistani rupees ($11 billion), about 3.6 percent of its GDP, on its 653,800 troops. It also received $100 million in foreign military assistance in 2018.
(In pic: Indian Army Chief Gen. Bipin Rawat, center, Air Chief Marshal Birender Singh Dhanoa, right, and Navy Chief Admiral Sunil Lanba)

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Agencies

Missiles and nuclear weapons

Both nations have ballistic missiles capable of delivering nuclear weapons. India has nine types of operational missiles, including the Agni-3 with a range of 3,000 km (1,864 miles) to 5,000 km (3,106 miles), according to the Center for Strategic and International Studies (CSIS) in Washington.
Pakistan's missile programme, built with Chinese assistance, includes mobile short- and medium-range weapons that can reach any part of India, CSIS said. The Shaheen 2 has the longest range, of up to 2,000 km (1,242 miles)
Pakistan has 140 to 150 nuclear warheads, compared with India's 130-140 warheads, according to SIPRI.

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The mighty Army

India has a 1.2 million-strong army, supported by more than 3,565 battle tanks, 3,100 infantry fighting vehicles, 336 armored personnel carriers and 9,719 pieces of artillery, according to IISS.
Pakistan's army is smaller, with 560,000 troops backed by 2,496 tanks, 1,605 armored personnel carriers, and 4,472 artillery guns, including 375 self-propelled howitzers.

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Agencies

Battle of skies

With 127,200 personnel and 814 combat aircraft, India's air force is substantially larger but there are concerns about its fighter jet fleet.
India's defence plans require 42 squadrons of jets, about 750 aircraft, to defend against a two-pronged attack from China and Pakistan. With older Russian jets like the MiG-21, first used in the 1960s, retiring soon, India could have 22 squadrons by 2032, officials say.
Pakistan has 425 combat aircraft, including the Chinese-origin F-7PG and American F-16 Fighting Falcon jets. It also has seven airborne early warning and control aircraft, three more than India, IISS said.

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Agencies

The war for all the oceans

India's navy consists of one aircraft carrier, 16 submarines, 14 destroyers, 13 frigates, 106 patrol and coastal combatant vessels, and 75 combat capable aircraft. It has 67,700 personnel, including marines and naval aviation staff.
Pakistan, which has a significantly smaller coastline, has 9 frigates, 8 submarines, 17 patrol and coastal vessels, and 8 combat capable aircraft.
(In pic: Naval ships from various countries are pictured during the multinational naval exercises 'AMAN-19' in the Arabian Sea near Pakistan's port city of Karachi)

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AFP

Source: Economic times-Indiatimes

Markets | Investors Looking to Escape Volatility Turn to ‘Smart’ ETFs

Markets Are you seeking ways to dodge the next stock-market downturn? We'll get you up to speed on that and more. I'm Jessica Menton, bringing you the latest on today's pre-market moves. Stock futures are sagging after back-to-back days of gains. The Nasdaq, meanwhile, is looking to extend its winning streak to eight days. Investors are eyeing results from CVS Health and Analog Devices this morning, followed by Agilent Technologies after the closing bell.    Minutes from the Fed's latest meeting are on tap. Traders will parse the release for more clues into the central bank's economic outlook. Some investors are concerned that the assumption underpinning the stock market's recent rally—that the Fed has stopped raising rates—could be wrong.   Plus, some investors are scooping up “smart” funds. Our Asjylyn Loder weighs in on the pros and cons of adding exposure to these ETFs as investors look for opportunities to evade stock-market turbulence. Markets in a Minute

Overnight Developments

U.S. stocks were poised to weaken despite upbeat trading elsewhere on Wednesday, as investors awaited further information on White House trade talks with China. Read our full market wrap here The view from Asia: Stock Investors Look Past Gloomy Japanese Trade Data

Investors Eye ‘Smart’ ETFs to Avoid Volatility By Asjylyn Loder, markets reporter

