Moderate to Mixed
Financial Review by Sinclair Noe for 03-02-2016
DOW + 34 = 16,899
SPX + 8 = 1986
NAS + 13 = 4703
10 Y + .01 = 1.85
OIL + .40 = 34.80
GOLD + 7.80 = 1240.50
Today the equity markets were regaining their footing after a big move yesterday. Treasury yields rose as job market data reinforced the view that the Federal Reserve will raise interest rates later this year. Crude fell below $35 a barrel after earlier hitting a two-month high. Government data showed inventories rose by 10.4 million barrels to 518 million in the week to Feb. 26, almost triple the 3.6 million-barrel increase expected by analysts. Asian stocks rose overnight to a two-month high with Japan’s and China’s main indexes both up more than 4 percent.
The European Central Bank will review its stimulus next week against a background of heightened economic risks and weaker-than-expected inflation. ECB President Mario Draghi sent a letter to European lawmakers underlining the bank’s readiness to use all its tools to drive up prices. The Eurozone slid back into deflation in February, driving the ECB further from its inflation target of just below 2%.
Moody’s Investors Service has lowered the outlook on China’s credit rating from stable to negative. Moody’s writes: “Without credible and efficient reforms, China’s GDP growth would slow more markedly as a high debt burden dampens business investment.” Moody’s current Aa3 rating on China is still seven notches above junk, so even if the agency were to follow up on its warning, investors wouldn’t have to suddenly start selling the country’s bonds. The Shanghai Composite gained 4.3%.
ADP reports private employers added 214,000 jobs in February. The ADP figures come ahead of the U.S. Labor Department’s more comprehensive non-farm payrolls report on Friday, which includes both public and private-sector employment. The ADP report showed goods-producing industries, which include manufacturers and builders, increased headcount by 5,000. Hiring in construction climbed by 27,000, while factories shed 9,000 jobs.
The Federal Reserve has published its Beige Book, a collection of anecdotal reports on the economy from the 12 Fed districts which is intended to inform policymakers before their next FOMC meeting in 2 weeks. None of the 12 districts in the Federal Reserve’s Beige Book reported any dramatic improvement in conditions in the January-through-late-February reporting period. Growth was described as remaining “modest” or “moderate” in half of the districts. This was down from nine districts in the previous report.
Three districts reported “mixed” activity while two others said growth was flat. Kansas City reported a modest decline in activity. Optimism seemed to be in short supply. Financial market volatility was cited in Boston, Cleveland and Chicago as a reason consumers seemed reluctant to spend. In Dallas, while the overall effects from energy-sector weakness appeared to be contained, “contacts said they were guarded about 2016 growth prospects due to additional uncertainty from financial markets and monetary policy.”
Former Chesapeake Energy CEO Aubrey McClendon was indicted Tuesday on federal charges of conspiring to rig bids for oil and natural gas leases in Oklahoma between 2007 and 2012. McClendon was accused of orchestrating a scheme between two “large oil and gas companies” to not bid against each other for leases in northwest Oklahoma from December 2007 to March 2012. The conspirators allegedly decided ahead of time who would win the leases and the winning bidder would then allocate an interest in the leases to the other company. McClendon was in the vanguard of the shale revolution and built a shale empire at Chesapeake before he was dismissed in 2013 amid conflict-of-interest probes and a shareholder revolt. McClendon is a part-owner of the Oklahoma City Thunder of the NBA. Now that’s quite a story, but today it took a bizarre twist; McClendon has died in a car crash in Oklahoma City. McClendon’s car crashed into an embankment wall and burst into flames.
Exxon Mobil plans to cut capital expenditures to $23 billion, down 25 percent from the previous year. The cuts will come mainly from oil and gas production, with a slight decrease expected again in 2017, partly from its chemical operations. Exxon expects production to be 4 million to 4.2 million equivalent barrels per day annually through 2020, essentially flat compared to 2015. Even with the flat production, Exxon forecast cash flow from operations would grow, assuming oil prices in the $40 to $80 range. The company also said it would focus on paying a growing dividend.
In the game of survival, oil drillers have cut capital spending in half this year, but they have also created a gusher of new stock offerings in an effort to protect their balance sheets. Buyers for debt are few and far between but if they have been able to tap the market for equity, that’s what they’re doing. It gives them a cushion. It gives them liquidity without taking on additional debt, and just staying power. The most likely result is that they keep pumping and oil prices stay lower for longer.
