Financial Review by Sinclair Noe
DOW + 59 = 18,036
SPX + 3 = 2095
NAS – 10 = 4977
10 YR YLD – .04 = 1.90%
OIL + 1.38 = 53.29
GOLD – 6.10 = 1192.90
SILV – .13 = 16.23
For the past 3 months, retail sales have been down. There was some speculation that the harsh winter weather was to blame for declining sales; and that appears to be true. Retail sales rose in March for the first time since late last year as consumers stepped up purchases of automobiles and other goods. Retail sales increased 0.9 percent in March. That was the largest gain since March last year and snapped three straight months of declines.
In a separate report, the Labor Department said its producer price index for final demand increased 0.2 percent last month, with rising prices for goods accounting for more than half of the increase. The PPI, which measures prices at the wholesale level, had declined 0.5 percent in February. In the 12 months through March, producer prices fell 0.8 percent, the biggest year-on-year decline since the revamped series started in 2009. Of course, the Federal Reserve has a 2 percent inflation target, so this data does not suggest the Fed needs to be in a hurry to raise rates.
The National Federation of Independent Business said its small-business optimism index fell 2.8 points to 95.2, the worst reading since June, with all 10 of its subcomponents declining. The biggest decline came in the percentage that say they expect better conditions in six months.
The U.S. ended the month of March with a budget deficit of $53 billion, up 43% from the same period last year, bringing the current fiscal year-to-date deficit to $439 billion at the end of last month. Meanwhile, Fitch has affirmed the U.S.’s long-term default ratings at “AAA,” citing the country’s “unparalleled” financing flexibility as the issuer of the world’s pre-eminent reserve currency and benchmark fixed-income asset. Fitch also expects the U.S. to grow 3% in 2015, before decelerating slightly in 2016.
The dollar’s strength almost perfectly tracks Fed statements about the coming end of easy money. The tightening of US monetary policy (or even the hint that policy will tighten at some point) has driven the dollar up (and oil down) even as Europe’s beginning of its own “QE” or quantitative easing program has driven the Euro down. None of it reflects the economic reality on the ground, but rather the fact that central bankers are, as investment guru Mohamed El-Erian frequently says, the “only game in town.”
A new study from the Berkeley Center for Labor Research and Education at the University of California finds nearly three-quarters of the people helped by public assistance programs actually goes to families headed by a worker; they just don’t make enough money to cover the basic expenses. Taxpayers pick up the difference between what employers pay and what is required to cover what most Americans consider essential living costs. The report estimates that state and federal governments spend more than $150 billion a year on four key antipoverty programs used by working families: Medicaid, Temporary Assistance for Needy Families, food stamps and the earned-income tax credit, which is specifically aimed at working families. As a result, taxpayers are providing not only support to the poor but also, in effect, a huge subsidy for employers of low-wage workers. A report issued last week by the Federal Reserve Bank of Cleveland said that labor’s share of overall income had fallen to record lows in recent years.
New research from the Federal Reserve Bank of St Louis shows nearly one in three Americans now paying down student debt are at least a month behind in their payments; that figure is far higher than official delinquency measures from the Education Department and the New York Fed. And it is probably more accurate because it looks at people who have started to pay and not all outstanding debt, which includes people who have not yet started repayment. It’s estimated there is now $1.3 trillion in student loan debt outstanding.
Greece is preparing to take the dramatic step of declaring a debt default unless it can reach a deal with its international creditors by the end of April. The Financial Times quotes a government official saying: “We have come to the end of the road…If the Europeans won’t release bailout cash, there is no alternative [to a default].” Athens has also decided to withhold €2.5 billion-euro of payments due to the IMF in May and June if an agreement is not struck.
The International Monetary Fund left its projection for global growth in 2015 unchanged from three months ago at 3.5 percent. According to the IMF’s World Economic Outlook, the global economy is being reshaped by swings in currency markets and the drop in oil prices. The strengthening dollar is boosting growth in the Eurozone and Japan while taking some steam out of the U.S. recovery. Both the euro and yen have declined against the dollar as the European Central Bank and Bank of Japan purchase assets to boost the supply of money in their economies. The IMF cut its US expansion forecast by 0.5 percentage point to 3.1 percent, still the fastest among major developed economies. The Japan growth outlook increased to 1 percent from 0.6 percent and the euro area is projected to expand 1.5 percent as weakening currencies provide a boost. The figures show India will grow more quickly this year than China for the first time since 1999. The IMF predicts India will expand at a 7.5 percent rate. China is expected to grow 6.8 percent this year. Brazil will contract 1 percent in 2015.
