Financial Review by Sinclair Noe for 10-16-2015
DOW + 74 = 17,215
SPX + 9 = 2033
NAS + 16 = 4886
10 YR YLD un = 2.02%
OIL + .88 = 47.26
GOLD – 5.70 = 1178.70
SILV – .09 = 16.13
World markets extended a rally that has added $4.1 trillion to global equities this month, following a slew of weak economic reports that have dashed expectations for a Fed rate hike in 2015. European stocks are up, and Asian stock markets added to the gains which saw equities close at two-month highs; the Shanghai Composite gained 6.5% for the week. After a rebound yesterday, Wall Street recorded its third straight winning week. The Dow and S&P were up just under 1% on the week; the Nasdaq was up 1.7%. The rally over the past three weeks has been very narrow, as two thirds of the stocks on the S&P 500 are still below the 200-day moving average. Historically, October may be one of the worst months for stocks, but not in recent years and not so far this month.
Industrial production fell 0.2% in September, in line with expectations, and capacity utilization declined. The only major market group to post a gain in September was consumer goods. Capacity utilization fell to 77.5% from an upwardly revised 77.8% in August, a bit above the 77.4% expected.
Consumer sentiment rose in October after three straight monthly declines. Sentiment rose to a preliminary October reading of 92.1 from a final September level of 87.2.
Job openings dropped in August after reaching a record in the previous month, the Labor Department’s Job Openings and Labor Turnover report, also known as JOLT, showed job openings fell to 5.37 million from 5.67 million in July. The hiring rate stayed at 3.6%, and the quits rate stayed at 1.9%.
Arizona’s seasonally adjusted unemployment rate remained unchanged at 6.3% in September. The U.S. seasonally adjusted unemployment rate remained unchanged at 5.1% in September. A year ago, the Arizona seasonally adjusted rate was 6.6% and the U.S. rate was 5.9%. Arizona gained 28,800 jobs in September, which is a bit better than the average of the last several years, but in a strange twist, 28,300 of those jobs were government jobs, and only 500 private sector jobs were created last month.
Employment is taking a dive in industries that sell a lot of U.S.-made goods abroad, and things could get worse before they get better. A new report from JPMorgan shows export-oriented industries have been losing about 50,000 jobs a month for most of this year, after adding 9,000 a month on average in 2014. Recent manufacturing surveys hint the impact could worsen, and the employment erosion may extend into the first half of 2016. In effect, that would mean private payrolls growth takes a step down to around 150,000 a month, from the booming 250,000-plus average of 2014.
Yesterday we reported that the number of Americans filing new jobless claims fell to 255,000 last week; the lowest figure since Richard Nixon was president, and the economy was much smaller 42 years ago. Fewer claims for unemployment should mean the labor market is heating up, but we still don’t see people leaving their job to move to greener pastures; the quit rate remains stagnant. The economy is growing at about a 2% rate so far this year; that’s sluggish, at best. Productivity has cratered. Inflation, well there is no inflation, based on the latest CPI numbers through September. And Wall Street is reporting third quarter earnings, or the lack thereof; profits are likely down about 5%, marking the second consecutive quarter of negative earnings. So for now at least, it appears we can put the whole idea of a Federal Reserve interest rate hike on hold.
The European Central Bank will be meeting next week. Investors are now speculating about when the central bank will make a further stimulus move, rather than if such a move could happen. That notion was hammered home this week when data confirmed the Eurozone has slipped back into negative inflation, which is bad news for both the ECB and the region’s growth prospects.
Fitch has cut Brazil’s credit rating to the brink of junk, warning the country could soon lose its coveted investment grade due to the “rising government debt burden, increased challenges to fiscal consolidation and a worsening economic growth backdrop.” The rating agency left a negative outlook on the new rating, suggesting it eventually could follow Standard & Poor’s recent downgrade to junk. A second move into the territory would trigger further losses for Brazil’s economy, since it could force many investors to sell some of their assets.
