Financial Review

Turnaround Tuesday

….Stocks fall as Powell is personally bullish. Consumer confidence up. Durable goods down. Case-Shiller home sales up. Infrastructure? Nahh. Comcast wants Sky.

Financial Review by Sinclair Noe for 02-27-2018


DOW – 299 = 25,410
SPX – 35 = 2744
NAS – 91 = 7330
RUT – 22 = 1536
10 Y + .05 = 2.91%
OIL – 1.07 = 62.84
GOLD – 15.20 = 1318.70
Jerome Powell deliver his first congressional testimony today as chair of the Federal Reserve. Yesterday we suggested that if Powell was really boring, it would be a big success. Turns out Powell had some interesting ideas on the economy and he is much more optimistic than most investors had imagined. Fed projections released in December pointed to policymakers’ forecasts of about three rate hikes for this year, after three rises in 2016 brought the official policy rate to a range of 1.25% to 1.5%. But Powell appears to have become substantially more upbeat about the nation’s economic prospects since December, following the new tax law and signs of strong overseas growth. Powell told members of the House Financial Services Committee that data suggests the economy is strengthening. “We’ve seen continuing strength in the labor market — we’ve seen some data that in my case will add some confidence to my view that inflation is moving up to target,” Powell said. “We’ve also seen continued strength around the globe, and we’ve also seen fiscal policy become more stimulative.”


When a Fed chief testifies before Congress, he or she is generally understood to be speaking for the rate-setting Federal Open Market Committee. Powell, however, on several occasions voiced strong personal views. “My personal outlook for the economy has strengthened since December,” he said. “I wouldn’t want to prejudge that new set of projections, but we’ll be taking into account everything that has happened since December.”


And while it may be Powell’s personal view, traders today seemed to understand that policymakers will fall in line and pursue a slightly more aggressive tightening path. In other words, four rate hikes are certainly possible. Powell’s debut riled markets, sending stocks lower while pushing Treasury yields higher as investors bet that rates would rise more quickly; 10-year notes to jump to their highest levels of the day as they touched 2.91 percent after closing at 2.86 percent Monday. The two-year yield jumped above 2.27 percent. The U.S. Treasuries curve from five to 30 years flattened and two-year yields approached their highest levels since 2008.


Powell widened our understanding of how he thinks about wages: While he sees them moving higher, “for wages to go up sustainably, you need higher productivity,” he said. That’s important because if Powell thought that wage weakness was the result of lingering job market slack, the Fed would be able to counteract it. Given his stance, it’s an issue for Congress and President Donald Trump to tackle, and not one Fed policy can readily address.


Powell was also questioned about how the Fed will trim its swollen balance sheet. On this matter, Powell promised to stick to the plan and the timeline. Powell returns to Capitol Hill on Thursday to appear before senators and conclude this semi-annual testimony on monetary policy.


Consumer confidence surged in February, to the highest level since November 2000. The Conference Board index rose to 130.8 this month from a revised 124.3 in January.  Americans were more confident in both the current state of the economy and how it’s likely to perform six months from now. The present situation index rose to 162.4 from 154.7, the highest mark since 2001. And an index that measures future conditions moved up to 109.7 from 104, near a postrecession peak.


Durable-goods orders plunged 3.7% in January — the biggest decline since last summer — largely because of a sharp drop in contracts for passenger planes that was expected. Orders for commercial jets sank 28% last month after a 16% surge in December. Potentially more worrisome, a key measure of business investment fell for a second straight month, the first time that’s happened since early 2016. Stripping out planes and cars, orders fell a much smaller 0.3%. Transportation often exaggerate the ups and downs in durable-goods orders because of lumpy demand.


The S&P/Case-Shiller national index rose a seasonally adjusted 0.7% in the three-month period ending in December, and was up 6.4% compared to a year before. The 20-city index rose a seasonally adjusted 0.6% for the month, and 6.3% for the year. Home prices are still hot. The national index showed an acceleration in prices, with the three-month period ending in November rising an annual 6.3%. The 20-city index reversed those two numbers, rising one tick less in December than the 6.4% it charted in November. Phoenix posted a 0.2% gain for December and prices were up 5.6% for the prior 12 month period.


The White House released Trump’s long-awaited infrastructure plan on Feb. 12, a 53-page document meant to be the outline for legislation and the starting point for negotiations with lawmakers on the details. Today, Senator John Cornyn, the number 2 Republican in the Senate, warned the plan may not make it through the Senate this year. Cornyn said, “We’ve got a lot of things to do, that being one of them, and I don’t know if we will have time to get to that.”


Comcast has offered $31 billion for Sky Plc, threatening a plan hatched by Rupert Murdoch’s Twenty-First Century Fox and Walt Disney to seize control of Europe’s biggest pay-TV group. The world’s biggest entertainment company and owner of NBC and Universal Pictures said it proposed to offer 12.50 pounds per share for Britain’s Sky, more than the 10.75 pounds that Murdoch’s Fox has agreed to pay for it. Bob Iger’s Disney has agreed to buy Sky from Fox, along with other assets, in a separate $52 billion follow-up deal. Comcast’s all-cash, unsolicited offer pits CEO Brian Roberts against Murdoch, the 86-year-old tycoon who helped to launch Sky and pioneered pay-TV in Britain. Iger is also a long-time rival after Comcast tried and failed to buy Disney in 2004.


Comcast’s appearance in the already complex Sky drama could prompt Fox to make a higher offer or Disney to make its own direct bid for Sky. Fox remains committed to its cash offer announced in December, it said in a statement.


Media owners have been forced into increasingly aggressive deals after online groups Netflix and prompted many customers to ditch subscriptions. Comcast bid $60 billion last year to clinch a deal with Fox, before losing out to Disney. Sky, which provides sports programming, films and broadband to 23 million homes across Britain, Ireland, Germany, Italy and Austria, urged its investors to take no action since the approach did not represent a firm offer. Murdoch’s Fox agreed to buy the 61 percent of Sky it did not already own in a cash deal in December 2016, but the takeover has been repeatedly held up by regulators over concerns the Murdoch weilds too much influence in Britain. Inc is set to buy Ring, a startup that makes doorbells and video security cameras, for more than $1 billion. Santa Monica, California-based Ring is Amazon’s latest move in expanding into the heated “smart-homes” market, where gadgets are powered by easy-to-use technology to control homes with a few spoken words. Amazon has positioned its Echo smart speaker, powered by its Alexa voice assistant, as a smart homes device. Ring’s video doorbells, which range in price from $179 to $500, beam an image of whoever is at the door to a homeowner’s smartphone. The acquisition is likely to ratchet up the competition with Google, which launched a similar doorbell video camera last year through its Nest brand. The deal marks a remarkable success story for the Santa Monica, California-based Ring, which made its debut in an inauspicious start on the TV show ‘Shark Tank.’ The startup, then known as DoorBot, failed to impress most of the judges on the show, but went on to rebrand itself and quickly catch on with consumers.


Corporate America is running away from the NRA. FedEx claimed the National Rifle Association uses United Parcel Service for shipments from the online NRA store. “And not FedEx,” the company said by email, underlining the last two words of the sentence. UPS responded quickly. Yes, it has a shipping deal with the NRA, it said. But it doesn’t offer special services for the group’s members. FedEx does, and they maintain discounts for businesses and consumers who belong to the NRA.

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