…Waiting for the election. Iran sanctions in effect. Talk about talking with China. Net neutrality. Lowe’s closing stores. Amazon might have 2 new HQs. FedEx to hike rates.
Financial Review by Sinclair Noe for 11-05-2018
DOW + 190 = 25,461
SPX + 15 = 2738
NAS – 28 = 7328
RUT – 0.46 = 1547
10 Y – .01 = 3.20%
OIL – .36 = 62.78
GOLD – 1.60 = 1231.60
Stocks were mixed. On Thursday, the Fed concludes a two-day policy meeting, which isn’t expected to deliver a change in rates, but may offer fresh insights to investors about the pace of coming rate increases and the effects of trade clashes between the U.S. and China on the domestic economy. Shares of Apple dropped 3.1% today following a 6.6% stock decline on Friday, after saying it would no longer disclose unit sales of its products for investors, as it has for more than a decade.
Tomorrow it will all be over. If we are lucky. Some elections may require a re-count or a runoff, but mostly the election concludes tomorrow. What will it tell us about where we are headed as a nation? Who knows. It will tell us who is in power, but not necessarily how Americans are thinking. The dangers of extrapolation can be simply defined: The president’s party almost always loses the midterm election, but presidents usually win their reelection campaigns. Tuesday’s election will be, in part, an expression of the electorate’s views on Trump. But it will also be a midterm election where Trump is not on the ballot. The election was not designed to explain the national mood, it was designed to elect people to specific jobs. Tomorrow’s results will be filtered, distorted, and warped by the bizarre way we hold elections. Part of what we will learn tomorrow is that many voters have been disenfranchised. The vote will resolve the question of who controls the House and Senate, and it will hopefully do so clearly. By 10 p.m. Eastern, the Midwest toss ups are likely settled and the polls will be closed in Nevada and Arizona. Democrats are expected to regain control of the House while Republicans hold on to a slim majority in the Senate – that’s the guess – and today, it’s all guesswork.
Trump has taken hard-line stances against North Korea, China, and Iran — and in the last 72 hours, each country pushed back on America’s pressure campaign. On Friday, North Korea threatened to build more nuclear weapons unless the US offers some sanctions relief. Three days later, Chinese President Xi Jinping said Beijing would survive the trade war with America and continue exporting goods around the world. Also on Monday, Iranian President Hassan Rouhani vowed to “break” Trump’s latest and greatest imposition of financial penalties. Each country has somewhat similar reasons for their anger: The US has imposed stringent economic penalties on them to force a change in behavior. Washington sanctioned Pyongyang to force North Koreans to dismantle their nuclear program; maintains tariffs on Chinese goods until the country opens its market to US companies; and has increased sanctions on Iran to get the country to abandon its aggressive foreign policy and pursuit of a nuclear weapon.
Trump and Xi plan to meet during the G20 summit later this month, and it’s possible that Xi’s speech could make that meeting a bit awkward. It also behooves both leaders to end the spat soon. Last month, the International Monetary Fund (IMF) — a world body that helps keep the global economy stable — released a major report that projected the world’s economy will grow by 3.7 percent this year, which is 0.2 points lower than they had estimated in April. That’s the same rate of growth as in 2017, but the trade war is a major reason for the slight dip in expectations. The IMF also noted that the trade war could curb China’s economic growth by about 2 percent over the next two years. If true, it would be a major blow to China’s economy, which prioritizes continued growth above all else.
At midnight, the Trump administration reimposed sanctions on Iran that were lifted once the 2015 Iran nuclear deal was in place. The goal, as the administration said, is to force Tehran to stop funding proxies in the Middle East, supporting Syrian leader Bashar al-Assad, stealing money from regular Iranians, and improving its nuclear program. The sanctions target Iran’s main source of revenue – its oil exports – as well as its financial sector, essentially making 50 Iranian banks and their subsidiaries off limits to foreign banks on pain of losing access to the U.S. financial system. In effect, the US wants Iran to change everything about itself — or else. Iran will try to break the sanctions. That may be tough, as the US just placed penalties on more than 700 people, organizations, and vessels — mainly targeting the country’s oil, banking, and shipping industries — stopping them from accessing the international banking network and the US market. In October, a top UN court ruled that the US had to ease its sanctions on Iran for humanitarian reasons. Specifically, the US was told it could not restrict exports to Iran of food, medicine, and other items because it threatened the lives of ordinary citizens there. It’s unclear if the pressure on the Iranian people could lead to a revolt that would eventually topple the regime, but it seems that’s what the US administration wants.
