Financial Review by Sinclair Noe for 08-12-2015
DOW – 0.33 = 17,402
SPX + 1 = 2086
NAS + 7 = 5044
10 YR YLD – .01 = 2.13%
OIL + .23 = 43.31
GOLD + 16.80 = 1126.80
SILV + .18 = 15.64
Strange days indeed. While the closing numbers paint a picture of a calm day on Wall Street, it was anything but. The Dow Industrial Average started the session deep in the red; with a session low of a 277 point loss. And then it started clawing higher, briefly going positive for the day. US stocks gapped lower on the open following the lead of global stocks, Asian currencies, commodities and government bond yields were all heading south after China allowed the yuan to fall sharply for a second day, triggering concerns over the country’s economic health. The currency is down 4% over the last two days. The IMF has offered a cautious endorsement of the new pricing regime – which lets the market play a greater role in setting the value of the currency – in a step that may help Beijing win reserve currency status later this year. Late in the day, the Chinese government reportedly stepped in to prop up the yuan. And once again the shorts were shredded.
The number of available jobs fell in June, even as companies hired more. The latest Job Openings and Labor Turnover Survey, or JOLTS, shows there were 5.25 million job openings, down from 5.36 million in May, while the number of hired rose to 5.18 million from 5.06 million. The quits rate — a measure of worker willingness to leave to search or go to a new job — stayed at 1.9% in June. There were 1.6 unemployed in June for every job opening.
The United States posted a budget deficit of $149 billion in July, up 58 percent from the same period last year. The government had a deficit of $94 billion in July of 2014. The July deficit was larger because of $42 billion in payments that were shifted into that month from August. About $4 billion in extra revenue was also included in July for the same reason. Accounting for those items, the July deficit would have been $111 billion.
Grain commodity futures collapsed after the US Department of Agriculture raised its projections for output. In a report, the USDA said it now expects corn production to total 13.7 billion bushels this year from about 81 million acres of land, up from the forecast of 13.53 billion a month ago. Soybean output is expected at 3.916 billion bushels, up from 3.885 estimated last month. Corn and soybeans futures fell about 6%. Persistent rains in the Midwest early in the growing season led many to believe the crops would be light. A period of heavy rainfall, while concerning at the time, can often be recovered from prior to harvest, and the weather has been good for the past month or so. “Rain makes grain” is an old farmer axiom for good reason.
The global oil glut will last through next year and oil prices will be lower for longer. That’s the conclusion of the International Energy Agency in its widely followed monthly report. Stockpiles won’t be reduced until the fourth quarter of 2016, or after, if sanctions on Iranian crude are lifted. The production surplus was 3 million barrels a day in the second quarter of 2015, the highest in 17 years.
Just eight days after it defaulted on bond payments for the first time, Puerto Rico said it planned to issue $750 million more in bonds for several construction and maintenance projects. Issuing new debt while planning to restructure pre-existing debt, and even letting certain bonds default, “reflects the individual financial circumstances of the various issuers across the commonwealth,” announced GDB President Melba Acosta. So far, little is known about the island’s debt restructuring proposal; details will be made public at the end of this month.
McDonald’s plans to close 59 net U.S. locations this year, attempting to reverse its worst sales slump in more than decade. According to a franchise operations document, the chain is closing 184 restaurants and opening 125 new ones in 2015. The move follows seven straight quarters of slumping sales across the nation, and marks the first time in 45 years McDonald’s has closed more U.S. locations than it has opened.
Kraft Heinz said it will eliminate 2,500 jobs in the United States and Canada, including about 700 at its headquarters in Northfield, Illinois. Kraft Heinz currently has about 46,000 employees; the company expects to save about $1.5 billion in annual costs by the end of 2017.
Capital One is buying GE’s health care lending unit for approximately $9 billion. The sale means GE has shed $78 billion in assets this year, bringing it closer to its year-end goal of $100 billion. . The deal is expected to close in the fourth quarter. The size of GE’s finance arm, GE Capital, and the potential risk stemming from its lending portfolio has made it subject to government oversight. GE plans to apply next year to escape its designation as a systemically important financial institution following the sale of finance assets. For Capital One, the deal will bolster its healthcare lending operations.
Financial industry software maker Fidelity National Information Services said it would buy SunGard Data Systems for $9.1 billion including debt, scooping up one of the longest-held investments in private-equity history.
Wells Fargo may divest its crop insurance business, one of the biggest in the U.S., as regulatory restrictions on banks force some to reconsider underwriting insurance policies. Wells Fargo expects a price tag of about $1 billion for the unit, and has launched an auction for the business.
More Legionnaire’s disease concerns are surfacing after GlaxoSmithKline shut down a North Carolina plant upon discovering the bacteria in a self-standing cooling tower. The closure is not expected to disrupt supplies of medicines made at the factory, which ironically include Glaxo’s $7 billion-a-year inhaled respiratory drug Advair. About 400 of the 850 employees who work at the plant were told to stay away until the towers are cleaned.
Dark pools are getting darker. Credit Suisse and Barclays have entered settlement negotiations with the SEC and NY attorney general over facilitating unfair advantages, incorrect stock pricing and other wrongdoing in their dark pools. Credit Suisse is in talks to pay a fine in the high tens of millions, which would be the largest fine ever levied against a private trading venue operator, while Barclays’ discussions also suggest a large fine.
U.S. prosecutors have separately announced charges against an insider-trading ring consisting of 32 traders and hackers, marking the first time criminal allegations have been brought for a securities fraud scheme involving hacked inside information. Stolen press releases gave the rogue traders $100 million in illegal proceeds by allowing them to trade on news before it hit the wires. Hackers were then paid a flat fee or a percentage of the profits gained from the trading.
Discount Tire is recalling nearly 80,000 light truck and SUV tires because the tread could separate. Discount Tire says there are no reports of deaths or injuries due to the defect. Stores will notify owners and will either replace the tires for free or offer refunds.
Angry Orchard Cider Company is recalling select cases of Crisp Apple Hard Cider over concerns that the bottles may explode. The actual cider poses no health risk.
The breakfast cereal Wheaties has partnered with a craft brewery in Minneapolis, to create a limited-edition Hefeweizen beer named HefeWheaties. Beer, the breakfast of champions.
More than 35,000 combat veterans have had their health care delayed by a Department of Veterans Affairs computer program that automatically put them in limbo, many for years. Yet the VA says it lacks the authority to override the system. The veterans, most of whom served in Iraq and Afghanistan, were erroneously put onto a “pending” list for failing to fill out a means test. But combat veterans are not required to fill out means tests to receive health care. About 16,000 of the cases have been pending for more than five years. Under VA rules, combat veterans are eligible for five years of free health care after discharge, but the period begins the day of discharge.
Yesterday we told you about Google’s plan to form a new holding company called Alphabet. Just one problem. Google/Alphabet decided on this name for its new holding company even though it couldn’t secure the most obvious domain name (or social media accounts, for that matter). Alphabet.com belongs to the fleet management company owned by BMW, and they aren’t giving up the domain. So Google/Alphabet is using abc.xyz. Yea, not so good.
A meteor shower that could feature as many as 100 shooting stars an hour will peak tonight. The Perseid meteor shower should be particularly brilliant this year because the sky will be dark and the view won’t be obstructed by moon light, as a new moon rises Friday. The meteor shower continues for a couple of days but tonight is the best night. To watch, you do not need a telescope; in fact a telescope or binoculars will hurt your viewing because the meteors move fast. For best viewing get away from city lights or any lights, lean back and look up toward the constellations Cassiopeia and Perseus in the Northeast part of the sky