A two day rally. Citi gets off easy. HP gets twisted. Families struggle. Robots build phones and serve pizza.
Financial Review by Sinclair Noe for 05-25-2016.
DOW + 145 = 17,851
SPX + 14 = 2090
NAS + 33 = 4894
10 Y + .01 = 1.87
OIL + .94 = 49.56
GOLD – 2.90 = 1225.00
A 2 day rally on Wall Street. The S&P 500 moved back above its 50 day moving average. Still the S&P is trading in a fairly tight range; it isn’t breaking down but it isn’t breaking out, either. According to the American Association of Individual Investors Sentiment Survey released last week, neutral sentiment among investors has been above 40 percent for 10 straight weeks; neutrality has been above its historical average of 31 percent for 68 weeks out of the past 72. Over the past 2 years, the S&P has traded between 2135 and 1810; until it takes out the high or low, there is no reason to be anything but neutral.
Oil is at a 7-month high. West Texas Intermediate crude oil touched a high of $49.75 a barrel, the highest since the middle of October, and it comes after the Tuesday-evening release of American Petroleum Institute data that showed a drawdown of supply by 5 million barrels, double market expectations, and today the US energy department reported that crude stocks fell by 4.2 million barrels in the last week.
Exxon Mobil and Chevron held their annual shareholder meetings today. There was a resolution from activist shareholders to have the companies curtail exploration for new oil fields and funnel the money to investors in the form of higher dividends and share buybacks. Environmental critics as diverse as state pension funds and religious orders said future climate rules will soon make it unprofitable for Exxon and Chevron to harvest their reserves. The companies countered that there doesn’t yet exist a renewable fuel that can replace gasoline or diesel, and that demand for petroleum-based fuels will grow for decades, even if carbon limits are imposed. The resolution was defeated; the drilling and exploration will continue.
St. Louis Fed President James Bullard told CNBC a rate hike in June or July is not set in stone, but labor data suggests it’s time to pull the trigger.
U.S. home prices rose 5.7% in the first quarter from a year earlier; prices climbed 1.3% from the fourth quarter. It was the 19th quarter of price increases for the Federal Housing Finance Agency’s index, which tracks purchases of homes with mortgages backed by Fannie Mae or Freddie Mac. Home-price appreciation had been flat but now appears, after yesterday’s very strong new home sales report and today’s FHFA house price report, to be trending higher.
So far in 2016, Chinese companies have purchased or are buying 47 U.S. properties worth $9.3 billion, according to deal tracker Real Capital Analytics. That makes them the most active foreign buyers in the U.S., with more than double Canada’s $4.2 billion worth of deals. By contrast, for all of last year Chinese investors did 71 U.S. deals worth $6 billion.
A Federal Reserve annual survey of the financial condition of American families was released today. Almost half of American families say they would struggle to pay for emergency expenses and those with a high school degree or less are most likely to say their well-being has declined. Despite some signs of improvement overall, 46 percent say they would struggle to meet emergency expenses of $400, and 22 percent of workers say they are juggling two or more jobs. Only 23 percent of respondents said they expected their income to be higher in the year after the survey, down from 29 percent at the time of the prior survey. Among the positives were fewer Americans reporting going without medical care because they could not afford it.
Greece and its creditors reached a deal. The deal paves the way for Greece to receive €10-billion-euro from its creditors along with debt relief once the current deal ends in 2018. While it is unclear how exactly a deal will look, it could reduce the International Monetary Fund’s exposure to the country by buying back up to €14-billion-euro of its loans. Greek bond yields slid to six-month lows following the announcement.
The ECB will aim to start small when it begins buying corporate debt next month, seeking first to lure new issuers and then slowly raise the monthly pace of purchases to €5-10-billion-euro. Investment-grade corporate bonds issued in euros are the latest addition to a growing list of assets the central bank is buying as part of its effort to boost Eurozone economic growth via lower borrowing costs.
An early look at U.S. trade patterns suggest the nation’s deficit rose slightly in April, as trade remained a drag on the economy early in the second quarter. The trade gap in goods — services are excluded — rose to $57.5 billion last month from a final reading of $57.1 billion. The total trade deficit in March was $40.4 billion, a decline of almost 14% from the prior month. The government will release the full trade numbers in early June.
Alibaba Group said it was being investigated by the U.S. Securities and Exchange Commission over whether the Chinese e-commerce company’s accounting practices violated any federal laws.
