…..Comey fired. All calm on the Wall Street front – too calm. Fedspeak: some economic indicators are flashing yellow; beware Fannie and Freddie. New Moon rising in South Korea. Earnings update. Spirit in a fight with pilots and customers.
Financial Review by Sinclair Noe for 05-09-2017
DOW – 36 = 20,975
SPX – 2 = 2396
NAS + 17 = 6120
RUT + 0.22 = 1391
10 Y + .03 = 2.40%
OIL – .23 = 46.20
GOLD – 4.90 = 1222.10
President Trump has fired FBI Director James Comey. White House spokesman Sean Spicer said the president “terminated and removed” Comey from office “based on the clear recommendations of both Deputy Attorney General Rod Rosenstein and Attorney General Jeff Sessions.” In Trump’s letter to Comey, the president said, “It is essential that we find new leadership for the FBI that restores public trust and confidence in its vital law enforcement mission.”
The FBI Director is appointed to a 10-year term and it is unusual for a director to be removed from the office before the term expires. Comey was appointed in 2013. Comey, who has led an investigation into Russia’s meddling during the 2016 election and possible links to Trump aides and associates, is only the second FBI chief to have been fired.
Earlier in the day, the FBI clarified a statement Comey made before a Senate panel that overstated the number of classified emails Hillary Clinton aide Huma Abedin forwarded to the personal computer of her husband, former Rep. Anthony Weiner. Comey had come under fire from Democrats last year after announcing an investigation into Clinton’s emails right before the presidential election, while not disclosing until later a probe into ties between Donald Trump’s campaign team and Russian intelligence officials.
In a letter sent to Comey, Trump wrote: “While I greatly appreciate you informing me, on three separate occasions, that I am not under investigation, I nevertheless concur with judgment of the Department of Justice that you are not able to effectively lead the Bureau.”
Stocks trade at fresh highs (at least on the Nasdaq) and volatility across assets is so subdued it’s touching near-record lows (the VIX inched slightly higher at the close but is still in single digit territory and dipped as low as 9.56). With the French election out of the way, investors have stopped paying what had been a five-month high in the cost of insuring against declines in the S&P 500 Index. The price of hedging against a 5 percent drop in the gauge over the next month is 36 percent below its five-year average. For some, this sense of calm in the market is anxiety-inducing in its own right, especially as valuations stretch to levels not seen since the aftermath of the 1990s-internet bubble. It has been a long time since we had a 5 or 10 percent correction, and the clock is ticking. Or maybe the bull market is just catching a breath, but the markets are almost never this calm.
Goldman CEO Lloyd Blankfein said today, “Every time I get accustomed to low volatility, like we were towards the end of the Greenspan era, and we think we have all the levers under the control … something erupts to remind us that the idea that anybody is in control of everything is hubris. I don’t know what brings us out of the doldrums, but I do know this is not a normal resting state.”
Fed funds futures pricing shows investors are almost universally expecting the Federal Reserve to raise overnight interest rates at its next meeting, with close to a 90 percent perceived chance of an increase next month. Yields on U.S. two-year notes, considered most sensitive to rate-hike expectations, rose to eight-week highs. While the U.S. economy saw a marked deceleration in the first quarter, the overall outlook remains solid and the Fed is still widely expected to raise U.S. lending rates in June and likely again in September. The positive sentiment (or at least the ubiquitous complacency) and rising U.S. Treasury yields also boosted the dollar. The dollar index, which tracks the greenback’s value against six major currencies, rose to a three-week high, in line with the gains in yields.
Not everyone is cheerfully confident about economic growth. Commerce Secretary Wilbur Ross says the US economy won’t achieve the Trump administration’s 3 percent growth goal this year and not until all of its tax, regulatory, trade and energy policies are fully in place. US trading partners have been spooked by Trump’s vow to renegotiate or pull out of trade deals, such as the North American Free Trade Agreement. A possible rise in the use of tariffs to punish foreign companies deemed to be competing unfairly also has raised concerns of a wave of protectionism. Ross, however, insisted that the Trump administration was not aiming to restrict trade with its actions.
