Who Blinks First?
Financial Review by Sinclair Noe for 02-04-2016
DOW + 79 = 16,416
SPX + 2 = 1915
NAS + 5 = 4509
10 Y – .02 = 1.86%
OIL – .52 = 31.76
GOLD + 13.00 = 1156.40
Equity markets were all over the place once again today as crude oil popped and then dropped.
Initial jobless claims rose in the last week of January but remained at a very low level. New claims rose by 8,000 a seasonally adjusted 285,000 in the seven days stretching from Jan. 24 to Jan 30. Any number below 300,000 is historically considered a sign of a robust labor market, but claims are no longer falling rapidly. In the last two weeks of January, for example, the number of new claims was slightly higher compared with the same two weeks in 2014. It’s the first time in three years that has happened for two weeks in a row.
The productivity of U.S. businesses fell at a 3% annual pace in the fourth quarter, marking the biggest decline in almost two years. Weak productivity growth has been a hallmark of the near-seven-year economic recovery. Productivity increased just 0.6% in 2015, less than one-third the average since the end of World War II. In the fourth quarter, employees put in more time on the job but output of goods and services barely rose. Output edged up a scant 0.1% while hours worked jumped 3.3%.
The European Commission trimmed its 2016 growth forecast for the euro area to 1.7 percent from 1.8 percent previously. At the same time it slashed its 2016 inflation forecast, dropping it to 0.5 percent for the year, from 1.0 percent. In a speech at Germany’s Bundesbank this morning ECB president Mario Draghi said that weak global inflation would not stop the central bank from adding more stimulus at its March meeting. The euro currency did not seem impressed by his dovishness, rising to a three-month high versus the dollar.
Bank of England policymakers voted unanimously to keep interest rates on hold at 0.5%, raising the prospect that the UK’s record low rates will continue for at least another year.
The US Dollar Index was down again, for the fourth straight session; part of the recent dollar decline is due to soft economic data; part might be due to comments by Robert Kaplan, the new head of the Dallas Fed, who said the central bank should be “patient” on rate increases. The recent weakness in the greenback has provided investors the incentive to take profits in successful trades against commodities and emerging markets, which had suffered after a run higher by the dollar. New York Federal Reserve Bank President William Dudley said that financial conditions have tightened since late last year and policy makers will take this into account when they meet next month to decide whether to raise rates again.
Analysts and strategists in a Bloomberg survey cut their forecasts for the Fed’s peak policy rate at the end of this tightening cycle, known as the terminal rate, to a median of 2.875 percent from 3.375 percent in a July poll. That compares with the Fed’s latest forecast of 3.5 percent published in December, down from 3.75 percent in June. That means the Fed’s rate outlook is out of sync with the markets. The question is who blinks first?
Small businesses stepped up hiring in January after taking a pause in December and many continued to point to difficulty finding qualified workers. The monthly survey of the National Federation of Independent Business showed that 52 percent of respondents said they were hiring or trying to hire, but a large share of those reported few or no qualified applicants for the jobs they were trying to fill. The average employment gain per firm was 0.11 workers compared with -0.7 workers in December.
The latest monthly report from the staffing firm Challenger, Gray and Christmas on planned layoffs showed that US employers in January reported 75,114 planned job cuts, up 42% year-on-year. Retailers moved the needle on this data point the most, particularly Walmart, which announced plans to close 269 stores across America. The staffing firm also said energy-sector layoffs continued to be a problem.
We see that in the latest earnings report from Royal Dutch Shell. They announced a near 60% slump in fourth-quarter profit, hit by sliding production and plunging global oil prices. Shell also announced it was cutting 10,000 jobs. Fourth-quarter profit dropped to $1.8 billion down from $4.2 billion a year earlier. Shell’s exploration and production business lost $5.7 billion last year, hit by write-offs, falling prices and lower volumes.
ConocoPhillips missed fourth-quarter profit expectations and lowered its dividend. The company reported a net loss of $3.5 billion, wider than a net loss of $39 million, or a loss of 3 cents per share, in the year-earlier period. The company lowered its 2016 capital expenditures and said: “While we don’t know how far commodity prices will fall, or the duration of the downturn, we believe it’s prudent to plan for lower prices for a longer period of time.”
Weatherford has announced in its fourth quarter earnings report that it’ll lay off another 6,000 employees and close nine manufacturing/service facilities before the end of the year. The latest round of cuts brings to 20,000 the number of workers who have been or will be released by the world’s fourth largest oilfield services supplier. Weatherford also set a capital expenditure target of $300 million for this year, about 56% lower than its 2015 spending.
