ECB holds on to ultra-loose policy, earnings season, strange moves in commodities, VW will pay for un-clean diesel, nobody invests anymore.
Financial Review by Sinclair Noe for 04-21-2016
DOW – 113 = 17,982
SPX – 10 = 2091
NAS – 2 = 4954
10 Y + .02 = 1.87%
OIL – .71 = 43.47
GOLD + 3.70 = 1249.00
The European Central Bank held its key interest rate at 0% and its deposit rate at negative -0.40%. European Central Bank President Mario Draghi brushed off German criticism of his ultra-loose monetary policy and vowed to use all the tools at his disposal for “as long as needed”. He said the ECB’s policy was working, which helped boost the euro. Draghi also stepped up his calls on euro zone governments to help get the region’s economy on a more solid footing through fiscal policy and more ambitious reforms.
According to a poll of over 1,000 American adults, even with the Dow Jones industrial average near its record high, only slightly more than half of Americans (52%) say they currently have money in the stock market, matching the lowest ownership rate in Gallup’s 19-year trend. Although Americans in all income groups are less likely to have stock investments now than before the Great Recession, middle-class Americans have been the most likely to flee the market. Nearly three in four middle-class Americans, with annual household incomes ranging from $30,000 to $74,999, said they invested money in the stock market in 2007. Today, only half report having stock investments. This 22-percentage-point drop is more than double the changes seen in stock investing among higher and lower income groups.
Regulators released long-awaited proposed rules that would restrict how big financial institutions can pay their top executives. The new rules would make bankers wait at least four years to receive portions of their bonuses and force banks to find ways to claw back bonuses from bankers if their behavior leads to big financial losses. The new rules would apply only to incentive-based compensation, generally bonuses. The structure of executive pay packages before the financial crisis was blamed for encouraging bankers to take unnecessary risks. The 2010 Dodd-Frank legislation required the major financial regulators to collaborate on rules aimed at encouraging a longer-term approach to compensation at big financial institutions. The regulators were supposed to propose the rules within 90 days of the law’s passage; and now, more than 5 years later, we have a proposal.
Commodities were booming in early trading today, with crude oil hitting a new 2016 high of $44.49 today. However Kuwait said it boosted oil output, and Libya said it could soon do the same. Iran also reiterated that it will not be part of any oil production freeze. Ahead of this past weekend’s Doha meeting, a key Saudi prince said his country had the capacity to unleash a million barrels of oil a day on the market, while reiterating a “we won’t freeze if everyone else doesn’t” stance.
One of the more interesting moves has been in the grains market. Soybeans blew through the big $10.00 resistance level, with very little resistance. Corn got a good pop above $4.00 and wheat traded above $5.00. The grains and beans have been on a two-week run. You might suspect there is bad weather, horrible growing conditions, but there is no news. Maybe the markets are factoring in some kind of risk premium and we just don’t know what it is yet, or maybe this market just got a little carried away, and is way overbought at these levels. Beats me.
The number of Americans filing for unemployment benefits fell last week, hitting its lowest level since 1973. Initial claims for state unemployment benefits declined 6,000 to a seasonally adjusted 247,000 for the week ended April 16. The labor market is strengthening despite signs that economic growth slowed sharply in the first quarter. Employers are holding onto their employees in convincing confirmation of the strength of the nation’s labor market.
The Conference Board’s index of leading indicators rose 0.2 percent in March to 123.4, snapping a three-month streak of declines. The index’s six-month growth rate points to “slow, although not slowing, growth in the coming quarters,” said the group in a release. “Financial conditions, as well as expected improvements in manufacturing, should support a modest growth environment in 2016.”
Solar energy company SunEdison filed for Chapter 11 bankruptcy protection this morning, becoming one of the largest non-financial companies to do so in the past 10 years. Once the fastest-growing U.S. renewable energy developer, SunEdison embarked on an aggressive acquisition strategy that left it struggling with $12 billion in debt. In its bankruptcy filing, the company said it had assets of $20.7 billion and liabilities of $16.1 billion as of Sept. 30. And if you are wondering what the bankruptcy of SunEdison says about the prospects for renewable energy, the answer is: not much. The failure of SunEd is the story of a company that took on too much debt and charted an overly aggressive growth strategy.
