Financial Review

Fizzy

…Stocks move higher. Earnings season starts with fizz. Goodbye Doughboy. Quits up. Global debt soars. BMW and Tesla to China. Trump to Brussels and UK and Helsinki – what could go wrong? #SavethePolishDog. Try to avoid a 15.4(c) breach.

Financial Review by Sinclair Noe for 07-10-2018

DOW + 143 = 24,919
SPX + 9 = 2793
NAS + 3 = 7759
RUT – 8 = 1695
10 Y + .01 = 2.87%
OIL + .19 = 74.04
GOLD – 2.20 = 1256.00

 

Stocks moved higher but it wasn’t a fulsome rally. You could make the argument that you only need to track a handful of stocks. Amazon, Netflix and Microsoft together this year are responsible for 71 percent of S&P 500 returns and for 78 percent of Nasdaq 100 returns. Apple also makes up a large portion of both indexes, contributing 12 percent of both S&P 500 and Nasdaq 100 returns, while Alphabet and Facebook contributed 8 percent to each.

 

 

PepsiCo’s shares jumped about 4 percent, for their biggest one-day gain in nearly seven years after the company’s quarterly results topped estimates on strong sales of snacks. The company also reaffirmed its full-year forecast amid signs of a gradual recovery in its soda business. Excluding one-time items, the company earned $1.61 per share, beating analysts’ average estimate of $1.52 per share. Total revenue rose 2.4 percent to $16.09 billion, edging past analysts’ average estimate of $16.04 billion PepsiCo drove a gain in the consumer staples index, with Coca-Cola rising 1 percent.

 

Boeing’s first-half aircraft orders were more than double those of Airbus, while its jetliner deliveries rose 7.4 percent from the year-ago period. Boeing recorded 460 net aircraft orders during the period compared to 206 orders for Airbus. The Boeing report comes ahead of the Farnborough Airshow, which kicks off July 16 outside of London. Global plane makers could pull down 900 orders and commitments from the show, down slightly from last year’s event.

 

JM Smucker is selling Pillsbury, other US baking brands for $375 million. The deal includes a manufacturing facility in Toledo, Ohio, but excludes the baking business in Canada. Smucker in May completed its $1.9 billion acquisition of Rachael Ray Dog food maker Ainsworth Pet Nutrition.

 

More American workers voluntarily quit their jobs in May. In its monthly Job Openings and Labor Turnover Survey, or JOLTS, the Labor Department said the number of workers leaving jobs of their own free will increased 212,000 to 3.3 million. That lifted the quits rate one-tenth of a percentage point to 2.4 percent, the highest since April 2001. Quits are seen as a sign of confidence in the labor market; showing that workers feel so good about the economy they are willing to leave one company for another. Most workers who leave jobs voluntarily end up getting better pay or benefits elsewhere. The JOLTS report also showed there were 6.6 million unfilled jobs at the end of May, down from the record 6.8 million vacancies reported in April. Still, the result was a job opening for every unemployed person who was looking for one. Demand continues to be strongest for service industry jobs, including retail, health care, hotel and restaurant workers.

 

The amount of debt held in the world rose by the largest margin in two years during the first quarter of 2018, growing by $8 trillion during the first three months of the year. The Institute of International Finance reports global debt has now risen to more than $247 trillion, which is 318% of the world’s gross domestic product. Additionally, IIF found that global debt increased by $30 trillion since just the fourth quarter of 2016. The problem with the pace and speed is if you borrow or if you lend very quickly … the quality of the credit tends to suffer. global debt-to-GDP increased for the first time in more than a year with financial sector debt reaching an all-time high of around $61 trillion. The concern for the US economy is that debt is increasing at the same time the Federal Reserve is raising interest rates, meaning it will be more expensive to repay the debt.

 

Trump is in Brussels for a meeting of the North Atlantic Treaty Organization. Before taking off for Brussels, Trump again chided fellow NATO members for not contributing enough to the alliance while maintaining a trade surplus with the United States. European Council President Donald Tusk responded: “Dear America, appreciate your allies, after all you don’t have that many.” After the NATO meeting, Trump heads to the UK. British police are mobilizing in numbers not seen since widespread rioting in 2011, in order to meet planned anti-Trump protests. The US embassy in London told US citizens in Britain to “keep a low profile” for the duration of Trump’s trip—and to be aware of their surroundings. From there, a summit in Helsinki with Russian President Putin.

