…..Refugee travel ban blowback. Two for one on regulations. Jobs report on Friday. FOMC meets tomorrow. Wall Street without Fed stimulus looks pricey. Consumer spending up. Pending home sales jump. Rig counts climb. Puerto Rico extension. VW the biggest. No accounting for Toshiba. Fitbit unhealthy. Tempur Sealy nightmares. Walgreens Rite Aid shrinkage.
Financial Review by Sinclair Noe for 01-30-2017
DOW – 122 = 19,971
SPX – 13 = 2280
NAS – 47 = 5613
RUT – 18 = 1352
10 Y un = 2.48%
OIL – .50 = 52.67
GOLD + 3.70 = 1196.00
On Saturday, a federal judge in New York temporarily barred the US from deporting detainees from the countries covered in an executive order restricting travel to the US from 7 countries. The White House also clarified its policy regarding green card holders, stating the travel ban would not apply to those with legal permanent residence in the United States.
Several businesses and trade organizations responded to the travel ban over the weekend. Many airlines, caught off-guard by the sudden policy change, scrambled to follow the new directive while attending to their customers. Shares of airline companies were knocked lower. American – 4.3%, Delta – 4%, United – 3.6%
Delta Air Lines suffered a systems failure. The airline grounded US domestic flights on Sunday evening as it dealt with a systems failure. Early this morning, Delta tweeted: “UPDATE: Systems return to normal; some flight cancellations linger.” Delta said it canceled about 170 flights on Sunday, and approximately 110 flights have been cancelled today. The airline also warned that a few additional cancellations are possible.
Starbucks CEO Howard Schultz said the company planned to hire 10,000 refugees in 75 countries. Brian Chesky, a founder of Airbnb, wrote on Twitter that his company, would provide “free housing to refugees and anyone not allowed in the U.S.” The New York taxi drivers’ union joined a protest at Kennedy International Airport on Friday night. Drivers temporarily halted pickups at the airport. Google has created a $4 million crisis fund and recalled staff to the US, UBER will establish a $3 million defense fund and LYFT said it would donate $1 million. And while the ban met with opposition from most Silicon Valley tech companies, it was also opposed by the likes of General Electric and Ford Motor. Also, Morgan Stanley, JPMorgan Chase, Citigroup and Goldman Sachs all came out in opposition to the ban and told their employees they will provide support to individuals and families affected by immigration restrictions.
President Trump also made phone calls to world leaders on Saturday as he began shaping his new administration’s foreign policy. A conversation with Vladimir Putin discussed combating terrorism, confronting ISIS, the Ukraine crisis and the Iran nuclear deal, but the topic of easing U.S. sanctions against Russia over its 2014 annexation of Crimea didn’t come up. Trump is expected to announce his Supreme Court nominee tomorrow.
This morning Trump signed an executive order to cut regulations. The measure will expand regulatory review with the goal of revoking two regulations for every new one put forward. Under the order, federal agencies will propose rules they want to drop and the White House will review them. It sets a budget each year for what new regulations would cost the economy, companies and employers. For fiscal 2017, it gives a budget of $0 for new regulations. The Office of Management and Budget will have discretion to give the agencies guidance. There are some 80,000 pages in the Federal Register, where all federal rules are published; but to repeal a regulation, a federal agency must go through the same notice and comment rule making process used to formulate new regulations. And that generally takes at least a year.
This week’s economic calendar includes the December Jobs Report on Friday. Consensus estimates call for 170,000 new jobs last month, with the unemployment rate holding below 5%. The Federal Reserve is almost certain to stand pat and leave U.S. interest rates unchanged when FOMC policymakers meet Tuesday and Wednesday. The central bank wants to see more evidence of faster growth, and perhaps get a more detailed look at some of Trump’s plans, before committing to another increase in borrowing costs for consumers and small businesses. What we know is that the economy is fairly solid but growth is slowing. Friday’s first assessment of fourth quarter GDP came in at 1.9% for the quarter, with the economy rolling along at 1.6% growth for calendar year 2016. Remember that the Fed has been unusually accommodative over the past 8 years, with near zero interest rates and QE 1,2,3 and Operation Twist; and all this helped Wall Street, even if it didn’t offer much relief to Main Street. And now the Fed and other central banks are tightening at the same time the economy is losing steam. So, just as stocks have been hitting record highs, we are now faced with headwinds in the form of less Fed stimulus, higher borrowing costs and an economy that is slowing. The aggregate revenue for the 30 companies in the Dow is $2.69 trillion. Revenues are lower than they were in 2011. Yet investors push the price of the Dow north of 20,000? Why are so many content to pay 2016 prices for 4.4 % less revenue than occurred in 2011?
