Financial Review

Had to Happen

…..Stocks drop as bulls left empty handed. Import/export prices higher. First step to repeal Obamacare. A long line of kowtowers. Airlines did not collude. Unicredit on the edge. J&J to buy Actelion. Homebuyers get cold feet. AZ MLS reports Phoenix home sales up, inventory tight. Apple goes Hollywood. VW execs indicted. Fiat Chrysler emissions cheating. Takata settles.

Financial Review by Sinclair Noe for 01-12-2017

DOW – 63 = 19,891
SPX – 4 = 2270
NAS – 16 = 5547
RUT – 12 = 1361
10 Y – .01 = 2.36%
OIL + .80 = 53.05
GOLD + 5.20 = 1197.30


It had to happen – the Nasdaq Composite suffered its first loss of 2017, but it was a record setting run to start the New Year. The Dow Jones industrial average closed lower, with Goldman Sachs and Walt Disney contributing the most losses. At session lows, the blue-chips index had fallen more than 180 points. Donald Trump’s press conference on Wednesday was not what investors wanted to hear; there was talk of protectionism. Trump took shots at the pharmaceutical industry, which sent health care and biotechnology stocks reeling. He also failed to provide new details on three of his key policies: tax reform, deregulation of certain sectors and fiscal stimulus. The lack of details of the President-Elects administration’s plans for economic stimulus simply left bullish investors empty handed.


European markets and most Asian markets ended the day with modest losses. Despite the negative sentiment, many global stock markets are near record highs. The USDA issued its World Agriculture Supply & Demand Estimates with bullish projections for soybeans, wheat and corn.

On the economic front:  Initial claims for unemployment benefits increased 10,000 to 237,000 in the week ended January 7. This marks 97 consecutive weeks of initial claims below 300,000, the longest streak since 1970.
Import prices increased 0.4 percent last month after an upwardly revised 0.2 percent decline in November. In the 12 months through December, import prices jumped 1.8 percent, the largest gain since March 2012. Import prices are rising as the drag from lower oil prices fades. The report also showed export prices rose 0.3 percent in December after slipping 0.1 percent in November. Export prices were up 1.1 percent from a year ago.


Several Federal Reserve officials are scheduled to speak today. St. Louis Fed President James Bullard said he doesn’t see any need to rush to raise rates in the near-term. On the flip side, Philadelphia President Patrick Harker sees three rate hikes this year, stating that the U.S. economy is “displaying considerable strength.” Fed Chair Janet Yellen is holding a town hall event with teachers tonight.


After debating seven hours through the night, the Senate narrowly passed a budget resolution early today, clearing the first major hurdle in the GOP effort to repeal Obamacare. House leaders plan to take it up tomorrow. Today’s vote was technically on a budget blueprint that sets the stage for a formal repeal vote, potentially within a few weeks. The step is, for now, procedural, but it signals Republican lawmakers are following through on their longstanding promises to axe the law. In his press conference this week, President-elect Donald Trump assured Americans once again that Obamacare will be repealed and replaced, “essentially, simultaneously.” And we are still waiting on the replace part. The iShares US Healthcare ETF (IHF) flip flopped between positive and negative territory during the first two hours of the trading day.


And as confirmation hearings continue for the Trump Cabinet nominees in Washington DC, there is a steady stream of business leaders in and out of Trump Towers in New York. President-elect Donald Trump’s transition team has been actively considering ways to revamp a temporary visa program used to bring foreign workers to the United States to fill high-skilled jobs. Eric Schmidt, Executive Chairman of Alphabet/Google was spotted at the Tower, although we haven’t heard details of the visit.


Other deal-makers (and prospective deal-makers) are lining up in front of Trump Tower to kowtow to the President Elect include: SoftBank CEO Masayoshi Son, who wants approval for Sprint to participate in wireless consolidation, perhaps by buying T-Mobile. Alibaba CEO Jack Ma met; his company is the major asset of Yahoo in the process of a major asset sale to Verizon. After that came the Monsanto and Bayer CEOs, who seek merger approval. Next up, AT&T leaders are arriving to talk up their Time Warner deal, which is complicated by Trump’s dislike of his coverage on CNN.


French far-right presidential candidate Marine Le Pen was seen at Trump Tower today but a spokesman for President-elect Donald Trump said she was not meeting with him or his team. “No meetings with anyone,” transition spokesman Sean Spicer said. “It’s a public building.” Although it is safe to assume Le Pen was not just loitering.


