Financial Review by Sinclair Noe
DOW + 33 = 17,548
SPX + 4 = 2051
NAS + 12 = 4922
10 YR YLD + .06 = 2.30%
OIL – .07 = 52.71
GOLD + 1.30 = 1160.30
SILV + .27 = 15.49
The major stock indices finished well off the highs for the day but still in positive territory. The New York Stock Exchange was open for business today, following a 3.5 hour shutdown yesterday. While yesterday’s outage stopped trading at the New York Stock Exchange, shares listed on that exchange continued to trade on other venues such as the Nasdaq Stock Market and Bats Global Markets. NYSE officials blame the halt in trading on a software update that didn’t work out. And they say it was just coincidental that United Airlines had computer problems that grounded flights for 2 hours. And it just coincidental that the Wall Street Journal Website went down just before trading was halted. And it was just coincidental that the ZeroHedge website went down just before trading halted. And it was just coincidental 12 hours before the shutdown, the hacktivist group Anonymous sent a Tweet saying, “Wonder if tomorrow is going to be bad for Wall Street…. we can only hope.” And it was just coincidental that China’s stock market was going through its own meltdown, though much more fundamental in nature; and the Chinese were more than a little miffed at media coverage of their markets. Just a coincidence. Nothing to see here. Move along.
Remember the OPM hack? About a month ago, we heard the Office of Personnel Management had been hacked. The OPM is like the human resources department for the government. The first reports said the hackers gained access to files on 4 million people; that estimate was then raised to 18 million. Now the OPM says the hacks may have compromised the data of 32 million current, former and prospective federal employees.
The US Department of Agriculture’s home page and other parts of its website suffered an outage this morning, as several of the agency’s sites displayed an Error 404 message. The USDA restored access to its site after it was down for at least 30 minutes.
Maybe it’s just a big coincidence or maybe the internet is inherently unstable and we have substantially underinvested in key digital infrastructure. Move along.
China’s benchmark stock index bounced back today, posting the biggest gain since 2009 in volatile trading as the government intervened to stop the bleeding in a market that lost $3.9 trillion in less than a month. The Shanghai Composite Index jumped 5.8 percent to 3,709.33 at the close, erasing a loss of much as 3.8 percent. More than 1,400 companies voluntarily halted trading in their shares locking sellers out of 50 percent of the market. The government followed up by banning large shareholders with stakes of more than 5% in a company from selling stock over the next 6 months, and vowed to “punch back” against illegal market activities by investigating “malicious short selling.” Government regulators also ordered listed companies, state-owned enterprises, and their employees to buy stocks. And that is how they deal with a bear market in China. Time will tell if it works or not. Shenzhen +4.3%; ChiNext +3%.
Greece has a plan. According to a tweet from the spokesman for Eurogroup president Jeroen Dijsselbloem, a new Greek bailout proposal has been received. Greece is asking for a new three-year bailout from its Eurozone creditors. Greece’s stock exchange will also remain closed until July 13, after authorities decided to extend a bank holiday and capital controls. Greece has a debt payment due Monday, and about $4 billion due before the end of the month. They don’t have the money to pay. US Treasury secretary Jack Lew and International Monetary Fund chief Christine Lagarde put pressure on the EU to grant Greece debt relief and help it avoid a Grexit. Both implicitly urged Germany and others to drop their refusal to clear Greek debts, saying the country was in desperate need of a “restructuring”.
Desperate doesn’t begin to describe it. As Greece hurtles toward a Sunday deadline for either reaching a bailout deal or risking a hasty exit from the Eurozone, the one certainty is that its economy is already on the brink of collapse. Greece already has a humanitarian crisis, and default would be ugly, but a deal wouldn’t clean everything up, either. Even though Greece represents just 2 percent of the Eurozone economy, the implications of a country falling out of the euro currency union could be unpredictable, especially if it occurs at the same time as the steep decline in the Chinese stock market.
Betting against stocks has been a losing strategy since 2009 as the Standard & Poor’s 500 Index rallied more than 200 percent and all but 22 members climbed. Going short has been like going against the flow, until the past month or so. With stocks in China plunging more than 30 percent over four weeks and aid talks between Greece and its creditors breaking down, bears are perking up. The number of shorted shares increased 3.3 percent from a month ago to 16.2 billion in June, the most since September 2008
The IMF cut its forecast for global growth this year, citing a weaker first quarter in the US and warning that financial-market turbulence from China to Greece clouds the outlook. The world economy is now projected to grow 3.3 percent in 2015, less than the 3.5 percent pace projected in April and slower than the 3.4 percent expansion last year. Much of the global downgrade was driven by the U.S., which the fund now sees growing 2.5 percent this year, compared with 3.1 percent in April. The IMF this week reiterated its recommendation that the Federal Reserve hold off raising interest rates until the first half of next year, when wage and price inflation are expected to pick up.