Investors hunting for protection after last year’s market turbulence are snapping up so-called smart funds in the hopes of sidestepping the next downturn. The S&P 500 has advanced 11% so far this year, but that hasn’t stopped investors from looking for a safer way to bet on stocks. Two of the biggest exchange-traded funds that try to pick less volatile stocks have been among the most popular so far this year. A surge of new money has pushed assets in both the iShares Edge MSCI Min Vol USA ETF and the Invesco S&P 500 Low Volatility ETF to record heights. In all, ETFs that try to pick less risky stocks have taken in $11.3 billion since the beginning of November, according to Morningstar. The funds, billed as “smart beta” or “strategic beta,” are pegged to bespoke indexes that target stocks that are less susceptible to violent price swings. ETF issuers have been trying for years to get cost-conscious passive investors to embrace more sophisticated—and pricier—styles of index investing. Last year’s rocky markets finally did what slick marketing and backtests failed to do: provide a real-world example of how such funds can outperform when markets are topsy turvy. Larry Carroll, chief executive of Carroll Financial, said his ETF of choice is the iShares Edge MSCI Min Vol USA ETF, which aims to pick a less volatile mix of U.S. stocks. Its three biggest holdings are Newmont Mining, Waste Management and Visa, compared with Microsoft, Apple and Amazon.com for the iShares plain-vanilla S&P 500 ETF. Mr. Carroll said the fund accounts for 5% to 10% of his clients’ stock portfolios. In the past year, both Mr. Carroll’s iShares ETF and the competing Invesco ETF have handily beat the iShares ETF that tracks S&P 500. Both ETFs have returned more than 10%, compared with just 3.6% for the S&P 500 fund. The iShares ETF and the Invesco fund aim to smooth out market upheaval. They’re built quite differently though, which can have a meaningful impact on returns. Investors, however, win less when the markets are on the way up. So far this year, both the iShares and Invesco low-volatility ETFs are up more than 9%, trailing the S&P 500’s 11% gain. Market Facts Renewed geopolitical uncertainty on U.S.-China trade talks and a weaker dollar helped power gold prices up 1.7% to $1,340.10 a troy ounce on Tuesday, their highest close since April 19 and their biggest one-day advance since Nov. 1. The precious metal has climbed 4.8% this year.   Yields on shorter-term debt, which tend to move in tandem with investors’ interest-rate expectations, retreated this week. The yield on the two-year Treasury note settled at 2.500% Tuesday, compared with 2.520% Friday. The yield on the two-year Treasury note has fallen for three consecutive months, its longest such streak since 2013, according to Dow Jones Market Data. Yields fall as bond prices rise.   On this day in 1852, a locomotive of the Michigan Southern railroad arrived in Chicago, connecting the breadbasket of the world directly with the Eastern U.S. for the first time. Instead of more than two weeks by horse, coach and canal boat, it took just two days by rail to travel from New York City to Chicago. Goods, money and people could flow between the two booming cities faster than anyone had ever imagined. Key Events The Dallas Fed’s Richard Kaplan speaks in Houston at 1:10 p.m. ET. The Federal Reserve releases minutes from its Jan. 29-30 policy meeting at 2 p.m.  Must Reads Illustration: Laura Kammermann Why are there calls to restrict stock buybacks? In the video above, our Ken Brown explains the basics of buybacks and the economics of lawmakers' proposals to limit them. Investors are sounding a warning about markets’ complacency on rates. Stocks and bonds are rising on bets the Fed has ended its interest-rate increases, worrying investors who believe the central bank could upend those expectations later this year. Customers hunt for a bankrupt crypto exchange’s missing millions. An unusual cash-pickup system is the latest unusual business practice at Quadriga to emerge since Gerald Cotten, the firm’s 30-year-old co-founder and CEO, died in India late last year. Who needs free? Passive fund prices have flatlined. Zero-fee exchange-traded funds have failed to take off as investors accept higher costs for finer-tuned strategies. Markets warm to the prospect of an ECB funding boost for banks. Market participants are growing confident that the European Central Bank will soon try to boost the eurozone’s ailing economy by rebooting its program of ultracheap long-term loans to the banking system. The SEC wants to make it easier for companies to explore IPOs. Any company exploring whether to go public would get greater leeway to discuss their plans privately with potential investors before announcing an initial public offering, under a proposal that securities regulators released Tuesday. What We've Heard on the Street “Although they are in vogue, mini deals may not hit the spot for growth-starved consumer companies.” —Heard on the Street columnist Carol Ryan Stocks to Watch Herbalife Nutrition: The company reported a 9% sales increase in the fourth quarter, driven by strong growth in Asia. PepsiCo: Hormel Foods said the beverage giant will buy the company's CytoSport business, which makes Muscle Milk, for an undisclosed amount. Analog Devices: The chip maker said late Tuesday that its board of directors voted to raise the company's quarterly dividend to 54 cents a share, an increase of 12.5%. La-Z-Boy: The furniture maker's profit and sales results for the latest quarter topped analysts' estimates. LendingClub: The peer-to-peer lending company missed Wall Street's fourth-quarter revenue expectations.

