Financial Review

Earnings Reporting Season Kicks Off

…..JPM, WFC, and C all report. Producer prices flat, but up for the year. Consumer sentiment to 17 year high. Oil inventories increased. Iron Ore free fall. Electricity use is in long-term downtrend. Canada goes to pot.

Financial Review by Sinclair Noe for 04-13-2017

DOW – 138 = 20,453
SPX – 15 = 2328
NAS – 31 = 5805
RUT – 13 = 1345
10 Y – .06 = 2.23%
OIL – .07 = 53.04
GOLD + 1.20 = 1288.80

 

JPMorgan Chase kicked off a day of earnings reports for three of the nation’s biggest banks with first-quarter earnings that were stronger than expected. The bank reported a nearly 17 percent increase in net profit thanks to rising loans and a bump from its trading business. The bank earned $6.4 billion, or $1.65 a share — more than $1.52 a share that analysts had expected. JPMorgan closed down 1.1%

 

Wells Fargo has been trying to rebuild its reputation after revelations that the bankers, under pressure to meet sales targets, opened thousands of fake accounts in customers’ names. The scandal continued to weigh on the bank’s consumer businesses in the first quarter of 2017. Wells Fargo said revenue and profit were essentially flat in the quarter compared with the same period a year earlier. Mortgage banking revenue fell 23 percent from a year ago. Wells Fargo shares fell 1.7 percent. Late yesterday Berkshire Hathaway also disclosed it had cut its stake in the bank to avoid regulations on shareholders owning more than 10% of a systemically important financial institution. Warren Buffett’s Berkshire sold more than 7 million shares earlier in the week.

 

Citigroup reported it earned $4.09 billion, or $1.35 a share, up 17 percent from $3.5 billion, or $1.10 a share, in the quarter a year earlier. Revenue rose 3 percent, to $18.1 billion from a year earlier. Trading in bonds, currencies and other financial products was strong, with revenue rising 19 percent, to $3.6 billion, in the quarter from a year ago. Citigroup also reported a big jump in revenue and profit from Europe. The gets well over half of its revenue from overseas. Sales from Europe, the Middle East and Africa rose 30 percent to $2.8 billion compared with a year earlier, while profit from the region more than doubled to $855 million. Citi dropped 0.8 percent.

 

The bank sector was the best-performing group following the November election, but that rally has stalled. On Wednesday, the group turned negative for the year.

 

A report from the University of Michigan showed that U.S. consumer sentiment unexpectedly strengthened in April as consumer optimism on current economic conditions climbed to its highest level since November 2000.

 

Initial claims for state unemployment benefits slipped 1,000to a seasonally adjusted 234,000 for the week ended April 8, the Labor Department said. That was the third straight weekly decline in claims and left them near a 44-year low of 227,000 hit in February. The low level of claims suggests that the slowdown in job growth in March was a blip and the labor market is tightening.

 

The Labor Department said its producer price index for final demand slipped 0.1 percent last month, the first decline since August. The PPI gained 0.3 percent in February. Despite last month’s dip in prices, the PPI shot up 2.3 percent in the 12 months through March. That was the biggest increase since March 2012 and followed a 2.2 percent jump in February. A 0.1 percent dip in prices for final demand services accounted for three quarters of the drop in the PPI in March. Energy prices fell 2.9 percent, the first decline since August, with the cost of gasoline down 8.3 percent. With oil prices rising in recent days and recovering nearly all of March’s losses, monthly producer prices are likely to resume their upward trend. The dollar’s 2.8 percent drop this year against the currencies of the United States’ main trading partners is also keeping the underlying trend in producer prices elevated.

 

Global oil inventories probably increased in the first quarter despite OPEC’s near-perfect implementation of production cuts aimed at clearing the surplus. The International Energy Agency said cutbacks by OPEC and Russia since January have brought world markets “very close to balance” and should deplete stockpiles in the second quarter, inventories nonetheless expanded “marginally” because of production increases just before the deal took effect, the IEA said in its monthly report on Thursday. The agency lowered estimates for global demand growth because of weaker-than-expected economic activity in India and Russia. Oil inventories in the 34-nation Organization for Economic Cooperation and Development increased by 38.5 million barrels in the first quarter to about 3 billion barrels, offsetting the decline in emerging economies. The IEA trimmed forecasts for global oil demand growth this year by about 100,000 barrels a day to 1.3 million a day, or 1.4 percent, as a result of weaker OECD consumption and economic activity in India and Russia “slowing abruptly.”

