…..House of Reps votes to repeal and replace Obamacare, it’s the Senate’s problem now. Bad day for oil. And metals. Earnings roll on. Viacom beats but more homes cut the cable. CBS beats. Kelloggs double good. Shake Shack sinks. Cities can sue big banks for predatory lending.
Financial Review by Sinclair Noe for 05-04-2017
DOW – 6 = 20,951
SPX + 1 = 2389
NAS + 2 = 6075
RUT – .02 = 1388
10 Y + .05 = 2.36%
OIL – 2.31 = 45.51
GOLD – 9.70 = 1229.00
The House of Representatives narrowly approved a bill to repeal Obamacare. More specifically the House passed the American Health Care Act, which scraps the Obamacare mandates that people buy health insurance and that employers provide it, eliminates most of its tax increases, cuts nearly $900 billion from Medicaid while curtailing the program’s expansion, and allows states to seek a waiver exempting them from the current law’s crucial prohibition against insurers charging higher premiums to people with pre-existing conditions. The party line vote was 217-213 with 20 Republicans voting against the bill.
Conservatives complained that the bill did not fully repeal the 2010 law, while moderates blanched at its cuts to Medicaid and its weakening of its most popular consumer protections. Hardliners in the House Freedom Caucus, who had denounced the original version of the bill as “Obamacare-lite,” dropped their opposition after securing an amendment allowing states to opt out of key insurance mandates. Moderates and even some leadership loyalists balked, but they secured an 11th hour sweetener of their own: an extra $8 billion to help people with pre-existing conditions who might not be able to afford higher premiums that insurers could charge them in high-risk pools. The modest sum was no more than a political fig leaf, as policy analysts said it would not come close to making the new insurance pools work.
What pushed some reluctant members to vote yes in the final days was the growing realization that this bill might not become law. Not as it is currently written. As many hurdles as the American Health Care Act has overcome among Republicans in the House, it faces even more among the considerably narrower GOP majority in the Senate, where party leaders must win over 50 out of the chambers 52 Republicans. Senators will re-work the legislation, and there is no guarantee they will even vote on it. So, for now, Obamacare remains the law of the land. Senators will now wait up to two weeks for CBO to review the House-passed bill.
The CBO analysis of the first version of the AHCA showed 24 million people would lose insurance coverage over the next 8 years. A widely-cited Quinnipiac University poll in March found that just 17 percent of respondents backed its passage, and that was before Republicans amended the measure to allow states to weaken popular consumer protections. In a sign of the challenges ahead for the legislation, nearly every major medical group, including the American Medical Association, American Hospital Association and the AARP, strongly opposed the Republican bill. In an analysis released on Thursday, healthcare consultancy and research firm Avalere Health said the Republican bill would cover only 5 percent of enrollees with pre-existing conditions in the individual insurance markets. Following CBO analysis, it could take several weeks to agree on revisions, or a new bill entirely, that would then either be sent back to the House or to a conference committee for more negotiations. While the bill’s fate in the Senate is uncertain, its House passage could boost Trump’s hopes of pushing through other big ticket items on his agenda, such as tax reform. The failure of previous efforts on the healthcare legislation had raised questions about how much Republicans could work together to help Trump fulfill his campaign pledges. Repealing Obamacare is the Senate’s problem now. Many people struggling with soaring premiums, deductibles, co-pays and other onerous costs blame Obamacare for their woes. Trump will become the target of the same criticism if Trumpcare passes, and probably even if it doesn’t.
The oil rally following OPEC’s deal has disappeared. Oil futures dropped to their lowest since late November on growing signs that OPEC’s production cuts are failing to clear a surplus of crude. Oil stocks felt the pinch, with the S&P Oil & Gas Exploration and Production Index slumping as much as 4.9 percent. OPEC is widely expected to extend its production caps for another 6 months but they are unlikely to make deeper cuts. To counter OPEC cuts, US crude output has risen to the highest since August 2015 as shale drillers add rigs every week. US crude output rose by 28,000 barrels a day last week for the longest run of gains since 2012, according to Energy Information Administration data. Crude stockpiles fell by 930,000 barrels, far less than expected. Meanwhile on the demand side, China has hit a speed bump and the Chinese government has clamped down on financial leverage and increased regulatory scrutiny of commodity trades.
In other oil-market news: Royal Dutch Shell reported adjusted first-quarter earnings of $3.75 billion, compared with $1.55 billion a year earlier. US shale driller Chesapeake Energy posted its first quarterly profit since 2014 and braced shareholders for a production surge in the second half of the year as new natural gas and oil wells come online. Chesapeake Energy lost as much as 9.8 percent of its value. Pioneer Natural Resources saw as much as $1.4 billion in market value wiped out on Thursday. California Resources, the Los Angeles-based explorer spun off by Occidental Petroleum in 2014, fell as much as 11 percent.
