Financial Review

Again and Again

…..Walmart beats; Amazon counterpunches. Macy’s slips and sells RE. Home Depot beats and buys back. Verizon will buy Yahoo with a cut. Burger King buys Popeyes. Kraft won’t buy Unilever. Sprint-TMobile. International money transfers – there’s an app. Eurozone biz activity best in 6 years. HSBC tanks. BHP profit. China stops buying coal from North Korea. Waiting on the Fed. Oil prices move higher, as OPEC cuts production but US demand drops. Trump starts deportations.

Financial Review by Sinclair Noe for 02-21-2017

DOW + 118 = 20,743
SPX + 14 = 2365
NAS + 27 = 5865
RUT + 10 = 1410
10 Y + .01 = 2.43%
OIL + .61 = 54.39
GOLD

 

Stock prices across the world climbed to record highs. Dow, S&P, Nasdaq, and Russell hit record highs again.

 

Walmart reports same-store sales in the US rose 1.8% for the quarter, the 10th straight quarterly increase. Meanwhile, e-commerce sales were up 29%, boosted by the purchase of online retailer Jet.com in September as well as online grocery. But profit fell 18% in the fourth quarter as the company invests in its online platforms; still, Walmart beat top and bottom-line estimates.

 

Amazon just lowered its free-shipping minimum to $35 from $49 for customers who aren’t members of its Prime membership program. The change appears to be a response to Walmart’s recent rollout of free two-day shipping for all customers on orders over $35.

 

Macy’s reports net income was $475 million, or $1.54 per share, down from $544 million, or $1.73 per share last year, but they beat estimates. Revenue also dropped, missing estimates.  Same-store sales fell 2.1%. The company also released preliminary guidance for 2017, expecting sales to decline by 2% to 3% for the full year at all owned and licensed stores. Macy’s plan is to sell its real estate; $637 million sold last year, more to come this year.

 

Home Depot reported higher-than-expected profit and sales helped by a strong housing market in the United States and set a $15 billion share buyback plan. The company reported a 5.8 percent rise in quarterly sales to $22.2 billion – beating estimates. Profit rose to $1.7 billion in the fourth quarter from year ago $1.4 billion – also beating estimates.

 

Verizon Communications and Yahoo! say they will go forward with their proposed acquisition but Verizon cut the price by $350 million from the original cost of 4.8 billion. The revised deal comes after months of speculation as whether talks would break down because of two massive data breaches at Yahoo.

 

Restaurant Brands International has agreed to acquire Popeyes Louisiana Kitchen for $1.8 billion in cash. Under the terms of the agreement, Restaurant Brands, operator of Burger King and Tim Hortons, will pay $79 per Popeyes’ share.

 

Kraft Heinz dropped its $143 billion bid to buy Unilever – a deal that would have created the largest food company in the world. Already this year, more than $205 billion in proposed deals have been withdrawn.

 

Reuters reports SoftBank is prepared to cede control of Sprint to T-Mobile to clinch a merger of the two U.S. wireless carriers. SoftBank is expected to approach T-Mobile parent Deutsche Telekom for negotiations when an ongoing auction of airwaves ends in April and a ban on talks between rivals is lifted.

 

TransferWise, a London-based startup, has launched a service that allows users to make international transfers with Facebook’s chat application. Facebook already allows its users to send money domestically in the United States via its Messenger app, but has not yet launched similar services internationally.

 

Growth in eurozone business activity surged in February to its highest level in almost six years, according to the latest survey by IHS Markit. The overall flash composite index of services and manufacturing spiked to 56.0, up from 54.4 in January. Growth in Germany’s private sector reached its highest level in nearly three years, while French business activity surged to near a six-year high. Overall, the PMIs showed that private sector manufacturing and service sector activity in the euro zone this month was its strongest since April 2011.Eurozone stocks pushed to a 14-month high this morning.

 

HSBC’s pretax profit tanks. Europe’s biggest bank by assets saw pretax profit for 2016 fall to $7.1 billion from $18.8 billion the previous year. The UK-based bank reported a net loss of $4.2 billion in the fourth quarter of 2016. The biggest single hit to its battered bottom line came from a $2.4 billion writedown of the value of its private banking business in Europe. HSBC announced a new $1 billion share-buyback program.

