The Yellen Rally
Market hits new high on Yellen rally. Ask a bot about it.
Financial Review by Sinclair Noe for 03-30-2016
DOW + 83 = 17,716
SPX + 8 = 2063
NAS + 22 = 4869
10 Y + .01 = 1.83%
OIL + .02 = 38.30
GOLD – 17.60 = 1225.30
Federal Reserve Chair Janet Yellen said a lot of what markets wanted to hear at her speech to the Economic Club of New York yesterday. Yellen said global and financial uncertainties posed risks to the domestic economy. She emphasized that rate hikes by the Fed would be gradual while spelling out what she means by data dependence. Market-implied odds of a rate rise at the April FOMC meeting fell to zero following her speech.
World stocks are flying higher as investors welcomed Fed Chair Janet Yellen’s “cautious” stance on raising U.S. interest rates. The dollar plunged as Yellen started speaking yesterday and is now headed for its worst month since 2010. Oil futures rose 3 percent this morning, rallying in reaction to a weaker dollar. Equity markets rallied across the globe.
On Wall Street, both the Dow and S&P 500 have closed at 2016 highs two consecutive days and have more than completely wiped out losses from the worst start to a year ever for stocks. With one trading day left in the first quarter, the Dow is up 1.7% for 2016 and the S&P 1.0%. Only the Nasdaq remains in the red for 2016, down 2.8%. This is a stark turn from the dark days of early February, when the three major U.S. indexes had 2016 losses ranging from 10% to 15% when the market hits its low for the year.
Japan missed out on the global rally, however, after announcing that industrial output dropped 6.2% in February due to sluggish demand both at home and abroad. The month-on-month fall marks the biggest drop since March 2011, when a devastating earthquake in Japan crippled the country’s supply chain. Japanese factory activity is closely monitored by market watchers as a proxy for the trend of the national economy. Nikkei -1.3%.
Huge industrial overcapacity will drag on China’s growth this year, according to the Asian Development Bank, which cut its growth outlooks for the world’s second-largest economy. The ADB’s new forecast sees GDP growth slowing to 6.5% this year and 6.3% in 2017, compared with Beijing’s expectations of between 7% for 2016 and an average of 6.5% over the next five years.
The Brazilian Democratic Movement Party – the country’s largest – has left the governing coalition of President Dilma Rousseff, sharply raising the odds she could be impeached in a matter of months. While not totally unexpected, the loss of this key ally will likely lead other parties to follow suit.
ADP’s monthly report on private sector employment shows companies took on 200,000 workers in March; the increase in employment followed a revised 205,000 gain the prior month. The government releases their monthly jobs report on Friday; most estimates are running just above 200,000 new jobs in March.
Confirming earlier reports, Boeing says it will eliminate about 4,000 jobs in its commercial airplanes division by the middle of this year, and another roughly 550 jobs in a division that conducts flight and lab tests. The job cuts will include hundreds of executives and managers, but will not be executed through involuntary layoffs.
Lawmakers in Washington have revealed legislation that would give Puerto Rico the ability to restructure some of its $70 billion debt, weeks before an expected crippling default of the island’s de facto finance authority. Although it wouldn’t grant access to Chapter 9, the plan would award the territory some of the legal tools found in bankruptcy as long as it first jumps through a number of hoops. The restructuring process also calls for putting Puerto Rico’s finances under a presidentially appointed oversight board.
Is Novartis in more hot water? An anonymous whistleblower has accused the Swiss drugmaker of paying bribes in Turkey through a consulting firm to secure business advantages worth an estimated $85M. The alleged benefits include getting medicines added to drug lists approved for prescription in government-run hospitals, and avoiding price cuts in other countries by changing the names of two drugs. Last week, the U.S. asked Novartis for records of 80K “sham” doctor events.
A jury has rendered a verdict in a General Motors case involving a defective ignition switch; the switch was defective but it did not cause the accident in question. This was the first trial to reach a verdict since the company recalled millions of vehicles with the part. The eight jurors, who deliberated less than a day following a two-week trial in Manhattan, found that the ignition switch made the 2007 Saturn Sky involved in the crash on a New Orleans bridge unreasonably dangerous and that GM failed to warn about its safety risks. But the cause of the crash was icy road conditions and not the switch, and so they awarded no damages.
