…Stocks slip on concerns about trade wars, Rosenstein resignation/firing. Fed meets this week. Oil prices jump. Comcast to buy Sky. Sirius buys Pandora. Kors-Versace. Barrick buys Randgold. Sears near the end. Name changes.
Financial Review by Sinclair Noe for 09-24-2018
DOW – 181 = 26,562
SPX – 10 = 2919
NAS + 6 = 7993
RUT – 7.00 = 1705
10 Y + .01 = 3.08%
OIL + 1.49 = 72.27
GOLD + .10 = 1199.80
Both the Dow and S&P 500 posted record highs last week despite the announcement early last week of a 10% tax on $200 billion in Chinese imports, which took effect today. China retaliated with taxes on $60 billion worth of US goods. Trump has repeatedly promised a clean, quick victory over China in a trade war. But as hostilities between the world’s two largest economies turn uglier, the Chinese government is demonstrating that it is prepared for a protracted fight. China had cancelled talks with the U.S. on trade as both countries impose tariffs on billions of dollars’ worth of their goods. The two sides were set to meet in order to dial back tensions, but China rescinded a proposal to send two delegations to Washington. And there is word the Trump administration is planning to ramp up the rhetoric in coming weeks and will call out China for its “malign activity” in cyberattacks, election interference and industrial warfare and intellectual property theft. The stock market has been mostly enjoying an uptrend, shaking off elevated tariff tensions between the US and its global counterparts.
However, JPMorgan Chase analysts say investors should brace for the possibility of a “major miscalculation” by Trump’s administration, as it relates to the U.S.-China conflict. The analysts write that “economic and equity market resilience despite tariffs will embolden the President on all geopolitical fronts—autos, NAFTA and particularly Iran—and thus risk a major miscalculation from sanctions that are tough to calibrate.”
Stocks started today’s session in negative territory. Stocks began falling to session lows shortly after trading began on reports that Deputy Attorney General Rod Rosenstein was about to resign or be fired. The White House later said in a statement Rosenstein and Trump will meet on Thursday. Axios reported this morning that Rod Rosenstein had “verbally resigned” to John Kelly. Rosenstein went to the White House expecting to be fired, and the Justice Department had drafted a statement that would announce Rosenstein’s departure, written in the voice of Attorney General Jeff Sessions.
Tomorrow, the Federal Reserve FOMC will begin a 2-day policy meeting which will almost certainly result in an interest rate hike on Wednesday, lifting a key short-term interest rate to a range of 2% to 2.25%, putting it at the highest level in a decade. Many loans for things such as mortgages and autos are tied to the so-called fed funds rate. The Fed has been steadily raising rates to keep the U.S. from growing so fast that inflation gets out of hand. There’s more of a danger of that now, even if just a small one, with the economy expanding at a rapid pace and inflation hitting the highest level in six years. At the moment, the unemployment rate is 3.9%, below the 4.5% level the Fed believes the “natural rate” of unemployment or where inflation neither slows down or speeds up. The economic expansion is the second-longest in history at 36 straight quarters. The big question is whether the Fed can hike rates without pushing the economy into recession. Recession fears remain, at the moment, a small dark cloud in the horizon. The Fed is expected to keep raising rates at a gradual pace later this week and to signal more rate hikes ahead.
A committee made up of some members of OPEC and nonmember crude producers, know as the Joint OPEC-non-OPEC Ministerial Monitoring Committee, over the weekend in Algiers delivered no formal plan to boost output to offset an estimated 2 million barrels a day of oil that will be lost due to U.S. sanctions on Iran’s exports set to take effect Nov. 4.
Comcast and the Walt Disney Company have long been rivals. On Saturday, Comcast emerged as the decisive victor in a battle with Disney for control of the British pay-television company Sky. In a deal valued at $39 billion, Comcast bid £17.28 per Sky share, while Fox — bidding on behalf of its soon-to-be owner, Disney — bid £15.67 a share. Comcast’s offer for the majority stake in Sky puts that total value of the company at $48 billion including assumed debt, or 15 times expected 2018 earnings. Disney will own 39 percent of Sky through its 21st Century Fox acquisition. Disney can hold on to those shares or sell them to Comcast. Disney’s stake in Sky would be valued at about $15 billion in such a deal, money that could be used to pay down debt associated with the Fox purchase. Comcast needs more than 50 percent of shares to complete its offer.