 

Iron ore is in free fallThe price plunged 8.5% to $68.04 a ton on Wednesday, and it has lost 16.6% over the past five sessions. Iron ore is down 28.3% since its multiyear high of $94.86 a ton on February 21.

 

Earlier this week, Tesla’s market capitalization briefly topped General Motors. Time to roll out the trucks.  Tesla will show an electric semi-truck in September and a pickup in 18 to 24 months, plus they will bring back the Roadster as a convertible. The trucks are expected to be at least semi-autonomous.

 

For more than a century after the advent of commercial electrical power in the late 1800s, electricity use in the U.S. rose and rose and rose. Sure, there were pauses during recessions, but the general trajectory was up. Until 2007. The initial drop in electricity use in 2008 and 2009 could be attributed partly to the economic downturn. But the economy grew again in 2010, and every year since. Electricity use in the U.S., meanwhile, is still below its 2007 level, and seemingly flatlining. The change is even more dramatic if you measure on a per-capita basis. Per-capita electricity use has fallen for six years in a row. We’re now back to the levels of the mid-1990s, and seemingly headed lower. It seems a little hard to believe because we have all sorts of new digital devices, but most of those devices are pretty efficient. The corporate focus on costs has increasingly come to include energy costs, and parts of the corporate world have also reorganized themselves in ways that make saving energy more of a priority.

 

Consider the shift to cloud computing. From 2000 to 2005, electricity use by data centers in the U.S. increased 90 percent. From 2005 to 2010, the gain was 24 percent. As of 2014, data centers accounted for 1.8 percent of U.S. electricity use. What happened? The nation outsourced its computing needs to cloud providers, for whom cutting the massive electricity costs of their data centers became a competitive imperative. So they innovated, with more-efficient cooling systems and new ways of scaling back electricity use when servers are less busy.

 

In an article published in the Electricity Journal in 2015, former Lawrence Berkeley energy researcher Jonathan  Koomey offered five reasons why electricity use is down. State and federal efficiency standards for buildings and appliances have enabled us to get by with less electricity. Increased use of information and communications technologies have also allowed people to conduct business and communicate more efficiently. Higher prices for electricity in some areas have depressed its use. Structural changes in the economy have reduced demand. Electricity use is being underestimated because of the lack of reliable data on how much energy is being produced by rooftop solar panels.

 

We could expand on that; the economy of the US has undergone a structural change –  a shift away from manufacturing toward sectors that may not provide the kinds of jobs or competitive advantages that factories do. So, does that mean electricity use is in permanent decline? Not likely. Transportation now accounts for just 0.3 percent of retail electricity use in the US. If the shift to electric vehicles ever picks up real momentum, that’s going to start growing, and fast.

 

There are no plans to remove the maple leaf from the Canadian flag, but our northern neighbors are about to be famous, or infamous, for a different type of leaf. Prime Minister Justin Trudeau introduced legislation on Thursday to legalize the recreational use of marijuana in Canada. Many nations have either decriminalized marijuana, allowed it to be prescribed medically or effectively stopped enforcing laws against it. But when Mr. Trudeau’s bill passes as expected, Canada will become only the second nation, after Uruguay, to completely legalize marijuana as a consumer product. Though eight American states have legalized marijuana to various extents, the drug remains illegal under federal law. While the new legislation will take Canada beyond its medical marijuana system, it stops far short of creating an open market. The law will require purchasers to be at least 18 years old — though provinces can set a higher minimum — and it will limit the amount they can carry at any one time to 30 grams, about an ounce. Households will be allowed to grow up to four marijuana plants. Each province will decide where and how marijuana may be sold and will set prices.

 

The promise of the new law has prompted investors to bid up the stocks of 11 licensed medical marijuana growers. Several have tripled or quadrupled in price over the past year – although down today. But while the existing licensed growers — more than 40 in all, including those that are not publicly traded — are expected to have a head start in the recreational market, it is not clear that they will see a boom of the kind that, say, whiskey distillers enjoyed after Prohibition was repealed.

 

U.S. financial markets will be closed in observance of Good Friday.

 

 

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