The return of the sanctions was triggered by Trump’s May 8 decision to abandon the 2015 Iran nuclear deal, negotiated with five other world powers. That agreement had removed many US and other economic sanctions from Iran in return for Tehran’s commitment to curtail its nuclear program. Iran calls the new sanctions a form of economic warfare. Meanwhile, governments in the European Union are trying to devise ways to circumvent the sanctions. Voicing opposition to US policy on the day Washington announced a new raft of sanctions on Iran, the European Union reissued its Nov. 2 statement today saying it was still setting up the so-called special purpose vehicle. However, no EU country has so far volunteered to host the entity. The SPV, which could incorporate a barter system, aims to sidestep the U.S. financial system by using an EU intermediary to handle trade with Iran. It could ensure, for example, that Iranian oil bought by Europeans could be paid for with EU goods and services of the same value.
The Supreme Court will not take up challenges to “net neutrality” regulations that barred internet service providers from giving certain customers preferential treatment. The Trump administration overturned those regulations last year, and since June they have not been in effect. But a range of challenges to the regulations remained before the court. The court’s decision will leave in effect a decision from a federal appeals court in Washington upholding the constitutionality of the regulations. That means the decision can be relied on for precedent in the future.
Home improvement chain Lowe’s announced the closure of another 51 underperforming stores in the United States and Canada. There are also signs that Americans are spending less on housing as prices and demand peak after a seven-year recovery. Lowe’s operates about 1,800 U.S. stores and 300 in Canada; Lowe’s expects the closures to be completed by February, with the exception of some U.S. stores that are closing immediately. No Lowe’s stores are scheduled to close in Arizona.
Amazon is looking to build a second corporate headquarters – they call it HQ2, but they might need to think about HQ3. Amazon made the location selection a public contest; hundreds of cities submitted plans. Amazon narrowed the competition down to 20 cities, but that might not be enough. The second headquarters will be a big deal. The Washington Post reported on Saturday that Amazon is holding advanced discussions about opening HQ2 in Crystal City, in northern Virginia. Sources told the Post that the company was down to the last details of the decision, such as choosing office buildings. Now comes word that there might be 2 new headquarters. The idea is to spread the impact of the second headquarters, known popularly as “HQ2” across two communities, easing potential housing and transit problems caused by a sudden influx of tens of thousands of workers. 25,000 employees will go to each city the company selects. An announcement of HQ2 and HQ3’s locations could come as soon as this week.
FedEx will raise rates by an average of 4.9% as of January 7, 2019. That matches the increase that FedEx put in place at the start of 2018. FedEx rival UPS has yet to announce its rate increase for 2019. But the US Postal Service has proposed increasing its rates for Priority Mail boxes by an average of 5.9%. The Postal Service wants the rate hikes to take effect in January, but the government hasn’t yet ruled on the proposal. Costs are rising because of higher fuel prices. FedEx reported that in the quarter ending in August, its fuel costs were 40% higher than a year earlier, and labor costs were up 11%. The increased price of jet fuel alone increased its costs by more than $200 million in the quarter. FedEx has been able to capture some of those increased fuel costs through a separate fuel surcharge it has in place for some shippers. A shortage of truck drivers has driven up labor costs as well. FedEx and its competitors are struggling to keep up with increased demand for their services. The growth in online shopping has hiked shipping volumes.
Back in February, following the shooting at a high school in Parkland, Florida that left 17 dead, several companies ended their marketing affiliation with the NRA. FedEx has just announced it will end its discount shipping program for NRA members. FedEx painted its latest move as strictly a business decision motivated by low shipping volume.