Wednesday briefing | Backstop at forefront as May sees Juncker.

Warren Murray

9-11 minutes

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Top story: Legal fix sought to rule out customs limbo

Hello, it’s Warren Murray updating you on matters of moment and import this Wednesday morning.
“Alternative arrangements” and the “Malthouse compromise” have been declared dead as Theresa May returns to Brussels today. Instead of trying to replace the Irish border backstop, the prime minister will pursue legal assurances that it will not permanently bind the UK into a customs union.
If May and Jean-Claude Juncker can agree a possible way forward, officials will start work on the technical and legal practicalities. The goal is for Geoffrey Cox, the attorney general, to be able to change his legal advice to the government, which currently states the backstop could mean a permanent customs union. Cox is expected to give a speech later this week setting out his thinking. With time running out, cabinet was updated yesterday on the option of a no-deal Brexit. A cabinet source said the general mood in the room had noticeably turned against no deal as a negotiating tactic.
After Honda confirmed its Swindon plant’s closure, a former UK ambassador to Tokyo has told the Guardian overnight that it is “fanciful” to suggest Brexit did not play a part in the decision. Lord Mandelson, the former Labour business secretary, writes today that getting a deal still won’t be enough to end the uncertainty that is causing British business to haemorrhage. “If we leave the EU at the end of March on May’s terms, the exact same argument will simply begin all over again on 1 April: whether we are going to be close to or distant from the EU, aligned or not with single market rules, in a customs union or not, assuming control of our policies or becoming an EU regulatory satellite, and whether we are going to have an independent trade policy or not.”

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Midweek catch-up
> The home secretary is seeking to revoke the UK citizenship of Shamima Begum, who joined Isis at 15 and has just given birth in a Syrian refugee camp. The revocation may face legal challenge – her parents are from Bangladesh but she is British-born and under international law cannot be left stateless.
> The Independent Group of ex-Labour MPs has been criticised for registering as a limited company rather than a political party. The group says it will follow electoral law on donations. Joan Ryan, the Enfield North MP, has become its eighth member.
> Thousands of people in France have joined protests against antisemitism after Jewish graves were painted with swastikas. The government has warned antisemitism is “spreading like poison”. In recent weeks shots have been fired at a synagogue and prominent Jewish people publicly vilified.
> Bernie Sanders has announced he will once again run for the Democratic nomination and the US presidency. Asked what will be different about his 2020 campaign, Sanders replied: “We’re gonna win.”

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Plastic bullet bill – Scotland Yard has tripled its spending on plastic bullets in a single year, according to figures seen by the Guardian. The figures have emerged amid growing fears about the potential for a no-deal Brexit to result in civil disorder. In policing jargon they are known as “attenuating energy projectiles” (AEPs). “It is very concerning that police forces would want to stockpile such weapons,” said Diane Abbott, the shadow home secretary. Over the years plastic bullets have been linked to the deaths in Northern Ireland of at least 17 people, eight of whom were children.