More Americans than forecasted filed for unemployment benefits last week, representing a pause in the pace of labor-market improvement. Jobless claims climbed by 15,000 to 297,000 in the week ended July 4, the highest since February. Applications for benefits have been below 300,000 for 18 straight weeks.
IBM has announced a new kind of ultra-dense chip, which squeezes in four times as much computing power as the best silicon currently available. The new chips will usher in the possibility of creating 7-nanometer transistors (a strand of DNA in comparison measures 2.5 nanometers in diameter). IBM made the research advance by using silicon-germanium instead of pure silicon; and a new way to etch the chips, called extreme ultraviolet lithography. According to IBM, this could lead to a 50% performance and power boost over chips that are on the market today, effectively keeping Moore’s Law more or less intact for the time being.
Coty has sealed a deal to buy Procter & Gamble’s beauty business, which includes brands such as Clairol and Wella, in a $12.5 billion transaction that will make the perfume maker one of the world’s largest beauty companies. P&G will separate 43 of its cosmetics, fragrance and haircare brands and fold them into Coty under a “Reverse Morris Trust” transaction that will ultimately give P&G shareholders a majority stake in the new entity.
Charter Communications may be hitting the high-grade debt market tomorrow with a multibillion-dollar M&A bond for its Time Warner Cable acquisition. Charter’s issuance is still dependent on conditions – which have been shaky recently due to Greece and China weighing heavily on investors’ minds. “The investment-grade (portion) is expected tomorrow, the high-yield maybe next week,” said a source, stating the funding plan would likely come to $31 billion.
Honda is recalling another 4.5 million vehicles worldwide due to faulty Takata air bags, bringing the total number of “Takata plagued” cars recalled by Honda to around 24.5 million. Separately, Nissan disclosed its first Japanese injury related to defective Takata inflators.
General Motors is also recalling nearly 200-thousand older model Hummer SUVs to fix problems that have led to three people being burned. GM shed the Hummer brand in 2009 when it underwent restructuring and a government-sponsored bankruptcy. In a separate recall, 50-thousand newer model Chevrolet Sparks will be recalled because of a software problem that may cause safety warnings not to work.
ExxonMobil knew as early as 1981 of climate change, seven years before it became a public issue, according to a newly discovered email from one of the firm’s own scientists. Despite this the firm spent millions over the next 27 years to promote climate denial.
The email from Exxon’s in-house climate expert provides evidence the company was aware of the connection between fossil fuels and climate change, and the potential for carbon-cutting regulations that could hurt its bottom line, over a generation ago – factoring that knowledge into its decision about an enormous gas field in south-east Asia. The field, off the coast of Indonesia, would have been the single largest source of global warming pollution at the time. However, Exxon’s public position was marked by continued refusal to acknowledge the dangers of climate change, even in response to appeals from the Rockefellers, its founding family, and its continued financial support for climate denial. Over the years, Exxon spent more than $30 million on thinktanks and researchers that promoted climate denial. Asked about Bernstein’s comments, Exxon said climate science in the early 1980s was at a preliminary stage, but the company now saw climate change as a risk, and they no long fund climate denial groups.
Farm land is incredibly productive. You wouldn’t leave farmland idle unless something really bad happens. California has been experiencing a really bad drought, as you know; and as a result, the University of California Davis estimates 564,000 acres have been fallowed. Unused land, of course, triggers lower agricultural output. Based on estimates of 564,000 idled acres, farm revenue losses are forecast at $1.8 billion, and 8,550 fewer farm jobs because of the drought. And then there is a ripple effect: food processors cut production and jobs, transportation companies fire truck drivers. You get the idea. Spillover, statewide revenue losses are likely to reach $2.7 billion with 18,600 lost full-time and part-time jobs. A separate June report from the US Department of Agriculture says it could be worse; they estimate the total acreage idled to be closer to 900,000.
NYSE, shutdown, Anonymous, Greece, China, short sellers, IMF forecast, IBM, Coty, Takata, ExxonMobil, climate denial, California drought,