Watch and Wait
…..ADP shows 298,000 new jobs last month. Productivity up 1.3% but flat for year. ECB tomorrow. Japan GDP spark. China trade deficit. Oil glut continues, inventories at records. Mexican sugar, trade wars begin. Caterpillar’s taxing problem. CIA’s Vault 7 Wikileaks, biggest ever. AHCA could lose 10 million insured. Kauai, Hawaii goes solar with Tesla batteries. West Virginia showered with prescription painkillers. Wall Street bull faced down by little girl.
Financial Review by Sinclair Noe for 03-08-2017
DOW – 69 = 20,855
SPX – 5 = 2362
NAS + 3 = 5837
RUT – 8 = 1366
10Y + .04 = 2.55%
OIL – 2.95 = 50.19
GOLD – 7.70 = 1208.90
The S&P and Dow are down for 3 straight sessions. Oil closed at a 3 month low. Eight years ago, the Dow Industrial average was barely holding on at the 6,500 level. The S&P 500 index had dropped to 666. Since those dark days in the Spring of 2009, the Dow has climbed over 320%. The S&P is up 354%. If you had purchased Apple 8 years ago, you would have a 1,000% gain. Home Depot delivered a 608% gain. Not very likely you were buying stocks 10 years ago this week; a lottery ticket would have been an easier play.
Payrolls processor ADP reports the US economy added 298,000 private-sector jobs in February, the most since April 2014. ADP’s report wasn’t just strong at the headline—it also suggested growth in well-paying fields, as construction and professional & business sectors each added 66,000 jobs. While the relatively lower-paid education & health and leisure & hospitality each added another 40,000 jobs, manufacturers added 32,000 jobs. The ADP report suggests the official nonfarm payrolls report from the Labor Department, which also covers government jobs, might come in well ahead of the current 200,000 consensus estimate.
Productivity increased 1.3% in the fourth quarter. Even with a healthy fourth-quarter boost, productivity only rose 0.2% in 2016. That’s the smallest gain since 2011 and maintains a post-recession trend of extremely weak increases in productivity. The government’s first revision of fourth-quarter productivity showed little change in output, hours worked or labor costs. Productivity has averaged 1% growth per year since 2007, compared to a 2.6% rate from 2000 to 2007.
The European Central Bank meets tomorrow to announce its latest call on rates and stimulus measures. Eurozone Inflation is finally back at the ECB’s target of around 2% for the first time since 2013. Inflation is one of the key measures the central bank uses to decide on interest rates and other stimulus measures. And the Eurozone purchasing managers’ index jump to a 70-month high and gross domestic product growth is outpacing that of the US. But that doesn’t mean the ECB will raise rates; most analysts think they will only make adjustments to forward guidance.
The Federal Reserve meets next week to announce monetary policy. Yesterday, Jeffrey Gundlach, chief executive officer at DoubleLine Capital, said he expects the Federal Reserve to begin a campaign this month of “old school” sequential interest rate hikes until “something breaks,” such as a US recession.
Japan’s economy gets an upgrade. The Final GDP reading for the fourth quarter showed the Japanese economy grew at a 0.3% clip, ahead of the 0.2% that was previously recorded. Private business investment grew by 2% in the quarter, making for the fastest growth since the first quarter of 2014.
China reported a rare trade deficit in February equal to about $9 billion. However, the country’s trade data are frequently distorted this time of year, because of the celebration of the Chinese New Year. Still, it’s the first monthly trade deficit China has reported in three years.
An indicator of the health of the global economy grew at its fastest pace in 6 years. Data released by the International Air Transport Association showed that revenue passenger kilometers grew by 9.6% compared with a year earlier, making for the fastest growth since April 2011.
OPEC and non-OPEC producing countries have reiterated their pledge to uphold the terms of the production cut agreement reached late last year; top energy ministers said they were committed to removing 1.8 million barrels from the market. So far, it hasn’t happened. This morning, the American Petroleum Institute reported rose by rose by 11.6 million barrels last week. US crude production is projected to surge to a record 9.7 million barrels a day next year, according to the EIA’s monthly Short-Term Energy Outlook released Tuesday. The US Energy Information Administration on Wednesday reported an 8.2 million-barrel climb in domestic crude supplies for last week, lifting total commercial inventories to a new record weekly level of 528.4 million. That marked a ninth straight weekly increase.
Mexico has canceled existing sugar export permits to the United States in a dispute over the pace of shipments. Reuters report a letter sent by Mexico’s sugar chamber to mills partly blamed the situation on unfilled positions at the US Department of Commerce, which it said has led to a “legalistic” interpretation of rules with no US counterparts in place in Washington for Mexican officials to negotiate with. Mexico is the top foreign supplier of sugar to the US.
