…..Italy votes “NO”, but no problem thanks to Draghi Put. Austria leans left. Carson for HUD. Dakota pipeline might have environmental impact – who knew? ISM services bump. James Bullard comes to Phoenix to tour productivity. Consolidated Comm-Fairpoint. Amazon Go to automate grocery shopping. Elon Musk most admired.
Financial Review by Sinclair Noe for 12-05-2016.
DOW + 45 = 19,216
SPX + 12 = 2204
NAS + 53 = 5308
RUT + 23 = 1337
10 Y down fraction = 2.38%
OIL – .64 = 51.04
GOLD – 7.30 = 1170.80
The Dow Industrial Average moved higher in early trading to set a new intraday high of 19,274, and a new record high close.
Italy voters rejected a referendum that would cut the power of the senate, so Matteo Renzi resigned. Italy’s prime minister suffered a major defeat over the weekend in a constitutional-reform referendum he proposed. The measure began as a streamlining of government decision-making processes, and evolved into a vote of confidence in Renzi himself. Italy’s main bank index dropped around 3.5% in early European trading. Italian banks hold about one-third of the Eurozone’s more than $1 trillion in non-performing loans. Trading in Unicredit shares has been suspended after the bank’s stock fell by more than 5%. Italy has more than $2.1 trillion in outstanding government debt, worth more than 130% of GDP. The euro shook off earlier losses and equities climbed as the results of the election were widely expected. Say hello to the Draghi put.
The far right lost in Austria. The Freedom Party’s Norbert Hofer conceded defeat to left-leaning rival Alexander Van der Bellen in the presidential election. Austria is one of several EU countries facing growing far-right parties—France, the Netherlands, and Germany all have elections with similar stakes next year. Still, Hofer did get 47% of the vote.
Britain’s Supreme Court will hear arguments over the next four days to decide whether Theresa May has the right to trigger Article 50 of the Brexit process without a parliamentary vote. All 11 Supreme Court justices will hear the case, so that there can be no accusations the court would have delivered a different decision if the panel had been constituted differently. A verdict is expected in January.
President-elect Donald Trump criticized China in a series of tweets yesterday and he rejected concerns over his decision to take a phone call from Taiwan’s president. Also on Twitter, the President-elect had a warning for companies that offshore their manufacturing, saying they will face heavy new taxes if they wish to sell into the U.S.
Trump taps former rival Ben Carson to be housing secretary. President-elect Trump nominated Ben Carson to lead the Department of Housing and Urban Development. Carson ran against Trump in the Republican presidential primaries, and is a retired neurosurgeon. Carson had previously indicated reluctance to take a position in the incoming administration because of his lack of experience in federal government.
President-elect Donald Trump is widening the circle of candidates for secretary of state and will interview more prospects this week, transition officials said, a sign that after multiple meetings with high-profile hopefuls he still isn’t sold on who he wants as the nation’s top diplomat. Though Trump’s transition team said last week that the search had narrowed to four finalists, new candidates have emerged, including Rex Tillerson, chairman and chief executive officer of Exxon Mobil.
Meanwhile, Trump met with former Vice President Al Gore, an environmental activist who has devoted years to fighting climate change, Gore told reporters: “It was a sincere search for areas of common ground.” Trump has called global warming a hoax and threatened to quit climate accords, though he recently said he is keeping an “open mind.” Today, General Electric’s power services chief said even if Trump took the United States out of the 2015 Paris climate deal, it would not necessarily cut demand for plant improvements because utilities still want the economic benefits that come with modernizations.
Dakota Pipeline project denied federal permits as tribal protestors win the day. The U.S. Army Corps of Engineers said Sunday it would not allow the controversial Dakota pipeline project to proceed, denying permits for the project while it conducts an environmental review to assess route of the 1,170-mile pipeline.