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Young people’s health plight – Young Britons are dying from asthma at a higher rate than in any other European country, according to a study. Researchers say the UK is languishing near the bottom of an international league table for a host of problems among the young like obesity and lack of exercise. There are concerns the age group has been overlooked as being largely fit and healthy, when in fact almost 20% of 16- to 24-year-olds in the UK have a chronic health problem.
In other health coverage today, we look at the painful plight of women and girls suffering the life-changing consequences of chronic urinary tract infections (UTIs) – and meet the doctor who has uncovered the failings of routine UTI testing as he pioneers a promising new approach to treatment. Separately, researchers say cervical cancer could be eliminated by the end of this century if high rates of HPV vaccination and screening can be achieved.

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Push for green farming – Europe could feed its growing population entirely through organic and environmentally friendly agriculture, according to a scientific paper. Pesticides that are linked to a decline in insect populations could be phased out, argues the IDDRI thinktank, and greenhouse gas emissions radically reduced through “agroecological farming” – using ecological principles first and chemicals last in agriculture. More than half the EU’s cereals and oilseed crops are fed to animals. The study models a future in which meat production would be cut by 40%, with the greatest reductions in grain-fed pork and poultry, and the European diet oriented towards plant-based proteins and pasture-fed livestock. It is being published in parallel with the UK launch of the Eat-Lancet “planetary health diet”.

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No flossing over it – Epic Games, the makers of Fortnite, have taken legal action against the organisers of a disastrous live event based on the computer game. An estimated 2,800 people turned up at Norfolk showground for Fortnite Live on Saturday, but there was only space for four children to practise archery at the same time and one climbing wall tower, which could accommodate three climbers. Epic Games said it was “not in any way associated with the event that took place in Norwich and we’ve issued a claim against the organisers in the high court of London”. Shaun Lord, the organiser, said 19 staff failed to turn up and ticket refunds were given on an “individual basis”.

Today in Focus podcast: Free my mother, who killed my father

In 2010 Sally Challen hit her husband, Richard, more than 20 times with a hammer, killing him.
Her son, David Challen, explains why she did it. And: Lauren Gambino on the 16 states suing Trump’s administration.

Lunchtime read: Young designers to watch this season

What label has everyone talking with its inflatable toy-inspired clothes? And which designer is making pearls a thing for spring? This season, we have the answers … and you can read more from the spring/summer 2019 edition of The Fashion, our biannual fashion supplement.

Sport

Jürgen Klopp claimed Liverpool will have to be more courageous in the second leg if they are to progress in the Champions League, complaining his side were too passive in the scoreless draw against Bayern Munich, although Jordan Henderson was quietly magisterial from start to finish at Anfield. Barcelona failed to score despite managing 25 shots in a goalless stalemate at Lyon in their last-16 first leg, leaving the tie finely balanced. Jonny May is the most improved player in world rugby and, with Wales up next for England, he admits his searing displays now constitute a psychological barrier for opposition teams.
England are hot favourites for the five-match, 50-over series against West Indies but their captain, Eoin Morgan, is taking nothing for granted. Lando Norris, who took to the track for the first time as a Formula One driver in testing on Tuesday, capped a strong performance by setting the second-fastest time. The world No 1, Naomi Osaka, crashed out of the Dubai Duty Free Tennis Championships after losing in straight sets against France’s Kristina Mladenovic. And Anthony Joshua has said his opponent at Madison Square Garden on 1 June, Jarrell Miller, is “jealous” of him and that he “can’t beat me, even on his best day”.

Business

Job losses related to Honda’s decision to close its Swindon factory could exceed the company’s estimate of 7,000, industry experts believe, amid mounting scepticism that the move was not prompted by Britain’s imminent departure from the EU. On Asian markets, shares have rallied again to their highest level since October amid mouting optimism that the US and China can do a deal on trade issues. The FTSE100 is poised to fall slightly while the pound is buying $1.306 and €1.151.