Hulu could emerge as another chess piece. Disney is poised to own about 60 percent of that service after it closes the deal for 21st Century Fox, but Comcast would remain a minority shareholder with 30 percent. In Sky, Comcast gets one of Europe’s largest media companies, with nearly 23 million customers across five countries, including Britain, Germany and Italy. For British viewers used to living in a media universe long dominated by the Murdoch family, the potential Comcast takeover signals a notable shift in ownership.
Sirius XM Holdings announced it reached a deal to acquire online streaming service Pandora Media for about $3.5 billion in stock. The satellite radio company, which already owns about 15 percent of Pandora, said it would maintain both the Sirius XM and Pandora brands and services. But it also appeared to leave open the possibility of a shift, saying there would be “no immediate change in listener offerings.” SiriusXM has more than 36 million subscribers in North America. Pandora, which provides free and paid music streaming, has more than 70 million monthly listeners. Competitors include streaming service Spotify and Apple Music.
Accessories and apparel company Michael Kors is said to be closing in on an agreement to purchase Versace. The deal, which could be announced as early as this week, would value the luxury fashion company Versace at around $2 billion.
Canada’s Barrick Gold is buying rival Randgold to create the world’s biggest gold miner. The combined entity will have a market value of more than $18 billion. Barrick shareholders will end up owning about 67% of the new company. The new company will control five of the world’s top ten gold mines and have “the largest gold reserves amongst senior gold peers.” The massive merger comes during a tough year for the gold industry. Gold prices have fallen almost 9% so far this year, and last month dipped below $1,200 an ounce for the first time since January 2017. Barrick and Randgold are hoping that joining forces and combining their immense resources will help them weather the storm.
Time is running out for Sears. Eddie Lampert, who controls most of the company’s shares through his hedge fund, told the board on Monday that it must address “significant near-term constraints” in its cash position. He cited $134 million in debt payments due October 15. Lampert has proposed that Sears sell its Kenmore appliance brand, as well as real estate and other assets, to pay down what it owes. In the letter, which was also filed with regulators, he said progress must be made “without delay.” Lampert did not use the word “bankruptcy,” but he raised the possibility that creditors could be wiped out, a process that often takes place in bankruptcy court. Sears Holdings, which owns both Sears and Kmart, has lost $11.7 billion since 2010, its last profitable year. Sales have plunged 60% in that time. Sears debt already has the lowest possible credit rating from Standard & Poor’s, which suggests it could default on debt within the next six months.
Time is also running out on Time Warner. Upon completing its acquisition of Time Warner, AT&T announced a new name for the media company: WarnerMedia. AT&T acted fast after a judge ruled in favor of the acquisition on Tuesday, effectively shredding the government’s antitrust lawsuit. WarnerMedia includes HBO, the Warner Bros studio, and Turner, the home of CNN, TNT, TBS and other cable channels.
Weight Watchers really wants to let you know that it’s not just a diet company — so much so that it’s changing its name to WW.
Walmart is changing its name. Wal-Mart, formerly spelled Wal-Mart, will now be spelled Walmart. Walmart announced a change in December. That became official today when it filed new incorporation papers in Delaware. Customers won’t notice the change. The corporate name is different, but Walmart storefronts, advertisements, bags and merchandise dropped the hyphen in 2008.
Separately, Walmart (minus the dash) announced its leafy greens suppliers will be asked to implement real-time, farm-to-store tracking using blockchain technology by next September, as the retailer tackles food-safety incidents. Last year, Nestle, Unilever, Tyson Foods and other large food and retail companies joined IBM’s blockchain technology project.
Papa John’s is considering a sleek, boxy new logo that turns Papa John’s into Papa Johns. John’s with an apostrophe becomes Johns without the apostrophe. The company filed a trademark with the US Patent and Trademark Office in late August, but a company representative said that there are no immediate plans to start using the new logo. Maybe the idea is to indicate that there are multiple Papa Johns and that a singular Papa John is no longer in possession.
Japan’s space agency (JAXA) successfully landed two robotic rovers on the asteroid 162173 Ryugu over the weekend, marking the first human-made robots to land, move autonomously on an asteroid surface and capture pictures.