Big week for central bankers. Big week for Big Oil. Big week for Big 4 Techies. Big day for mergers. Earnings looking slightly less depressed. Yahoo joins forces with AOL under Verizon banner. Pokemon will not rule the world. 7-Eleven delivering Slurpees by drone.
Financial Review by Sinclair Noe for 07-25-2016
DOW – 77 = 18,493
SPX – 6 = 2168
NAS – 2 = 5097
10 Y un = 1.57%
OIL – 1.14 = 43.05
GOLD – 6.80 = 1316.30
The Federal Reserve kicks off its monetary policy meeting on Tuesday and will announce its decision on Wednesday. The central bank is widely expected to hold interest rates steady and stop short of signaling a possible rate increase in September because of continued uncertainty about the economic outlook.
In total, 15 central banks are scheduled to meet this week. The Bank of Japan’s rate decision is due on Friday and will be closely watched for any hints of more easing in the face of a stronger yen post Brexit and a slowdown in the economy.
World shares held near nine-month highs after G20 finance chiefs said over the weekend they would use “all policy tools” to lift global growth. A communique issued by the G20 ministers at the end of the two-day meeting said Brexit, which dominated discussions, had added to uncertainty in the global economy where growth was “weaker than desirable”. It added that members, however, were “well positioned to proactively address the potential economic and financial consequences”.
The Brexit led to severe withdrawals at M&G, Schroders, Fidelity and Invesco in June, as equity funds domiciled in Europe suffered their largest monthly redemptions since September 2011. Investors pulled at least €1-billion-euro from each of the four large investment groups, which are either based in the U.K. or have large hubs in the country.
The latest survey by the Association for Financial Professionals shows companies are taking their most cautious approach to cash management since mid-2011, and increasing their holdings of cash in response to a rise in economic and geopolitical uncertainty. The survey shows companies accumulated cash balances at a far quicker pace in the second quarter than in the first, and expect to do so at a still faster pace in the current quarter. Capital investment and hiring by US multinationals has also been held back by swings in currency markets.
Oil prices fell to two and a half month lows this morning on worries that a global glut of crude and refined products would weigh on markets for some time. Barclays bank said global oil demand in the third quarter of 2016 was expanding at less than a third of the year-earlier rate, weighed down by anemic economic growth. Demand support from developed economies had faded, while growth from China and India had slowed. Meanwhile, Libya’s hopes to boost crude exports have been dealt a blow after the head of the National Oil Corporation objected to a deal between the government and local guards involving payments to reopen key ports. The 2 percent drop in oil prices dragged down major energy companies. Chevron shares were down 2.4 percent and Exxon Mobil stock gave up 1.9 percent, the two biggest drops in the Dow Jones industrial average. Oil prices are down nearly 12 percent this month.
Major oil companies are planning to report their second-quarter earnings this week. BP will lead off on Tuesday, and Royal Dutch Shell and Total, of France, will report on Thursday. Exxon, Chevron and Eni, of Italy, will follow on Friday.
This will be a big week for tech stocks. Apple reports earnings tomorrow; Facebook reports on Wednesday. Alphabet and Amazon report on Thursday. Together, these four stocks make up 30 percent of the Nasdaq 100.
We are right in the middle of earnings reporting season. Second quarter earnings are expected to show S&P 500 companies earnings declined again, for the fifth consecutive quarter. Bloomberg reports second-quarter earnings fell 1 percent among the 130 companies in the S&P 500 Index that have issued thus far; which is not as bad as estimates at the beginning of reporting season. And there is a bit of positive guidance news; nearly 90 percent of companies in the S&P 500 Index that have changed previously disclosed expectations for future earnings have raised the target. At this rate, if the guidance holds true, we should break out of the earnings recession in the third quarter.
Sprint reported fiscal first-quarter revenue that beat expectations as big discounts attracted more postpaid subscribers, and the No. 4 U.S. wireless carrier said it expected to be cash flow positive next fiscal year after breaking even this year. Sprint up 27% today.