Kansas City Federal Reserve President Esther George said today the central bank should keep gradually raising short-term interest rates despite some economic indicators, like car sales, flashing “yellow”. Among the cautionary areas, auto sales are down from last year’s record pace, and first quarter GDP growth was up at only a 0.7% annual rate, George noted in a speech at the University of California, Santa Barbara. But other indicators, like consumer sentiment, remain strong, and household balance sheets are, on average, healthy. And as labor markets continue to strengthen, “continuing the gradual removal of monetary accommodation is the appropriate course for the Fed,” George said. George said that rate hikes have to be timed right and that a gradual pace seems appropriate. Going too fast risks derailing the economy, while moving too gradually can pose a risk to financial stability
Boston Federal Reserve President Eric Rosengren said today that efforts to overhaul Fannie Mae and Freddie Mac could lead to “a potential and significant shock” to the commercial real-estate sector. The pair of mortgage-finance giants, which were bailed out by the U.S. government and placed in conservatorship in 2008 during the height of the financial crisis, have historically boasted outsize influence on the single-family mortgage market, but Rosengren expressed concern that the duo’s growing clout in the multifamily sector may pose a risks, as the government considers new structures for the entities.
Job openings and hires moved sideways in March as economic momentum stalled out. The Labor Department says there were 5.74 million job openings, the same number as previously reported in February, which was cut to 5.68 million. Labor’s Job Openings and Labor Turnover Survey lags behind the closely watched monthly nonfarm-payroll data but provides more detail. In March, the JOLTS report showed that the number of workers voluntarily leaving their jobs ticked up by 2.6%. That signals more worker confidence in the labor market.
South Korean liberal politician Moon Jae In has won the country’s presidential election. Moon’s win was fueled by a surge in liberal sympathy after the former conservative president, Park Geun Hye, was removed from office months ago. Park is now in a jail cell as she awaits trial on accusations she took about $52 million in bribes from major companies, including Samsung. In light of the scandal with the former president, Moon was a seen as a clean candidate who would end corruption. The country’s National Election Commission said more than 33.8 million people voted in the election, a turnout of 77 percent, the highest in two decades. Moon has pushed for a more calm and conciliatory stance toward North Korea. Separately, the North Korean ambassador to the UK told Sky News the country will proceed with its sixth nuclear test.
Disney reported profits that topped expectations, but revenues that fell short of forecasts amid continued weakness at ESPN. Disney said it earned $1.50 in adjusted earnings per share during its fiscal second quarter, and $13.3 billion in revenue. Revenues from Disney’s parks and resorts increased by 9% to $4.3 billion, helped by Shanghai Disney Resort.
Nvidia reported a 48 percent jump in quarterly revenue, helped by strong demand for its graphics chips and its diversification into fast-growing areas such as self-driving systems and artificial intelligence. Net income rose to $507 million, or 79 cents per share, from $208 million, or 35 cents per share, a year earlier. Nvidia’s revenue rose to $1.9 billion from $1.3 billion.
Yelp reported revenue of $197 million, just short of analysts’ estimates. Yelp cut it full-year 2017 estimates for revenue and earnings. Yelp was slammed – down 28%.
Passengers at an airport in Florida protested on Monday night after the cancellation of multiple flights, leading to a confrontation with airline employees and sheriff’s deputies who arrested three travelers while attempting to restore order. The airport altercation is only one skirmish in Spirit’s war, its customers’ discomfort a kind of collateral damage. According to a federal lawsuit filed in the Southern District of Florida on Tuesday morning, the Miramar-based airline is accusing the Air Line Pilots Association, an AFL-CIO-affiliated labor union that represents more than 55,000 American and Canadian pilots, of arranging a pilot shortage and forcing Spirit to cancel flights to “purposely and unlawfully disrupting the airline’s operations” as retribution over ongoing pilot contract disputes. In response to the Fort Lauderdale fracas, Spirit officials quickly passed the buck, blaming the incident on ALPA’s truant pilots. Spirit and ALPA have been at it since 2015, per CNN, but multiple contract negotiations have so far failed to produce an agreement. According to the lawsuit, Spirit has canceled about 300 flights in the past week alone. A federal court granted Spirit Airlines a temporary restraining order today, compelling the pilots’ union to return to status quo. The pilots’ union said Spirit Airlines pilots will fully comply with the court to help restore normal operations.