The Wisdom of Solomon
…..Eurozone grows. BOJ stands pat. FOMC meets. Home sales up. Consumer confidence down. Deutsche Bank launders money. Apple beats, beats, beats. Exxon’s big impairment – not worth it to pull it out of the ground. Trump meets drugmakers. Tom Price did get a discount. OneWest did engage in robo-signings. Trump fires Yates. Trump names next justice. Hoping for Solomon.
Financial Review by Sinclair Noe for 01-31-2017
DOW – 107 = 19,864
SPX – 2 = 2278
NAS + 1 = 5614
RUT + 10 = 1362
10 Y – .03 = 2.45%
OIL + .19 = 52.82
GOLD + 14.70 = 1211.00
Economic growth for the Eurozone rose 1.7% last year, growing at a faster rate than the U.S. managed when averaged across the whole of 2016. That’s the first time that happened since 2008. The region’s jobless rate also fell to 9.6%, the lowest figure since May 2009, while inflation of 1.8% is now near the ECB’s target of “close to, but below 2%.”
Following a two-day board meeting, the Bank of Japan kept its monetary policy on hold, but policymakers were more bullish on the economy, raising its 2017 real gross-domestic-product growth forecast to 1.5%, up from its previous forecast of 1.3% offered last November.
The Federal Reserve Federal Open Market Committee is beginning 2 days of meetings to determine monetary policy. Most analysts predict the FOMC will leave interest rates unchanged when Chair Janet Yellen makes the announcement tomorrow. The Fed last met in mid-December and hiked interest rates for only the second time in almost a decade. Since that meeting, officials stressed they intend to move rates up gradually, the main reason the market doesn’t expect a rate hike this week. Using federal funds rate futures prices, the CME Group says there is a 96 percent probability of no change.
U.S. home prices rose slightly in November from the previous month. The S&P/Case-Shiller U.S. National Home Price Index, which measures all nine U.S. census divisions, was up 5.6 percent on an annual basis in November. Phoenix posted a 0.3% gain from October to November, and a 5.2% increase for the 12 months through November.
The Conference Board’s consumer confidence index fell to a reading of 111.8 in January after hitting a 15-year high of 113.3 in December. Consumers’ appraisal of the present improved, to a reading of 129.7 from 123.5, but the expectations index fell to 99.8 from 106.4. The proportion expecting more jobs in the months ahead decreased from 21.7% to 19.8%, and the percentage of consumers expecting their incomes to increase declined from 21.5% to 18%.
The amount of money it costs businesses to employ workers rose a touch slower in the fourth quarter owing to the smallest increase in benefits in a year and a half. The employment cost index rose 0.5% in the final three months of 2016, below the 0.6% gains in each of the past three quarters. The index grew a slightly faster 2.2% in 2016 after a 2% gain in 2015. In the fourth quarter, wages advanced 0.5% but benefits only rose 0.4%. Part of the reason: Companies may have passed more of the costs of health care onto workers in the form of higher premiums and deductibles, among other things.
Deutsche Bank has agreed to pay $630 million to end investigations by UK and New York regulators into Russian equity trades that transferred $10 billion out of that country in violation of anti-money-laundering laws. Regulators say Deutsche Bank executed more than 2,400 pairs of so-called mirror trades between April 2012 and October 2014. The scheme involved buying stock with Russian rubles at Deutsche Bank’s Moscow office and then selling the identical stock – same quantity, same price – at the London office of Deutsche Bank and being paid for the shares with US dollars in London. UK and New York regulators cited repeated shortcomings in Deutsche Bank’s controls to vet clients, including failing to determine their identities and sources of wealth, and to detect suspicious trades.
After the closing bell Apple reported it sold 78.2 million iPhones in the last quarter. That’s a beat. Profit of $3.38 per share; another beat. Revenue of $78.4 billion; another beat. Services revenue of $7.17 billion; another beat. All time revenue records for iPhone, Services, Mac, and Apple Watch. But guidance is on the weak side. Apple shares pop in after hours. Some poor schmuck bet his life savings on Apple puts and now he’s crying on his live stream.
Exxon Mobil missed earnings forecasts this morning as it took a $2 billion impairment charge, mostly due to the company lowering the value of some of its U.S. gas assets. Persistently low oil prices and weaker profit margins in Exxon’s refining business also weighed on earnings for the full year. Exxon reported fourth-quarter earnings of $1.7 billion, or 41 cents a share. In the period a year ago, the oil giant reported earnings of $2.8 billion, or 67 cents a share. Revenues for the quarter were $61.01 billion. The impairment resulted from the company’s review of its reserves. Exxon determined that some of its U.S. assets’ future cash flows no longer exceeded their carrying value.
Under Armour reported lower-than-expected quarterly sales and announced that Chief Financial Officer Chip Molloy will step down. The company said net income fell to $104.9 million in the fourth quarter ended Dec. 31 from $105.6 million a year earlier. The company’s net revenue rose about 12 percent to $1.3 billion, its slowest sales growth in eight years.
