…..Fed holds steady. ADP counts 177k private jobs. ISM non-manufacturing index up. Puerto Rico announces biggest ever bankruptcy (sort of) in muni bond history. Health care hangs on a speck of dust. Home prices have not recovered. Facebook is everywhere, even where it shouldn’t be. Tesla – the great American car company. Twilio trips. Copper drops. Writers reach a deal. 4XETF because. Google Docs – don’t
Financial Review by Sinclair Noe for 05-03-2017
DOW + 8 = 20,957
SPX – 3 = 2388
NAS – 22 = 6072
RUT – 8 = 1390
10 Y + .02 = 2.31%
OIL – .22 = 47.60
GOLD – 19.20 = 1238.70
The Federal Reserve left interest rates unchanged as they wrapped up their two-day FOMC policy meeting. In a hawkish statement, the central bank also said consumer spending continued to be solid, business investment had firmed and inflation has been “running close” to the Fed’s target. “The committee views the slowing in growth during the first quarter as likely to be transitory,” the Fed said in a unanimous statement. That sounds like the Fed is sticking to its guns and plans on 2 more rate hikes this year. The Fed raised its benchmark rate by a quarter percentage point at its last meeting in March to a target range of 0.75 percent to 1 percent. The rate-setting committee is also gearing up to announce sometime this year when and how the Fed will begin shrinking its $4.5 trillion balance sheet. Wednesday’s statement offered no new details.
Payrolls processor ADP said private employers added 177,000 jobs last month. It was the smallest gain since the 62,000-increase last October. ADP said private employers face increasing difficulty finding qualified workers in a tightening labor market. The ADP figures come ahead of the Labor Department’s more comprehensive non-farm payrolls report on Friday, which is expected to show about 185,000 net new jobs in April, following an anemic 89,000 new jobs reported in March.
The Institute for Supply Management (ISM) said its index of non-manufacturing activity rose to 57.5 in April from March’s 55.2. A reading above 50 indicates expansion in the services sector.
Puerto Rico announced a historic restructuring of its public debt, touching off what may be the biggest bankruptcy ever in the $3.8 trillion municipal bond market. While it was not immediately clear just how much of Puerto Rico’s $70 billion of debt would be included in the bankruptcy filing, the case is sure to dwarf Detroit’s insolvency in 2013. The move comes a day after several major creditors sued Puerto Rico over defaults on its bonds. Bankruptcy may not immediately change the day-to-day lives of Puerto Rico’s people, 45 percent of whom live in poverty, but it may lead to future cuts in pensions and worker benefits, and possibly a reduction in health and education services. The island’s economy has been in recession for nearly 10 years, with an unemployment rate of about 12 percent, and the population has fallen by about 10 percent in the past decade. The debt restructuring petition was filed by Puerto Rico’s financial oversight board and was made under Title III of last year’s U.S. Congressional rescue law known as PROMESA. The Title III provision allows for a court debt restructuring process akin to U.S. bankruptcy protection. Puerto Rico is barred from a traditional municipal bankruptcy protection under Chapter 9 of the U.S. code, but Title III is basically the same thing. The process will give Puerto Rico the legal ability to impose drastic discounts on creditor recoveries.
U.S. Supreme Court Chief Justice John Roberts will appoint a life-tenured judge, likely a U.S. District Court judge, to oversee the case. That’s different than Chapter 9 municipal bankruptcy cases, where a bankruptcy judge controls the process. The person appointed to oversee the case will have significant power over how it unfolds. This particular debt-cutting process has never occurred, so the lack of legal precedent could leave the judge with much sway over the future of Puerto Rico. The oversight board will aim to negotiate debt cuts with creditors, after which it will propose a plan of adjustment. The judge will decide whether to authorize the plan. For investors, bad news. If investors hold secured bonds, they might get paid in full. But unsecured bondholders could suffer significant cuts, depending on which types of debt the judge determines to be vulnerable. Complicating matters is the various governmental entities included in the bankruptcy filing, each of which has its own investors and creditors wanting to be paid. It really isn’t clear how creditors stack up against each other, but it is widely anticipated that pensioners will have a low spot in the pecking order. That’s exactly what happened in Detroit.
