Mike’s Morning Brief – January 28, 2016

Market opens higher, trying to shake off the beating from yesterday.  The Fed meeting statement sent stocks sharply lower, despite the fact that they hinted a rate hike is unlikely in March.  In fact, the tone of the words were so cautious, it seems as though the Market got spooked that things are even worse than thought.  The Fed again said they are concerned with global issues impacting the US.  But what’s driving stocks higher this morning is Facebook and Under Armour.  These fast growing innovative companies are showing that they can execute in any environment, and customers will continue to spend where demand is strong.  Oil is also catching another bid higher.  In fact, yesterday was the first day in 2016 where the price of oil was higher while stocks were lower.  They’ve been directly correlated.  We still see that continuing til a bottom is confirmed.  At this stage, higher oil is good.  That sounds counterintuitive, but it’s the case.  Interest rates are staying low with the Fed’s cautious tone.  Global Markets were lower overnight. China is now down 25% on the year.  Expect the bumpy ride to continue.  The seatbelt sign is still on.

The Fed kept interest rates unchanged and said it was “closely monitoring” global economic developments, signaling it had accounted for a stock market selloff but was not ready to abandon a plan to tighten monetary policy this year.  But the takeaway is the Fed is concerned about these global issues and specifically the strengthening Dollar.  We don’t expect a rate hike in H1, and possibly all year.  The Futures Market is now pricing in the first rate hike of the year at 52% chance in July.  It’s less than 25% chance for March, whereas a month ago it was over 75% chance.  Boy how things have changed.

In a surprising move, the Japanese Economic Minister, a key architect of the government’s “Abenomics” program, has announced his resignation over allegations of financial impropriety. Serving as point man in the Trans-Pacific Partnership trade talks, Akira Amari also spearheaded Abe’s growth strategy to boost the nation’s competitiveness. His resignation comes at a critical time for the Abenomics project, which is aimed at pulling the world’s third-largest economy out of deflation.

Q4 growth in the UK came in line with expectations in Q4, but annual growth slowed to the lowest level in almost three years. GDP rose 0.5% from the previous three months; on a year-on-year basis, the economy grew 1.9%. While output has expanded for 12 straight quarters and unemployment is at its lowest rate for a decade, the expansion remains lopsided, with services the dominant driver and exports and manufacturing remaining sluggish.

A deal to restructure Puerto Rico’s leveraged power utility received new life yesterday after the agency and bondholders agreed to extend a crucial deadline through Feb. 16, providing some breathing room to debate tweaks to legislation. Righting PREPA’s ship is seen as a key step in fixing the island, which faces $70 Billion of debt, a 45% poverty rate and a shrinking tax base as residents increasingly jump ship for the mainland United States.

Under Armour is flying today after reporting a much better than expected Q4 top and bottom line this morning.   EPS came in 2 cents above the street at .48. Sales were up a whopping 31% to $1.17 billion (higher than the $1.12 billion expected).  Apparel sales (74% of total sales) were up 22% to $865 million due to strength in training, running, golf and basketball clothing. Footwear (14% of total) almost doubled jumping 95% to $166.7 million due to launches in running shoes and strong demand for Stephen Curry’s basketball shoe line.  Accessories (8% of total) were up 23% to $97 million. Sponsorship deals with sports greats basketball star Stephen Curry and golf star Jorden Spieth have jacked up sales. FY16 sales guidance exceeded consensus at $4.95 billion (vs. $4.91 billion expected).  The stock is up 17% on the news, back above $80.

Mike Frazier

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