The papers

One story dominates the front pages today and it is Sajid Javid’s decision to revoke Shamima Begum’s UK citizenship. The Mirror says: “Isis bride stripped of British citizenship”, the Express’s lead is: “Isis bride told: you’re no longer British”, the Mail has: “Stripped of her passport”, the Times reports: “Isis runaway stripped of her British citizenship” and the Guardian’s splash is: “Javid faces legal threat after move to strip Isis recruit of citizenship”.
The i’s lead story is: “Tories on high alert with senior MPs ready to walk out”. The Telegraph reports on Sir Philip Green: “US police launch Green ‘grope’ investigation” and the FT has “Honda plant closure’s impact on supply line puts 7,000 jobs at risk”. The Sun’s lead story – “Meg’s heir miles” – gives the paper the opportunity to kill three birds with one stone: criticising the duchess for travelling while heavily pregnant, running photographs of her, and getting a pun into their splash.

Source: The Guardian

Real Time Economics | Trump Says China Tariff Deadline Could Slide

Real Time Economics President Trump says there's no "magical date" for the U.S. and China to resolve their differences on trade, a shift away from a hard March 1 deadline. Good morning. Jeff Sparshott here to take you through the day's top economic news, including the latest on the Fed, Greg Ip's take on financing the Green New Deal, and South Korea's radical economic policies. Send us your questions, comments or suggestions by replying to this email. Tough Talks, Soft Deadlines President Trump said the U.S. may not increase tariffs on Chinese goods if a March 1 deadline passes without a comprehensive deal: "The date is not a magical date. A lot of things can happen.” Mr. Trump’s remarks have at times put him at odds with his lead negotiator, U.S. Trade Representative Robert Lighthizer. Absent a deal, Mr. Lighthizer has repeatedly set a firm deadline for tariffs on $200 billion of Chinese goods to increase to 25% from 10%—significant leverage during negotiations. The trade rep's colleagues describe him as frustrated with the changing direction from the White House, Bob Davis and Alex Leary report. What's Next Since mid-January, the two sides have met either in Washington or Beijing to carve out a deal to end a yearlong trade dispute that has rocked global markets and upended corporate investment plans. Midlevel U.S. and Chinese negotiators are meeting in Washington this week, cabinet-level officials will join Thursday. Mr. Trump and his advisers have said they are considering a meeting with Chinese President Xi sometime in the coming weeks. Under that scenario, the Trump-Xi meeting would effectively act as the deadline for a deal. What to Watch Today The Dallas Fed’s Robert Kaplan speaks in Houston at 1:10 p.m. ET. The Federal Reserve releases minutes from its Jan. 29-30 policy meeting at 2 p.m. ET. Top Stories Minute by Minute Markets rallied last month after Federal Reserve Chairman Jerome Powell signaled interest rates were on hold indefinitely amid cooling growth in Europe and Asia, and substantial market volatility. Meeting minutes out today may offer clues on what the Fed would need to see in order to return to raising rates. They could also show where the Fed sees the biggest risks to the economy. Any sign that officials talked about scenarios under which they might lower rates would grab attention—officials haven’t talked about that seriously in public. And look to see if officials started talking about a broader policy review, and whether that may entail changes to how they define their 2% inflation target, Nick Timiraos writes. Market Expectations Stocks and bonds are rising on bets that the Fed has ended its nearly four-year campaign of interest-rate increases. The shift is unsettling some investors, Akane Otani reports. “It seems frankly optimistic to expect nothing from the Fed in the next 12 months,” said Isabelle Mateos y Lago, managing director and chief multiasset strategist at BlackRock. “When you look at payroll data, this is not an economy that’s about to be in recession.” Fed watch: “If the economy performs along the lines that I’ve outlined as most likely, the fed-funds rate may need to move a bit higher than current levels,” said Cleveland Fed President Loretta Mester. Green Machine When advocates of a Green New Deal are asked how the country can afford