Waiting on the Fed
Fed decision due Wednesday. BOJ may steal their thunder. Global debt grows. Passporting rights at risk in a hard Brexit. An oil deal in the works? Home builder confidence grows. Sarepta has a drug for Duchenne MD. Salesforce introduces A.I. Hanjin docks.
Financial Review by Sinclair Noe for 09-19-2016
DOW – 3 = 18,120
SPX – 0.04 = 2139
NAS – 9 = 5235
10 Y un – 1.70%
OIL + .16 = 43.19
GOLD + 2.80 = 1313.80
The Federal Reserve’s Federal Open Market Committee meets tomorrow and will issue a statement on Wednesday. A string of disappointing results on the U.S. economy in the past several weeks has all but ensured that interest rates will remain ultra-low for consumers and businesses for another few months. That doesn’t mean the economy is in horrible shape, just more of the slow, consistent, sluggish, steady growth that we’ve seen for quite some time. Is it enough to move the Fed? Wall Street investors only see somewhere between a 9% to 15% chance that the Fed will hike rates. Still, the Fed could hike rates; they have certainly said a hike is on the table. Of course we won’t know for sure until the Fed makes its announcement.
The major stock indices started the day in positive territory. The Dow had an early gain of 100 points. Last week, the bulls and the bears faced off. As much as the bulls tried last week, they could never get the market back above a key hurdle. The threat of a September rate hike just continued to circulate, and never gave the buyers a chance to get traction. Then again, the bears didn’t make any progress either. As well as the S&P 500 held up last week, we’re still closer to a technical breakdown than a breakout. Most likely, traders will not place big bets before Wednesday’s interest rate decision. After the Fed statement comes out, look for traders to trade, probably with enough commitment to break either support or resistance; a sizeable movement to finish out the week.
The Bank of Japan is also holding a meeting this week and they will issue their monetary policy a few hours before the Fed. The BOJ remains the most aggressive major central bank when it comes to quantitative easing—its program of bond and other asset purchases as well as negative interest rates that are designed to reflate Japan’s stubbornly sluggish economy. Negative rates have failed to weaken the Japanese yen. Year to date, the yen is up nearly 18% versus the dollar and 15% versus the euro. There is speculation the Bank of Japan may try to flatten the yield curve by buying long-term debt and selling short term debt. (Which sounds a lot like “Operation Twist”.)
Excessive credit growth in China is signaling an increasing risk of a banking crisis in the next three years, according to the Bank of International Settlements’ quarterly review. The central bank of central bankers also called the recent equity rally “more stick than carrot,” but stopped short of warning of a bubble, with policy makers questioning whether market prices fully reflect potential risks.
Global bond issuance is running at its fastest pace in nearly a decade as companies, countries and U.S. agencies such as Fannie Mae and Freddie Mac binge on debt. According to Dealogic, a total of $4.88 trillion of debt has been sold since the year began as issuers take advantage of rock-bottom borrowing costs. The figure is a hair below that of 2007, when $4.91 trillion of bonds were issued during the same period.
It seems more likely that London will lose its “passporting rights” with a hard Brexit. Some leading Conservative party members are currently pushing for a so-called hard Brexit option, which would end free movement between the U.K. and the EU and cut trading ties with the remaining 27 member states. But Jens Weidmann, the president of Germany’s central bank says if the U.K. exits the single market, the passporting rights for London-based financial firms “would automatically cease to apply if Great Britain is no longer at least part of the European Economic Area.” Passporting allows British banks, including insurers and funds to sell their services seamlessly in any EU member state, without having to obtain a local license. Losing the right means any financial institution using London as their EU headquarter would have to move to another country and “passport” their services into the rest of the union from there. They could also stay based in the U.K, and instead apply for regulatory approval in each country it wishes to continue to do business. In any case, the industry has warned it will cost billions of pounds in office relocations, staff transfers, added paperwork and new capital requirements. There are also concerns jobs will be lost to other European financial hot spots, such as Frankfurt, Paris, Dublin and Luxembourg.