Volkswagen has reached a settlement in principle with the Environmental Protection Agency, California officials and consumers over a plan to fix or buy back nearly half a million vehicles that violated emissions standards. The deal includes “substantial compensation” for owners of cars powered by 2.0 liter diesel engines that were fitted with software to cheat emissions tests. Consumers will be allowed to sell their vehicles back to Volkswagen or get repairs.But financial details of the offer, which is still being finalized, were not disclosed. The cost to buy back all of the cars affected by the scandal would be more than $7 billion. Volkswagen will also be required to invest funds to “promote green automotive” initiatives and establish an environmental remediation fund after years of cars spewing nitrogen oxide emissions at harmful levels. A US district judge in San Francisco set June 21 as a deadline for the parties to file preliminary proposals on the settlement, after which the public will have a chance to comment before he signs off.
General Motors’ first-quarter earnings and sales beat analysts’ estimates by a wide margin as it posted record results in North America and stepped toward a 15-year goal of ending losses in Europe. Net income more than doubled to $2 billion and adjusted profit rose to $1.26 a share, easily topping estimates of $.99-cents per share.
Verizon Communications said profit in the first quarter met expectations as strong tablet sales helped it add new subscribers, though an ongoing strike by its wireline workers was expected to hurt earnings in the current quarter. Still, the No. 1 U.S. wireless carrier stood by its full-year profit forecast.
Southwest Airlines reported a quarterly profit above analysts’ estimates and said it expected unit revenue to rise “modestly” in the second quarter. Southwest said it earned $511 million in the first quarter, up from $453 million a year earlier.
Under Armour reported earnings of 4-cents per share, beating estimates of 2 cents; and revenue rose 30% to $1.05 billion versus estimates of $1.04 billion. But if you listening to the earnings call, you might have missed the numbers. CEO Kevin Plank mainly raved about basketball player Stephen Curry.
After the closing bell, Google parent Alphabet reported first-quarter earnings that fell short of analyst expectations as growing losses from the tech giant’s investments in speculative new businesses overshadowed Google’s booming advertising business. Alphabet reported earnings per share excluding certain items of $7.50. Analysts had expected $7.96, according to S&P Global Market Intelligence. Alphabet reported $17.26 billion in revenue. It was the second time that Alphabet reported financial results after restructuring as Alphabet. Now Google’s core business is separate from its “other bets” or so-called “moonshots,” many of which lose money such as smart gadget maker Nest and experimental lab X.
Microsoft’s quarterly adjusted profit missed analysts’ estimates as a continued slump in personal computer sales hurt the company’s core Windows business. Microsoft earned 62 cents per share. Analysts on average had expected a profit of 64 cents per share. Worldwide PC shipments fell 11.5 percent in the first quarter, according to research firm IDC.
Starbucks reported a 16% increase in second quarter earnings. Sales were the best of any non-holiday quarter ever, jumping 9.4% to $4.99 billion, from $4.56 billion in the year-ago quarter. That came in slightly below what analysts expected. Earnings per share came to 39 cents, in line with analyst expectations. Same store sales increased 6% globally.
Amazon has won a deal worth about $30 million to provide e-books to New York City, the nation’s largest school district. The city’s Panel for Educational Policy voted in favor of the three-year contract for the Department of Education, which will take effect in the coming school year. For New York, there may be savings in buying more digital books, as well as the prospect of saving storage space for printed texts.
The Federal Aviation Administration has issued the first approval for flights of small commercial drones at night, in the latest sign of how quickly U.S. regulators are moving to authorize expanded uses of unmanned aircraft. The clearance comes weeks before the FAA is expected to issue long-awaited rules for widespread commercial operations of small drones. So far, such unmanned vehicles have been conducting commercial flights based on thousands of individual exemptions previously permitted by the agency.