From Beige to Blue
…..Beige Book moderately optimistic, except Houston. Building starts down, mainly apartments. Saudi Arabia issues debt. China’s 3Q GDP 6.7%, again. Earnings: Intel beats but forecast misses, Morgan Stanley beats, Yahoo beats, Halliburton posts a penny, Amex misses Costco. Google all-time high. New Macs? Don’t pay for delayed luggage. Americans work more. Arizona turning blue.
Financial Review by Sinclair Noe for 10-19-2016
DOW + 40 = 18,202
SPX + 4 = 2144
NAS + 2 = 5246
10 Y un = 1.75%
OIL + 1.05 = 51.67
About a month before a Federal Reserve FOMC meeting, the Fed compiles information from around the country; and 2 weeks before the meeting, (today) they publish the anecdotal info in the Beige Book. For the most part, the economy grew at a steady pace between late August and early October. Outlooks were mostly optimistic, although contacts in a few districts expressed concern about economic uncertainty surrounding the upcoming presidential elections. The job market “remained tight” with modest employment and wage growth. A tight labor market has yet to lift inflation to the Fed’s 2 percent target. The report characterized price growth generally as “mild,” as manufacturers in the Midwest reported lower prices for finished goods and the hospitality industry on the West Coast saw modest price gains. Overall, prices increased “slightly on net.” Housing expanded in most districts, but home inventories were reported to be low enough to restrain sales in some districts. The oil and gas sector showed signs of stabilizing, and Dallas Fed energy business contacts expect 2017 to be a better year. If you’re looking for a dark spot, look no further than Houston Texas, where the housing market, apartment market, commercial real estate, and auto sales are all in trouble. And although the Beige Book was published for the November FOMC meeting, we are left with the question – is this enough to hike rates in December?
The Atlanta Federal Reserve’s GDP Now forecast model was revised slightly higher to show the economy is on track to grow at a 2.0 percent annualized pace in the third quarter. Back in August the initial projection was for 3.6% third quarter growth. The Atlanta Fed also revised its forecast on federal spending in the third quarter to a 0.3 percent increase from a prior estimate of a 0.1 percent decrease. On Friday, the Bureau of Fiscal Services said in its Treasury Monthly Statement that federal outlays in October totaled $347.58 billion, compared with $274.39 billion in September and $334.43 billion a year earlier.
Builders broke ground on the fewest new homes in a year and a half in September. Housing starts ran at an annual 1.047 million pace. That was 9% lower than in August and 11.9% lower than a year ago. It was the slowest pace of starts since March 2015. The stumble in starts was slightly offset by a surge in building permits, which foreshadows a stronger pace of construction in the future. Permits were at a 1.23 million pace in August, a 6.3% monthly gain and the highest since November. Single-family housing starts jumped 8.1% to an annual 783,000 pace. Starts on apartments dropped 39%.
China’s GDP was in line. The Chinese economy grew at a 6.7% year-over-year clip in the third quarter, causing some economists to suggest it’s a sign the Chinese economy is stabilizing as it’s the third straight quarter with 6.7% year-over-year growth.
Saudi Arabia conducted the largest-ever emerging market bond sale today, selling $17.5 billion of debt in the government’s first international offer while attracting investor orders totaling almost four times that amount. The huge demand was partly due to ultra-low global interest rates and funds’ frustration with a lack of high-yielding assets around the world. But the sale was also a success for the world’s top oil exporter in its efforts to convince investors that it can cope with an era of low crude prices and ultimately reduce its dependence on oil.
Intel missed on guidance. The chipmaker beat on both the top and bottom lines, earning $0.69 a share on revenue of $15.8 billion. The long slide in Intel’s PC business reversed and the chip manufacturer enjoyed record sales at its data-center and Internet-of-Things groups, but its fourth-quarter revenue guidance of $15.7 billion was below analyst estimates of $15.86 billion.
Morgan Stanley easily topped profit expectations. The bank posted earnings of 81 cents per share on revenue of $8.9 billion. Analysts surveyed by Thomson Reuters expected 63 cents profit and sales of $8.17 billion. Return on average common equity was 8.7 percent. The 17th-largest bank by assets had faced challenges in trading and its fixed income, currencies and commodities operation, but that segment posted a strong quarter with revenues of $1.5 billion. Trading has been a strong point for Wall Street banks this quarter, with Goldman Sachs, Citigroup, Bank of America and JPMorgan Chase all reporting strong growth. Morgan Stanley was the last of the big Wall Street banks to report earnings.
