…..Dow Industrials, Dow Transports, S&P 500, Nasdaq – all close at record highs. $2 trillion rotates from bonds to equities. Fed raises rates next week. ECB tapers today. Deutsche Bank turns on UBS, HSBC, Bank of Nova Scotia in silver rigging case. Wells Fargo – bad neighbor. ThyssenKrup hacked. Sears in death spiral.
Financial Review by Sinclair Noe for 12-08-2016
DOW + 65 = 19,614
SPX + 4 = 2246
NAS + 23 = 5417
RUT + 21 = 1386
10 Y + .04 = 2.39%
OIL + .92 = 51.86
GOLD – 2.90 = 1171.40
US stocks are at all-time highs, again. The Dow Industrials, the S&P 500, the Nasdaq Composite, the Dow Transportation Average, and the Russell 2000 hit record highs at the close; for the Dow Industrials, it was the 13th record high since Donald Trump was elected president on November 8. The Dow has climbed a stunning 1,200 points in the month since the election. Since the election, one month ago, some $2 trillion has shifted from bonds to equities. For stocks, most developed markets have surged while several emerging ones submerged, led by Ghana and Mexico. Russia and Venezuela soared, though that was more due to OPEC’s pact driving up oil prices. Of 94 primary stock indexes tracked by Bloomberg, more than two-thirds climbed in local currency terms, with a median gain of 2 percent. The dollar has also surged. Of the 20 largest markets, comprising 90 percent of world capitalization, seven declined in dollar value, but for five of them that was all down to currency shifts.
How lasting a pattern the new market dynamics will be is an open question, with more than a month to go before Trump takes office and plenty of potential roadblocks to his fiscal and regulatory proposals in a fractious U.S. Congress. For now, eyes turn toward next week’s Fed meeting to set the tone for the outlook as far as monetary policy goes. The Fed hiked rates last December and they will almost certainly hike rates another quarter point next week, for only the second increase in 10 years. On forward guidance, the Fed will keep open the possibility of multiple hikes in 2017. This is due not only to its anticipation of a solid economic baseline for next year but also the new upside for growth and inflation associated with the recent policy announcements by President-elect Trump. An important consideration here is the degree to which a more active fiscal policy, especially if led by productive infrastructure spending, would allow faster normalization of monetary policy. And while the Fed will hint at future rate hikes, they will throw in the standard caveat about data dependency, which is also a way to wait for the details of the Trump administration’s economic policies before moving toward significant alterations of their forward guidance.
The number of Americans filing for unemployment benefits fell from a five-month high last week. Initial claims for state unemployment benefits dropped 10,000 to a seasonally adjusted 258,000. It was the 92nd straight week that claims were below 300,000.
Super Mario strikes again: The European Central Bank announced it will extend its bond buying program until December 2017. That’s much longer than investors had anticipated, and it will add up to about $2.4 trillion in stimulus. But the bank also said it will decrease the scale of its bond purchases from $86 billion a month to $64 billion a month starting in April. The euro initially gained against the dollar, but quickly reversed course. By extending bond purchases but reducing the monthly pace, the ECB may be trying to preserve its monetary stimulus as political risks (such as Brexit or the situation in Italy) cloud the outlook for the euro area’s recovery. And no matter what Draghi claims, the monthly amount of stimulus is going down, and that sounds like tapering.
Eight months after Deutsche Bank settled a lawsuit claiming it manipulated prices of precious metals, plaintiffs say documents it disclosed as part of the accord provide “smoking gun” proof that UBS, HSBC, Bank of Nova Scotia and other firms rigged the silver market. The newly cited evidence was produced by Deutsche Bank after it reached a $38 million settlement in the case earlier this year. The plaintiffs said the evidence showed the new defendants engaged in collusive price manipulation. And there is some pretty damning evidence. Court documents show ilver traders at UBS and Deutsche Bank so regularly conspired with one another to trigger stop-loss orders that they coined a name for themselves: “STOP BUSTERS”. One UBS trader, while planning a series of manipulative silver transactions with Deutsche Bank trader, wrote on April 1, 2011, “If we are correct and do it together, we screw other people harder.” The plaintiffs presented evidence from Deutsche Bank documents showing traders from the different banks directly communicated to discuss ways to rig the market. Among other things, the traders shared customer order-flow information, improperly triggered customer stop-loss orders, and engaged in practices such as spoofing. Spoofing entails submitting bids or offers with the intention of canceling them before they’re executed as a way to alter prices. Separately, an audit commissioned by German regulators suggest that Deutsche employees may have manipulated internal indexes as part of a scheme to help Monte dei Paschi conceal losses.
A US bank regulator is ready to fail Wells Fargo on a national scorecard for community lending. The bank, which is already in hot water over its recent fake account scandal, is reportedly falling short in its fair lending requirements. According to Reuters, the Office of the Comptroller of the Currency may cut Well’s Community Reinvestment Act rating two notches from “outstanding to “needs to improve,” which would give regulators greater say on day-to-day matters like opening new branches. Following the 2008 housing market collapse, the OCC faulted several national banks for their community lending, but no US bank has been cut 2 notches.
The steel production and manufacturing plant design divisions of ThyssenKrupp (pronounced tiss-in- krup) has become the target of a massive cyber attack. ThyssenKrupp, one of the world’s largest steel makers, attributed the breaches to unnamed attackers located in southeast Asia engaged in what it said were “organized, highly professional hacker activities”. Globally, cyber attacks on banks, retailers and other businesses have led to widespread consumer data breaches and mounting financial losses in recent years, but revelations of industrial espionage are rare. The company declined to identify specific locations which were infected or why it had not previously disclosed the attack. It said it could not estimate the scale of the intellectual property losses.
Costco posted solid quarterly results today. Costco’s first quarter of fiscal 2017, which ended on Nov. 20, it saw net sales come in at $27.47 billion, an increase of 3% from the year-ago quarter. In addition, same-store sales were up 1% in the United States, up 4% in Canada, flat internationally, and up 1% for the total company. Those numbers look even better when you factor out lower gas prices and foreign exchange. Net income rose to $545 million, or $1.24 per diluted share, compared to $480 million, or $1.09 per diluted share, last year. These are solid numbers that show that the company has put any problems related to its switching rewards credit card providers well in the past. In addition, these results, which cover the time leading up to the critical holiday shopping season, suggest that while Amazon has taken market share from other retailers, Costco has remained more or less immune.
Sears was once the biggest and most well-known name in retail, but in the past few years, the brand has been on the decline. In fact, they’re getting worse. The once-venerable department store chain reported a wider third-quarter loss than the prior-year period, as sales continued to slide. Revenue fell 13 percent to $5 billion. Sears reported another quarterly loss, $748 million; only two quarters have been profitable since 2012. Sales at its established stores declined 7.4 percent, including a 4.4 percent dip at Kmart, and a 10 percent drop at Sears. Sears CEO Eddie Lampert reiterated that the company remains “fully committed to restoring profitability to our company.” The company closed 82 Kmart stores and seven Sears stores during the three months ending in October. That’s on top of the 58 Kmart stores and 23 Sears stores closed in the first six months of the year. The two chains had 4,000 stores as recently as 2011, but are now down to 1,500 stores.