U.S. antitrust officials are investigating Anheuser-Busch InBev over its new incentives that encourage independent distributors to sell more of its own beer brands at the expense of competing craft brews. Budweiser owner AB InBev has 46% of the U.S. beer market but has seen sales dwindle at least partially because of rising craft beer sales. The U.S. Department of Justice last year probed AB InBev’s plan to buy distributors in response to craft brewers’ complaints that it aimed to curb competition.
Citigroup has agreed to pay $425 million to resolve civil charges the bank attempted to manipulate several key benchmarks, including the U.S. dollar ISDAFIX, the Yen Libor and the Euroyen TIBOR. The bank was also charged with false reporting in connection with ISDAFIX benchmark rates and with false reporting of U.S. dollar Libor rates during the financial crisis to protect its reputation. The International Swaps and Derivatives Fix publishes daily rates for various interest rate derivatives contracts. Citigroup “made false reports” that skewed its submissions, the trading commission said. The bank’s motive, the agency said, was to benefit its own trading positions at the expense of its trading partners and clients. At the time of the misconduct, which ran from 2007 to 2012, Citigroup sat on a panel of banks that each submitted what was supposed to be a reasonable bid for interest rate derivatives. An average of those submissions formed the ISDAFIX benchmark rate for that day.
Last year, the Commodity Futures Trading Commission and the Justice Department announced civil and criminal charges against four of the world’s biggest banks, Citigroup included, for a scheme to manipulate the value of the world’s currencies. And then today, despite a wealth of emails and other culpatory documentation, Citi faces no criminal charges, just a civil penalty.
Hewlett Packard Enterprise plans to spin off most of its technology services operations and merge them with those of Computer Sciences Corp., in an $8.5 billion transaction. HP Enterprise will shed a business that accounts for roughly 100,000 employees, or two-thirds of their workforce. The deal will create a corporate technology services specialist that will be led by Computer Sciences executives and have roughly $26 billion in annual revenue. The remaining HP Enterprise operations will concentrate mainly on software, server systems, networking and storage hardware. So, they are splitting off their consulting unit, Enterprise Services, which was already part of a spinoff, dumping it on competitor CSC, and then HP Enterprises will own half that company. And just to make it a little more twisted, Enterprise Services was part of the old EDS, which HP acquired for about $14 billion in 2008. Over the past 7 years, HP has been spending about $1 billion a year cutting jobs. Just in case you were wondering what HP does….
Nasdaq has rejected a listing application by cannabis social networking company MassRoots on the grounds that it may aid in the use and dealing of an illegal substance. The rejection may insert roadblocks ahead of other cannabis-related companies seeking to list on a national stock exchange and make “it more difficult for cannabis entrepreneurs to raise capital.”
The SEC is concerned about the way Valeant Pharmaceuticals has been disclosing its “non-GAAP” financial measures, stripping away acquisition-related expenses from its adjusted metrics despite fueling growth through frenzied deal making. The company is also facing mounting scrutiny over its drug pricing, business practices and other methods of accounting.
Apple is upping its game in the field of intelligent assistants. After years of internal debate and discussion about how to do so, the company is preparing to open up Siri to apps made by others. The Information reports that Apple is also working on an Amazon Echo-like device with a speaker and microphone that people can use to turn on music, get news headlines or set a timer.
Microsoft announced layoffs in its smartphone business. The company says it would eliminate nearly 2,000 jobs as it looks to streamline its smartphone hardware business. About 1,350 of the job cuts will occur in Finland as Microsoft shutters its phone design and production businesses in the country. Microsoft will take a restructuring charge of about $950 million.
The next time you buy a new iPhone, it’s possible that it will have been made by a robot. Foxconn, the manufacturing company that builds electronic devices for a range of companies including Apple, Samsung and Microsoft, has reportedly replaced 60,000 human workers from one of its factories in China with robots. Foxconn still employs 50,000 humans at the factory… for now.
MasterCard has inked a deal with Pizza Hut to bring Softbank’s robot companion, Pepper, to restaurants across Asia by the end of 2016. The move is intended to push the MasterPass digital wallet, which Pizza Hut patrons can use by either tapping the Pepper icon within the app or by scanning a QR code on Pepper’s display. Besides taking payments, the robot can chat with customers, take orders and make recommendations.