Yahoo’s third quarter profit beat expectations at $0.20 per share, while revenue rose 6.5% to $1.3 billion and met forecasts. The earnings are somewhat overshadowed by fears that the massive data breach at Yahoo will cause Verizon to drop or discount its $4.8 billion purchase of the company. Yahoo CEO Marissa Mayer said the sale is still on track.
Halliburton managed to deliver a surprise third quarter profit, kicking off earnings season for oil and gas and related companies on a decidedly optimistic note. Halliburton posted net income of $6 million, or 1 cent a share, in the third quarter, after a loss of $54 million, or 6 cents a share, in the year-earlier period. Revenue fell to $3.8 billion from $5.5 billion.
American Express reported its lowest quarterly revenue in more than five years on Wednesday as it struggled to make up for the loss of its contract with Costco. Total revenue fell 5 percent to $7.7 billion in the three months ended Sept. 30 – the first quarter with no revenue from the Costco partnership. Net income fell about 10 percent to $1.1 billion.
eBay said its revenue rose to $2.22 billion from $2.10 billion. Net income fell to $413 million, or 36 cents per share, from $539 million, or 45 cents per share, a year earlier.
Last month, it seemed that Twitter would be the next big acquisition in the tech world. Bids were reportedly being prepared for the service by some of the biggest companies on the planet, from Google, to Disney, to cloud computing giant Salesforce. But weeks later and Twitter remains on its own. No bids have been tabled, no acquisitions announced. Part of the problem is that Twitter is not profitable yet. The other problem is that Twitter has become a haven for trolls. Twitter has historically avoided implementing any major changes that would stem the tide of abuse.
Google hit an all-time high. Shares climbed to a record high of $801 on Tuesday after a slew of positive reviews for Google’s first smartphone, the Pixel. The company will report its quarterly results on October 27. Today, Google reached an agreement with CBS to carry the network on its web TV service and is in talks with 21st Century Fox, Viacom and Disney to distribute its channels. Reuters reports the service, which will be part of Google’s YouTube Platform, is expected to launch in the first quarter and will include all of CBS’ content, including live NFL games. Google’s “skinny” bundle will cost $30 to $40 a month.
Starbucks is planning a major push in China. The coffee giant named Belinda Wong CEO of Starbucks China and says it plans to more than double its presence in the country to 5,000 stores by 2021.
Apple is set to introduce new Macs next Thursday at an event to be held in Cupertino. Though refreshes across Apple’s Mac lineup are entirely possible, a long-awaited overhaul of the MacBook Pro will be most closely watched for.
Sometimes we get common sense regulation. The Department of Transportation announced a handful of new rules designed to create more transparency in the airline industry. One of the main changes will require airlines to issue refunds for delayed baggage. Currently, airlines only have to reimburse the checked baggage fee if they lose luggage. The new rule, which will be implemented sometime next year, would force airlines to return the $25 or $50 you spent to check a bag if your luggage is “substantially delayed.”
US workers not only put in more hours than workers do almost anywhere else. They’re also increasingly retiring later and taking fewer vacation days. A new study tries to measure precisely how much more Americans work than Europeans do overall. The answer: The average person in Europe works 19 percent less than the average person in the U.S. That’s about 258 fewer hours per year, or about an hour less each weekday. Another way to look at it: US workers put in almost 25 percent more hours than Europeans. Results vary among European countries; the Swiss put in similar hours to Americans, while Italians put in 29 percent fewer hours. The follow-up question is why Americans put in more hours on the job. And there are several answers; higher taxes in Europe may serve as a disincentive; Europeans also have more labor unions, and better pension plans.
Hillary Clinton has a growing lead in Arizona – a state that has voted for a Democratic president just once since 1948. A new poll from The Arizona Republic shows Clinton with a 5-point lead over Donald Trump in a four-way race. The Democratic nominee held a 39% to 33.9% advantage over the Republican nominee in the poll. When undecided voters leaning toward either candidate were included, those numbers increased to 43.3% for Clinton and 37.8% for Trump. The third and final presidential debate starts in about 1 hour 40 minutes.