OPEC expects oil demand in 2017 to be as robust as this year, even though recently agreed production cuts could raise prices for buyers. OPEC, along with Russia, last week agreed its first oil output cuts since 2008, looking to reduce production by around 1.8 million barrels per day beginning in January to try to reduce global oversupply and prop up prices. Oil prices have risen since the production agreement, with benchmark Brent crude oil futures topping $55 a barrel, and WTI topping $53 a barrel this morning before settling down. It’s important to remember that 1.8 million barrels is about one-fifth of US oil output, which has not cut back much at all, despite several bankruptcies in the oil patch; and is expected to ramp up production by year-end to bring overall output up year-over-year — and that was before this massive spike in prices driven by OPEC cuts.
The Institute for Supply Management, or ISM, said its non-manufacturing activity index jumped 2.4 percentage points to 57.2, the highest reading since October 2015. A reading above 50 indicates expansion in the sector, which accounts for more than two-thirds of U.S. economic activity. Services industries reported a 4 percentage point surge in production last month. A measure of services sector employment jumped 5.1 percentage points to a 13-month high. The services sector survey added to last week’s upbeat manufacturing survey and data on consumer spending in suggesting the economy maintained its momentum early in the fourth quarter after growing at a brisk 3.2 percent annualized rate in the July-September quarter. An ISM reading of 57.2 would be consistent with about a 3.5 percent annual rate in real GDP growth.
James Bullard, President of the Federal Reserve Bank of St. Louis was a featured speaker at the ASU Economic Forecast Luncheon in Phoenix today. Bullard said properly designed and executed policies to boost infrastructure, modify regulations for some industries, and overhaul the tax code “may have some impact … if they are directed towards improving medium-term U.S. productivity growth.” Bullard said it is too early to tell if the policies expected from the Trump administration could move the economy to a different “regime.”
And Chicago Federal Reserve bank president Charles Evans said in Chicago, “An infrastructure plan would be terrific,” adding “I think corporate tax rationalization would be a huge improvement.” Yet he agreed: “you don’t need explicit stimulus” with the jobless rate already so low.
New York Fed President William Dudley also delivered a speech this morning, painting a fairly benign picture of the current U.S. economy. Dudley said the U.S. election of Trump has created “considerable” uncertainty over the policies he will pursue so it is too soon for the Federal Reserve to judge whether its plan for gradual interest rate hikes needs adjusting.
Consolidated Communications Holdings said it would buy broadband service provider FairPoint Communications Inc in an all-stock deal valued at $1.5 billion, including debt. Consolidated’s acquisition of FairPoint marks the fifth such deal in the last two months as growing demand for data and video services drives companies to expand their fiber optic networks in newer regions. The deal will help Consolidated expand into northern New England.
The second of two proposed health insurance mega-mergers goes to trial today in Washington, D.C. The $37 billion combination of Aetna and Humana, two of the nation’s largest insurers, is being challenged by the Justice Department as being bad for consumers and could leave 17 million seniors in the Medicare Advantage market with little choice and higher prices.
Burberry has rejected multiple takeover offers from Coach. Informal talks for a cash-and-stock takeover of Burberry that would have created a luxury fashion brand worth more than $20 billion have gone nowhere, according to the Financial Times.
Liberty Mutual is buying the excess and surplus insurance company Ironshore from Fosun International for about $3 billion.
Amazon unveiled Amazon Go, a grocery-store concept that will automatically add shoppers’ products to a digital cart so they can walk out without waiting in a checkout line. The first store is set to open in downtown Seattle in 2017.
Elon Musk may have his share of doubters, but when it comes to the most admired leaders in tech, he completely dominates his peers, according to a recent survey of more than 700 startup founders. Tallying 23% of the write-in votes in First Round Capital’s annual State of Startups poll, Tesla’s Musk beat out Amazon’s Jeff Bezos, who earned 10%, and Facebook’s Mark Zuckerberg, at 6%. The most cited female was Sheryl Sandberg, Facebook’s COO, but she garnered only 1% of the vote. Musk took the top spot in last year’s survey, as well.