 

The trade war is producing lots of collateral damage in specific sectors – to soybean farmers in the Midwest, and U.S. manufacturers who are dealing with supply chain disruptions and higher costs. The trade war could get much more serious if Trump imposes massive new auto tariffs or blockbuster new tariffs against China. Yes, this could get worse before it gets better, but for now the financial markets – especially in the U.S. – are focusing on earnings and interest rates, both of which look just fine despite the global uncertainties.

 

China’s commerce ministry said it is raising “anti-dumping tariff rates” for some optical fiber products originating from the United States, effective tomorrow. The new anti-dumping tariff rates for dispersion unshifted single-mode optical fiber imported from the U.S. range between 33.3 percent to 78.2 percent, compared with 4.7 percent to 18.6 percent as set in 2011. U.S. companies including Corning, OFS Fitel, and Draka Communications are among firms affected by the tariff change.

 

Despite the Trump administration’s new tariffs on imports—intended to reduce trade deficits and bring production back to the U.S., it isn’t quite working out that way. U.S. manufacturers that have moved production to low-cost regions overseas aren’t bringing that factory work back to the country, according to a new report from business consultancy A.T. Kearney. The report suggests that returning industrial production to the U.S., will remain tough as manufacturers adjust their supply chains to a new trading landscape. U.S. manufactured-goods imports from the top offshoring countries grew faster than American manufacturing output in eight of the last 10 years.

 

BMW said that it would move production for some of its SUVs out of the U.S. as a result of new tariffs placed on the vehicles. The German-based automobile manufacturer signed an agreement with its Chinese partner, Brilliance Automotive Group Holdings, to increase the number of vehicles produced in the country, with the total reaching 520,000 by 2019. BMW is the largest U.S. auto exporter and employs 10,000 people at a plant in Spartanburg, S.C.

 

Tesla has plans to open a plant in Shanghai that will one day crank out 500,000 vehicles a year — enough to rival the company’s main plant in Fremont, California. Tesla said it will be the sole owner of the factory. Until now, China has always required foreign companies to enter joint ventures with domestic companies. Tesla expects to begin construction in the near future, after it gets the necessary government approvals. From there, the plant will take about two years to build and two to three more years to produce 500,000 vehicles a year.

 

The U.S. government must reunite 63 children under the age of five who were separated by immigration officials after crossing into the United States from Mexico as soon as Tuesday or face penalties. The judge told government attorneys he was sticking with deadlines he set last month, when he ordered children under five to be reunited Tuesday and another 2,000 to be back with their parents by July 26.

 

Last night, Trump nominated Brett Kavanaugh for the U.S. Supreme Court. Kavanaugh still has a long way to go before he gets his confirmation vote in the Senate. We are still about 3 months away from an actual confirmation vote, possibly longer. Kavanaugh has authored nearly 300 opinions from the Circuit Court bench over more than a decade, so there will be plenty to scrutinize. The volume of records at issue is likely to slow the timeline for confirmation hearings and may make any hearing before the August recess out of the question.

 

CNBC has released its annual list of Top States for business. Texas took top honors. Arizona ranked 20th.

 

Costco just unveiled a new menu for its food court and one change isn’t going over well on social media. Costco still offers its famous $1.50 deal for a hot dog and a fountain soda, but the Polish dog combo ― also with a soda, and for the same price ― has been banished. The change is part of a food court makeover that includes the addition of a burger, an acai bowl and a meatless al pastor salad. Curb your enthusiasm.

 

Starbucks will stop using disposable plastic straws by 2020, eliminating more than one billion straws a year. In the United States alone, an estimated more than 500 million disposable plastic straws are used every day. Although plastic straws are made from polypropylene, a recyclable plastic, most recyclers won’t accept them; they are just too small and lightweight to handle.

 

Twitter suspended more than 70 million accounts in May and June and continued the suspensions apace into July, in an escalation of its fight against fake and suspicious accounts.

 

PayPal wrote to a woman who had died of cancer saying her death had breached its rules and that it might take legal action as a consequence. The firm has since acknowledged that the letter was “insensitive”, apologised to her widower, and begun an inquiry into how it came to be sent.  From the letter: “You are in breach of condition 15.4(c) of your agreement with PayPal Credit as we have received notice that you are deceased… this breach is not capable of remedy.”  Sadly, no!

 

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