Financial Review by Sinclair Noe
DOW + 154 = 18,140
SPX + 12 = 2110
NAS + 31 = 4955
10 YR YLD + .02 = 2.13%
OIL – .82 = 50.34
Eurozone finance ministers are meeting in Brussels today for the latest round of emergency talks aimed at breaking the deadlock with Greece. Yesterday, Germany rejected a request by Athens to extend a loan program, calling the Greek proposal a Trojan horse. Now it looks like there will be an extension of the bailout loan agreement, probably for four months; the current deal was scheduled to expire on February 28th.
Euro zone officials said the accord required Greece to submit by Monday a letter to the Eurogroup listing all the policy measures it planned to take during the remainder of the bailout period, to ensure they complied with conditions. So, they haven’t worked out all the details or even come close to resolving the problems; they didn’t have to; they just needed to avoid making a big, irreversible mess of everything. So, they have hit the pause button. It might be the smartest thing they could have done.
Greece has a new government, barely one month on the job. It is not reasonable to expect the new government to have fully formulated all the details of a bailout and recovery plan. They might not come up with a decent plan after 3 or 6 months, but there is no absolute requirement that it had to be done today. So, wait; chill out; and try to come up with something better than the current plan which seemed to be that Greece submit to German domination and policies that have proven to be horrible failures, or conversely, exit the Euro Union and likely destroy the union in the process. You could say that this is just kicking the can down the road, but that is better than having everything explode.
Now, the next hurdle is for Greece to make it through the weekend. Depositors have been pulling money out of Greek banks at an accelerating pace despite government assurances that there is no plan to introduce capital controls to stem the outflows. Deposit outflows rose to a total of over 1 billion euros in the past two days, some of the highest daily levels seen this year. Monday is a public holiday in Greece. Greeks are nervous before a three-day weekend, given memories of capital controls imposed in Cyprus in 2013 over a long weekend.
Assuming Greece doesn’t make a mess of things over the weekend, the best bet is that time is on their side. Germany would like to humiliate the Syriza party and make an example of them, so that the other far left challengers to the status quo in Europe are not encouraged, namely the Five Star party in Italy, and the Podemos party in Spain. Of course, the longer German intransigence on indebtedness continues, the more radical the political movements will become in the periphery.
For now, the markets are assuming that all will be well. Risk on.
The Dow, the S&P 500, and the Russell 2000 all hit record highs. The Nasdaq Composite is close to a record. This is the first time the Dow has closed at a record this year. It’s been 56 days since the Dow’s last all-time high, reached on Dec. 26. The Dow climbed to closing records on 38 days in 2014, and on 52 occasions in 2013. The S&P 500 is up 0.6 percent for the holiday-shortened week after reaching a record reached Feb. 17. It has gained 2.4 percent this year
$5.8 billion has flowed into European stocks this week, with $21.6 billion coming in over the last six weeks. This was the fourth straight week of inflows to high-yield bond funds, which is now the best performing sector this year and 1% from its all-time high.
The biggest refinery strike since 1980 continues after the United Steelworkers union instructed members to reject a seventh labor contract offered by Royal Dutch Shell. The proposal, the first one made by Shell since Feb. 5 on behalf of companies including Chevron and Exxon Mobil, “fails to improve safety” in an enforceable way, the USW declared. Since Feb. 1 more than 5,000 USW workers have walked out of nine U.S. refineries that account for 13% of U.S. fuel capacity.
The International Longshore and Warehouse Union and the Pacific Maritime Association have not been able to reach a deal on a labor contract for dock workers at West Coast seaports that handle some 40% of US trade. Ports in Los Angeles, Long Beach, Oakland, Seattle and Tacoma have endured four months of slowdowns that reduced cargo movement by almost half. Now, Labor Secretary Tom Perez says if no agreement is reached by Sunday, he will call negotiators to Washington for further talks.
Due to the parts shortage from the West Coast port slowdown, Honda said it expected output loss of around 5K cars from Feb. 24 to March 2 at two North American car factories. “The supply situation will be a little bit better next week due to the delivery of more parts by air,” a spokesman said. From Feb. 16-23, Honda reduced output by 20K cars at five North American car factories.
