…..Four consecutive sessions with record highs. Yellen delivers Humphrey-Hawkins testimony. Labor market good, inflation warming; rate hikes are live; Dodd-Frank did not destroy lending. PPI jumps in January and 1.6% past 12 months. Flynn resigns. Mnuchin confirmed. Damn Oroville Dam. Aetna-Humana and Cigna-Anthem prove breaking up is hard to do, and costly. Hologic buys Cynosure.Burger King-Tim Hortons-Popeyes. PSA-Opel. Samsung’s Jay Y. Lee arrest warrant. Apple is really big and a 10th anniversary iPhone 8 is right around the corner.
Financial Review by Sinclair Noe for 02-14-2017
DOW + 92 = 20,504
SPX + 9 = 2337
NAS + 18 = 5782
RUT + 4 = 1396
10 Y + .04 = 2.47%
OIL + .28 = 53.71
GOLD + 3.30 = 1229.00
Four consecutive trading sessions with record highs.
Federal Reserve Chair Janet Yellen testified before the Senate Banking Committee this morning, part of her semi-annual two-day testimony to Congress. Yellen said the labor market is basically where the Fed wants it to be, and inflation is just a little lower than their target. She said, “Waiting too long to remove accommodation would be unwise, potentially requiring [the Fed] to eventually raise rates rapidly, which could risk disrupting financial markets and pushing the economy into recession.
“At our upcoming meetings [we] will evaluate whether employment and inflation are continuing to evolve in line with [the Fed’s] expectations, in which case a further adjustment of the federal funds rate would likely be appropriate.”
She said the Fed expected three rate increases this year, and they might hike in March, maybe. That doesn’t mean the Fed will definitely raise rates in March, but the Fed wants that option. Normally, Yellen talks about downside risks, today she seemed more concerned about the upside risk.
“The economic outlook is uncertain, and monetary policy is not on a preset course,” she told members of the Senate Banking Committee, adding that “changes in fiscal policy or other economic policies could potentially affect the economic outlook,” she said, adding that “it is too early to know what policy changes will be put in place or how their economic effects will unfold”. We know that President Trump has promised details on his “phenomenal” tax reform plan within the next couple of weeks. Fed economists will surely pay attention.
Yellen rebutted President Trump’s claims that banks aren’t lending. Trump has targeted the Dodd-Frank Act as part of his quest to roll back regulations, claiming the regulatory reform prevents banks from lending. Yellen shot down those claims, saying commercial and industrial lending specifically surged after the crisis, rising 75 percent since 2010. Yellen mentioned a recent survey from the National Federal of Independent Business, in which only 2 percent of respondents cited access to capital as their greatest obstacle. She said US banks are stronger than their foreign counterparts, which makes them more competitive, and it is reflected in record earnings for US banks. Dodd-Frank is making life difficult for banks, but the truth is, banks are lending plenty of money, and companies are not starved for capital.
The two-year note yield jumped to as high as 1.25 percent from a low of 1.18 percent earlier in the day. The 10-year yield rose to 2.50 percent from 2.43 percent before her remarks were released. The dollar rose after Yellen’s comments, hitting a high last reached on Jan. 20. During Yellen’s testimony, stocks flipped between small gains and losses but started carving out fresh intraday highs as the testimony wrapped up.
Richmond Fed President Jeffrey Lacker, a long-time proponent of tighter monetary policy, says the Federal Reserve will likely have to raise interest rates more rapidly than financial markets currently expect given that any new policies by the Trump administration, while uncertain, will force the Fed’s hand.
Producer prices, or prices at the wholesale level, rose more than expected in January, recording their largest gain in more than four years. The producer price index for final demand jumped 0.6 percent last month. That was the largest increase since September 2012 and followed a 0.2 percent rise in December. Despite the surge, the PPI only increased 1.6 percent in the 12 months through January. The gains in PPI last month largely reflected increases in the prices of commodities such as crude oil.
National Security Adviser Michael Flynn resigned his position, apologizing to Vice President Mike Pence for misleading him about his conversations with Russia. Retired Army Lt. Gen. Keith Kellogg has been named as acting national security adviser in his stead.
In better news for the Trump administration, Steven Mnuchin was confirmed as U.S. Treasury secretary after winning a Senate vote 53-47. Mnuchin‘s to-do list includes tax reform and how to handle economic cooperation efforts with China, Mexico and other trading partners.