In metals markets, copper posted its biggest 2-day loss since 2015 as the London Metal Exchange reported a 25 percent increase in copper stockpiles. Copper down 1% today, following yesterday’s 3.5% drop. Meanwhile, iron ore is in full retreat, trading limit down and nickel dropped to a 10-month low on the LME, down 5.3% in the past 2 days. And all this commodity action is happening as the US dollar index continues to inch slightly lower.
Tennessee-based First Horizon agreed to buy North Carolina’s Capital Bank Financial in a deal the companies valued at $2.2 billion. They said it will make one of the largest regional banks in the Southeastern US. However, investors were far from excited and both stocks slumped.
Another busy day of earnings news. Viacom, the owner of MTV, Comedy Central and Nickelodeon, reported second-quarter profit that beat estimates on Thursday, but news that Charter Communications had re-tiered five of Viacom’s flagship networks to its most expensive programming tier, a move that will likely result in lower affiliate revenue for the media company, prompted a steep selloff. Viacom, along with its peers, is also under pressure as more viewers cancel cable subscriptions to watch content online and advertisers increasingly shift ad dollars to the web. The pay-TV industry just reported its worst-ever first quarter subscriber loss, at an estimated 726,000 subscribers, over five times last year’s loss.
CBS Corp’s quarterly revenue and profit beat analysts’ estimates as the company benefited from higher content licensing and subscription fees, led by the streaming version of its Showtime network. Shares of the most-watched U.S. TV network were up 1.8 percent. Advertising sales, which accounts for half of the company’s total revenue, fell 23 percent to $1.6 billion from a year earlier, which included popular events such as the 50th anniversary of the Super Bowl and an extra National Football League playoff game. Revenue from the company’s content licensing and distribution segment rose nearly 16 percent, while its affiliate and subscription revenue was up 16.6 percent.
Cornflakes maker Kellogg reported a better-than-expected quarterly profit. The world’s largest cereal maker has been battling weak sales as shoppers prefer healthier options over its processed food offerings. Kellogg launched the “Project K” restructuring program four years ago in a push to drive profit by cutting jobs and optimizing production. Net income rose to $262 million, or 74 cents per share, in the first quarter ended April 1, from $175 million, or 49 cents per share, a year earlier. The planned tax benefit resulted in a 14 cent benefit to the company’s adjusted profit per share.
Shake Shack sinks after same store sales stall. (say that 5 times fast) Comparable sales for the quarter dropped 2.5%. The burger chain also said full-year 2017 same-store sales will be flat, trimming previous guidance for 2-3% growth.
Cities can sue banks over predatory lending. In Bank of America v City of Miami, the Supreme Court considered whether Miami may attempt to recoup losses it suffered from the 2008 recession by suing Bank of America and Wells Fargo, two of America’s biggest banks, for extending low-cost loans to white people while selling black people and Latinos risky mortgages with high fees and inflated interest rates. Miami claimed that a decade of discriminatory lending contributed to segregation and led minority borrowers to miss payments and lose their homes. Foreclosures then depressed property values, bringing boarded-up windows and dangerous street corners. This spurred Miami to spend more on policing, fire protection and other city services while its tax base withered. The impact on the city’s finances, Miami claimed, made it an aggrieved party under the Fair Housing Act (FHA), a law passed in 1968 prohibiting racial discrimination in the lease, sale and financing of property. The swing vote was Chief Justice John Roberts.
The Commerce Department reported the trade deficit dipped 0.1% in March, even as deficits with Mexico and Japan hit an almost 10-year high. The deficit dipped to $43.7 billion in March – a five-month low. Exports slid 0.9% to $191 billion, largely reflecting fewer shipments of pharmaceutical drugs and American-made cars. Imports edged down 0.7% to $234.7 billion.
There will be six Federal Reserve officials speaking on Friday and economists will be listening for clues about balance-sheet policy. The central bank did not shed any new light on the internal discussions on its plans to reduce its $4.5 trillion balance sheet on Wednesday when it released a short statement after a two-day meeting, where they left interest rates unchanged.
Initial U.S. jobless claims fell by 19,000 to 238,000 in the last week of April. Tomorrow is a Jobs Report Friday. Last month the March report showed a weak 89,000 new jobs. The April report is expected to bounce back with about 185,000 jobs.