….Dow, S&P, Nasdaq, Russell all hit record high close. Markets price in best-case scenario. Yellen testimony this week in Washington. Trudeau-Trump tete a tete. Japan and China sell off US Treasuries. Oil down despite OPEC. Oroville Dam, damn.
Financial Review by Sinclair Noe for 02-13-2017
DOW + 142 = 20412
SPX + 12 = 2328
NAS + 29 = 5763
RUT + 3 = 1392
10Y + .02 = 2.43%
OIL – .98 = 52.88
GOLD + 8.20 = 1225.70
Wall Street hit record highs again. Stock markets around the world were higher this morning. The S&P 500’s market value topped $20 trillion. The markets appear to be pricing in a best-case scenario for Trump tax cuts, deregulation, plus infrastructure spending. The problem is that Washington is unlikely to deliver best-case. There are differing opinions on where to cut taxes, by how much, and when. Some of the proponents of tax cuts are also strong deficit hawks who will need to reconcile the books with more than blind faith and dynamic scoring. Even if you think you have the right economic theory, there are always unintended consequences. Don’t hold your breath waiting for tax action this year. The budget is not agile, and even if unanimity is possible (highly doubtful), it will take time. Assuming of course that there are no distractions. Good luck. Infrastructure spending is not exactly shovel ready and there will be sharp disagreements. So far, Trump’s plan largely means privatizing infrastructure development with tax credits.
Federal Reserve board governor Daniel Tarullo said he would resign from the Fed, leaving the central bank on or around April 5. This now creates three openings at the Fed for the Trump administration to fill. Tarullo was the Fed governor in charge of overseeing financial regulation. A major part of the post-election rally in stocks was centered on deregulation of the financial sector. Today, the Financial Select Sector SPDR fund (XLF) was up 1.2 percent. Investors may be betting Tarullo will be replaced by a regulator who is friendlier to the banking industry.
Federal Reserve Chair Janet Yellen is not expected to give any clear hints as to the timing of the next rate hike in her semi-annual testimony to lawmakers in Washington this week, but we will get a better idea about inflation trends with release of the CPI report on Wednesday. he first point of interest will be whether Yellen provides any more guidance on the possibility of a March rate hike. Markets have so far written off the chance, pricing in just an 18 percent probability of a quarter-point move. But that may be too low, given that Yellen is likely to signal that the Fed is close to meeting its inflation and employment goals set by Congress.
A Federal Reserve Bank of New York survey showed inflation expectations are running hot. Consumers expect inflation in the year-ahead to increase to 3.0 percent, from 2.8 percent in December and 2.5 percent in November.
Canadian Prime Minister Justin Trudeau met with President Trump to discuss a variety of topics including jobs, trade, and immigration. Trump said the United States will be “tweaking” its trade relationship with Canada, stopping short of calling for a major realignment. It was a polite meeting – of course.
Japan, the largest holder of Treasuries, cut back on the debt by the most in almost four years in December, according to data from the Ministry of Finance. This appears to be part of a global trend in Treasury ownership, as investors seem increasingly wary of stepping into the nearly $14 trillion market, with uncertainty over the new administration’s policies and the prospect of higher US interest rates. Foreigners still hold almost $6 trillion in US government debt, or about 43%; that’s down from 56% in 2008.
On the surface, this is an alarming development, considering that these investors own almost half of the Treasuries outstanding. Their flight could signal a drastic rise in borrowing costs. China is the biggest seller of US Treasury debt. China has been funneling billions of dollars into its economy to keep it chugging along despite an increasing number of cracks in its credit system and to prevent its currency from depreciating too quickly. Despite all its efforts to prevent money from leaving the nation, capital outflows are continuing.
Japanese Prime Minister Shinzo Abe wrapped up a visit to the US with President Trump calling for a trade relationship that is “free, fair, and reciprocal.” Trump also committed to “the security of Japan”.
Two US cabinet votes today. The Senate is expected to approve Trump’s nominee for Treasury secretary, Steven Mnuchin, and David Shulkin for Veterans Affairs secretary. Mnuchin is among the prominent Goldman Sachs alums populating the Trump administration.
Copper has been on a tear lately thanks to supply disruptions at the world’s largest mine caused by a strike, plus strong demand from China. Rio Tinto Group said that iron ore prices, which have surged to the highest level since August 2014, are not going to fall off a cliff. In soft commodities, sugar traders are bracing for a wild ride, with global stockpiles set to fall to their lowest levels since 2011-12, meaning the outlook for prices is almost completely dependent on the weather in the coming year. In the shorter-term, there is good news for Valentine’s Day as chocolates should be cheaper on the back of a boom in cocoa supplies.
OPEC reports January oil production fell by 890,000 barrels a day compared with December, confirming that its members have so far largely complied with an agreement to slash output. The largest contributor to the output reduction was Saudi Arabia with data showing that it trimmed almost 500,000 barrels per day of production in January.
Almost 200,000 people have evacuated from several Northern California counties after damage to a spillway at the Oroville Dam. The dam remains intact, but the emergency spillway, which guards against the overflow of the dam when water levels are high, was eroding Sunday. The damage prompted a mandatory evacuation for cities and counties near Lake Oroville. In the worst-case scenario, an uncontrolled release from the dam could send a 30-foot wall of water downstream. But for now, the dam is holding. Workers are draining the lake. Water levels have now dropped 4 feet lower than the emergency spillway, which suffered damage during its first ever water release over the weekend. Workers with the Department of Water Resources are scrambling to reduce the lake’s overall water level to 50 feet below the emergency spillway elevation of 901 feet. That mission has taken on added urgency as heavy rains are expected later in the week.
Allergan said it would buy Zeltiq Aesthetics for about $2.5 billion. Allergan agreed to pay $56.50 per Zeltiq share, or a premium of 14.4 percent to the company’s Friday close. Zeltiq is known for its body contouring technology, the CoolSculpting System. Allergan, the maker of Botox, has been on an acquisition spree since its $160 billion merger with Pfizer collapsed in April.
South Korean prosecutors summoned Jay Y. Lee, the third-generation heir of the Samsung conglomerate, for a fresh round of questioning, seeking answers about his role in a political corruption scandal. Special prosecutors had previously summoned Lee, the 48-year-old vice chairman of Samsung Electronics, as a bribery suspect in the scandal, as authorities attempted to zero in on payments made by Samsung to organizations linked to the impeached president’s confidante.
Shares in Toshiba moving higher today on reports that tomorrow it will reveal the extent of losses related to its takeover of a nuclear business in 2015. The Japanese firm had originally said in December that it was expecting billion of dollars in losses, which caused shares to tank and lose more than half their value.
Oracle has filed an appeal in its case against Google. In May, Oracle lost a court case against Google and Android regarding bits of code copied from Java — but now it’s arguing that the jury didn’t have all the information it needed to reach a verdict.
South Carolina’s biggest labor union vote in decades scheduled to take place Wednesday; a knock-down, drag out between Boeing and the International Association of Machinists. About 3,000 production workers will be eligible to vote in the election — one of the biggest tests of organized labor in a state with the lowest percentage of union workers nationally. South Carolina is a right-to-work state, which means no workers can be required to join a labor union. Just 1.6 percent of South Carolina workers belong to a union. This is the second time in two years at the IAM has scheduled a vote at the Boeing campus. In 2015, the union canceled the vote days before it was scheduled to take place, citing political interference and misinformation from Boeing management.
Walt Disney hiked admission prices for US theme parks by as much as $5 for certain one-day tickets. The price increase, effective Sunday, are an annual tradition for Disney parks.