Friday Morning Reads

Economy

Asian markets registered gains today amid mixed signals on the direction of the trade talks between the U.S. and China. In fairly strong moves, Japan's Nikkei increased 1.0% and South Korea's Kospi rose 1.4%. Hong Kong's Hang Seng Index tracked 1.7% higher on the day, while Australia's ASX 200 finished 0.7% higher. The Shanghai Composite Index gained 0.8%. Meanwhile, the European stocks have started the day off in positive territory, with the Stoxx 600 Index posting a 0.6% gain at midday. U.S. stock futures are pointing higher in the buildup to another big day of earnings, highlighted by reports due out from AbbVie (NYSE:ABBV), DR Horton (NYSE:DHI), Lear (NYSE:LEA) and Colgate-Palmolive (NYSE:CL).

The British pound moved to its highest level since November after The Sunreported that Northern Ireland's Democratic Unionist Party has privately decided to back Prime Minister Theresa May's Brexit deal on a conditional basis next week. Analysts think the report could indicate that Brexitiers see May's option as more attractive than a referendum or a Remain outcome. The pound tracked to as high as $1.3114 in Asian trading. Chief Market Strategist Michael McCarthy thinks a technical breakout to $1.38 is possible if the report turns out to be accurate.

Oil prices are showing small gains in reaction to the threat of further sanctions by the U.S. government against Venezuela. The U.S.'s backing of Juan Guaido as Venezuela's legitimate president has created some confusion among refiners, producers, and traders now unsure of the legality of future commercial transactions with state-owned PDVSA. With Iran already hit by U.S. sanctions, a drop in Venezuelan exports could offset some of the record U.S. production. In today's action, WTI crude oil futures +0.4% to $53.36/bbl and Brent crude +0.3% to $61.25/bbl.

A new study by Brookings Institution researchers indicated that states in the U.S. Midwest will continue to be hit hard by job automation. Jobs in trucking, office work, construction, food preparation and service areas are all seen as at risk from advances in artificial intelligence, robotics and new forms of automation. Connecting the dots, Reuters suggests the loss of jobs in the Midwest could be a major voting issue in the 2020 U.S. election.

While a report on new home sales is due out today from the Labor Department, the government shutdown could prevent the release from being distributed for the second straight month. Consensus estimates from economists for the two-month period are for a gain in new home sales to 560K in November and an increase to 569K in December. The list of usual suspects that show share price movement off new home sales data includes D.R. Horton (DHI), KB Home (NYSE:KBH), PulteGroup (NYSE:PHM), Toll Brothers (NYSE:TOL), Lennar (NYSE:LEN) and NVR (NYSE:NVR).

Stocks

Chinese regulators approved two mobile games from Tencent Holdings (OTCPK:TCEHY, OTCPK:TCTZF) to mark the first approval since a freeze on new approvals was imposed in March amid increased scrutiny of the sector. The State Administration of Press, Publication, Radio, Film and Television approved a total of 95 games in its fourth list since December. Shares of Tencent rallied more than 3% in Hong Kong trading off the development.

The Defense Department is looking into the bidding process on the lucrative Joint Enterprise Defense Infrastructure program to determine if Amazon (NASDAQ:AMZN) created a conflict of interest by hiring a former Pentagon employee who helped develop a cloud-computing procurement contract. The former Pentagon employee has bounced from working for Amazon Web Services to the government and back to AWS again. The $10B JEDI contract is being awarded to a single company sometime this spring. Oracle (NYSE:ORCL), Microsoft (NASDAQ:MSFT) and IBM (NYSE:IBM) are all still in the mix for the contract, while Google has dropped out.

The Canadian government plans to provide $30M in funding to Nokia (NYSE:NOK) for research on 5G wireless technology. The funding to the telecom network equipment maker is aimed at helping with the understanding of how data is routed and optical networks are managed. Naturally, cybersecurity issues will also be evaluated. A formal announcement on the deal is expected today. Shares of Nokia (NOK) are up 2.1% in premarket trading.

Coffee tales: Starbucks (NASDAQ:SBUX) impressed with its FQ1 report as global comparable store sales rose 4.0% during the quarter to top consensus estimate for +2.9% growth. Higher ticket/pricing added 3 percentage points to growth during the quarter. There were some concerns ahead of the report on the China business following Apple's market-rattling warning, but same-store sales increased 1% in the region. On the post-earnings conference call, CEO Kevin Johnson said new stores in China are "highly profitable" so far. Johnson said the company will continue to play the long game even with China GDP decelerating. Shares of Starbucks are up 1.90% in premarket trading.

Looming instability in the Middle East - not supply, demand, sanctions on Iran’s oil industry or political upheaval in Venezuela - most worries Total (NYSE:TOT), CEO Patrick Pouyanne told CNBC at the World Economic Forum in Davos. "The main risk for the oil market is the situation in the Middle East because this is the big area of production, not only in Saudi Arabia but in the UAE and Kuwait. There are Iraq and Iran and this region is connected," said Pouyanne. The CEO also said demand remains robust but that if import tariffs between the U.S. and China end up damaging economic growth, particularly in China and other emerging markets where oil demand is typically strong, oil markets could react negatively.

Expect analysts to have a lot to say on Intel (NASDAQ:INTC) today after a downside guide from the company took the focus off a Q4 EPS beat. The company forecast $16B in revenue for Q1 to fall short of the consensus estimate for a mark of $17.4B. On the earnings call, Intel management said the company is still looking for a full-time CEO, which may have also disappointed investors. Shares of Intel are down 6.8% in premarket action. AMD (NASDAQ:AMD), Nvidia (NASDAQ:NVDA) and Micron (NASDAQ:MU) are all lower as well.

Just days after confirming it's looking to sell Central American operations, Telefonica (NYSE:TEF) has deals to sell its Guatemala and El Salvador units to America Movil (NYSE:AMX) for a combined $648M. The Guatemala deal has closed for $333M, while regulators need to sign off on a $315M deal for substantially all of Telefonica El Salvador.

Speaking at the World Economic Forum, Goldman Sachs (NYSE:GS) chief David Solomon warns that an increasingly likely problematic Brexit would have a real negative effect on the bank's investments in the UK. Goldman hasn't increased London headcount since the 2016 referendum, and may yet relocate hundreds of employees to continental Europe in the case that Britain exits the EU without a deal.

A well-timed trade in PG&E (NYSE:PCG) options reaped a huge paper profit after shares soared 74% when a state regulator cleared the company from any responsibilities related to the 2017 Tubbs wildfire. Minutes before the shares jumped, an unnamed trader paid $200K for 10K call contracts betting on the shares rising above $12 by February 8. The well-timed bet is expected to attract the attention of regulators.

Corporate events: Shareholders are due to vote on Independent Bank's (NASDAQ:INDB) acquisition of Blue Hills Bancorp (NASDAQ:BHBK). Meanwhile, the Luby's (NYSE:LUB) annual shareholder meeting has higher stakes than normal with Bandera's slate of candidates looking for election to the restaurant operator's board.