Financial Review

Up, Up and Away or Stay

Countdown to Brexit. IEX new exchange. Yellen goes to Congress. Facebook shareholder meeting. GE Digital stands alone. China has more supercomputers. Ex-VW CEO under investigation. Costco switches. SCOTUS reject challenges to assault weapon ban. Congress rejects gun control proposals. SCOTUS stands behind RJR.

Financial Review by Sinclair Noe for 06-20-2016

DOW + 129 = 17,804
SPX + 12 = 2083
NAS + 36 = 4837
10 Y + .05 = 1.67%
OIL – .14 = 49.82
GOLD – 8.10 = 1291.00
 

World equities rallied today. A series of polls released over the weekend showed those in favor of the U.K. staying in the European Union held a slight lead over the leave camp. The campaign in favor of a Brexit lost momentum after Member of Parliament Jo Cox was killed last week. Three opinion polls ahead of Thursday’s vote showed the ‘Remain’ camp recovering some momentum, although the overall picture remained one of an evenly split electorate. The FTSE 100 in London posted a gain of 3.1%, one of the biggest single day increases it has seen since 2011. In Germany, the DAX index was up 3.4%; the French CAC 40 gained 3.5%; the Spanish IBEX up 3.5%.

 

The pound sterling got a massive boost on the news, with the pound up 2% against the dollar. What a Brexit would do to the US economy really boils down to what happens to the dollar. The world’s most famous currency speculator, George Soros, writing in the Guardian, said, “Sterling is almost ­certain to fall steeply and quickly if leave wins the referendum. I would expect this devaluation to be bigger and also more disruptive than the 15% ­devaluation that occurred in September 1992.” Soros was referring to the pound meltdown known as Black Wednesday, which basically broke the Bank of England. In theory, a stronger dollar would raise the prices of US exports, as dollar-denominated goods become more expensive for buyers with weaker currencies. At the same time, it would make imports cheaper for US consumers, which is deflationary. Even lower inflationary pressure than we’ve seen so far this economic cycle would give the Fed more reason to be dovish and delay further interest-rate hikes.

 

On Tuesday and Wednesday, Federal Reserve chair Janet Yellen, will be presenting her semiannual testimony on monetary policy to Congress. She will appear before the Senate Banking Committee on Tuesday, followed by the House Financial Services Committee on Wednesday. The Fed left rates unchanged when officials met last week. But Yellen’s testimony will be closely watched for any sign of when the Fed will decide to tighten monetary policy.

 

There’s a new U.S. public stock exchange. The SEC has finally given approval to IEX Group’s request, meaning the firm will be able to challenge the NYSE, Nasdaq, and Bats Global as the nation’s 13th national stock exchange. IEX is the trading firm that gained fame in the book “Flash Boys”. IEX was the firm that tried to thwart the high frequency trading algorithms from scalping investors trades. IEX’s “speed bump” delays orders by 350 millionths-of-a-second, but it’s enough to protect investors from high-frequency trading which can front-run slower orders on other exchanges.

 

U.S. antitrust regulators are concerned about Anthem’s proposed acquisition of Cigna and aren’t sure the health insurers can offer concessions that would fully preserve competition in the industry. The Wall Street Journal reports company representatives met June 10 in Washington with Justice Department staffers and representatives of more than a dozen state attorneys general and have more meetings scheduled this week with top DOJ officials.

 

Facebook holds its annual shareholder meeting today in Silicon Valley, where its top executives, Mark Zuckerberg, Sheryl Sandberg and others, will field questions about the state of the company. Shareholders approved a new stock structure to continue giving Mr. Zuckerberg majority voting control over the company even as he plans to sell off his stock in the coming years to donate much of his wealth to philanthropic causes. The company will issue two “Class C” shares for each Class A and Class B share held by shareholders, in what is effectively a 3-for-1 stock split.

 

General Electric’s software business is now a stand-alone unit, GE Digital. On Thursday morning, GE executives will present Wall Street analysts a progress report on the new unit. At the moment, GE Digital looks modest financially. The company has said it expects $6 billion in revenue this year, compared with total GE revenue of $117 billion in 2015. But GE has set aggressive growth targets for GE Digital. And the software unit’s new products including Predix, an operating system for the industrial internet, are vital to GE’s plan to become a “digital-industrial company.”