A U.S. appeals court ruled that Google’s massive effort to scan millions of books for an online library does not violate copyright law, rejecting claims from a group of authors that the project illegally deprives them of revenue. Google had said it could face billions of dollars in potential damages if the authors prevailed. A judge had found Google’s scanning of tens of millions of books and posting “snippets” online constituted “fair use” under U.S. copyright law. The appellate court said the case “tests the boundaries of fair use,” but found Google’s practices were ultimately allowed under the law. So, scan on.
Illinois lottery officials said payouts for winnings over $600 will be delayed because the lottery’s coffers are empty. Illinois had been handing out IOUs for jackpots of over $25,000 since July as the state’s fiscal balance continued to deteriorate while politicians bickered over the budget. The state has been operating under a patchwork of consent decrees and court orders, in lieu of a budget, since midsummer. The new lottery slogan: You can’t win, even if you do play. More important than lottery payouts – pensions are in trouble. The Illinois comptroller said Wednesday that the stalemate would prevent the state from making a $560 million pension payment due in November.
Nevada says daily fantasy sports is gambling and the companies operating those websites need licenses if they want to do business in Nevada, and the sites could not accept payment from customers in Nevada until they are licensed. This follows a report indicating the US Justice Department and FBI are looking into whether the daily fantasy-sports sites are violating federal law.
Wynn Resorts had a bad quarter. The casino giant announced earnings of $0.86 per share, which was in line with Wall Street estimates. But revenue dropped 27% year-over-year to just under $1 billion, missing estimates. Revenue from Las Vegas was down 3.9%. The casino suffered through an abysmal quarter in Macau as revenue there crashed 37.9%, and this is where the story gets interesting. Macau is the world’s biggest gambling center, if you’re not counting Wall Street. And suddenly the Chinese government has started cracking down on gambling as part of an anti-corruption drive. The government is monitoring debit card transactions and they placed cameras in the VIP rooms, and the effect has scared off the high-rollers. Wynn is planning to open a multi-billion dollar casino in Macau next year, but they don’t know how many gaming tables the government will allow them to have. This appears to be part of a broader crackdown on corporate corruption, following last month’s cutbacks in the Chinese state-owned energy company Sinopec Group. I’m not sure what this tells us about the Chinese economy, but it looks like the fast growth free-wheeling days are coming to an end.
General Electric reported net earnings fell 29% from a year earlier to $2.51 billion, or 25 cents per share. Excluding items, (also known as the cost of being in business) earnings of 29 cents a share beat estimates by 3 cents. GE reported more jet engine sales, but they were hurt by their oil and gas related businesses. GE is in the process of spinning off Synchrony Financial as a stand-alone, which will help retire as much as 7% of its floated shares.
Schlumberger, the world’s No.1 oilfield services provider, said it would cut more jobs and consolidate its manufacturing and distribution network as it did not expect a recovery in demand before 2017. The company, which has already cut 20,000 jobs, or about 15 percent of its workforce, did not say how many jobs it planned to cut in the next round. But don’t look for a quick rebound. Exploration and production spending is expected to fall for a second consecutive year in 2016. Schlumberger said it did not expect a recovery in demand before 2017.
Ten of the world’s big oil companies came together today to say , jointly that their industry must help address global climate change and said that they agreed with the United Nations’ goals of limiting global warming. The public declaration by a group called the Oil and Gas Climate Initiative was an effort to convince an increasingly skeptical world that energy companies, whose fossil fuels are a big source of greenhouse gases, are serious about delivering cleaner energy and combating climate change. The companies in the oil group said they would support the climate conference’s effort to reach a global climate change agreement at the Paris conference later this year, even though meeting that target would require leaving much of the world’s existing oil, gas and coal reserves unburned and would require the companies to make major changes in the way they do business.
Now before you think I’m making this up – in this latest show of unity from the oil and gas industry, US oil giants like Chevron and ExxonMobil are nowhere to be found; no US oil companies signed the pledge. And that’s the other thing. A pledge is not the same as action.