Takata, the Japanese maker of air bags that have led to millions of car recalls worldwide, will be fined $14,000 for each day it fails to cooperate with a US investigation into the part defect. Transportation Secretary Anthony Foxx said his agency has requested documents and other data from Takata about its air bags, and the company hasn’t fully complied. The fines could reach a maximum of $70 million.
We’ve all seen the pictures of the piles of snow in Boston or the partially frozen Niagra Falls, but the National Oceanic and Atmospheric Administration (NOAA)reports that this winter has been the sixth-warmest winter on record in the U.S., and the warmest since 2012. Globally, temperatures on land, as well as temperatures for land and ocean combined were the second-highest for January since records began in 1880.
Temperatures in the December-January period were above average in most of the contiguous U.S., and California averaged record temperatures. Precipitation was below average. While it was colder than average in the northeast, it was warmer than average in the west. There’s a sharp cutoff between areas where storm systems have cut across the Upper Midwest and Northeast, dropping copious, or at least normal, amounts of snow—and areas they missed. The biggest snow loser this year is the West Coast. Much like last year, if you were planning a ski vacation to California, you might want to rethink it. Mt. Shasta, Badger Pass and Mt. High are among a handful of resorts that are closed until the next storm arrives.
Compounding matters, downright hot weather has quickly melted much of the paltry snowpack in the western US. Temperatures have soared as high as the 60s in the mountains this week. While ski resorts and tourist attractions have felt the pinch from the lack of snow, the real worry is what comes in April when snowpack usually melts and feeds reservoirs across the West.
The Justice Department will seek an emergency stay to block a decision by a federal judge and allow eligible immigrants to apply for benefits granted under President Obama’s executive action. Immigration advocates have called on the administration to take legal action to reverse the injunction issued by U.S. District Judge Andrew Hanen that halted the issuance of work permits to eligible immigrants one day before the program’s launch. If the Judge does not approve the stay, a delay could prevent the administration from filing an appeal in the 5th Circuit, where the decision would be taken out of Hanen’s hands. Approximately 4.7 million undocumented immigrants are expected to be granted relief from deportation under the program if it is allowed to go through.
A federal judge ruled that a longstanding practice by American Express aimed at keeping customers from using other forms of payment violates United States antitrust laws. The fees that American Express charges merchants are routinely higher than those of Visa, MasterCard, Discover and other credit card companies. But Amex prohibits any merchant that accepts its cards from encouraging customers to pay with lower-cost cards. Credit card fees are largely hidden from consumers, but they are incorporated into the prices of most goods and services. The Merchants Payments Coalition, a group of retailers, restaurants, gas stations and other consumer businesses, said in a statement that the ruling is a “step forward to bringing badly needed competition and transparency to the entire credit card industry,” and should result “in lower prices for consumers.”
Just after it hired top antitrust lawyers to counsel it in its fight with the Federal Trade Commission, Sysco has got word that the FTC filed suit against its proposed $3.5 billion takeover of rival U.S. Foods. Debbie Feinstein, director of the FTC’s Bureau of Competition, said in a statement, “This proposed merger would eliminate significant competition in the marketplace and create a dominant national broadline food service distributor.”
Apple is “pushing its team to begin production of an electric vehicle as early as 2020.” The company’s car team currently employs about 200 people. In related news, EV battery maker A123 Systems sued Apple for allegedly poaching senior engineers to build a large-scale battery division, accusing the tech giant of hiring its experts and battery engineers from other companies.
The U.S. manufacturing sector expanded in February at its fastest rate since November. Financial data firm Markit said its preliminary or “flash” U.S. Manufacturing Purchasing Managers Index rose to 54.3 in February, up from the January’s final reading of 53.9.
Next week will be a busy week on Wall Street with a raft of big earnings reports including Target (TGT), Macy’s (M), Home Depot (HD) and Hewlett-Packard (HPQ) to name just a few. The big economic data includes the latest reading on third quarter Gross Domestic Product.