 

A new list of the world’s fastest supercomputers provides more evidence that the technology gap between the United States and China is closing. China dominates a biannual ranking of the world’s 500 fastest supercomputers, called the Top500. Not only does China have the world’s fastest machine for the seventh consecutive time, it has the largest number of computers among the top 500 — a first for any country other than the United States. Also for the first time, the world’s fastest supercomputer uses Chinese-made microprocessor chips instead of chips from Silicon Valley’s Intel.

 

The FAA could unveil its first rules permitting commercial drones as early as this week, but the move is likely to spark broader demands for loosening restrictions on unmanned aircraft. It is anticipated that the FAA will announce rules allowing drones weighing up to 50 pounds to fly at low altitudes only in daylight and within sight of operators.

 

Vladimir Putin is considering selling part of Russia’s corporate crown jewels to China and India as the president struggles to fund budget shortfalls made worse by cheap crude. Moscow is seeking buyers for 19.5% of state oil giant Rosneft and expects to raise at least $11 billion from the sale, setting a privatization record for the country.

 

After months of squabbling, Williams Cos. and Energy Transfer are set to face off in a Delaware courtroom, where top lawyers will go toe-to-toe analyzing the fine print of their 400-page merger agreement. While both sides accuse each other of breaching the contract, Energy Transfer hopes the judge will find violations that are serious enough to kill the deal.

 

Volkswagen will submit its $10 billion plan this month to fix a half-million emissions-cheating cars or get them off U.S. roads, even though it’s awaiting regulators’ sign-off on how to retrofit the vehicles. According to Bloomberg, about $6.5 billion will go to car owners and $3.5 billion to the U.S. government and California regulators. VW has already announced it will stop producing more than 40 car models in the coming years and unveil 30 new EV models over the next decade. The investigation into Volkswagen’s vast emissions scandal reached the top management for the first time as German prosecutors said they were looking into the carmaker’s former chief executive and a member of the management board for possible violations of securities laws. Former Volkswagen chief, Martin Winterkorn, is suspected of having waited too long to disclose that the company faced an investigation in the United States. Winterkorn is the first member of Volkswagen’s top management team identified as a suspect in the inquiry.

 

If you shop at Costco, and some 81 million Americans do, you can no longer use your American Express credit card there, or anywhere else. Costco has switched to Visa, effective today. Your Costco Visa should already have been mailed to you; the rewards points transfer to the new card. And yes, your balances also transfer to the new card.

 

Buyout firm Francisco Partners and the private equity arm of activist hedge fund Elliott Management are in advanced talks to acquire Dell’s software division for more than $2 billion, Reuters reports. Divesting the software assets will help Dell refocus its technology portfolio and bolster its balance sheet after it agreed in October to buy data storage company EMC for $67 billion.

 

European privacy watchdogs will decide today whether to clear new rules allowing companies like Google and Facebook to transfer personal data across the Atlantic. EU-U.S. Privacy Shield has been criticized by some for failing to fully protect Europeans’ rights, and lawmakers may ask for more concessions from their American counterparts to meet the continent’s strict privacy standards.

 

The Supreme Court has rejected challenges to assault weapons bans in Connecticut and New York. Turning away two separate appeals without comment, the justices left intact federal appeals court rulings that said the bans comply with the constitutional right to bear arms. The measure criminalizes the sale or possession of semi-automatic rifles that accept detachable magazines and have at least one other specified feature, such as a forward pistol grip. It lists 183 specific prohibited weapons. The rejection by the Supreme Court marks the second time since December
that the justices have declined to question assault-weapon bans.

 

There are 4 amendments working their way through Congress today related to guns and terror – two from Democrats and two from Republicans. One proposal would give the Justice Department the power to stop anyone from purchasing a gun if that person has been on the federal terrorist watch lists sometime in the past five years. Another proposal would close the “gun show loophole” and extend background checks to internet sales. Another proposal would require that law enforcement be alerted when anyone on the terrorist watch list attempts to buy a weapon from a licensed dealer. And another proposal would clarify what it means to be found mentally deficient, and giving people suspected of serious mental illness a process to challenge that determination. None of the proposals are expected to pass.

 

The Supreme Court also issued a 4-3 ruling in favor of R.J. Reynolds Tobacco Company in a lawsuit filed by European countries accusing it of complicity in an international money laundering scheme. The court, by a 4-to-3 vote, found that the company could not be sued under the federal Racketeer Influenced and Corrupt Organizations Act, or RICO, over its conduct abroad. The European Union had accused RJR Nabisco of being part of a sprawling cigarette smuggling enterprise that deprived them of billions of dollars in customs and tax revenues.

 

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