Financial Review

WWTD?

Consumer prices flat, jobless claims down, big banks earnings not as bad as expected, and Deutsche Bank admits the fix is in.

Financial Review by Sinclair Noe for 04-14-2016

DOW + 18 = 17,926
SPX + 0.36 = 2082
NAS – 1 = 4945
10 Y + .02 = 1.78%
OIL – .33 = 41.43
GOLD – 14.80 = 1229.60

 

Consumer prices rose slightly in March, as the higher cost of filling up at the gas pump offset lower expenses for groceries and new clothes. The consumer price index rose by seasonally adjusted 0.1% last month after falling 0.2% in February, Energy prices climbed 0.9% to mark the first increase in four months. The price of food, on the other hand, fell 0.2%.Real or inflation-adjusted hourly wages, meanwhile, increased 0.2% in March. They are up 1.4% in the past 12 months.

 

The number of Americans who applied for unemployment benefits last week fell by 13,000 to 253,000, matching the lowest mark since the end of the Great Recession and sinking to a level last seen in 1973.

 

Arizona’s seasonally adjusted unemployment rate dropped one-tenth of a percentage point from 5.5% in February to 5.4% in March. The U.S. seasonally adjusted unemployment rate increased from 4.9% in February to 5.0% in March. A year ago, the Arizona seasonally adjusted rate was 6.2% and the U.S. rate was 5.5%. Arizona Nonfarm employment grew by 3.2% (84,300 jobs) over the year in March. The Private Sector accounted for all of the March gains, adding 86,000 jobs (3.9%). Government employment declined by 1,700 jobs.

 

report from data firm RealtyTrac shows that there were 289,116 foreclosure filings in the first three months of the year, down 4% from the previous quarter and 8% lower than the same period a year ago. That was the lowest since the last quarter of 2006.

 

The IEA says the oil glut should ease. The International Energy Agency’s latest report says the oversupply of oil will shrink to 200,000 per day from 1.5 million. The IEA report says, “There are signs that the much-anticipated slide in production of light, tight oil in the U.S. is gathering pace.”

 

The International Energy Agency says a prospective deal to freeze oil output at a meeting of producers in Doha on Sunday won’t change oil markets which have already started to rebalance anyway. Saudi Arabia and Russia are already producing at or near record rates. And don’t forget that Saudi Arabia and Iran can’t agree on anything. Any production freeze by the Saudis is just an opportunity for the Iranians to take more market share.

 

The Bank of England kept policy on hold. In a unanimous vote, the central bank opted to keep its benchmark interest rate at 0.50% for the 85th consecutive month. The BOE also voted to keep its asset purchase program at £375 billion.

 

Europe has escaped deflation. The latest release from Eurostat showed Eurozone Final CPI for March ticked up to 0.0% from the previous look of negative -0.1%. While it’s good news that prices in the region are no longer falling, the European Central Bank’s 2% target remains a long way away. Sweden reported 1.2% inflation; Sweden has been experimenting with negative interest rates.

 

Bank of America, the No. 2 U.S. bank by assets, reported an 18 percent slide in quarterly profit. BofA, one of the biggest U.S. lenders to the oil and gas industry, also said it had set aside 30 percent more money to cover sour loans, mainly to the struggling energy industry. The bank saw a top line miss against analyst estimates, and a dip on the earnings front versus last year’s comparable quarter seeing net income decline 13% to $2.7 billion or $0.21 per share. Last year, the company saw earnings per share of $0.25. However, it squeezed out a bottom-line number that met analyst estimates. Revenue was $19.7 billion, down 8% year-over-year. Due to the energy sector exposure, the provision for credit losses was increased to $997 million; let’s just call that a cool billion.

 

Wells Fargo’s quarterly profit fell 7 percent as the No.3 U.S. bank by assets set aside more than $1 billion to cover bad loans, saying its energy portfolio remained under “significant stress.” Income from all three businesses declined, with its largest business, community banking, reporting a 7 percent fall in the first quarter ended March 31. Wells Fargo’s net income fell to $5.09 billion, or 99 cents per share, but total revenue rose 4.3 percent to $22.2 billion. Earlier in the week we reported that Wells had been dinged with a $1.2 billion fraud settlement related to selling bad mortgages, which sounds like a large amount, but it works out to about 3 weeks of profits; and that’s before the tax deductions. No indictments, so really it was a bargain.