its lavish promises of 100% renewable energy, millions of high-paid jobs and Medicare for all, they have a ready reply: “The Federal Reserve can extend credit to power these projects.” Here’s the problem: once you work through the mechanics, it doesn’t save any money. At the end of the day, the Green New Deal will face the same constraints all such undertakings do—they can’t spend more than the economy can produce. Ignoring those constraints will either lead to inflation, a politically weakened Fed, or both, Greg Ip writes. Reach for the Moon South Korea is home to the one of the world’s boldest left-wing economic programs. President Moon Jae-in’s flagship economic policy, “income-led growth,” has led to dramatic increases in minimum wages—nearly 30%—since he took office in 2017, Mike Bird reports. Mr. Moon’s aim may be to spread the spoils of Korean growth more fairly. The danger is that companies are avoiding paying higher wages by hiring fewer people. Korea’s unemployment rate rose to 4.4% in January from 3.8% the month before, its biggest rise in nine years—just as the latest increase in minimum wage came into effect. Quote of the Day I’m a capitalist. I don’t see how we’re able to meet any of the fundamental challenges that we have as a country without, in part, harnessing the power of the market. Former Democratic Rep. Beto O’Rourke, speaking to reporters What Else We're Reading Tax the rich? "A majority of people support Democratic proposals to raise taxes on the wealthiest Americans, according to a poll conducted this month for The New York Times by the online research platform SurveyMonkey, though their opinions vary between specific plans. Voters overwhelmingly see income inequality as a problem the government should be trying to address," Ben Casselman and Jim Tankersley write at the New York Times. The 2017 tax law accelerated bonus depreciation. That may not do much for workers. "Bonus depreciation generated one job for every $53,000 spent on the policy with no positive effects on average earnings for workers," Daniel Garrett, Eric Ohrn and Juan Carlos Suárez Serrato write in a National Bureau of Economic Research working paper. "Overall, our results show incentives for capital accumulation stimulate investment but do not create long-run job or wage growth." Up Next: Thursday The European Central Bank releases minutes from its Jan. 23-24 meeting at 7:30 a.m. ET. The Atlanta Fed’s Raphael Bostic speaks on the economy and monetary policy at 7:50 a.m. ET.   U.S. jobless claims are expected to fall to 227,000 from 239,000 a week earlier. (8:30 a.m. ET) The Philadelphia Fed's manufacturing survey for February is expected to fall to 14 from 17 a month earlier. (8:30 a.m. ET) U.S. durable goods orders for December are expected to rise 1.5% from a month earlier. (8:30 a.m. ET) Markit's U.S. manufacturing purchasing managers index for February is expected to tick down to 54.2 from 54.9. (9:45 a.m. ET) U.S. existing-home sales for January are expected to rise to an annual rate of 5.02 million from 4.99 million a month earlier. (10 a.m. ET) The Conference Board's leading economic index for January is expected to rise +0.1%. (10 a.m. ET) U.S.-China trade talks at the principal level resume in Washington, D.C. Bank of Canada Governor Stephen Poloz speaks at 12:50 a.m. ET. Japan's consumer-price index for January is out at 6:30 p.m. ET.

Wages are picking up – but the market still can’t believe it

By: John Stepek

6-7 minutes

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Employment is high and wages are rising

This article is taken from our FREE daily investment email Money Morning.

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It was the best of times, it was the worst of times…

Don’t worry, I’ll stop there.

Around the world things are looking up. Several developed economies (including the UK) are running at full employment, or as near as you can get.

Yet I think it’s fair to say that everyone is grumpy. More than that, they’re fearful. They’re scared of missing out. But they’re scared of getting sucker punched again.

And it’s giving rise to some pretty odd things happening in markets.

Don’t let your confirmation bias blind you – this is a good report on jobs

Jobs data for the UK in the final quarter of 2018 came out yesterday. Given the constant litany of grim headlines, it was staggeringly good.

