Rarely the First
…..Risk off day but Nasdaq record. Fed jawbones hawkish. Hard Brexit. Hard confirmation hearing. Revenge for one-China. McDonald’s and Taco Bell in China. Fiat Chrysler in the Midwest. Waymo in cars. M&A: Takeda/Ariad, United Health/Surgical Affiliates, Mars/VCA. Microsoft’s Nokia. IBM patent winner, again. The anniversary of the iPhone.
Financial Review by Sinclair Noe for 01-09-2017
DOW – 76 = 19,887
SPX – 8 = 2268
NAS + 10 = 5531 (record close)
RUT – 9 = 1357
10 Y – .04 = 2.38%
OIL – 2.16 = 52.71
GOLD + 9.20 = 1182.40
Oil prices were sharply lower this morning, as Iran upped exports and U.S. drillers increased activity again, moves undermining efforts by international producers to curb global oversupply. Treasuries rose with gold today as the risk-on trade wobbled. Treasury yields sit lower than where they were before the Federal Reserve raised interest rates last month, while the dollar remained near a 14-year high. The Dow, S&P 500, and Nasdaq all hit intraday highs on Friday – the Dow came within a fraction of a point of 20,000. Earnings for the S&P 500 are expected to increase by 6.1 percent in Q4, with the S&P financial sector see having the biggest gains, up 15.7 percent, according to estimates from Thomson Reuters. Fourth quarter earnings season ramps up Friday, when JPMorgan Chase, Bank of America, and Wells Fargo report. Financial stocks have gained more than 30 percent since Election Day.
This is a busy week for Federal Reserve policymakers. Today, Atlanta Fed President Dennis Lockhart said the recovery from the economic crisis is “largely done,” and officials should now turn to addressing longer-term issues like how to boost productivity, raise investment, and try to counter trends that are holding down potential growth. Lockhart said, the economy is near full employment, inflation is close to the Fed’s two percent goal, and the United States appears locked in for steady growth of around 2 percent annually. Lockhart did not address rate hikes directly, though he said he expected any future increases to come at a “gradual” pace.
Boston Fed President Eric Rosengren a speech in Boston this morning said, “economic circumstances have evolved and now imply the need for a different stance of monetary policy,” Including “somewhat more regular” increases in short-term interest rates. Rosengren said that what happens with fiscal policy will play a role in the exact timing of rate hikes. The commentary from Fed policymakers has taken a decidedly hawkish tone, and after a yearlong delay between rate hikes, I’m starting to get the feeling they will be more aggressive this year.
The British pound was tumbling to two-month lows this morning after U.K. Prime Minister Theresa May said in her first interview of the year that she was not interested in keeping “bits of membership” of the European Union in the execution of Brexit. The one priority that May has marked out – limits on EU migration – implies that British companies will face new barriers in selling goods and services to hundreds of millions of consumers in Europe. The prime minister’s position runs counter to rules that require all members of Europe’s single trading market to allow free movement of people across their borders. UK Foreign Secretary Boris Johnson was in Washington today to meet with some of Donald Trump’s top advisers as Britain looks to build ties with the incoming administration ahead of the country’s withdrawal from the European Union.
Nine confirmation hearings begin on Capitol Hill this week, starting tomorrow with lawmakers questioning Attorney General-designate Sen. Jeff Sessions and Homeland Security Secretary-designate retired Gen. John Kelly. The lineup also includes five hearings on Wednesday, including: Rex Tillerson, the nominee for secretary of state; Betsy DeVos, for education secretary; CIA director designate Mike Pompeo; commerce pick Wilbur Ross; and Labor nominee Andrew Puzder; the same day the Senate is expected to vote on a step toward repealing much of the Affordable Care Act, and Wednesday marks Trump’s first news conference since the election.
State-run Chinese tabloid Global Times warned President-elect Donald Trump that China would “take revenge” if he reneged on the one-China policy, only hours after Taiwan’s president made a controversial stopover in Houston.
McDonald’s unloads its business in China. The fast-food giant sold 20-year rights to the majority of its business in Hong Kong and China to Citic and Carlyle Group for up to $2.1 billion. About one-third of McDonald’s 2,400 restaurants in mainland China and Hong Kong are franchised; this deal will franchise the rest of them. The new partnership plans to add 1,500 in the two areas over the next five years.
Yum China, spun off by its U.S. parent last year, is relaunching the Taco Bell brand in the country, after a near-decade-long absence, opening the first store in Shanghai today.
