Don’t Drink the Water
Home sales, earnings reports, bad car companies, and the latest from SCOTUS.
Financial Review by Sinclair Noe for 04-20-2016
DOW + 42 = 18,096
SPX + 1 = 2102
NAS + 7 = 4948
10 Y + .07 = 1.85%
OIL + 1.43 = 43.90
GOLD – 6.00 = 1245.30
The S&P 500 hit an intraday high of 2111.05 today, less than 2% away from the 2134 all-time high, last May.
Purchases of previously owned U.S. homes rose more than projected in March. The National Association of Realtors reports contract closings climbed 5.1 percent to a 5.33 million annualized rate from February’s 5.07 million. The median price of an existing home rose 5.7 percent from March 2015 to reach $222,700. The median time a home was on the market decreased to 47 days from 52 days a year earlier. Meanwhile RealtyTrac reports Americans who sold homes in March realized the highest price gains since December 2007. On average, homeowners sold for $30,500 more than their purchase price, an average 17% price gain.
China’s Shanghai Composite Index fell the most in almost two months, closing 2.3 percent lower, having fallen as much as 4.5 percent during the trading session, with no obvious news driving the decline. The MSCI Asia Pacific Index was little changed, with small gains in Japan where the Topix index closed 0.2 percent higher.
Japan had its biggest surplus in more than 5 years. Japan announced a trade surplus of 755 billion yen in March, the largest since October 2010. However, the internals of the report didn’t look so good. Exports fell for a sixth straight month, down 6.8% compared to a year ago. On the other side of the ledger, imports shrank 14.9%, largely because of the weakness in energy prices.
Looking to counter dwindling oil revenues and reserves, Saudi Arabia is raising $10 billion from a consortium of international banks as it embarks on its first global debt issuance in 25 years. The landmark five-year loan, a signal of Riyadh’s newfound dependence on foreign capital, comes as the sustained oil slump encourages other Gulf governments, such as Abu Dhabi, Qatar and Oman, to tap world bond markets.
Kuwait oil workers said they would end a strike that disrupted output from OPEC’s fourth-largest producer for three days. The size of the disruption, had the strike persisted, would have been quite significant. Meanwhile, API industry data that showed a 3.1 million barrel U.S. inventory build last week, about double estimates. This morning, the Department of Energy said that crude oil inventories rose by just 2.08 million barrels, which was less than the 2.29 million consensus. Plus, crude stocks at the key Cushing, Oklahoma supply point (which is where the WTI price is settled), fell by 248,000 barrels, a much bigger-than-expected decline. WTI Crude hit a new 2016 high at $44.26 today, a level not seen since November.
Reuters reports Volkswagen and US officials have reached a framework deal under which the automaker would offer to buy back almost 500,000 diesel cars that used software to cheat on emission rules. VW is expected to tell a federal judge in San Francisco tomorrow that it has agreed to offer to buy back up to 500,000 2.0-liter diesel vehicles sold in the United States. That would include versions of the Jetta sedan, the Golf compact and the Audi A3. The buyback offer does not apply to the bigger 3.0-liter diesel vehicles also found to have exceeded U.S. pollution limits, including Audi and Porsche SUV models. Volkswagen has also agreed to a compensation fund for owners, but it is not clear how much owners might receive.
Mitsubishi Motors cheated to look more environmentally-friendly. Japanese automaker Mitsubishi Motors admits it falsified test data to make its cars look more fuel efficient. Mitsubishi says it manipulated the test results of 625,000 cars that have been made over the past three years, and that it would stop making those cars immediately. An independent panel has been created to investigate the matter. The manipulated data covers four vehicle models that fall under the Japanese category of kei car. This is a classification that covers minivans, trucks, and passenger cars, but is reserved for vehicles that meet economical fuel consumption standards and are consequently taxed at a lower rate.
Coca-Cola’s sales fell for the fourth straight quarter as demand weakened for its fizzy drinks in Europe and a strong dollar ate into revenue from other markets outside the United States, including Latin America. Net income fell 4.5 percent to $1.48 billion, or 34 cents per share. Net operating revenue fell 4 percent to $10.28 billion.
United Continental Holdings reported first-quarter profit above analysts’ expectations and said it would slow its growth plans because flight capacity across the industry has exceeded passenger demand, pushing down prices. The number 3 airline earned $313 million in the first quarter, down 25% from a year earlier.