Verizon is set to pay $4.8 billion in cash to acquire Yahoo’s core internet assets as well as real estate. After those sales, Yahoo would still hold stakes in Yahoo Japan and Alibaba – worth about $40 billion. The companies said the deal is subject to customary closing conditions, including approval by Yahoo’s shareholders, and is expected to close in early 2017. Verizon will combine Yahoo’s search, email and messenger assets as well as advertising technology tools with its AOL unit, which it bought last year for $4.4 billion. Verizon, the No. 1 U.S. wireless operator, has been looking to mobile video and advertising for new sources of revenue outside the oversaturated wireless market. It will be a tough row to hoe because Facebook and Google already have a dominant position in digital ads.
AMC Entertainment has been trying to buy Carmike Cinemas for several months. AMC’s initial offer of $30 a share left some Carmike shareholders feeling short-changed. So, AMC sweetened the deal, to $33.06 per share in cash. That should seal the deal.
LVMH is selling Donna Karan to G-III Apparel.The French luxury goods giant LVMH is selling Donna Karan International to G-III Apparel for $650 million. The deal will be funded through new debt and by issuing $75 million of G-III common stock to be issued to LVMH.
Outerwall, the owner of Redbox video rental kiosks, said it had agreed to be taken private by affiliates of private equity firm Apollo Global Management in a deal valued at about $1.6 billion.
Tesla Motors and SolarCity have made progress in putting together a deal that will merge the electric car maker and the solar panel installer. The two companies are in the final stages of carrying out due diligence on each other, and could agree on the terms of a deal in the coming days, but it’s still unclear if SolarCity will try to press for other bids. Tesla announced last month that it had made an all-stock offer for SolarCity worth $2.8 billion. It argued that by acquiring SolarCity, the two companies would form a one-stop clean energy shop, offering consumers solar panels, home battery storage and electric cars under a single brand.
Nintendo warns that the impact from Pokémon Go will be “limited.” Shares of Nintendo plunged more than 17% Monday after the company released a statement late Friday suggesting that it would see a “limited” financial impact from Pokémon Go. The plunge has the stock down about 27% from its recent high, but the stock is still up about 67% since the game’s release.
Helping advance research toward integrating drones into the National Airspace System, 7-Eleven and upstart Flirtey have completed the first fully autonomous drone delivery to a customer’s residence. While there’s some speculation on the ways that companies like Amazon, Wal-Mart, Walgreens and Domino’s could use drone delivery, many industry watchers think emergency conditions (flood/earthquake/medical) or niche situations (oil rigs/inaccessible roads) are the most likely scenarios for widespread drone usage.
The Japanese government and the European Commission are working together to connect their global positioning systems in a coordinated effort to clear a path for autonomous vehicles. By linking Japan’s Quasi-Zenith Satellite System and EU’s Galileo satellite network the margin of error of the combined system will be improved dramatically. The development could be positive for Japanese automakers and suppliers.
Two years ago, the Federal Reserve faced a predicament: One of its New York employees had leaked confidential government information to a banker at Goldman Sachs. Both men ultimately pleaded guilty to stealing government property. Goldman, for its part, paid a $50 million penalty to New York State regulators because its “management failed to effectively supervise” the banker. After a considerable time lag, the Fed is now preparing an enforcement action against Goldman, and the bank is expected to pay a financial penalty to settle the case. The Fed is also considering an action against a third man, a former Goldman executive who worked alongside the more junior banker who received the leaked material. Unlike Goldman, the former executive plans to fight the Fed if it files a case against him.
Last week we told you the Department of Justice was conducting an investigation into IMDB, the Malaysian sovereign fund. Today, report the department of Justice has seized four multimillion dollar Manhattan condos and a stake in the Park Lane Hotel that are connected with the international money laundering scheme.
Turkey ordered the detention of 42 journalists on Monday and ordered the closure of 2,341 private schools, charities, and other institutions, under a crackdown following a failed coup that has targeted more than 60,000 people. Turkey also imposed a state of emergency which extends detentions without charges to 30 days.
Russia won’t be completely banned from the Rio Olympics. Russian athletes can individually apply and, if they meet strict anti-doping criteria, could be allowed to attend. The ban that applies to Russia’s track and field Olympic team has not been lifted.