Financial Review

Do Not Go Softly

…A week commemorating John McCain. US-Mexico might have a trade deal. Stocks hit record highs. Farm aid. Yield curve flattens. Tesla stays public.

Financial Review by Sinclair Noe for 08-27-2018

DOW + 259 = 26,049
SPX + 22 = 2896
NAS + 71 = 8017
RUT + 2 = 1728
10 Y + .02 = 2.85%
OIL + .22 = 68.94
GOLD + 5.50 = 1211.80

 

John McCain will be buried at the U.S. Naval Academy in Annapolis, Md., on Sunday, Sept. 2, following a week of memorial services commemorating his life.

 

On Wednesday, a service open to the public will be held at Arizona’s state capitol; the service is expected to be streamed online. McCain will lie for a private service at 10 a.m. local time, and the public will be allowed to view him at 2 p.m. local time.  A memorial service will take place Thursday at North Phoenix Baptist Church. The senator’s official government site stated it was unable to accept any more ticket requests. The event is expected to be live streamed.

 

McCain will then lie in the U.S. Capitol Rotunda in Washington, D.C., on Friday, with a ceremony starting at 10 a.m. ET. After the ceremony, the public can view McCain from 2 p.m. to 8 p.m. ET. McCain previously requested that Presidents Barrack Obama and George W. Bush give eulogies at his service at the National Cathedral. Obama’s Vice President Joe Biden will deliver remarks at a separate service in Arizona honoring McCain. Trump was not invited to the funeral and is not expected to attend.

 

On Saturday, a private memorial will take place at Washington National Cathedral at 10 a.m. ET. The event will be held for McCain’s friends, colleagues and family, and will not have a live stream, according to the late senator’s site. Following a private funeral service, McCain will be buried Sunday afternoon at the U.S. Naval Academy Cemetery in Annapolis, Maryland, beside former classmate and friend Chuck Larson.

 

McCain’s death in office marks the first time in Arizona’s more than 100-year history that a governor would have to fill a Senate seat by appointment. Arizona Gov. Doug Ducey expects to pick a successor to the late Sen. John McCain sometime next week. Ducey’s choice would serve at least through 2020. The state would hold a special election that year to fill the remainder of McCain’s term through 2022. Another election for McCain’s seat would take place in 2022, because the senator won re-election for a six-year term in 2016. Until a (presumably Republican) replacement is named, only 50 Republican senators are available to vote, while the Democrats and independents together number 49. This means that just one Republican senator joining the Democrats and independents would give them 50 votes, against only 49 Republicans, until McCain’s successor is sworn in. And even after that, a total of two Republican senators would have it in their power to create a 51-vote majority.

 

Flags are to be flown at half-staff until McCain is laid to rest on Sunday. More than 30 people have been honored by lying in state in the Capitol Rotunda, and only two individuals have been chosen to lay in state in the Arizona State Capitol Museum Rotunda: Arizona State Senator Marilyn Jarrett in 2006 and Olympic gold medalist Jesse Owens, a Tucson resident, in 1980

 

The S&P 500 gained 0.8 percent to close at 2,896.74 — a record high — with materials and financials as the best-performing sectors. The Nasdaq Composite climbed 0.9 percent to an all-time high, breaking above 8,000 points for the first time, as Facebook, Amazon, Netflix and Alphabet rose. Tech’s gains led the Nasdaq to close at 8,017.90. The Dow Jones Industrial Average rose 259.29 points to 26,049.64 as Caterpillar outperformed. Monday also marked the first time since Feb. 1 that the Dow closed above 26,000.

 

The US has reached an agreement with Mexico to revamp NAFTA, the North American Free Trade Agreement. The idea is to terminate the existing NAFTA accord, something that would require congressional approval. U.S. Trade Representative Robert Lighthizer said the administration plans to notify Congress on Friday that an updated deal is complete. That would start the 90-day clock in which the three nations would need to sign the new deal by the end of November. The U.S.-Mexico deal would require 75 percent of auto content to be made in U.S. and Mexico, up from 62.5 percent. The deal also would require that 40-45 percent of auto content be made by workers earning at least $16 per hour. The new deal will last 16 years and will be reviewed every six years. It will not cap imports of light vehicles from Mexico. The new agreement also puts greater emphasis on crafting rules to govern the “digital economy” and protect copyrights and intellectual-property rights, areas in which the U.S. is a global leader.