Qualcomm earned $1.04 per share, beating average analyst’ estimate of $0.96. Qualcomm forecast third-quarter profit below analysts’ expectations as it expects a drop in chip shipments, its biggest business. Qualcomm, whose chips are used in Apple and Samsung smartphones, expects chip shipments to fall 13-22 percent to 175-195 million in the current quarter.
Toymaker Mattel reported a bigger-than-expected quarterly loss, largely due to weak sales in its Monster High and American Girl brands. Sales of Barbie dolls fell 3.4 percent in the first quarter and have declined in seven of the last eight quarters.
American Express’ profit fell for the fourth straight quarter as costs jumped 5 percent after the credit card issuer boosted spending to fend off rising competition. They still posted income of $1.4 billion on $8.1 billion in revenue.
Pipeline operator Kinder Morgan reported a lower first-quarter profit and further cut its 2016 capital budget. Pipeline companies, once seen as more insulated from commodity price swings due to fixed-fee contracts, are now increasingly facing the risk of bankrupt oil and gas companies reneging on their contracts.
U.S. Bancorp reported a 3 percent fall in quarterly profit, weighed down by higher costs and increased reserves for bad loans to the energy industry. Net income fell to $1.39 billion in the first quarter ended March 31, from $1.43 billion a year earlier. The bank said credit quality was relatively stable other than energy-related commercial loans.
European earnings roundup: SAP’s net profit jumped 38%, indicating that its focus on the cloud is beginning to pay off. ARM Holdings’ pre-tax profits rose 14%, as it expanded licensing growth in a solid first quarter. Hurt by a strong dollar and drop at its Latin American business, Syngenta reported its fifth straight quarterly decline in sales. ABB suffered a 7% drop in orders, but the Swiss industrial giant’s profit fell less than expected. Heineken far exceeded analyst expectations, benefiting from a 23% rise in Asian sales due to the Lunar New Year.
Lexmark agreed to be acquired by a consortium led by Apex Technology of China and PAG Asia Capital. The deal – which pays the company $40.50 a share, a 17% premium to the closing price Tuesday – has an enterprise value of about $3.6 billion, when factoring in debt. Lexmark intends to keep its company headquarters in Kentucky.
UnitedHealth Group will drop out of government-organized health insurance markets in at least 18 states, including Arizona, as the industry leader tries to stem losses from participating in Obamacare. In the states where UnitedHealth stops offering ACA plans for next year, people who are currently enrolled with the insurer will have to choose a new health plan during open enrollment. Their current coverage isn’t affected.
Google is under fire again from EU regulators who say it abused the dominant position of Android. Eurozone regulators allege Google breached competition laws by requiring manufacturers to pre-install apps and operating systems based on the Android open source code. If it is found to have broken the region’s rules, Google could face fines of up to 10% of its global revenue, up to $7 billion max. Google is already facing EU charges over the promotion of its shopping service in Internet searches at the expense of rival services in a case that has dragged on since late 2010 despite three attempts to resolve the issues.
The U.S. Supreme Court upheld Arizona’s state legislative districts, rejecting contentions that the map unconstitutionally dilutes the influence of Republican voters. The justices unanimously said the map, drawn by an independent commission, complies with the “one person, one vote” principle. A group of Arizona residents contended that the commission actually had partisan motivations and packed Republicans into a handful of districts to give Democrats an edge. A three-judge panel said the commission wasn’t driven by partisan motivations but by an effort to comply with the U.S. Voting Rights Act.
The Supreme Court has ruled that Iran’s central bank must pay nearly $2 billion to victims of terrorist attacks. The cases were brought by the families of Americans killed in terrorist attacks found to have been sponsored by Iran, including relatives of the 241 servicemen who died in the 1983 Marine Corps barracks bombing in Lebanon. The plaintiffs sought to collect frozen funds from Bank Markazi, Iran’s central bank, relying on a 2012 federal law, the Iran Threat Reduction and Syria Human Rights Act; that made the task easier by specifying assets of the bank that could satisfy the plaintiffs’ judgments. The law was quite specific, naming a single, pending consolidated case by caption and docket number.
Two officials with the Michigan Department of Environmental Quality and a water official from the City of Flint are facing criminal charges as a result of an investigation into the lead-contaminated water case in Flint. The three men face felony charges including misconduct, neglect of duty and conspiracy to tamper with evidence. They’ve also been charged with violating Michigan’s Safe Drinking Water Act. State Attorney General Bill Schuette says the charges are “only the beginning” of a lengthy and exhaustive probe.