Venezuelan President Nicolas Maduro said that OPEC and non-OPEC countries are close to an agreement to stabilize markets ahead of an informal meeting in Algiers next week. The uncertainty ahead of that meeting has seen oil investors head for the sidelines, cutting wagers on both falling and rising crude prices.
The National Association of Home Builders index on builder confidence regarding newly built, single-family homes climbed to 65 points in September from a downwardly revised 59 in August. As household incomes rise, builders in many markets across the nation are reporting they are seeing more serious buyers.
Contract negotiations between Canada’s Unifor union and General Motors are continuing around the clock, with the two sides divided over new investment, ahead of a looming strike deadline that could see 3,900 workers walk off the job by midnight tonight. A strike would halt powertrain and vehicle production in at least two Canadian plants and potentially start a ripple effect for GM production in the U.S. that relies on those parts.
Although approval had been expected by the end of August, Iran has been told the U.S. will issue export licenses for the purchase of more than 200 Boeing and Airbus aircraft by the end of September. The US Treasury can veto sales of modern aircraft to Iran, including non-U.S. aircraft, due to the high proportion of US parts.
Sarepta Therapeutics shares jumped up as much as 82% in early morning trade after the Food and Drug Administration granted its Duchenne muscular dystrophy drug accelerated approval. The drug – the first treatment for the degenerative disease – has had a long and controversial history with the FDA. The agency voted against approval, then delayed review. Duchenne muscular dystrophy, which mostly affects boys, typically kills patients before the age of 30. Patients and their families were particularly outspoken advocates for the approval of the drug, pushing back against the agency’s concerns at meetings open to the public. Sarepta shares are up about 160% over the last three months.
Salesforce is embedding artificial intelligence into its software, making it the latest firm to enhance workplace tools with human-like abilities. Called Einstein, the new offering is a set of online A.I. services designed to automate tasks, predict behavior and spotlight relevant information. Salesforce will demonstrate the software at its annual user conference next month in San Francisco. The announcement also allowed Salesforce to pre-empt an announcement from Oracle, which also is holding its annual customer event in San Francisco. High on Oracle’s list of new features: real-time analysis of enormous amounts of data. Oracle calls its product Oracle A.I. Elsewhere, General Electric is pushing its A.I. business, called Predix. IBM has ads featuring its Watson computer talking to various celebrities. More than 30 private companies working to advance artificial intelligence have been acquired in the past five years, and Salesforce has been among the most active buyers along with Alphabet, Intel and Apple.
And it’s all kind of cool and exciting and maybe a little creepy. So, what’s really happening?
And the answer is that it is probably too soon to say for certain. For Salesforce the idea is to provide its customers sales tools. Who are the best prospects to call this week? Which leads are most likely to become prospective clients? Why am I getting outsold by my competitors in certain markets? How long will it take a deal to close? We don’t know what value A.I. can provide because people are still trying to figure out how to use it. At its core, A.I. is just a series of advanced statistics-based exercises that review the past to indicate the likely future, or look at current customer choices to figure out where to put more or less energy. People are going to have to experiment, most likely first on pain points like security and product marketing. Technology matures when we don’t pay much attention to it, or only notice when it fails; think of electricity in your house, or your phone (which has enough computing power to fly a rocket to the moon). Of course, by the time A.I. becomes ubiquitous and fades into the fabric of everyday life, we’ll have some new technology to worry about.
Nearly one-third of Hanjin Shipping container ships that have been waiting to dock at ports around the world have offloaded their cargo, raising hopes that the disruption in the global supply chain will ease ahead of the year-end holiday season. Meanwhile, a South Korean judge has ruled that all Hanjin vessels that have unloaded must cancel their charter agreements and return the ship to their owners.
After rolling out a similar hub in the US, UPS is expanding its 3D printing services to Asia with a new facility in Singapore run by its partner Fast Radius. The company sees 3D printing as a potential threat to its warehousing business – where it stores parts for manufacturers – so it has looked to incorporate the technology into its business model.
As it grapples with a massive global smartphone recall that is estimated to cost more than $1 billion, Samsung Electronics is moving swiftly to sell stakes in other tech companies to raise cash. The firm said Sunday it disposed of shares in ASML, Seagate, Rambus and Sharp. Total proceeds from the sales were nearly $900 million.