 

 

BHP Billiton reports a surge in profitsThe world’s largest miner said profits surged seven-fold to $3.1 billion during the six months that ended in December. The extra cash helped BHP boost its dividend and pay down debt.

 

China has halted all coal imports from North Korea for the rest of 2017, effectively slicing the country’s exports by about half, as it steps up efforts to implement U.N. sanctions against the country. According to BMI Research, China imported 22 million tons of coal from North Korea in 2016, representing 12.3% of its total imports.

 

Philadelphia Federal Reserve Bank President Patrick Harker said over the weekend that he would likely support raising interest rates at the central bank’s upcoming March meeting if he sees more evidence that economic growth and inflation are accelerating. Federal Reserve Bank of Cleveland President Loretta Mester who said she would be “comfortable” with the central bank raising rates. Minneapolis Fed President Neel Kashkari said the U.S. labor market has “more room to run,” suggesting he does not believe the central bank should raise rates quickly to head off inflation. Kashkari said it has been a “big surprise” that so many workers have returned to the workforce over the past year and a half, and he is “cautiously optimistic” that the pattern will continue. Over the past few weeks, Federal Reserve Chairwoman Janet Yellen and a host of other Fed officials have suggested that an interest-rate increase at the policy-setting Federal Open Market Committee’s meeting on March 14-15 remains on the table.

 

It’s that time of year again – when refinery maintenance season kicks in and the market makes a shift to cleaner-burning gasoline, disrupting production and lifting prices for the fuel at the pump. If prices see the average five-year increase they usually do during the spring, retail gasoline could cost an average $2.85 a gallon around Memorial Day. Crude oil prices have been moving higher and OPEC said it was sticking to its agreement to cut production by about 1.8 million barrels per day in an effort to drain a glut that has depressed prices for over two years. OPEC compliance is helping keep prices afloat, but rising US oil production is acting as a counterweight; the result is a glut of crude supplies.

 

Here’s the hitch: the glut of gasoline is now the worst in 27 years. At 259 million barrels, US gasoline storage levels are now at their highest level since the Energy Information Administration began tracking the data back in 1990.  If both crude and refined product inventories are going up at the same time, then there should be some reasons for worry. Part of the reason for the glut, of course, are high levels of production, around 9 to 10 million bpd. But that increase came in order to satisfy rising demand (which, of course, was stoked by lower prices). More demand should have soaked up that excess supply. However, US demand has faltered. US gasoline demand plunged to just 8.2 million barrels per day in January, and sales were down 4 percent from a year earlier. It was also the lowest level in four years. Weak demand is raising some red flags for the market. Demand is seasonal, with softer demand in winter months, but this winter’s ‘valley’ is lower than any other since 2012. The glut of gasoline has led to tankers being turned away at New York Harbor in recent weeks, diverted to ports in the Caribbean. If demand does not rebound, inventories will rise, pushing prices lower. So, while OPEC production cuts are important, keep an eye on US demand, not just for oil prices but also as a barometer of overall economic activity.

 

The Department of Homeland Security issued a sweeping set of orders today that implement President Trump’s plan to increase immigration enforcement, placing the vast majority of the nation’s 11 million undocumented immigrants at risk of deportation. The memos instruct all agents — including Customs and Border Protection and Immigration and Customs Enforcement — to identify, capture and quickly deport every undocumented immigrant they encounter.

 

The memos require undocumented immigrants caught entering the country to be placed in detention until their cases are resolved, increase the ability of local police to help in immigration enforcement, call for the hiring of 10,000 more immigration agents and allow planning to begin on an expansion of the border wall between the United States and Mexico. The memos make undocumented immigrants who have been convicted of a crime the highest priority for enforcement operations. But they make clear that ICE agents should also arrest and initiate deportation proceedings against any other undocumented immigrant they encounter. These new guidelines, however, leave untouched the executive order signed by former President Barack Obama in 2012 on deferred action for childhood arrivals, which shields from deportation immigrants who were brought to the US as children.

 

 

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