 

The new deal does not include Canada, at least not now – maybe later. Trump said he would talk to Canadian Prime Minister Justin Trudeau soon – though he threatened that it would be easier to put tariffs on Canadian cars instead of including Canada in the agreement with Mexico. The first thing to note is that there are three members in NAFTA: the US, Mexico, and Canada. Canada has purposefully stayed out of talks for weeks because it wanted the US and Mexico to resolve some of their trade problems. One of the issues Canada will certainly want to discuss is how to resolve trade disputes between NAFTA countries. Changes to NAFTA require congressional approval– which may or may not happen.

 

GM and Fiat-Chrysler rose 4.3 percent, while Ford increased 2.8 percent. Shares of Caterpillar and Boeing rose 2.8 percent and 1.3 percent, respectively. Their stocks are considered trade bellwethers because of their large exposure to overseas markets. The Mexican peso rose 0.7 percent against the dollar. The positive response from markets likely because the deal is the first clear evidence the White House is willing to compromise on its hardline demands and avert ruinous trade wars. No mention of Mexico paying for a wall. The Canadians and no doubt the Europeans and Chinese are likely to comb over the details of the agreement. The U.S. is sure to use the deal with Mexico as a template for negotiations in talks with other countries to update trade rules that Trump has long complained are unfair.

 

The Department of Agriculture announced its farm aid package would include $4.7 billion in direct payments to farmers to help offset losses from retaliatory tariffs on American exports. The bulk of the payments, $3.6 billion, would be made to soybean farmers. That amounts to $1.65 per bushel multiplied by 50 percent of expected production. China has traditionally bought about 60 percent of U.S. soybean exports. But it has been largely out of the market since implementing tariffs on U.S. imports in retaliation for the Trump administration’s tariffs on Chinese goods. The aid package, announced at $12 billion in July, will also include payments for sorghum of 86 cents per bushel multiplied by 50 percent of production, 1 cent per bushel of corn, 14 cents per bushel of wheat, and 6 cents per pound of cotton. Sign-up for the program will begin on Sept. 4, to coincide with the 2018 harvest, and end in January.

 

The spread between the US 10-year and two-year yields touched 19 basis points on Monday. It has gone negative before every recession dating back to the 1960s.Several Federal Reserve officials have cited the flattening yield curve as a reason to stop raising interest rates, since historically each time it inverts, with short-term rates rising above long-term rates, a recession follows. in a study published today, researchers at the San Francisco Federal Reserve Bank say a narrowing gap between short-term and long-term borrowing costs could be signaling heightened risk of a U.S. recession. Still, they noted, “the flattening yield curve provides no sign of an impending recession” because long-term rates, though falling relative to short-term rates, remain above them.

 

Shares of chipmaker AMD gained more than 5 percent, hitting a 12-year high and extending its rally for a third day. The stock closed at $25.26 after reaching a session high of $27.30. The stock has gained roughly 30 percent in August and nearly 150 percent in 2018.

 

Amazon Web Services has emerged as a dominant force in cloud computing by hosting other companies’ technology infrastructure in its data centers. But AWS is also rolling out services for companies that do it the old way. Amazon and VMware introduced a version of Amazon’s cloud-based database management software that’s meant for companies that still use on-premises data centers. The announcement is the latest example of Amazon’s shift in strategy to support corporate computing outside its own facilities, even as more business moves to the cloud, where AWS is the market leader. The move strengthens AWS’ so-called hybrid-cloud offerings against rivals Microsoft, Google and IBM.

 

Elon Musk now plans to keep Tesla public. Musk sent an email to Tesla employees late Friday, saying,  “After giving this a lot of thought, I have come to the conclusion that the best path for the foreseeable future is for Tesla to remain a public company. There are certainly a number of very compelling reasons to go private, so this is far from an obvious decision, but, on balance, being public appears to best serve the interests of Tesla and those who have invested in our future.”

 

Uber is receiving a new $500 million investment from Toyota. With that investment, Uber plans to provide its self-driving technology to a fleet of Toyota minivans. The fleet will also be equipped with Toyota’s safety software, called Guardian, and will pick up passengers on Uber’s ride-hailing network. The companies anticipate launching a pilot program by 2021. By partnering with Toyota, Uber can keep testing driverless technology in cars without the expense and hassle of maintaining a full fleet.

 

 

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