Resale home prices continue to rebound. New home sales up. Consumer confidence flat. Fed FOMC deliberates. Earnings galore but the big one is Apple, and it wasn’t as bad as it could have been. Fiat fudged sales numbers. VW has a plan. Amazon has drones in the UK. You could fly around the world without using a drop of oil.
Financial Review by Sinclair Noe for 07-26-2016
DOW – 19 = 18,473
SPX + 0.7 = 2169
NAS + 12 = 5110
10 Y – .01 = 1.56%
OIL – .49 = 42.64
GOLD + 4.40 = 1320.70
The S&P CoreLogic Case-Shiller 20-city composite saw a 0.9% gain in May to stretch the 12-month advance to 5.2%. Phoenix resale home prices were up 0.6% in May, and 5.4% over the past 12 months. Portland had the hottest housing market, New York the weakest. From the 2006 peak, the 20-city composite is down 8.8%; it’s up 40.4% from the trough in 2012.
The Commerce Department reports new home sales increased 3.5 percent to a seasonally adjusted annual rate of 592,000 units last month, the highest level since February 2008. Sales were up 25.4 percent from a year ago. At June’s sales pace it would take 4.9 months to clear the supply of houses on the market, down from 5.1 months in May. The median price for a new home rose 6.1 percent from a year ago to $306,700.
The Conference Board’s consumer confidence index was little changed this month, finishing at 97.3 compared to revised 97.4 in July. Consumers were slightly more positive about current business and labor market conditions. Expectations regarding business and labor market conditions, as well as personal income prospects, declined slightly.
The Federal Reserve has begun a two-day FOMC meeting on interest rate policy. The Fed is all but certain to keep interest rates on hold, acknowledging improved economic prospects, but offering few hints about its next move. Central to the debate will be how to reconcile upbeat economic data, highlighted by strong job gains in June, with a global growth slowdown and other headwinds threatening the inflation trajectory. The inflation measure the Fed prefers to track is currently at 1.6 percent, and oil prices have just moved to three-month lows.
Threats to America’s financial stability rose after the U.K. voted in June to leave the European Union but remain moderate, according to a report from the Office of Financial Research, the research arm of the Financial Stability Oversight Council. The vote could usher in “months or years of uncertainty” over rules tied to the U.K.’s investment, financing and trade relations with Europe and the rest of the world. Despite the ability of U.S. markets to recover from the initial shock of a market selloff, persistent concerns remain as the U.K. decides “if, how and when” to leave the EU. Possible spillover effects could jolt the broader financial system, including U.S. banks and nonbanks such as life insurers and broker-dealers.
The Bank of England’s Martin Weale has changed his mind and now supports immediate stimulus for the U.K. economy at next week’s policy meeting. The pivot follows a series of negative business reports, culminating in last week’s poor PMI data. Only a week ago, the widely-followed policymaker called on the central bank to wait for “firmer evidence” before implementing more monetary easing.
Just two months before the yuan is to be included in the IMF’s Special Drawing Rights basket for the first time, the fund’s board has adopted a new methodology for calculating the amounts of its global reserve currencies. New weightings of the dollar, euro, yen and pound will be set on Sept. 30 and fixed for five years, pushing the yuan a step closer to being freely usable internationally.
Specialist Italian pension funds are considering a government request to pour money into a bank rescue fund, days before European stress tests are expected to show the country’s third-largest lender, Banca Monte dei Paschi, is in urgent need of capital. Italy is looking for ways to support struggling lenders without breaking EU state aid rules, but a deeper financial crisis could further undermine confidence in the eurozone’s fourth-largest banking sector.
Here’s a rundown of some of the earnings reports today.
3M posted earnings that beat by one cent a share, on revenue a touch below estimates. The firm lowered its guidance for 2016 sales growth.
Caterpillar reported earnings that beat on both the top and bottom line.
DuPont posted earnings that beat on both the top and bottom line, and raised its full-year forecast.
McDonald’s reported a lower-than-expected rise in U.S. same-store sales. Quarterly earnings, ex-items, did beat expectations.
United Technologies raised full-year guidance and posted quarterly earnings that beat on both the top and bottom line.
Verizon reported quarterly earnings that topped expectations on revenue that missed. The telecommunications giant said a seven-week workers’ strike hurt results.
As the first oil major to report Q2 results, BP announced a loss that missed estimates due to lower refining margins and a multibillion-dollar charge relating to its 2010 oil spill.