Fiat Chrysler will invest $1 billion in 2 manufacturing plants in the Midwest, which will add 2,000 new jobs in the U.S. and expand its sports utility and truck lineup. Fiat Chrysler will retool factories in Ohio and Michigan to build new Jeep sport utility vehicles, including a pickup truck, and potentially move production of a Ram heavy-duty pickup truck to Michigan from Mexico. The announcement comes days after Ford decided to scrap a plan to build a facility in Mexico, instead opting to invest in a plant in Michigan.
General Motors CEO Mary Barra says GM has no plans to change where the automaker produces small cars because of Trump’s Twitter threat of a border tax.
Self-driving cars are a big theme at the North American International Auto Show, which kicked off yesterday in Detroit. Alphabet’s Waymo revealed that it has built all of its sensor hardware in-house and was ready to offer its autonomous-drive technology in “millions” of vehicles at a competitive price. A package of LIDAR sensors and radar, which used to run approximately $75,000 a few years ago, has fallen by more than 90%.
The FBI has arrested Volkswagen’s regulatory compliance executive, Oliver Schmidt, who faces conspiracy charges linked to Dieselgate. The arrest comes as VW nears a deal to pay the Department of Justice more than $3 billion to settle the emissions scandal’s criminal investigation, on top of the nearly $18 billion the automaker will pay to resolve civil claims.
Japan’s Takeda Pharmaceutical will buy cancer drug maker Ariad Pharmaceuticals in a deal valued at $5.2 billion, to beef up its oncology pipeline. Takeda has agreed to pay $24 in cash for each Ariad share, a premium of about 75 percent to its Friday close.
United Health Group is buying Surgical Care Affiliates, an outpatient surgery chain for $2.3 billion. The deal is expected to close in the first half of this year. Surgical Care Affiliates operates 205 surgical facilities, including specialized hospitals, in partnership with surgeons in 30 states.
Candy maker Mars said it will buy VCA, which makes Whiskas and Pedigree pet food and is also the largest operator of pet hospitals in the country. Price tag $7.7 billion. Mars became the No. 1 pet food maker in 2014, after buying Procter & Gamble’s pet foods business, known for brands such as Iams and Natura, for $2.9 billion.
HMD Global, the Finnish company that owns the rights to use Nokia’s brand on mobile phones, launched the first new smartphone carrying the iconic handset name since 2014 when Nokia chose to sell its entire handset unit to Microsoft. The new device, Nokia 6, runs on Google’s Android platform and is manufactured by Foxconn. It will be sold exclusively in China for about $246.
IBM is the patent winner, again; that’s a 24-year streak and counting. In 2016, IBM filed 8,088 patents (22 per day; 2,700 related to artificial intelligence, cognitive and cloud computing) granted across its more than 8,500 inventors in 47 states and territories, and 47 countries. Samsung filed the second most patents, a mere 5,518.
Ten years ago, today, Steve Jobs introduced a new device called the iPhone. Jobs took to the Macworld stage and announced that “we’re going to make some history together today.” There were sceptics, including Microsoft CEO Steve Ballmer, who in 2007 said there was “no chance” the iPhone would get “any significant market share.” Since then Apple has sold more than one billion iPhones, passing its billionth last July. The iPhone has grown to dominate the U.S. smartphone market. Its mobile operating system, iOS, is ranked second globally, behind Alphabet’s Android. And Apple’s market cap has climbed to over $628 billion. Current Apple CEO Tim Cook says the “best is yet to come.”
That remains to be seen. A lot can happen in a very short period of time. Apps, touch screens, voice recognition, fingerprint scanners, selfies; that’s all within the past 10 years. What will the next 10 years bring? Many people say AI is the next wave – computers we can talk to; and right now, Apple does not have a leadership position. Amazon.com has a hit with the voice-based assistant Alexa. Alphabet’s Google is close behind. Partners with both companies spent several days at the CES tech show in Las Vegas last week introducing a deluge of devices powered by these competing technologies. Apple is working on its own device but it doesn’t have one yet. That doesn’t mean Apple is out of the game though. The history of Apple is rarely about being first—think of the iPod—but becoming dominant through superior design and execution.
Tonight, the Alabama Crimson Tide will take on the Clemson Tigers for the national college football championship – and the winner is: Nike. Last year Nike’s stock was the biggest Dow dog – down 20% – and one of only three in the index to fall in 2016. (Coca-Cola and Disney were the other laggards.) so far in 2017, Nike is up about 5% and tonight’s championship game is basically a 3-hour ad for Nike. Both Alabama and Clemson have multi-year agreements in place with Nike. The Crimson Tide has an eight-year, $30 million deal that runs out in 2018. Clemson’s agreement with Nike, also for eight years, is worth $23 million and lasts until 2022.