The Commerce Department is hiking tariffs on Chinese steel imports by 266%, along with lesser duties on six other countries for selling the metal in the U.S. at unfairly low prices, also known as dumping. In a preliminary decision, Commerce recommended duties on imports from Brazil, India, South Korea, Russia, Japan and the U.K., citing unfair participation by the governments of these countries to lower the prices of steel products used in industries such as auto manufacturing and construction. It is the second time since December that the Commerce Department has penalized foreign steel producers, including Chinese mills, for selling steel in the U.S. at unfairly low prices. Analysts say the duties may not fully satisfy U.S. producers, as the rates for some producers were far below what the industry alleged.
AT&T is looking to get into the Web TV business as soon as this year. Selling its DirecTV video content over the Web would put it into competition with Dish’s Sling TV, which has offered a basic skinny bundle of live television programming over the Internet. AT&T says it will launch three “bring your own connection” offers later this year, and they won’t be limited to its existing mobile or DirecTV subscribers.
ESPN parent Walt Disney Co. announced Wednesday that six ABC/Disney and five ESPN channels are available now on Sony’s PlayStation Vue over-the-internet TV streaming service. And to make the service even more appealing, Sony has slashed its cheapest tier’s price by $10 a month. The “Access” plan, which now costs $39.99 a month. The partnership, announced in November, filled a conspicuous hole in PlayStation Vue’s offerings, which already included the other Big Three networks, CNN, Fox News, FX and the Food Network on its cheapest tier.
Discovery Communications, Viacom and Starz have all said in recent weeks that they must spend more on programming. Netflix plans to lay out almost $5 billion on new and vintage films and TV shows this year, more than any network; nearly double what Disney will spend on programming. Amazon.com and Hulu are also spending heavily. Media executives, speaking on the latest round of earnings calls, say the spending is needed to maintain the supply of new programs that viewers are demanding today, and take advantage of growing markets online and internationally. Before Netflix, cable companies could fill their schedules with reruns and cheaper shows and still count on viewers. But with the streaming-video giant churning out a barrage of quality entertainment, reruns won’t cut it. The concern for investors is that the spending, rather than stemming viewer losses or reigniting ad sales, may become a permanent drag on profit. The Standard & Poor’s 500 Media Index has declined 13 percent since early August.
More details have emerged about Sports Authority’s plans to file for Chapter 11, including an agreement to take up to $595 million in bankruptcy financing. The sports equipment retailer could shut down all its outlets by the end of April if it can’t get more money into the business. The filing is also seen as a positive for Dick’s Sporting Good if shops will be closed.
Round 2 of the FBI versus Apple on Capitol Hill today. Lawmakers of both parties sharply challenged FBI Director James Comey as the House judiciary committee considered the FBI’s court order to unlock an iPhone owned by Syed Farook, who with his wife killed 14 people at the Inland Regional Center in San Bernardino, California, in December and was killed by law enforcement. Legislators repeatedly accused the Justice Department of overreaching its authority and undermining both privacy and cybersecurity. Several endorsed Congress passing a law settling the boundaries – something Apple supports – and accused the FBI of trying to circumvent Congress by launching a lawsuit against Apple. Under questioning, Comey backed away from his previous assertions that the Apple-FBI dispute concerns only a single iPhone.
It ain’t easy being an American taxpayer. The US Internal Revenue Service said last week that the number of records it lost in a 2015 data breach is higher than it previously thought. In May 2015 hackers broke into the IRS website and stole tax transcripts of about 100,000 people. The IRS bumped that number up to 334,000 last August, and now says the number of records stolen is actually 724,000. And it gets worse. To protect the victims of the data breach from further harm, the IRS provided them with “Identity Protection PINs”, or secret codes – which have now been hacked.
Welcome back, Scott Kelly. After a record-breaking 340 days on the International Space Station, US astronaut Kelly touched down in Kazakhstan with Russian cosmonaut Mikhail Kornienko. Kelly will be now be examined to see how prolonged space travel affects the body, using his identical twin Mark as a comparison. Aboard the International Space Station (ISS), Kelly orbited the Earth 5,000 times and traveled more than 100 million miles.