…..Jobless claims up. Existing home sales up. Housing market in a sweet spot. AZ unemployment drops to 5.5%. ECB stands pat. Wells Fargo criminal investigation for I.D. theft. WFC had targets. A new WSJ? Qualcomm/NXP? AT&T/Time Warner? Earnings news: Microsoft all-time high. We stopped eating donuts for the election. Nasty stuff.
Financial Review by Sinclair Noe for 10-20-2016.
DOW – 40 = 18,162
SPX – 2 = 2141
NAS – 4 = 5241
10 Y un 1.75%
OIL – 1.21 = 50.61
GOLD – 3.70 = 1266.20
The number of Americans filing for unemployment benefits increased by 13,000 to 260,000 for the week ended October 15. That marked 85 straight weeks of claims below the 300,000 threshold normally associated with a strong jobs market, the longest such period since 1970. Part of the increase in claims last week could be related to the effects of Hurricane Matthew, which could have left some people temporarily out of work.
The National Association of Realtors reports existing home sales rose 3.2 percent to an annual rate of 5.47 million units, the quickest pace since June. The increase in existing home sales was broad-based across four major regions tracked by the NAR, with gains reported in the Northeast, Midwest, South and West. Inventories remained tight, with 2.04 million homes on the market. That was up 1.5 percent from the prior month, but 6.8 percent lower than in September 2015; enough to push the median price up 5.6 percent from a year ago to $234,200 last month. The institutional investors who bought up homes in recent years have continued to rent them out rather than putting them on the market. The association said first-time home buyers accounted for 34 percent of the purchases, the most since July 2012.
Ryan Marshall, CEO of the homebuilder Pulte Group, laid out the state of the US housing market in one succinct quote. “With US new home sales for 2016 on track to grow in excess of 10% over last year, we believe housing demand remains on a sustained path of recovery fueled by ongoing job creation, low unemployment, a supportive interest rate environment, and a limited inventory of homes.”
Arizona’s unemployment rate dropped to 5.5% in September from 5.8% in August. Arizona gained 32,700 jobs in September, which is better than average. The private sector gained 3,800 jobs, with education and health services and construction showing solid advances, and manufacturing and financial activities lost jobs. Government added 28,900 jobs. Arizona Nonfarm employment grew by 2.3% (61,800 jobs) year over the year in September. The Private Sector accounted for all of the September gains, adding 61,900 jobs (2.8%). Government employment declined by 100 jobs in the 12 months through September.
The European Central Bank kept interest rates on hold at historic lows this morning and ECB President Mario Draghi said the Bank was committed to pursuing substantial asset purchases aimed at spurring growth and inflation. With the Eurozone economy enjoying what Draghi called “a moderate but steady” recovery, he defended the stimulus effort, saying: “low rates work.” To keep the asset buying program running smoothly, Draghi said the ECB was investigating using options. He added that they did not discuss tapering but that QE would not last forever.
Wells Fargo is being investigated on suspicion of identity theft. California prosecutors are looking into whether Wells Fargo’s creation of millions of fraudulent accounts constitutes identity theft. The California Attorney General’s Office has authorized a seizure warrant against the bank that seeks customer records and other documents, saying there is probable cause to believe the bank committed felonies. Federal prosecutors are also looking into the matter.
After the Senate Banking Committee held a hearing last month with the Wells Fargo CEO John Stumpf, who has since retired, it followed up with a letter containing 58 additional questions for the bank. Among them: What proportion of the harmed customers are old, members of ethnic minorities or military veterans? Wells Fargo has not officially answered the question but former Wells employees are stepping up to provide answers; and they are describing predatory practices: Mexican immigrants who speak little English. Older adults with memory problems. College students opening their first bank accounts. Small-business owners with several lines of credit. In Arizona, the Salt River Pima-Maricopa Indian Community was targeted. And as new accounts were opened, there were fees, lots and lots of fees. One former employee described it as “lions hunting zebras.”
But wait, there’s more. The bank is now out of good standing with a leading consumer watchdog group. Wells Fargo is no longer accredited by the Better Business Bureau, making it possibly the biggest business ever to fall into that category. The BBB website lists Wells Fargo as “not BBB accredited” and gives it a grade of “C-” on a scale of “A+” to “F.”
An adviser to the Court of Justice of the European Union has backed Intel’s appeal against a record $1.1 billion fine for antitrust violations and believes a lower court should review it. EU regulators imposed the penalty in 2009 for Intel’s attempts to stifle Advanced Micro Devices.