Tens of thousands of Northern California residents are in shelters as engineers worked to shore up a crumbling overflow channel and drain the rain-swollen reservoir at the Oroville Dam before new storms sweep the region. Residents below the dam were ordered from their homes on Sunday when an emergency spillway that acts as an automatic overflow channel appeared on the brink of collapse from severe erosion.
Aetna ended its $37 billion takeover of Humana, after deciding not to appeal a ruling by a federal judge who blocked the health insurers’ combination on antitrust grounds. The companies came to a mutual agreement to terminate the deal, and Aetna will pay Humana a $1 billion breakup fee, or about $630 million after taxes.
Cigna and Anthem filed the paperwork to terminate their proposed merger. Then Cigna filed suit against Anthem, seeking a $1.85 billion reverse termination fee and more than $13 billion in additional damages, which includes the amount of premium Cigna shareholders did not realize.
Hologic said it would acquire medical aesthetics company Cynosure for $1.65 billion. The deal comes a day after botox maker Allergan said it would buy Cynosure’s rival Zeltiq Aesthetics for about $2. 5 billion. Cynosure makes products used in non-invasive body contouring, hair removal, skin revitalization and women’s health.
Restaurant Brands International, owner of the Burger King and Tim Hortons fast-food chains, has approached Popeyes Louisiana Kitchen about a possible acquisition. Popeyes shares jumped 14 percent in New York. Restaurant Brands and Popeyes have yet to agree on a deal price, and there is no certainty that negotiations will continue.
PSA Group, the French automaker of Peugeots and Citroëns, said it was in discussions about a potential acquisition of the European brands Opel and Vauxhall from General Motors. PSA and GM already produce some vehicles together.
A South Korean special prosecutor’s office is seeking an arrest warrant for Samsung leader Jay Y. Lee. He was questioned for 15 hours yesterday as part of an investigation into a graft scandal that could topple President Park Geun-hye. In January, the special prosecutor wanted to arrest Lee for paying bribes to win the state pension fund’s support for the merger of Samsung C&T and Cheil Industries.
Japan’s Toshiba said its chairman will step down, and the company booked a $6.3 billion writedown to its US nuclear unit, a writedown that wipes out its shareholder equity and will drag the group to a full-year loss. Toshiba rattled investors by failing to release its earnings on schedule, saying initially it was ‘not ready’ and then announcing later it needed more time to probe its Westinghouse nuclear business after internal reports uncovered potential problems.
Credit Suisse announced a big loss – $2.3 billion – when taking into account the $5.3 billion settlement with the US Justice Department tied to its dealing in mortgage-backed securities in the period leading up to the financial crisis. Credit Suisse says it will eliminate up to 5,500 jobs in 2017.
Phoenix-based Freeport McMoRan is cutting production at the world’s second-largest copper mine in Indonesia. That follows new restrictions on copper concentrate exports imposed by that country.
T-Mobile, the No.3 U.S. wireless carrier, reported quarterly profit and revenue above estimates as promotional offers helped add more subscribers. The company has been gaining share from bigger rivals Verizon and AT&T in an oversaturated U.S. wireless market. T-Mobile had several promotional offers in the fourth quarter, including a free iPhone 7 offer with eligible trade-in.
Apple closed on Monday at $133.29 a share, surpassing its record closing high price of $133, set in February 2015. That was enough to push the market cap above $700 billion. The stock is up more than 15 percent in 2017, gaining nearly $100 billion in market cap in just six weeks. It’s also just points away from a split adjusted price of $1,000 a share. Perhaps what’s even more impressive is the move from its 52-week low in May. The stock has rallied nearly 50 percent and gained more than $200 billion in market cap in just nine months. There is speculation Apple will soon come out with big updates for the iPhone 8, which would also coincide with a 10th anniversary of the iPhone. Strong sales of the iPhone 6S two years ago have left a larger-than-normal base of customers ready to upgrade. Guesstimated launch date is September.
Also hitting a new high today, a much smaller company called Lumentum, whose core business is optical communications, late today the company reported mixed fiscal Q2 results and guidance. They also recorded their first 3D sensing consumer revenues, which might be part of an order for final qualification to provide 3D sensing for the new Apple iPhone 8, which will probably include a 3D-sensing module to enable augmented-reality applications. There is no confirmation on an Apple deal just yet.