…..ISM services at 12 month high. ADP private jobs 153k. Dissent between Fed staff economists and policymakers. Midnight rules. Trump Tweets Toyota. There’s an app for that. Gasolinoza flares in Mexico. CES Day 2. Craftsman sold. National Returns Day. Credit bureaus fined. Big corporate defaults on the rise. AI coming for jobs.
Financial Review by Sinclair Noe for 01-05-2017
DOW – 42 = 19,899
SPX – 1 = 2269
NAS + 10 = 5487
RUT – 16 = 1371
10 Y – .08 = 2.37%
OIL + .47 = 54.69
GOLD + 17.10 = 1181.20
The Nasdaq squeaked out a record high close on thanks to Amazon.com, while deep drops in the retail sector weighed on the broader stock market.
The Institute for Supply Management’s index of nonmanufacturing activity was 57.2 in December, unchanged from November and remaining at its highest level since October 2015. A reading over 50 indicates expansion; so, this was a strong report.
The number of Americans filing for unemployment benefits fell to near a 43 year-low last week, pointing to further tightening in the labor market. Initial claims for state unemployment benefits dropped 28,000 to a seasonally adjusted 235,000 for the week ended Dec. 31.
In a separate report, payrolls processor ADP said private employers added 153,000 jobs in December after increasing their payrolls by 215,000 in November.
In a third report, global outplacement consultancy Challenger, Gray & Christmas said U.S.-based employers announced plans to cut 33,627 jobs from payrolls last month, up 25 percent from November. Still, that was below the monthly average of 43,910 job cuts for 2016. Layoffs last month were led by the defense, automotive, energy, transportation and government sectors.
Tomorrow morning the Labor Department will report on Non-Farm Payrolls for December; most estimates are calling for about 170,000 net new jobs, which would extend the longest streak of job creation since the Bureau of Labor Statistics started reporting employment figures. The labor market’s tightness could add on higher wages if employers increase pay while they struggle to find qualified workers, especially in high-paying industries.
The Fed has its eyes on Trump. The minutes from the December Federal Open Market Committee meeting show the Federal Reserve is monitoring how fiscal policy will affect growth and how quickly it should raise rates. The minutes said almost all Fed policymakers: “indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.” Bottom line, the Fed plans to hike rates 3 times this year.
Federal Reserve Chair Janet Yellen pulled off her first dissent-free interest rate decision since June at last month’s meeting as policymakers decided unanimously to raise interest rates by a quarter percentage point, but the minutes of the FOMC meeting show discord between Fed economists and policymakers, the ones who actually make the call on rates. The policymakers were generally optimistic about the economy, while the staff economists were generally pessimistic.
The House of Representatives passed legislation giving Congress the power to kill dozens of “midnight rules” – regulations imposed by presidents on their way out the door. Under the Congressional Review Act, any federal regulation approved since May could be voided by the Republican-led Congress once President-elect Donald Trump moves into the White House and can sign off on their disapproval. The Senate is expected to take up similar legislation soon.
President-elect Trump is now targeting Toyota, threatening to impose a hefty fee on the Japanese automaker it if builds its Corolla cars for the US market at a plant in Mexico. Trump tweeted: “Toyota Motor said will build a new plant in Baja, Mexico, to build Corolla cars for U.S. NO WAY! Build plant in U.S. or pay big border tax.”
The value of the Mexican peso has been in freefall over fears that Trump’s policies would harm Latin America’s second-biggest economy. One of the side effects – a 20% price hike for gasoline in Mexico – is not going over well. “Gasolinazo”, as the price hike is called, took effect on January 1st, and has resulted in long lines and fuel shortages. Demonstrators have blockaded highways, looted shops and forced service stations across Mexico to close in a wave of angry protest. The state run oil company, Pemex warned that blockades had created a “critical situation” in at least three Mexican states, while demonstrations in suburban Mexico City turned violent as protesters looted at least two department stores.
Meanwhile, Trump remains opposed to the megamerger between AT&T and Time Warner because he believes it would concentrate too much power in the media industry, according to people close to the president-elect, who has been publicly silent about the transaction for months.
Now there’s an app that lets you know when Trump tweets about your stocks. The free app, called Trigger, will notify you in real time if Trump tweets about a stock that you own. Bully pulpit indeed.