A new report commissioned by the federal government accuses Caterpillar of using tax and accounting fraud to prop up its stock price. The New York Times reports no charges have been filed, and it is not clear whether investigators agree with the findings or intend to act on them. The report, which has not been made public or made available to Caterpillar, outlines a company strategy for bringing home billions of dollars from offshore affiliates while avoiding federal income taxes on those earnings. Last week, federal agents raided three Caterpillar buildings near its headquarters in Peoria, Ill., as part of the investigation. The company’s tax practices have been a focus of government investigators since a 2014 Senate hearing found that the company cut its tax bill by $2.4 billion over 13 years, moving earnings out of the United States and into a Swiss subsidiary, despite internal company warnings that the strategy lacked a business purpose, other than tax avoidance.
The CIA faces what could potentially be the biggest ever leak of its secrets, after Wikileaks published thousands of documents claiming to show how the agency uses cyber espionage tactics to hack into smartphones and other devices. The leak, named “Vault 7” by WikiLeaks, will once again raise questions about the inability of US spy agencies to protect secret documents in the digital age. The methods could reportedly capture text and voice messages on iOS, Android and Whatsapp before they were encrypted, and could hack Microsoft software and Samsung TVs. Apple released a statement saying they have already dealt with some of the issues raised in the leaks. Microsoft is reportedly looking into the issue.
Microsoft says it is committing to use chips based on ARM Holdings technology in the machines that run its cloud services, potentially imperiling Intel’s longtime dominance in the profitable market for data-center processors. Microsoft has developed a version of its Windows operating system for servers using ARM processors, working with Qualcomm and Cavium.
Yesterday we got our first look at the American Health Care Act, the possible replace to the ACA. Today we are getting actual analysis. According to a new S&P Global report the new plan could result in losing coverage due to higher premiums or if they let a policy lapse; and because of changes to Medicaid. The Congressional Budget office is expected to issue its analysis in the next couple of weeks.
Two senators have asked the Federal Bureau of Investigation and the Department of Justice for any warrant applications or court orders authorizing wiretaps of President Donald Trump, his campaign or Trump Tower. The senators — Lindsey Graham, the South Carolina Republican, and Sheldon Whitehouse, a Democrat from Rhode Island — are the chairman and ranking member of the Senate Judiciary Committee’s subcommittee on crime and terrorism.
Urban Outfitters CEO Richard Hayne does not have comforting words for the retail industry. Hayne said on the company’s earnings conference call on Tuesday: “Our industry, not unlike the housing industry, saw too much square footage capacity added in the 1990s and early 2000s,” “Thousands of new doors opened and rents soared. This created a bubble, and like housing, that bubble has now burst. We are seeing the results, doors shuttering and rents retreating. This trend will continue for the foreseeable future, and may even accelerate.”
Shares in H&R Block were higher after the company reported results that beat Wall Street expectations.
German sportswear giant Adidas reported its 2016 full-year earnings on Tuesday, and its revenue of 19.3 billion euros was slightly below analyst expectations, but they raised guidance for 2017 and beyond. Adidas’s overall sneaker sales jumped 80% in 2016; a substantially larger spike than any major competitor saw.
In Hawaii, the Kauai Island Utility Cooperative is now drawing energy from 272 Tesla power packs to provide electricity after dark. While the island previously relied on solar and other renewable energy during the day, it had no way to store the sun’s power after it went down. Using stored energy from Tesla’s power packs is expected to save KIUC 1.6 million gallons of diesel fuel annually, which has traditionally been the way the utility generates power after dark. Tesla says the power packs will cut KIUC costs per kilowatt hour from 15.5 cents down to 13.9 cents. The 13.9 cents is a fixed price for the next 20 years.
The West Virginia Gazette-Mail obtained previously confidential drug shipping sales records sent by the US Drug Enforcement Administration to West Virginia Attorney General’s office. The records disclose the number of pills sold to every pharmacy in the state and the drug companies’ shipments to all 55 counties in West Virginia between 2007 and 2012. In six years, drug wholesalers showered the state with 780 million hydrocodone and oxycodone pills, while 1,728 West Virginians fatally overdosed on those two painkillers. The unfettered shipments amount to 433 pain pills for every man, woman and child in West Virginia. The nation’s three largest prescription drug wholesalers -McKesson, Cardinal Health and AmerisourceBergen – supplied more than half of all pain pills statewide.
Wall Street firm, State Street Corp., has put up a statue of a girl in front of Lower Manhattan’s well-known bronze charging bull, as if to fearlessly stare it down. Placing the diminutive, grade school-aged girl in front of the massive bull on the eve of International Women’s Day was a way of calling attention to the lack of gender diversity on corporate boards and the pay gap of women working in financial services. State Street said one out of four of the companies that make up the Russell 3000 Index still have no female representation on their boards.