Twitter’s stock is crashing, down 10% in after-hours trading, after delivering a revenue forecast that fell well short of expectations.
Also, negative earnings results from Reynolds American, Starwood, KeyCorp, Nielsen, Gilead Sciences and Under Armour.
Positive earnings news from Corelogic (along with higher 2016 guidance), and Texas Instruments beat estimates. Also good reports from Centene, Waters Corp, Avery Denison, Baxter, and Valero.
Of course the big earnings report today came after the closing bell. Apple reported iPhone sales fell for the second straight quarter, although the 15 percent drop was less than feared. The company’s total revenue dropped 14.6 percent in the third-quarter ended June 25, also declining for the second quarter in a row. Apple said it sold 40.4 million iPhones in the third quarter, more than the average analyst forecast of 40.02 million. Apple’s quarterly net profit fell 27 percent to $7.8 billion, while revenue of $42.36 billion beat analyst’s estimates. Phone sales in China dropped 33%. Apple’s services business, which includes the App Store, Apple Pay, iCloud and other services generated nearly $6 billion in revenue, up 18.9 percent from the previous year.The stock was trading toward the low end of its 52-week historical price range – down 8.5% year-to-date – and at the bottom of the range for mega-cap tech stocks. In after-hours trade Apple was up about 6%, topping $101 per share.
Annheuser-Busch InBev raised its offer for SABMiller by 2.3% to 79 billion pounds to account for the Brexit-related plunge in sterling.
Switzerland said it plans to give information to U.S. tax authorities about accounts at HSBC Holdings’ Swiss private bank, as part of a U.S. investigation into tax evasion. HSBC’s Swiss unit has already paid tens of millions of dollars in fines after admitting substandard compliance on tax evasion and other issues. The Swiss government said it made the announcement to alert HSBC account holders whom it has been unable to locate, and to give them the chance to lodge a legal appeal if they object to having their information sent to the IRS.
Fiat Chrysler Automobiles said it has revised the way it counts monthly sales figures of new cars and trucks and now says its impressive sales streak of 75 months of consecutive sales gains actually ended in September, 2013. It said that under the revisions, there were three months in which it had reported sales gains but now will report them as declines.
Volkswagen’s settlement plans to get 482,000 diesel-cheating cars off U.S. roads won a preliminary go-ahead from a federal judge. The plan for buybacks and a possible fix covers car owners, the U.S. government and 44 states and will cost the company about $15.3 billion if the agreements are fully adopted. The settlement includes $10 billion for buybacks, as well as $4.7 billion in government penalties and remediation. With or without a fix, car owners who don’t like the buyback option may be able to keep driving the polluting cars in some states.
The pact eats up almost all of the $17.8 billion the company had set aside to cover the cost of the scandal worldwide. In addition to investor class actions in the U.S. and lawsuits in Germany and South Korea, the company faces criminal probes in all three countries. VW took a 2.2 billion-euro charge in the second quarter, chiefly related to legal risks in the U.S. The company will report full earnings figures on Thursday.
Amazon is partnering with the U.K. government to significantly expand drone testing, a move that could let the devices deliver packages to British homes far earlier than in the US. Amazon will work with British regulators to test drones that fly beyond the line of sight of operators in rural and suburban areas. It will also test whether a single operator can safely command multiple drones at once, as well as technology that lets the machines automatically detect and avoid other planes, buildings and people.
Tesla has doubled the labor force working on its $5 billion battery factory in the Nevada desert, aiming to meet demand for its coming Model 3. Now, 1,000 workers build seven days a week on two shifts in an effort to start churning out lithium-ion cells by late 2016. Elon Musk is set to inaugurate the Gigafactory with a media briefing today, followed by an exclusive tour and party for Tesla customers on Friday.
Have you noticed the changes to Google Maps? For its more than 1 billion users, Google announced a design update to Google Maps yesterday, July 25. Embracing a “cleaner look,” the new reduced interface for mobile and desktop is focused on discovery and socializing, instead of turn-by-turn directions. Areas of interest like restaurants, bars, and shops are now shaded in a light shade of orange, allowing users to learn about new venues around their destination.
The first round-the-world solar powered flight has been completed, after the Solar Impulse aircraft touched down in Abu Dhabi and finished a journey that began over a year ago. The ABB-engineered plane is no heavier than a car, but has the wingspan of a Boeing 747. It’s powered by 17,248 solar cells, runs on battery power at night and has an average airspeed of 46 mph.