Financial Review

Black Monday + 28

Financial Review by Sinclair Noe for 10-19-2015

DOW + 14 = 17,230
SPX + 0.55 = 2033
NAS + 18 = 4905
10 YR YLD + .01 = 2.03%
OIL – 1.07 = 46.19
GOLD – 7.10 = 1171.60
SILV – .20 = 15.93

 

Twenty-eight years ago today, the Dow Jones Industrial Average crashed; a one day loss of 508 points, or 22.6%, down to 1,738 on what is now referred to as Black Monday. It was by far the largest one-day percentage drop in US stock market history.

 

China’s economy grew 6.9% in the third quarter from a year ago, beating forecasts for 6.8% growth. The results add to doubts the country can meet its year-end GDP target of about 7%, and raises pressure on Beijing to roll out more stimulus measures following a summer stock market plunge and devaluation of the yuan. Most China analysts also feel the GDP number is fictional, probably more like 3% than 6.9%, but it’s still the slowest growth since 2009.  China has been cutting its holdings of US Treasuries for the first time since 2001, but so far demand remains strong from other foreign investors and American investors.

 

Last month, Chinese President Xi Jingping visited Washington and an agreement was announced that China and the US would refrain from cyberattacks by each country on the other or on companies domiciled in the respective countries. Yeah, not so much. Security services provider, Crowdstrike reports it has tracked a number of attacks on American tech and pharmaceutical companies leading up to and after President Xi’s visit to the US, including the 3 weeks since Washington and Beijing signed the cybersecurity agreement.

 

Of course, it may be foolish to think that anything on the internets is secure. Case in point: a hacker has breached non-government personal accounts associated with CIA Director John Brennan as well as Department of Homeland Security Secretary Jeh Johnson and posted personal info, fortunately nothing classified. The hacker told the New York Post that it was a fairly simple process to hack Brennan’s personal AOL account. The hacker is apparently a high school student who doesn’t like US foreign policy, and probably has job offers already in San Jose.

 

The slump in oil prices has pushed Saudi Arabia into a budget deficit for the first time since 2009, forcing the country to delay payments to government contractors. Seperately, Iran’s Oil Minister has said that “no one is happy” with prices at current levels and that OPEC members should cut production to boost prices to $70 to $80 a barrel.

 

The European Central Bank’s Governing Council meets this week in Malta to set monetary policy for the region. There has been plenty of talk about the need for more monetary easing, but most analysts expect a move later in the year, but not at this week’s meeting. Still, if they plan some sort of stimulus plan, they would need to communicate at this meeting – in other words, they might talk down euro strength. Whatever they do, it’s already working the dollar was higher against the euro and a basket of currencies. Sustained gains in the dollar will come from a more defined increase in hopes for a December Fed rate hike. In other words, while the ECB might jawbone markets for more easing, the Fed might jawbone markets for a rate hike. That could come from a more hawkish Fed at next week’s Federal Open Market Committee meeting or a solid uptick in payrolls for October and November.

 

The National Association of Home Builders/Wells Fargo housing market index rose 3 points to 64, the highest level since the same month of 2005. The index measuring sales expectations in the next six months rose seven points to 75, and the component gauging current sales conditions increased three points to 70. The index on buyer traffic held steady at 47.

 

International Business Machines said its third-quarter revenue fell 14%, hurt by declines in hardware sales and the stronger dollar. IBM posted revenue of $19.2 billion in the latest quarter from $22.4 billion a year earlier.  Per-share earnings from continuing operations fell to $3.34 from $3.68. IBM also lowered its earnings guidance for the year as the company reported sales declines across its major businesses, led by a 39% drop in its hardware segment.

 

Morgan Stanley is the last of the major banks to announce third quarter results, and they saved the worst for last. Morgan Stanley reported both revenue and profit declined more than expected. The biggest hits came from the bank’s bond and fixed-income trading desks and from its hedge fund and private equity business in Asia. Revenue dropped 13 percent from the same quarter a year earlier, and 20 percent from the previous quarter; the drop was even sharper after accounting for certain customary adjustments for debt valuations. That pushed down the profit in the quarter to $740 million, or 34 cents a share, after those adjustments – a 55% decline from a year earlier.