MasterCard posted fourth-quarter earnings per share of 86 cents on revenue of $2.76 billion. Mastercard missed revenue estimates but beat earnings estimates by a penny per share. MasterCard, which processes more than 65,000 transactions every minute, said its gross dollar volumes — the total value of transactions made by customers — rose 9 percent to $1.2 trillion worldwide.
United Parcel Service reported quarterly earnings and revenue that missed Wall Street’s expectations. UPS also posted a 2017 outlook below expectations. During the holiday season UPS delivered more than 712 million packages, a 16 percent increase over the year-ago quarter. The company said it delivered 1.4 billion packages last year, up 7.1 percent. E-commerce has been growing at double-digit rates for years and the 2016 holiday season was no exception: online sales surged 13 percent and UPS saw a surge in business to consumer shipments, which are not as efficient or profitable as B2B.
Aetna’s net profit fell to $139 million, or 39 cents per share, in the fourth quarter ended Dec. 31, from $321 million, or 91 cents per share, a year earlier. Aetna said its total health care medical benefit ratio — the percent of premiums spent on claims — rose to 82.1 percent from 81.9 percent, a year earlier, mainly due to higher medical costs in its individual commercial products. Aetna and Humana have said they will consider all available options for their proposed merger after a court ruled against the $34 billion deal last week, saying it would lower competition.
Insulin makers are being accused of price fixing. Lilly, Novo Nordisk, and Sanofi are accused of taking part in an “organized scheme to drive up prices at the expense of patients who need insulin drugs to live,” according to a complaint filed in the US District Court of Massachusetts.
Pfizer reported a lower-than-expected profit, hit by lower demand for its flagship vaccine Prevnar and higher expenses. Global Prevnar sales fell 23 percent to $1.42 billion, underwhelming consensus estimates. Pfizer closed its $14 billion acquisition of Medivation in September.
Today, President Trump met with executives of several major drugmakers and called for lower drug prices while also promising to speed up approval times for new medicines. In an interview with The Associated Press, Pfizer CEO Ian Read stuck to his position that the problem isn’t soaring drug prices but insurers pushing more costs onto patients. He said Pfizer won’t pledge that it will limit annual price increases, as a few rivals recently did. Pfizer typically raises the list price on all of its drugs about 10 percent twice each year, though wholesalers and other middlemen get much of those increases.
Rep. Tom Price, the Georgia congressman and nominee for Secretary of Health and Human Services testified in his Senate confirmation hearings on Jan. 18 and 24 that the discounted shares he bought in Innate Immunotherapeutics, an Australian medical biotechnology company, “were available to every single individual that was an investor at the time.” Not exactly. In fact, the cabinet nominee was one of fewer than 20 U.S. investors who were invited last year to buy discounted shares of the company – an opportunity that, for Price, arose from an invitation from a company director and fellow congressmen.
Senate Democrats today boycotted scheduled votes in the Senate Finance Committee on Steven Mnuchin, the nominee to head the Treasury Department, and Rep. Tom Price to be health secretary. The committee needs at least one Democrat to proceed. Mnuchin has come under fire for telling the Senate Finance Committee that OneWest, the bank he led as CEO from 2009 to 2015, did not engage in the robo-signing of foreclosure and bankruptcy documents. Court filings have shown that the bank did. Meanwhile, Betsy Devos’ nomination as Secretary of Education cleared Senate Committee today.
The Senate Judiciary Committee delayed voting this morning on the nomination of Sen. Jeff Sessions as attorney general, a pick that’s receiving even more scrutiny in the wake of President Donald Trump’s executive orders on immigration. Last night Trump fired the acting attorney general Sally Yates after she took the rare step of defying the White House and refused to defend new travel restrictions targeting seven Muslim-majority nations. Dana Boente, (pronounced Ben-tay) U.S. Attorney for the Eastern District of Virginia, was sworn in last night as acting U.S. attorney general until Sessions is approved. The recent news out of Washington has hit Wall Street like a bag of rocks to the gut.
Following Trump’s executive order on immigration last week, federal judges across the country responded to lawsuits stemming from the travel ban by ordering the Department of Homeland Security to immediately stop enforcing various aspects of the executive order. By Sunday, reports started coming out that some federal agents from Customs and Border Protection were disregarding the court orders, and continuing to enforce Trump’s travel ban in a way that violated instructions they’d been given by judges. And this sets up a very interesting scenario: What happens when the federal government or its agents refuse to honor a court order handed down by a federal judge? If there is escalation, it will likely be reflected on the scoreboard at Wall Street.
Later this evening, President Trump is expected to announce his nominee to succeed the late Justice Antonin Scalia on the Supreme Court. Whoever he is, let’s hope he has the wisdom of Solomon.