Financial Review by Sinclair Noe
DOW + 13 = 18,312.39 (record)
SPX – 1 = 2127
NAS – 8 = 5070
10 YR YLD + .03 = 2.26%
OIL – 2.17 = 57.26
GOLD – 17.80 = 1209.00
SILV – .61 = 17.17
Record high for the Dow Industrials.
Construction starts on new U.S. homes was up 20% in April to a seasonally adjusted annual rate of 1.14 million. That’s the biggest monthly percentage gain in over 24 years and the highest level since November 2007. Total housing starts remain far below an average pace of about 1.5 million over the 20 years leading up to the housing bubble’s 2006 peak.
A board member of the European Central Bank says the ECB will “frontload” its asset purchases in May and June – that is, step up buying in those months – to maintain its monthly average of $67 billion, given an expected drop in liquidity in the summer vacation period. The policymaker also said the recent selloff in German bunds and other sovereign bonds is not a cause for concern but the rapidity of the move is worrying.
Greek Finance Minister Yanis Varoufakis told a Greek TV channel last night that Greece is “very close” to a deal, other officials are less enthusiastic. European Commission President Jean-Claude Junker said this morning that there will be no agreement for Greece at this week’s summit. At some point, Greece will run out of cash; exactly when is a matter of conjecture but even optimistic forecasts are under 60 days. Members of the ECB’s Governing Council are scheduled to meet in Frankfurt tomorrow to discuss the fate of the Greek economy. Greece is in such a precarious position that any change in central bank policy could alarm markets and have serious consequences. But the council is reportedly running out of patience and could impose stricter controls on Greek banks to maintain emergency lending protocols. Traders and investors are clearly nervous about the state of the Eurozone, and the euro was down about 2% against the dollar today.
Deutsche Bank is studying whether to move large chunks of its British operations to Germany if the U.K. leaves the EU, underlining the potential fallout in the City of London in the event of a “Brexit”. The German lender, which employs 9,000 people in the U.K., is the first major bank to start formally examining the consequences of a British referendum on EU membership.
The UK slipped into deflation for the first time in at least 55 years. Consumer prices slipped 0.1% year-over-year in the UK, marking an unexpected return to deflation. The UK has not experienced falling prices since the 1950s and 1960s, but its most recent extended bout with deflation was in the 1930s, during the Great Depression.
Taking advantage of the lower borrowing costs in the Eurozone, McDonald’s and United Technologies are now the latest big U.S. companies to issue debt in euros (called “reverse Yankee” bonds), selling €2 billion-euro and €750 million-euro, respectively. The total raised by U.S. companies issuing euro-denominated debt so far this year is just over €37 billion-euro, more than double the previous record of €17 billion-euro in 2007.
Oil prices were down again today. There are several factors at play with oil prices. First, the dollar index has bounced from 93.1 on Friday, up to an intraday high of 95.5 today. The old idea is dollar up, oil down, or vice versa. Next, the Saudis have been pumping out quite a bit; 7.5% more in March than February, or about 7.9 million barrels a day. Over the weekend, Goldman Sachs issued a research report showing strong inventories combined with weak economies pushing weak demand; the rally in oil prices from $47 mid-March to $63 in early May was described as premature and prices could drop down to around $45 by October. When you look at the recent rally it seems largely supported by sentiment. We still have massive stockpiles. Still, your guess is as good as theirs.
Meanwhile, get ready for a boom in solar. Solar panel makers globally are preparing for their best year since 2011 as China and Japan take advantage of falling prices to shift more of their energy production to clean power. Panel production is forecast to grow by almost a third this year.
China, signed a pact with the US in November to get 20 percent of its energy from renewable sources by 2030, with its total carbon emissions peaking the same year. To reach that goal, the Chinese government earlier this year boosted its target for 2015 solar installations to 17.8 gigawatts from about 12 gigawatts. Japan may install as much as 12.7 gigawatts of solar power this year, the most after China. The country has promoted wider use of renewable energy, especially rooftop panels, after the 2011 Fukushima nuclear plant meltdown. Cheaper solar has also made the technology more economically viable for emerging economies such as India and South Africa. In India developers are installing panels to replace more expensive diesel generators. The Bloomberg Global Solar Energy Index is up 65% year to date and the TAN Solar ETF is up 39% year to date.
Founding members of the China-backed Asian Infrastructure Investment Bank will hold a three-day meeting in Singapore this week to discuss the draft articles of agreement and operational policies for the establishment of the institution. Although 57 countries have joined the AIIB as founding members, the U.S., Japan and Canada have remained notable absentees.
In a new financial industry survey, more than a third of the respondents said they witnessed or knew of wrongdoing in the workplace. And nearly half said regulators were ineffective in stopping it.
The numbers are in on 2014 CEO compensation, and it does not look like the controversial income gap in America is narrowing. The average S&P 500 company CEO made 373 times the salary of the average production and non-supervisory worker in 2014, up from 331 times in 2013. This translates into an average CEO pay package of $22.6M, up from $20.7M last year.
The Los Angeles City council voted today to increase its minimum wage to $15 an hour by 2020 from the current $9 an hour, in what is perhaps the most significant victory so far in the national push to raise the minimum wage. Several other cities, including San Francisco, Seattle, and Oakland have already approved increases, and dozens more are considering doing the same. The impact is likely to be particularly strong in Los Angeles, where, according to some estimates, more than 40 percent of the city’s work force earns less than $15 an hour. The vote could set off a wave of minimum wage increases across Southern California and there might be national implications.
Japanese air bag manufacturer Takata has agreed to the largest automotive recall in American history, declaring nearly 34 million vehicles defective due to problems with air bag inflators. The case involves air-bag inflators that may deploy with too much force, breaking apart and shooting shrapnel inside the cars. Six deaths have been linked to the defective air bags. Takata faces multiple class actions in the United States and Canada as well as a criminal investigation. With vehicles from 11 different automakers and a severe shortage of repair parts, it could take years for all the cars to be made safe.
It has been a busy day for earnings from retailers. Wal-Mart drew more shoppers to its stores in the last quarter, but international sales were hurt by the stronger dollar, causing overall sales to fall. Wal-Mart said its profit fell 7% to $3.34 billion, as revenue fell 0.4% to $114.8 billion. U.S. same-store sales edged up 1.1%.
Home Depot reported quarterly profit and revenue that topped expectations, and they also lifted its profit and sales targets for the year. TJX Cos. posted first-quarter earnings of 69 cents a shares, above forecasts for 66 cents a share, on revenue of $6.9 billion. Urban Outfitters reported first-quarter earnings and sales that came in below expectations. Dick’s Sporting Goods reported first quarter profit topped expectations but issued second quarter guidance in the low range of projections.