New Tesla vehicles will have full self-driving hardware built in. Eight surround cameras provide 360 degree visibility around the car at up to 250 meters of range, and the vehicles will also incorporate twelve updated ultrasonic sensors and forward-facing radar “capable of seeing through heavy rain, fog, dust and even the car ahead.”
Dow Jones is planning a substantial revamp at The Wall Street Journal as part of a review to better address costs in an effort to deal with an ongoing decline in print advertising. The “WSJ2020” plan will look to rebalance the news organization’s revenue streams as its customers flock to digital formats and a revised version of the print newspaper will launch in the next few weeks with some sections consolidated. Dow Jones is owned by News Corp.
In a first of its kind, Sprint is set to issue $3.5 billion in five-year bonds that are backed by its wireless spectrum, which the telecom operator values at $16.4 billion. Investors seem to like the idea, with orders hitting $30 billion. The “air-wave bonds” are expected to yield 3.5%.
We have a couple of stories on big mergers – rumors really, but they are big, so here goes. Bloomberg reports Qualcomm is in the final stages of negotiations to buy NXP Semiconductors in what could be an all-cash deal for $110 to $120 per share. Qualcomm now has a market cap of around $99 billion, while NXP has a market cap of around $36 billion. The deal would be the largest in the history of the semiconductor industry.
Meanwhile, AT&T and Time Warner executives have held informal talks to discuss business strategies that could include a merger; neither side has hired an adviser. It’s also another indication that service providers are getting more and more interested in owning and investing in content. Verizon recently bought AOL and is in the process of acquiring Yahoo. AT&T merged with DirecTV last year.
Verizon Communications added far fewer wireless subscribers than expected in the third quarter. Operating revenue fell 6.5%. Smaller rivals such as T-Mobile and Sprint have rolled out aggressive promotions to win over Verizon’s subscriber base. As the company fends off competition in a maturing wireless market, it has acquired AOL and plans to buy Yahoo in a bid for a set of digital web properties and ad technology tools that will help it compete with internet giants Facebook and Google.
After the closing bell, Microsoft reported earnings of $0.76 on an adjusted basis. Analysts were expecting $0.68 per share. Revenue of $22.3 billion on an adjusted basis, 2.3% higher than the same period in 2015. Analysts were expecting $21.71 billion. Microsoft closed above $60, an all-time high, and the first all-time high since 1999.
Chipmaker Advanced Micro Devices reported a better-than-expected 23 percent increase in quarterly revenue, helped by higher demand for graphics chips used in gaming consoles.
American Airlines reported a slightly better-than-expected quarterly profit, helped by lower fuel costs. Still, net income fell to $737 million, or $1.40 per share, from $1.69 billion, or $2.49 per share, a year earlier.
Walgreens Boots Alliance shares slipped in early trading after the pharmacy chain missed fourth-quarter sales estimates. Walgreens now expects its acquisition of Rite Aid to close on Jan. 27, three months later than planned. Walgreens said in September it would likely have to divest between 500 and 1,000 stores to get regulatory clearance for the $9.4 billion deal.
Travelers was the top drag on the Dow, after the insurer posted a 22.8 percent drop in quarterly profit.
Union Pacific stock was down 6.7 percent after the company said weak demand for consumer goods had reduced the volume of its freight and coal shipments.
Canadian Pacific Railway reported another steep decline in revenue and lower-than-expected earnings on Wednesday as a delayed grain harvest and a slump in commodity prices hampered shipping volumes.
Earnings season always offers some entertaining justifications, and today it came from Dunkin Donuts. US same-store sales were higher than analysts had expected. However, revenue missed expectations. In response, Dunkin’ Brands CEO Nigel Travis cited several reasons for the weak performance, including “changes in gas prices, changes in food stamp regulations, and, of course, the overwhelming dampening effect of the presidential election.” Yeah, that’s it.
Of course the third and final presidential debate was last night and if you don’t think politics can affect business consider this. Within hours, dozens of sellers on Etsy had whipped up merchandise — T-shirts and buttons — bearing the slogans “nasty woman” and “bad hombres”; there is also a new perfume called “nasty woman” and Spotify reported that streams of Janet Jackson’s 1986 hit “Nasty” have increased 250%. Merriam Webster said “hombre” and “nasty” both topped its list of the most-searched words during the debate.