China not a currency manipulator. Yellen is pretty good. Strong dollar bad. NATO not obsolete. Ex-Im is okay. Import prices dropped. Budget deficit jumped. Earnings season kicks off tomorrow. Buffett bails on Wells. Brazilian politics are even crazier. Fewer Americans own homes. United fallout. St. Louis sues Rams.
Financial Review by Sinclair Noe for 04-12-2017
DOW – 59 = 20,591
SPX – 8 = 2344
NAS – 30 = 5836
RUT – 17 = 1359
10 Y – .01 = 2.29%
OIL – .68 = 52.72
GOLD + 12.60 = 1287.60
The S&P 500 closed below its 50-day moving average for the first time since Nov. 8. The 50-day moving average is a good indicator of the intermediate-term trend. The dollar slumped and Treasury bond yields dropped to the lowest level this year after President Donald Trump said he will not brand China a currency manipulator and added that the greenback was getting too strong. Trump also told the Wall Street Journal that he would prefer the Federal Reserve keep interest rates low. Trump also told the Journal he’d consider re-nominating Yellen to chair the Fed’s board of governors, after attacking her during his campaign. “I like her. I respect her,” Trump said, “It’s very early.” Trump also voiced support for the Export-Import Bank, which helps subsidize some U.S. exports, after opposing it during the campaign. Finally, Trump said NATO is “no longer obsolete” during a press conference today with NATO Secretary General Jens Stoltenberg, backtracking on his past criticism of the alliance. During the campaign, he frequently called the organization “obsolete,” saying it did little to crack down on terrorism and that its other members don’t pay their “fair share.” And that is all within the past 24 hours.
U.S. stocks declined for a second day as volatility climbed again across asset classes. Rising tensions with Russia, North Korea and Syria after U.S missile strikes in Syria last week and escalating posturing with North Korea, have kept investors cautious.
Today, Russia blocked a Western effort at the U.N. Security Council on Wednesday to condemn last week’s deadly gas attack in Syria and push Moscow’s ally President Bashar al-Assad to cooperate with international inquiries into the incident. It was the eighth time during Syria’s six-year-old civil war that Moscow has used its veto power on the Security Council to shield Assad’s government. Secretary of State Rex Tillerson met Putin in the Kremlin after talking to the Russian foreign minister, Sergei Lavrov, for around three hours. The White House claims Russia tried to cover up the Syrian chemical attack. Putin said trust had eroded between the United States and Russia. Tillerson said relations with Russia are “at a low point”. Meanwhile, a U.S. Navy strike group is steaming toward the western Pacific in a show of force, and North Korea is warning of a nuclear attack on the United States at any sign of American aggression. Even if geopolitical hotspots do not boil over, they require attention that is not being put toward pro-business policies such as tax cuts, simpler regulations and higher infrastructure spending, promises that helped power Wall Street to record highs.
The S&P financial index (SPSY) was down 0.9 percent a day ahead of results from three major banks in what will mark the start of the corporate earnings season. Analysts are expecting earnings to have risen 10 percent for all S&P 500 companies in the first quarter. Wells Fargo, Citigroup and JPMorgan are due to report results on Thursday, the last trading day of the week ahead of the Good Friday holiday.
Berkshire Hathaway is dumping 9 million shares of Wells Fargo worth around $480 million, to get around possible Federal Reserve regulations. Warren Buffett’s company owned more than 10% of the bank after Wells repurchased a large chunk of its shares in 2016. Any entity owning more than 10% of a bank like Wells is subject to increased regulation from the Fed. Berkshire consulted with the Fed regarding the additional regulations and decided it did not want to deal with the trouble. Additionally the company said it has no plans to sell any more Wells shares “beyond the quantity required to provide a small safety margin below 10%.”