 

Recently named Deutsche Bank CEO John Cryan is shaking things up at the investment bank. Cryan cleaned house by removing executives close to the former CEO. Deutsche is also abolishing its group executive committee, which is made up of 19 senior managers, and streamlining how its main units are represented on the management board.

 

U.S. banks are going to new lengths to ward off big cash deposits, judging that the cash may be too costly to keep. For the first time, State Street has begun charging some customers for large dollar deposits, and JPMorgan has already cut unwanted deposits by more than $150 billion this year. The actions are driven by low interest rates and new regulations adopted since the financial crisis, such as reserves of as much as 40% against certain corporate deposits and as much as 100% against some deposits from hedge funds.

 

Police have raided Volkswagen’s main offices in France as part of an investigation into the automaker’s cheating on diesel emissions tests. The move suggests VW’s legal troubles are spreading across Europe as similar searches have already been carried out at the company’s headquarters in Italy and Germany. On Friday, Volkswagen reported its group sales fell 1.5% in September, although the larger impact from its scandal will likely be reflected in the sales volume of October.

 

General Motors has discovered another ignition switch problem that causes engines to shut off and disables power steering, power brakes and possibly the air bags. The automaker is now recalling about 3,300 big pickup trucks and SUVs mainly in North America. The issue was discovered by an employee who owned one of the defective trucks and reported it to higher-ups through GM’s new “Speak Up For Safety” program.

 

Ferrari’s long-awaited initial public offering is finally at the starting line, with the stock likely to be priced Tuesday night and begin trading on the NYSE on Wednesday. Fiat Chrysler is selling about 10% of Ferrari in the IPO. At the top of its projected range of $48-$52 a share, the luxury sports-car maker would have a stock-market valuation of $9.8 billion.

 

Ahead of a critical vote this week, leaders at the United Auto Workers union have launched a social-media blitz to help sell a new tentative labor deal to Fiat Chrysler workers. While offering a path to higher wages for new hires, many members still find the deal lacking. Voting on the new contract starts Tuesday and concludes on Wednesday.

 

Shareholders will get their say this week on two proposed health insurer mergers: Aetna’s $37 billion offer for Humana, and Centene’s $6.3 billion bid for Health Net. Although consumer advocates have raised concerns about whether the combinations will lead to less competition and higher prices, proxy advisors ISS and Glass Lewis have given both deals a thumbs-up. Aetna and Humana investors are scheduled to vote this afternoon and Centene and Health Net shareholders will cast their ballots on Friday.

 

United Continental is still silent on the medical condition of its new CEO Oscar Munoz, who was admitted to the hospital on Thursday after suffering a heart attack, but investors are questioning who will lead the company in his absence. Munoz’s health problems come barely a month after he took on the job of improving the profitability and reputation of United, the No. 2 U.S. carrier by capacity.

 

Slowing growth and rising costs are driving a historic wave of consolidation in the semiconductor industry as firms look to streamline their organizations and product lines. Chip companies have so far announced just over $100 billion in mergers and acquisitions this year, exceeding the $37.7 billion in 2014, and totals could go even higher. Last week, at least four chip companies were in talks concerning different deal options, including; Analog Devices, Maxim Integrated Products, SanDisk, and Fairchild Semiconductor.

 

Alibaba is lobbying to stay off the U.S. Trade Representative’s blacklist this year after coming under renewed pressure over suspected counterfeits sold on its shopping platforms. Alibaba.com was removed from the “Notorious Markets” list in 2011.

 

Over the weekend, US Airways ceased independent operations after more than 75 years in business.  Flight 1939 — the final flight operated using the US Airways name — started at the airline’s Philadelphia hub before flying to Charlotte, Phoenix, San Francisco and Philadelphia. After its final flight, the Tempe, Arizona-based airline combined its flight and ticketing operations with its merger partner, American Airlines. The Flight number, 1939, was the year US Airways started service, delivering mail.

 

This is the culmination of an $11 billion merger that was first announced in 2013. Prior to the merger, US Airways boasted a fleet of more than 300 jets. The post-merger American Airlines now has the largest fleet in the world, with more than 900 mainline aircraft. In addition to adding capacity and changing the name, the merger involved combining reservations systems and baggage handling, and millions of tiny details. As you might expect, there were a few little hiccups, but really very few. The transition was one of the smoothest, so far, in aviation history. It is easy to find something to complain about regarding the airlines, any airline, but on this point, it looks like they did it right.

 

 

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