The International Consumer Electronics Show is underway in Las Vegas; this is day 2. The CES show will spotlight a wide range of cool new tech, incluing: self-driving cars, 4K televisions, wireless audio, smart home systems and drones. Apple, Alphabet, Amazon are the early leaders in connected home platforms, there’s a host of startups and consumer product majors looking to piggyback off the trend. Chinese companies are also hoping to make a large splash, with 1,300 registered as exhibitors.
Amazon.com and the Forever 21 teen retail chain are weighing bids for bankrupt American Apparel. Next Level Apparel and Authentic Brands, are also kicking the tires ahead of Friday’s deadline. Any successful offer would have to top a $66 million stalking horse bid by Canadian apparel maker Gildan Activewear Inc, which American Apparel agreed to when it filed for bankruptcy in November.
Stanley Black & Decker said it would buy Sears Holdings’ Craftsman tool brand for $900 million, strengthening its portfolio of hand and power tools. The Craftsman deal will give Stanley Black & Decker the right to make and sell Craftsman-branded products in non-Sears retail, industrial and online sales channels. Sears will continue to offer Craftsman-branded products at Sears and Kmart stores through a perpetual license from Stanley Black & Decker.
It looks like Amazon ate Macy’s and Kohl’s lunch this holiday season, as the department store chains posted same stores sales were down 2.1% over the holiday season; they also slashed their 2016 profit forecasts, sending shares down for the entire retail sector. Macy’s will close 68 stores and cut 10,000 jobs; it had already announced plans to close 100 of its 730 stores. Retail was the weak sector today, and it spread beyond Macy’s, Kohl’s and Sears.
After getting off to a slow start following the election, retailers overall rang up a record $91.7 billion in online sales over the holidays, an 11 percent increase on-year but barely edging out an industry forecast.
UPS expects holiday returns to peak today, on what it calls National Returns Day. Shoppers are projected to send back 1.3 million packages with UPS today, and more than 5.8 million this week.
Apple said its App Store generated $20 billion for developers in 2016, a 40 percent jump from 2015. The App Store also received nearly $240 million in orders on New Year’s Day, its highest single day ever.
IT research and advisory company Gartner said on it would buy CEB Inc., a provider of business research and analysis, in a cash-and-stock deal valued at $2.6 billion to expand its business services. The deal represents a premium of about 25 percent to CEB’s Wednesday close.
Two of the nation’s largest credit reporting bureaus, TransUnion and Equifax, will together pay more than $23 million in fines and refunds to settle charges from a federal consumer watchdog that they misled consumers about the pricing and value of credit products. Equifax and TransUnion will pay $17.6 million combined in restitution for consumers and $5.5 million in fines to the CFPB. The companies will need to notify affected customers about the refunds.
The number of large global corporations that defaulted in 2016 outpaced those in 2015 by 40 percent. The figure for 2016 hit 150, making 2016 the worst year for corporate defaults since the financial crisis; almost tw0-thirds of those defaults hit corporate America. Of those, 50 out of 63 globally, were in the oil and gas sector. (Emerging markets accounted for 28 defaults and Europe for 12). S&P expects the default rate to rise in 2017.
A study by the World Economic Forum predicted last year that the rise of robots and AI will result in a net loss of 5.1 million jobs over the next five years in 15 leading countries. The 15 economies covered by the survey account for approximately 65% of the world’s total workforce. And while that might sound like so much science fiction, it has already started. Japanese insurance company Fukoku Mutual will use IBM’s Watson AI to gather and process the information needed for policyholders’ payouts – by reading medical certificates, and data on surgeries or hospital stays. The firm believes it will increase productivity by 30%; which is another way of saying 34 claims processors just lost their jobs. The company expects to save around $1.2 million a year in salaries after the AI system is installed later this month.
Last year saw the highest costs from natural disasters since 2012, with two earthquakes in Japan in April accounting for the heaviest losses. German reinsurance company Munich Re’s annual survey pegs total losses from natural disasters worldwide at $175 billion last year, some $50 billion of which was covered by insurance. Earthquakes on Japan’s southern Kyushu island caused $31 billion worth of damage. Floods in China in June and July caused $20 billion in costs. The third-costliest disaster was Hurricane Matthew, which hit the Caribbean and the eastern US in October. It incurred losses totaling $10.2 billion. In 2015, global natural disaster losses totaled $103 billion.