 

Wells Fargo was among the five big banks failed by U.S. regulators on Wednesday on their plans for a bankruptcy that would not rely on taxpayer money. For now, the big banks are still too big to fail; they will have to come up with a better plan by October.

 

Yesterday, JPMorgan Chase reported earnings that were not as bad as expected, which is to say Jamie Dimon and company have become adept at “playing the market” in their ability to “deliver consistently” dismal earnings projections and then out performing expectations. Trading profits were weak, plus merger and acquisition activity is down across the board. One common theme among the Big Three US Banks is they are setting aside much more for loan losses; and still the Federal Reserve and FDIC yesterday said they have not done enough and they failed their living will test. The banking sector is not showing signs of strength. As loans sour, we can expect a rocky road ahead.

 

Deutsche Bank has agreed to settle US lawsuits accusing it of conspiring with other banks to manipulate gold and silver prices at investors’ expense. The settlements were disclosed in letters filed in Manhattan federal court by lawyers representing investors and traders who accused Deutsche Bank of violating U.S. antitrust law. Terms were not disclosed, but both settlements will include monetary payments by the German bank. Deutsche Bank also agreed to help the plaintiffs pursue claims against other defendants. The plaintiffs accused Deutsche Bank of conspiring with Bank of Nova Scotia, Barclays, HSBC and Societe Generale to manipulate prices of gold, gold futures and options, and gold derivatives through twice-a-day meetings to set the so-called London Gold Fixing; also manipulating silver prices on the Silver Fix. I’m shocked, shocked … that Deutsche Bank rolled over so quickly.

 

BlackRock, the world’s largest asset manager, posted a 20 percent drop in first-quarter profit.

 

Delta Air Lines reported a first-quarter profit above analysts’ estimates and indicated it could cut flight capacity in the fall if necessary to stop a months-long decline in unit revenue. The second most-traveled U.S. airline earned $946 million in the first quarter; profit was lifted by lower fuel costs.

 

It looks like the fight over Yahoo has boiled down to Verizon and SoftBank. According to NY Post sources, Verizon is considered the front-runner (interested in Yahoo’s core business and a 35.5% stake in Yahoo Japan), and appears to have the backing of key investors who like the idea of a simple cash deal. While a Softbank bid would likely be on the whole of Yahoo.

 

McDonald’s is targeting private equity firms, including Bain Capital, MBK Partners, TPG Capital Management and China Resources, for its planned sale of 2,800 restaurants in North Asia. McDonald’s is adopting a new business model in the region by planning to bring in partners to own the restaurants within a franchise operation.

 

Total spending on prescription drugs in the U.S. rose 12.2% to nearly $425 billion in 2015, continuing a steep climb fueled by the introduction of expensive new treatments for cancer and infections, as well as price hikes for older medicines. The annual report from IMS Health is likely to further fuel the fire of criticism from politicians, healthcare providers, and patients, stating drugs are out of reach and straining budgets.

 

Despite delays in the jets’ computer-based logistics system, the U.S. Air Force still expects to declare an initial squadron of Lockheed Martin F-35s ready for combat between August and December.

 

According to U.S. auto safety regulators, there are still about 85 million unrecalled Takata air bag inflators in American vehicles that would eventually need to be serviced unless the company can prove they are safe. The figure represents the first nationwide public accounting by the U.S. government regarding the total number of Takata inflators, which can explode with too much force and spray metal shards inside vehicles.

 

You know about the Cloud, which basically means you use someone else’s computers to store your data. Your email is stored in the cloud; all sorts of other documents as well, whether you know it or not. The government wants to look inside the cloud. Microsoft has sued the government for the right to tell its customers when a federal agency is looking at their stuff in the cloud. They say the government’s actions contravene the Fourth Amendment, which establishes the right for people and businesses to know if the government searches or seizes their property, the suit argues, and Microsoft’s First Amendment right to free speech.

 

CEO’s of major corporations are busy people; they can’t be in two places at one time. But last week, Accenture CEO Pierre Nanterme was – at least digitally. On Monday, Nanterme went to an Accenture broadcast studio in Paris, where he is based, and had his image beamed to suburban Chicago, where 500 of the company’s top executives were meeting. At the same time, the professional services firm’s human resources chief, Ellyn Shook, was beamed in from New York, and the resulting three-dimensional “holograms” of the two executives chatted with each other about things like the company’s new performance reviews and recent acquisitions, while answering questions from the audience. It’s still a bit on the extravagant side. Do you really need a hologram to explain recent acquisitions? If you’re not sure, just ask yourself, what would Tupac do?

 

 

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