The GOP health bill gains new life as key holdouts vow support. Representative Fred Upton of Michigan says he will back the bill once an amendment he helped devise is added. It would provide an $8 billion boost in funding for people with pre-existing conditions; and while that sounds like a lot of money, it is but a speck of dust in the overall price tag for healthcare. A White House official said Republicans are still two or three votes away from being able to guarantee passage. Even if it passes in the House, it would likely fail in the Senate.
Fresh data from real-estate website Trulia show that just 34.2% of homes have returned to the peak levels registered before the onset of the recession in 2008. What’s more, Trulia estimates it could take until 2025 for a true national recovery in home prices. Much of Arizona is such an idiosyncrasy. Tucson is second only to Las Vegas in the ranking of cities where the smallest numbers of homes have recovered their value. In Tucson, only 2.4% of homes have recovered their peak prices. In Phoenix, 5% of homes have climbed back to or above their earlier peak price.
After the closing bell, Facebook reported added 80 million monthly users in the first few months of the year, as ad revenue popped 51 percent from a year ago. Net income rose to $3.06 billion, or $1.04 per share, from $1.73 billion, or 60 cents per share, a year earlier, beating estimates of 87 cents. Revenue was $8 billion vs. $7.8 billion consensus estimate. Shares moved lower in after-hours trade. Facebook plans to hire 3,000 more people to review videos and other posts after getting criticized for not responding quickly enough to murders shown on its service. The hires over the next year will be on top of the 4,500 people Facebook already has to identify crime and other questionable content for removal.
Tesla posted a wider than expected first-quarter loss but said it had just over $4 billion in cash to handle the future. Tesla is betting on the launch of its $35,000 Model 3 midsize sedan to help meet its goal of producing 500,000 cars annually in 2018. The Model 3 is expected to go on sale later this year in the United States. Tesla delivered 25,000 vehicles in the first quarter ended March 31, its highest since the carmaker went public in 2010, and a 69 percent increase from a year earlier. Tesla’s results reflect the first full quarter that includes solar panel installer SolarCity, which it bought last year.
Twilio makes cloud-based software that brands can use to reach out to customers: think in-app messaging services. While it has major brands on its books as clients, including Nordstrom, Airbnb and Amazon, Uber and Facebook’s WhatsApp are its two largest clients by far. Uber accounted for 12% of the company’s revenue during the quarter, but Uber will be moving some of the technology it uses to communicate with customers in-house. The Uber news effectively torpedoed an otherwise horrible earnings report. Twilio down 25% today.
A day after the American Petroleum Institute injected a bit of optimism among traders by reporting a crude oil inventory draw of 4.2 million barrels, the EIA once again poured cold water on the oil bulls by reporting a much smaller decline, of 900,000 barrels. This is only the sixth inventory draw reported by the authority for the last 18 weeks. In gasoline, the situation was pretty much the same. API estimated inventories in the week to April 28 had fallen by 1.9 million barrels, and the EIA refuted the estimate: according to it, gasoline inventories were up by 200,000 barrels in the seven-day period.
Copper prices dropped 3.5% today, the biggest one-day drop in 19 months after a jump in inventories increased worries about an economic slowdown in China, the world’s largest consumer of the metal. On-warrant inventories available for delivery at LME-registered warehouses increased by 38,950 tons, or 32 percent. Earlier in the week, copper prices leaped to their highest in nearly a month. Traders expected prices to rise given a planned month-long strike at Freeport-McMoran’s Grasberg mine in Indonesia.
The Writers Guild of America has reached a tentative agreement for a new film and TV contract, averting a potentially devastating strike that would have impacted the fall season. The finale even came with a plot twist – an intervention from studio executives, who normally take a less hands-on approach to union talks.
The Securities and Exchange Commission has approved a request to trade quadruple-leveraged exchange-traded funds, because triple leveraged ETFs were just too boring. ForceShares Daily 4X US Market Futures Long Fund will trade under the ticker UP, and ForceShares Daily 4X US Market Futures Short Fund, under the ticker DOWN.
If you receive an email with an unexpected invitation to open and view a Google Doc, don’t do it. In what appears to be a large-scale phishing attack, people are reporting that they’re receiving these invitations from people they know. If you click on “Open in Docs,” it will spam everyone in your Google contacts, and it may also try to steal your information.