Consumer spending rose 0.5% last month; that’s the biggest increase in spending in December since the last month of 2009. The increase in spending outpaced the 0.3% gain in individual incomes. As a result, the U.S. savings rate fell 0.2 percentage points to 5.4%, marking the lowest level since early 2014. Overall, consumer spending rose a solid 3.8% in 2016 after a 3.5% advance in 2015. The PCE inflation index has climbed 1.6% in the past year, the fastest 12-month gain since September 2014. The PCE index rose 0.2% in December. The core rate that strips out food and energy edged 0.1%. The core rate was flat at 1.7% over the past 12 months.
The National Association of Realtors’ index of pending home sales jumped 1.6% to 109. That’s 0.3% higher than a year ago. The index forecasts future sales by tracking real estate transactions in which a contract has been signed, but the deal has not yet closed. Supply is the big question for 2017, NAR noted in a release. The group is concerned that tighter inventory will continue to push home prices higher even as borrowing costs rise. In December, there was more inventory of higher-priced homes than in other price ranges, a sign that more affordable properties are being snatched up quickly.
The number of active US rigs drilling for oil climbed for a second consecutive week, feeding expectations that growth in domestic output may outweigh efforts by other major crude producers to ease global supplies. Baker Hughes reported on Friday a weekly rise of 15 in U.S. oil drilling rigs to total 566 and government data released last week showed a rise of 17,000 barrels a day in total domestic crude production for the week ended Jan. 20.
After selecting Citigroup as its financial adviser, Puerto Rico’s federal oversight board has voted to give the commonwealth more time to submit a fiscal turnaround plan and restructure $70 billion in debt without fear of lawsuits. A stay on litigation over missed payments will be moved to May 1 from Feb. 15, while a deadline for a fiscal blueprint will be extended to Feb. 28 from Jan. 31.
Volkswagen is the world’s biggest automaker. Despite a scandal involving tampering with diesel emission software, VW sold 10.31 million vehicles worldwide in 2016, surpassing Toyota, which had held the title for four straight years.
Japanese trust banks are preparing to sue Toshiba Corp over its 2015 accounting scandal. The news follows an announcement by the struggling conglomerate on Friday that it will sell a minority stake in its memory chip business to raise funds and that its overseas nuclear division – the cause of its current woes – was now under review.
Fitbit said it expects an adjusted loss per share of 51 cents to a loss of 56 cents, after previously announcing guidance of a profit of 14 cents to 18 cents. To reduce expenses, the company said it plans to cut about 110 employees or 6% of its workforce, which is expected to cost the company $4 million in the first quarter of 2017. FIT down 16%.
Shares of Tempur Sealy dropped 28% and hit a three-year low in very-active trade, after the mattress seller said it terminated all contracts with key customer Mattress Firm.
Walgreens Boots Alliance and Rite Aid’s giant drugstore merger got smaller today after the companies said they would cut the value of the deal, may divest more stores to satisfy antitrust regulators and will extend the deadline by which the takeover will be completed. Walgreens will now pay $6.50 to $7 a share for Rite Aid (depending on how many stores Walgreens will have to divest), that’s down from the $9 a share. The new agreement also includes a six-month extension to July 31. Rite Aid down 17%.
If you haven’t signed up for health insurance through the Affordable Care Act, you are running out of time. You have until Tuesday, Jan. 31, to apply for 2017 coverage through state and federal marketplaces. More than 11.5 million people have signed up for insurance through the exchanges as of Jan. 10. And even though President Trump has talked about repealing the ACA, it is still the law for 2017, and whatever happens in 2018 is still a mystery.
It’s the Year of the Fire Rooster! Chinese markets will remain closed for most of the week as Lunar New Year celebrations kick off for much of Asia. The People’s Bank of China pumped roughly $165 billion into domestic money markets last week via its routine operations as consumers prepared for shopping sprees and to hand out red packets filled with fresh notes to friends and relatives. Markets will reopen on Friday.