One of the more important points of the IMF report is that potential output is growing more slowly than before. So, the takeaway is that the global economy is characterized by weak investment, low real and nominal interest rates, credit bubbles and unsustainable debt. Any solution sounds a bit circular, and largely deals with tweaking interest rates one way or another, while avoiding the real questions of increasing sustainable growth and reducing instability. Thanks IMF.
The race for renewable energy has passed a turning point. The world is now adding more capacity for renewable power each year than coal, natural gas, and oil combined. And there’s no going back. The shift occurred in 2013, when the world added 143 gigawatts of renewable electricity capacity, compared with 141 gigawatts in new plants that burn fossil fuels. According to an analysis presented at the Bloomberg New Energy Finance annual summit in New York, the shift will continue to accelerate, and by 2030 more than four times as much renewable capacity will be added.
The price of wind and solar power continues to plummet, and is now on par or cheaper than grid electricity in many areas of the world. Solar, the newest major source of energy in the mix, makes up less than 1 percent of the electricity market today but will be the world’s biggest single source by 2050.
Earnings reporting season kicks into high gear. JPMorgan Chase posted stronger-than-expected earnings growth, helped by a rebound in fixed-income trading. Revenue rose 5 percent. Wells Fargo reported first-quarter earnings that topped expectations. Wells Fargo said low interest rates pushed first-quarter lending margins below 3 percent for the first time since the 1990s. Johnson & Johnson reported adjusted earnings that topped expectations, but the consumer products giant also cut its full-year forecast, citing the impact of a strong dollar. Late Monday, Norfolk Southern forecast a surprise drop in its first-quarter earnings and revenue. Intel reported a 3% growth in first-quarter earnings on flat revenue growth as the semiconductor giant was hurt by softer demand for personal computers and impacts from a stronger dollar. For 2015, Intel said it now expects revenue to be flat from a year ago.
Cyberattacks and cybercrime against large companies – those with over 2,500 employees – rose 40% globally in 2014, according to Symantec’s annual Internet Security Threat study published Tuesday. Attacks on small- and medium-sized companies, which accounted for 60% of targeted attacks, increased 26% and 30%, respectively. Despite the large hacks at Home Depot, JPMorgan, Staples and Sony, Symantec says the mining industry, which includes oil & gas, was the most-targeted sector last year.
Nokia is in talks to buy smaller telecom equipment maker Alcatel-Lucent in a deal that would combine the industry’s two weakest players. In a joint announcement, the Finnish and French companies said they were in “advanced discussions” on a “full combination, which would take the form of a public exchange offer by Nokia for Alcatel-Lucent.” The two, which have been seen as a possible combination for the last several years, cautioned that the discussions could still fall apart. The pair are a good fit in terms of products and geographies, and bulking up would help them cut costs as they try to compete with much larger competitors in the mobile market.
Amazon and HarperCollins have reached a new multi-year publishing deal – expected to go into effect this week – that covers both print and digital titles. The agreement calls for HarperCollins to set the retail prices of its digital books, with incentives for HarperCollins to provide lower prices to consumers. In November, Amazon ended its brutal battle with Hachette over print and e-books, following a six month stand-off that battered the French-owned publisher’s sales.
United Launch Alliance, a joint venture of Lockheed Martin and Boeing, has unveiled a reusable rocket named “Vulcan” that is slated to take off in 2019 and end US dependence on Russian-built rocket engines. Russian-made RD-180 engines currently power ULA’s Atlas rocket, but Congress has banned further imports as part of trade sanctions enacted after Russia invaded Ukraine last year. Vulcan’s reusable engines are likely to slash satellite-launch costs and provide a stepping-stone to various commercial space ventures.
Space X has been working on a reusable rocket, the Falcon 9. After bad weather yesterday forced a delay, the Falcon successfully launched today, and will delivered its cargo to the International Space Station; the reusable part of the rocket then landed on a floating platform in the Atlantic Ocean, but it came in a little hot and the 140 foot tall rocket tipped over and fell into the water. Turns out rocket science is difficult after all.