Takata has estimated that a comprehensive callback of its airbag inflators could total about $24 billion, that is about $7 billion more than a recent projection by analysts, sending its shares tumbling by a fifth to an all-time low. Bloomberg reports that the worst-case recall scenario would involve 287 million airbag inflators.
A District Court has ruled that MetLife isn’t so important after all, striking down a designation made by financial regulators that MetLife should be consider a systemically important financial institution, of SIFI. The designation as a SIFI requires a financial institution to hold extra reserves to insure against collapse. At the heart of the case is whether the government can designate non-banks as systemically important. The 2010 Dodd-Frank Wall Street reform law authorized the U.S. to designate banks as ‘systemically important’ after AIG received a government bailout of $182 billion during the 2008 financial meltdown. MetLife argued in court that the Financial Stability Oversight Council (FSOC) used a secretive and flawed process when, in 2014, it determined that a collapse of the insurer could devastate the U.S. financial system just as much as failure of a major bank.
Last week the Supreme Court heard arguments in the Zubik v Burwell case, also known as the Little Sisters of the Poor case, which involves a challenge by religious nonprofit organizations to federal regulations requiring that employer-provided health insurance plans include contraception for women at no additional cost to the employee. The Little Sisters, a Roman Catholic order of nuns, operates homes for the elderly. Other plaintiffs include Catholic Charities and the Most Rev. David Zubik, the bishop of Pittsburgh. The nonprofits argue that Obamacare is violating the Religious Freedom Restoration Act by requiring them to indicate in writing that they object to providing birth control to female employees, a bureaucratic step that allows the coverage to be provided and paid for by insurance companies or third-party administrators.
Yesterday the court issued an order asking lawyers on both sides to submit supplemental briefs, requiring the two parties comment on an imaginary workaround that would allow religious objectors to the Affordable Care Act’s contraception mandate to notify their insurers that they object to providing birth control, but in an even more subtle fashion than the workaround already given them. First, the nonprofit will go to its insurer and say, in no uncertain terms, “We want insurance for our employees with no coverage for contraception.” They would not have to send in any government form or pay for any insurance they did not ask for. The insurer, the order suggests, would then send a notice to the employees saying that “the insurance company will provide cost-free contraceptive coverage, and that such coverage is not paid for by petitioners and is not provided through petitioners’ health plan.” If this sounds like a distinction without a difference, you might actually be qualified to be a supreme court justice, but don’t worry because you could never be confirmed.
Capping weeks of drama and intense negotiations, Foxconn Technology has finally clinched a deal to take over Sharp, but with a lower price tag than their original agreement. The Taiwanese firm will pay about $3.5 billion for a two-thirds controlling stake in Sharp, nearly $900 million less than its initial offer. Foxconn is reportedly planning to overhaul Sharp’s management including replacing its CEO.
Alphabet’s Google Fiber is introducing a home phone service, Fiber Phone, in addition to its existing high-speed internet and cable TV offerings (and potentially a triple play package). The service is set to provide unlimited local and nationwide calls for $10 per month, while adopting the same international calls rates as Google Voice. According to the company, a user’s Fiber number “lives in the cloud,” allowing them to use it on any phone, tablet, or laptop.
Microsoft’s Build 2016 kicks off today. Chief executive Satya Nadella addressed developers at the three-day conference in San Francisco, where the focus will be on HoloLens, an augmented-reality headset. Tweaks to the newish Windows 10 operating system will also get attention. Nadella kicked off the conference with a vision of the future filled with chatbots, machine learning and artificial intelligence. Nadella said “Bots are the new apps,” and if you’re wondering what bots are, well, it involves “People to people conversations, people to digital assistants, people to bots and even digital assistants to bots. That’s the world you’re going to get to see in the years to come.” If you still don’t’ know what bots are, ask Cortana or Siri.
More than 80 years after the Hindenburg disaster, airships are poised for a comeback. Straightline Aviation has signed a letter of intent to acquire 12 new Lockheed Martin hybrid airships – 280 feet long, able to carry 20 tons of cargo – in a deal valued at about $480 million. The company plans to use the massive blimps to run air operations for oil-and-gas companies, transporting their equipment and commodities to and from remote locations.