The U.S. Justice Department is not expected to bring antitrust action against U.S. airlines after finding little proof the four major carriers – Delta, Southwest, American, and United – coordinated to raise fares by curbing the supply of seats. Investigators failed to uncover sufficient evidence of collusion among airlines to restrain seats, since the DOJ’s probe began in the summer of 2015.


Delta Air Lines reported a 37 percent decline in fourth-quarter net profit to $622 million from $980 million a year earlier. Delta forecast passenger unit revenue, a closely watched metric, to be flat to up 2 percent in early 2017.


Shares in Italy’s biggest bank – UniCredit – are weakening as the firm said it’s writing off €8.1 billion ($8.6 billion) in bad loans. Shareholders are also set to vote on its plans to raise €13 billion ($13.8 billion) to shore up its finances. Several of the largest US banks are scheduled to report fourth quarter earnings tomorrow.


Johnson & Johnson has tentatively agreed with Actelion on a price to acquire the Swiss biotechnology company. Bloomberg reports the talks are now focused on valuing what would be a new unit that would house research and development assets. Before the current round of negotiations started in late December, J&J had made an offer for Actelion valued at about $260 per share, or more than $28B.


More home buyers are getting cold feet and bowing out of deals before the closing. According to an analysis by real-estate website Trulia, the percentage of homes that had an offer but failed to close rose to 3.9% in 2016, compared with 2015, when 2.1% of sales fizzled. The company defined a failed sale as any listing with a preliminary buyer agreement that reverted back to for-sale status. The highest share of failed sales overall was in the starter-home market, where 6.3% of buyers backed out of deals in 2016, up from 3.4% the year prior. That’s in part because starter homes, those valued in the bottom third of the region’s market, saw an influx of first-time home buyers last year. These buyers were more likely to hit financing hurdles or underestimate closing costs.


The Arizona Regional Multiple Listing Service reports overall sales in the Phoenix market in December rose 5.9% year-over-year. Cash sales were down to 23.1% of total sales. Active inventory is down 2.9% year-over-year.


Over the past five years, Amazon created over 150,000 jobs in the United States, growing its workforce here from 30,000 employees in 2011 to over 180,000 at the end of 2016. Today, the company announced that it plans to create an additional 100,000 full-time, full-benefit jobs in the U.S. over the next 18 months.


Apple is said to be planning to build a significant new business in original television shows and movies, a move that could make it a big player in Hollywood and offset slowing sales of iPhones and iPads.


More individuals could be charged in an ongoing investigation by U.S. authorities into Volkswagen’s diesel emissions cheating. The announcement comes after VW agreed with the U.S. government to pay $4.3B in fines and penalties, while six high-ranking employees were indicted in connection with a conspiracy to cheat emissions tests.


Fiat Chrysler shares were briefly halted after plummeting nearly 16% in response to the Environmental Protection Agency accusing the automaker of using emissions cheating software. The EPA said the software allowed excess diesel emissions in just over 100,000 U.S. trucks and SUVs sold since 2014. The EPA said it believes the software allowed vehicles to generate excess pollution in violation of the Clean Air Act. The EPA alleges that the software was installed in light-duty models of the Jeep Cherokee for the years 2014-2016, as well as Dodge Ram 1500 trucks with 3.0 liter diesel engines sold in the United States.


Japan’s Takata Corp is expected to plead guilty to fraud charges as early as tomorrow as part of a $1 billion settlement with the Justice Department over its handling of air bag ruptures linked to 16 deaths worldwide, sources said. The settlement includes a $25 million criminal fine, $125 million in victim compensation and $850 million to compensate automakers who have suffered losses from massive recalls. As part of the deal, Takata might plead guilty to wire fraud charges, or providing false test data to U.S. regulators.


Ireland-based Shire Pharmaceuticals has agreed to pay $350 million to settle allegations that it bribed clinics and physicians to use its diabetic ulcer treatment. The U.S. attorney general for the Middle District of Florida, said Advanced BioHealing, a company Shire acquired in 2011, bribed providers with dinners, entertainment, travel and medical equipment to promote the use of Dermagraft, a skin substitute used to help treat foot ulcers. The kickback scheme caused false claims to be submitted to the Department of Veterans Affairs. Shire did not admit wrongdoing as part of the settlement.


Obamacare, Trump Tower, Apple, J&J, Unicredit, Delta, Trulia, Arizona MLS, Fiat Chrysler, Takata,

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