Financial Review

Brexit Day

Polls closed in Britain.

Jobless claims down. New home sales down. Manufacturing PMI up. More renters and a possible shortfall of rentals. VW will pay $10B. SCOTUS on immigration and affirmative action. Solar planes and really, really fast electric cars.

Financial Review by Sinclair Noe for 06-23-2016

 

DOW + 230 = 18,011
SPX + 27 = 2113
NAS + 76 = 4910
10 Y + .05 = 1.74%
OIL + .96 = 50.11
GOLD – 9.60 = 1257.30

 

The highly anticipated Brexit referendum is underway in Britain, where citizens across the country are cast their vote on whether to ‘Remain’ or ‘Leave’ the EU. Two polls conducted on Tuesday and Wednesday found “Remain” was in the lead, although the overall picture from the last few days of polling was of a vote that was too close to forecast. Traders across London are still bracing themselves for an all-night vigil, while the G7 nations are poised to take “all necessary steps” to calm markets in case of a Brexit.

The polls in Britain closed at 10 PM, which is 2 PM here in Arizona. Unlike normal general elections there weren’t any exit polls when the voting stations closed. We may start to get a smattering of early results over the next hour or two. The final result is expected around “breakfast time” in London on Friday morning, according to the Electoral Commission, but the outcome may become clear earlier than that as the bigger electoral regions start to announce their votes. Bottom line, you might get results sometime after midnight (here in Arizona), or just wait until tomorrow morning.

 

As EU members await the results of the U.K. vote, the latest preliminary data on Eurozone business activity revealed yet another slowdown in growth for the single currency area. The composite flash PMI showed that services and manufacturing in the bloc tumbled to a 17-month low in June, falling to 52.8 from a revised figure of 53.1 in May.

 

The markets are weighing in on the Brexit vote. Blue-chip stocks in the U.K. rallied to a nine-week high. The Financial Times Stock Exchange, or FTSE-100 index, roughly comparable to the Dow Industrial in the US, rallied 1.2% today. The index marked a fifth straight gain and logged its highest close since April 21. At the same time, the British bank Barclays stopped accepting clients’ currency stop loss orders in an effort to limit its exposure to losses that could follow the results of the referendum.

 

Fewer Americans filed for jobless benefits in the week ending June 18. There were 259,000 initial claims, a decline of 18,000 from the prior week. It marked the 68th consecutive week in which claims were below 300,000, the longest such streak since 1973.

 

The Commerce Department reports new home sales declined in May, an expected pullback after an outsize jump in April.  Sales ran at a seasonally adjusted annual rate of 551,000. New home sales data are volatile and often subject to hefty revision, but the broad trend is up. May figures were 8.7% higher than in May 2015, and sales so far in 2016 are running about 8% higher than the same period a year ago. The median price of a new home was $290,400, 1% higher than a year ago. Supply is outpacing demand. It would take 5.3 months to exhaust all inventory if sales continued at the current pace.

 

Prices for entry-level homes in the U.S. are rising at twice the pace of the costliest properties as competition among first-time buyers intensifies.  According to an analysis by Zillow, values in the top third of the market climbed 4 percent in May from a year earlier, compared with an 8 percent increase for the least-expensive houses, Zillow said in a statement Thursday. The supply of starter-home listings plunged 9 percent, while the number of top-tier offerings was little changed.

 

We keep hearing that in many cities, high home prices are locking out young buyers, and then you have a growing number of people forced to rent at ever higher rates as demand overwhelms supply. Add in stagnant wage growth and it is tough for many wannabe first time home buyers. Some 26 percent of U.S. renters paid at least half their income to landlords in 2014, up from 20 percent in 2001, according to the State of the Nation’s Housing report, published by Harvard’s Joint Center for Housing Studies. On the other hand, the number of homeowners who are severely cost-burdened by mortgage payments (paying 50 percent or more of their income) or moderately cost-burdened (paying 30 percent to 50 percent) actually fell from 2013 to 2014. The median rent-to-income ratio has hovered between 22.9 percent and 23.3 percent since 2010. While rents increased over that period, so did the median income of market-rate renters, which rose from $44,000 in 2010 to almost $58,000 so far this year. That’s partly because incomes have risen faster for more affluent renters, and that is partly because changing home-buying behavior has kept higher earners in the rental pool longer. Plenty of renters remain cost-burdened, and some of them earn good salaries. Farther down the income spectrum, there’s simply not enough supply to meet demand: More than 10 million renter households earned 30 percent or less of the area median income in 2014, and only about 5 million apartments were cheap enough for those renters to afford. More than 1 million new households were created in 2015, compared with 620,000 new homes built. The shortfall of 430,000 units put more pressure on housing prices, especially at the bottom of the market.