Statoil slashed its capital spending budget but said it would keep its dividend steady after topping fourth quarter expectations.
Credit Suisse reported its first annual loss since 2008 as it wrote off billions of dollars in goodwill, set aside litigation provisions and suffered a trading downturn.
ING posted a better-than-expected Q4 and announced a full-year dividend.
AstraZeneca expects low to mid-single digit percentage drops in earnings this year, in part due to a flood of generic cholesterol drugs.
Vodafone met expectations with a 1.4% rise in revenue, its sixth consecutive quarter of growth.
Buffalo Wild Wings reporting light revenue. But the bigger problem, with Super Bowl Sunday just days away, the restaurant chain was blitzed with a potential crisis as 10 customers became ill after eating at one of its restaurants in Kansas.
GoPro’s quarter was ugly. The digital-camera maker announced an adjusted loss of $0.08 a share, worse than the $0.02 loss that was expected. Revenue for the crucial holiday quarter crashed 31.1%.
And Metlife reported earnings of $1.23 per share, missing analysts’ forecasts for earnings of $1.36 per share. Earnings during the fourth quarter were negatively impacted by lower variable investment income and a stronger dollar.
Philip Morris missed fourth-quarter revenue expectations and provided a downbeat profit outlook for 2016.
Yum Brands reported an 11 percent increase in adjusted earnings that topped analyst expectations, but its revenue came in just under Wall Street estimates.
Dunkin’ Brands posted better-than-expected results in its fourth quarter, despite declines in same-store sales, which dropped 0.8%. During the quarter the company opened 172 net new restaurants world-wide. Dunkin posted a loss of $8.9 million, or 10 cents a share, down from a profit of $52.5 million, or 50 cents a share, a year prior. You have to wonder if Dunkin is feeling pressure from McDonalds going to an all-day breakfast menu.
Sports Authority is preparing to file for bankruptcy. The retailer, once the biggest sporting-goods chain in the US, is in talks with lenders on a deal to reorganize in Chapter 11 bankruptcy proceedings. It’s also mapping out a plan to close as many as 200 of its more than 450 stores. Sports Authority skipped a $20 million dollar interest payment last month, and another $10 million payment is due in the next 10 day.
New tech acquisitions: Cisco is purchasing “Internet of Things” service provider Jasper for $1.4 billion in cash, plus assumed equity awards and retention-based incentives.
Microsoft is buying iOS/Android keyboard developer SwiftKey for a reported $250 million. The company’s keyboard apps have over 300 million users and are declared to have “saved nearly 10 trillion keystrokes, across 100 languages” with the help of A.I. that learns a user’s typing tendencies to predict his/her next word. There is a side story here. SwiftKey was started in 2008 by three young British guys: Jon Reynolds, Ben Medlock, and Chris Hill-Scott. It is tough to build a startup, and Hill-Scott grew weary of the long hours and low pay. He sold his stake to the other guys for a bicycle in 2008 and went to work for the British government. Reynolds and Medlock just pocketed about $35 million each for their shares.
Twenty-four hours after facing fraud charges in a federal court in Brooklyn, Martin Shkreli turned up in Washington after being subpoenaed by the House of Representatives oversight committee. Shkreli created and ran a firm called Turing Pharmaceutical, which is known for acquiring the rights to a drug called Daraprim, and then hiking the price 5,000% overnight, from $13.50 to $750 a pill. The reason behind the hearing was to find out about the drug pricing. Shkreli did not provide answers; he invoked his Fifth Amendment rights, while smirking and smiling. Afterwards he tweeted “Hard to accept that these imbeciles represent the people in our government.”
Before invoking the Fifth today, Shkreli had said that he wasn’t alone in taking big price hikes on drugs. And that is true. A survey of about 3,000 brand-name prescription drugs found that prices more than doubled for 60 and at least quadrupled for 20 since December 2014.
Also at the hearing, Howard Shiller, interim CEO of Valeant Pharmaceuticals. Valeant has increased the price of numerous old drugs, but the House committee has focused on two heart drugs, Isuprel and Nitropress. Valeant acquired both a year ago and immediately raised the price of Isuprel by more than 500 percent and of Nitropress by more than 200 percent, provoking protest from the hospitals that buy these drugs.