The employment rate is at 75.8%. That’s the highest since comparable records began in 1971. The overall unemployment rate fell to 4%, the lowest since 1975. For women, it fell below 4% for the first time ever.

The percentage of “economically inactive” (those aged 16-64 who are not working nor seeking work) came in at 20.9%, another record low. The number of people on zero-hours contracts fell too.

Meanwhile, the most important measure from a “big picture” point of view – wage inflation – headed significantly higher. Weekly pay (both including and excluding bonuses) rose by 3.4% compared to the same time the year before.

This means that real wages – wages after inflation – are rising at their fastest rate in two years. They are also rising more rapidly than house prices.

Wage inflation matters, because if anything is likely to push both growth and wider inflation higher, it’s people being paid more. And finally, it seems that the labour market is sufficiently tight that wages are indeed picking up.

Incidentally, if you’re sitting there furiously looking for “ah, buts”, I have some advice for you. Picking holes in these releases is commendable. It’s good to be sceptical. And all of this data is historic; it says nothing about what will happen tomorrow.

But also remember that you have to deal with the world as it is. You may not like the Tories; you may not like Brexit. You may feel that this statistical release must surely be covering up some great yawning chasm in the social fabric.

But the data collection methods haven’t changed much, and for now, the data points to an economy which has a high level of employment and rising wages. And importantly, Britain is not unique.

Who will win the tug of war in markets?

These are good numbers by anyone’s definition. And they highlight an absolutely fascinating tug of war going on both here and in the wider world.

It’s hard to describe global labour markets in most developed countries as anything other than “hot”. Britain is not the only one, for all the cries of “despite Brexit!” or “we haven’t left yet!”

Lift your eyes from our current parochial obsessions and you will find that not only the US but also Japan – the land that pay rises forgot – are seeing ever-tightening labour markets combined with slowly but steadily growing wages.

This really should be toxic for bond markets. Bonds are mostly fixed-income instruments (ie, they pay you a specific interest payment that does not rise or fall). As such, they hate inflation. If you know a bond is going to pay you £50 in a year’s time, then you want prices to be lower, not higher. If prices are expected to go up, the value of that bond will fall.

But that’s not happening right now. Instead, as Daniel Kruger pointed out in the Wall Street Journal a couple of days ago, bond yields have been sliding since October (which of course, is when stocks fell out of bed).

This has resulted in the proportion of bonds which offer negative yields (where bond owners are effectively paying the issuers – mainly developed world governments – for the privilege of lending to them) rising yet again.

The proportion of global debt offering negative yields (according to BoA Merrill Lynch) was virtually zero until 2014. It peaked at just under 30% in September 2016, around about the time we hit “peak deflation” fear. Since then, it has managed to dip below 19% in July 2017, and October 2018. But now it’s back up above 22%.

As David Rosenberg of Gluskin Sheff pointed out on Twitter yesterday, it’s no wonder that stockmarkets have been surging in the last month – it’s because low bond yields mean that “TINA” (“there is no alternative” if you want to make a “real” return) – is back.

So what’s going on? On the one hand, investors seem to have grown certain that we’re facing a global downturn any minute now. So that might explain why bond yields are low. Employment is a lagging indicator, after all – it doesn’t peak until after the tough times are already clearly on the horizon.

On the other hand, the mass retreat of central banks could have something to do with it. If you think they’re all going to start buying bonds again, then you want to get in ahead of them.

I suspect it’s a mix of both. The financial system and the “real” economy have always been “reflexive” (moves in one affect the other). But the era of quantitative easing and the increasingly uncertain nature of money have exaggerated this reflexiveness.

It’s a little bit Orwellian. Investors look at the sky and see sunshine, but bond yields tell them it’s raining. They’re no longer entirely sure what to believe.

The good news is that this isn’t 1984. At some point, the evidence will swing hard one way or the other, and we won’t be able to ignore it. I’m still betting we’ll get inflation. You may disagree – but that’s why we make sure we have diversified portfolios, so even when one of us is wrong, neither of us ends up being ruined.

Source: MoneyWeek