 

The flash manufacturing purchasing managers index rose to a reading of 51.4 in June from 50.7 in May, the weakest reading since September 2009. The June reading was the best in three months. The manufacturing sector still looks to have acted as a drag on the economy in the second quarter. Still, today’s economic data on manufacturing, jobs, and home sales points to modest second quarter growth.

 

Helping breathe life into Greece’s struggling economy, the ECB will start accepting junk-rated Greek government debt as collateral for its regular bank lending operations. The decision to open a funding facility that had been shut for 16 months could lead to the partial lifting of capital controls in the coming days.

 

The casino operating unit of Caesars Entertainment can begin seeking creditor votes for a plan to exit its long and contentious $18 billion bankruptcy. The move will set a final courtroom showdown for early next year between the casino and bondholders who say they’re being shortchanged.

 

Sumner Redstone’s plan to replace five directors at Viacom is on hold until it can be determined if the 93-year-old is mentally capable of making decisions. The news came at a hearing on Wednesday, where a Delaware judge said he wanted to wait until another case regarding the media mogul’s competency was through its discovery process before ruling on the proposed board changes.

 

Cloud communications startup Twilio went public today. The deal, is the first Silicon Valley tech IPO of the year, and is being closely watched as a bellwether to test whether the market will be receptive of future tech IPOs this year. So far so good; shares were priced at $15 each, above the target of $12 to $14, and finished at $28.79, up 91%.

 

Volkswagen will pay owners of its polluting diesel cars up to $7,000, and agree to fund a grant program to offset air pollution, under a $10 billion settlement being negotiated for submission to a federal judge next week. Bloomberg reports VW will provide cash payments worth between $1,000 and $7,000, depending on the vehicle’s age and other factors, to compensate consumers. VW isn’t expected to be able to repair all of the cars affected to the satisfaction of the EPA, which may result in buybacks or extra payments to an environmental remediation fund.

 

The Supreme Court handed down a couple of decisions this morning. In the Case of the United States v. Texas, the court split 4-4 over President Obama’s plan to spare millions of immigrants in the country illegally from deportation and give them work permits, leaving intact a lower-court ruling blocking the executive action on immigration, which was never implemented. Obama’s 2014 plan was tailored to let roughly 4 million people – those who have lived illegally in the United States at least since 2010, have no criminal record and have children who are U.S. citizens or lawful permanent residents – get into a program that shields them from deportation and supplies work permits. The case was viewed as an important test of the limits of presidential powers.

 

In the case of Fisher v. University of Texas, the court upheld the practice of considering race in college admissions, rejecting a white woman’s challenge to a University of Texas affirmative action program designed to boost the enrollment of minority students. In the ruling, Justice Anthony Kennedy wrote that “considerable deference” is owed to universities when they are seeking to determine student diversity. He said that “it remains an enduring challenge to our nation’s education system to reconcile the pursuit of diversity with the constitutional promise of equal treatment and dignity.” But in the Texas case, the challengers had failed to show that the university could have met its needs via another process, he said. Kennedy noted that the university “tried and failed to increase diversity” through other race-neutral means.

 

An airplane powered solely by the sun landed safely in Seville in Spain early this morning after an almost three-day flight across the Atlantic from New York in one of the longest legs of the first ever fuel-less flight around the world. The Solar Impulse 2 touched down after 71 hours aloft, averaging about 43 miles per hour.

 

An electric racing car built by Swiss student engineers has broken the world record for acceleration by battery-powered vehicles. The “grimsel” car took only 1.513 seconds to reach 62 miles per hour (or 100 kilometers per hour) – slashing about a quarter of a second off the previous record time. So far, no petrol-powered production car has managed to hit the same speed in a comparable time. The grimsel needed only 98 feet of track to reach the landmark speed.

 

 

 

 

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