The Labor Department said import prices fell 0.2 percent last month, the largest drop since August, after a 0.4 percent increase in February. That lowered the year-on-year increase in import prices to 4.2 percent from 4.8 percent in February. The cost of petroleum declined in March, but the underlying trend points to a moderate rise in imported inflation as the dollar’s rally fades. Prices for imported petroleum fell 3.6 percent last month, the biggest drop since August, after increasing 1.3 percent in February. Import prices excluding petroleum increased 0.2 percent after rising 0.3 percent the prior month. Import prices excluding petroleum have now increased for three straight months, in part reflecting an ebb in the dollar’s rally. Prices for imported capital goods edged up 0.1 percent in March after rising 0.2 percent in February. The drop in import prices is unlikely to be sustained with oil prices pushing higher in recent days following last week’s U.S. missile strike on Syria and reports that Saudi Arabia wants to extend production cuts enacted in January for another six months. Despite weak imported price pressures, domestic inflation is rising. Most consumer inflation measures have pushed above the Federal Reserve’s 2 percent target. A report on Thursday is expected to show producer prices unchanged in March, but rising 2.4 percent on a year-on-year basis.
The U.S. government had a $176 billion budget deficit in March as spending outstripped revenue. The budget deficit was $108 billion in March 2016, according to Treasury’s monthly budget statement. The fiscal 2017 year-to-date deficit was $527 billion compared with $459 billion in the same period of fiscal 2016.
President Trump is issuing a presidential memorandum that will call for a rethinking of the entire structure of the federal government, a move that could eventually lead to a downsizing of the overall workforce and changes to the basic functions and responsibilities of many agencies. The order, which will go into effect Thursday, also will lift a blanket federal hiring freeze that has been in place since Trump’s first day in office almost three months ago and replace it with hiring targets in line with the spending priorities the administration laid out in March. The move is a part of Trump’s campaign pledge to “drain the swamp” and it is expected to hit strong resistance in Congress. The budget already is facing opposition in Congress, and many programs the administration would like to target could only be eliminated through legislation.
Brazil’s President Michel Temer is trying to push ahead with business as usual, a day after a Supreme Court justice ordered corruption probes into 98 politicians, including leading legislators and a third of his cabinet. Temer avoided commenting on the unprecedented wave of investigations triggered by plea bargain testimony from executives at engineering group Odebrecht, but he made clear the government was committed to implementing its ambitious reform agenda, which includes an overhaul of Brazil’s pension system. The investigation includes eight government ministers, the heads of both chambers of Congress and dozens of senior lawmakers.
Fewer Americans own homes than ever before, and rising consumer confidence does not appear to be changing that. The nation’s homeownership rate dropped to a record low in 2016 from a record high in 2004, and even as home sales improve, first-time buyers are still missing out on much of the recovery. Some renters are staying put by necessity and some by choice — it depends on who is asking them. The number of renters who said they don’t know when they expect to move rose to 37 percent in March compared with 30 percent in a survey conducted last September, according to a survey released this week by Freddie Mac, which helps finance the multifamily apartment market. Survey respondents who said they expect to move during the next two years fell to 33 percent from 38 percent since September. In addition, 55 percent of all respondents, and 60 percent of 35- to 49-year olds, said they like where they live and don’t plan to move even if their rents rise.
A separate survey by Zillow, a real estate company which lists both rental and for-sale properties, found more than two-thirds of renters said that saving for a down payment was keeping them from buying a home. With home prices hitting new peaks in many markets, a 20 percent down payment on a typical home costs more than two-thirds of about $56,000, the national median annual household income, according to Zillow.
United Continental Holdings will compensate all passengers for the cost of the flight in which a man was forcibly removed by security officers. A spokeswoman for the airline, declined to say if the payment would be in cash, frequent-flier miles or some sort of weird voucher that nobody knows how to redeem. After the blunder of the initial incident was compounded by a series of botched public responses, United is stepping up the effort to get back in consumers’ good graces. The passenger who was dragged from the plane was treated at a Chicago hospital and his lawyers sought a court order in Chicago to preserve evidence, including surveillance videos, crew lists and other information, that could be used in litigation. A lawsuit hasn’t been filed but it looks like it is on the way.
The city of St. Louis, Missouri — where the Rams were based for two decades before jilting it for Los Angeles last year — filed a lawsuit Wednesday claiming the team and the NFL failed to use proper protocol when the Rams were relocated. The complaint also claims that moving the team “improperly” enriched Rams executives. It notes that Forbes estimated the value of the team more than doubled after it moved to Los Angeles. St. Louis is seeking $1 billion in damages. I’ve seen the Rams play. No way the loss of that team is worth $1 billion.