Podcast: Play in new window | Play in new window (Duration: 13:15 — 7.6MB)
DOW – 44 = 20,837
SPX – 8 = 2365
NAS – 18 = 5865
RUT – 7 = 1362
10Y – .02 = 2.59%
OIL – .45 – 47.95
GOLD – 5.10 1199.60
The Federal Reserve Federal Open Market Committee is meeting today and tomorrow to determine monetary policy. Fed policymakers have clearly indicated they will raise the overnight benchmark interest rate by 25 basis points to a range of 0.75 percent and 1.00 percent, and may signal there could be even more than the three rate rises they have forecast for this year.
While the Fed meeting is the focus for markets this week, investors also have to assess the impact of central bank meetings in Britain and Japan, a gathering of G20 finance chiefs, President Trump’s first budget and an election in the Netherlands.
The dollar index rose 0.3%. Yields on benchmark 10-year German government bonds briefly hit 14-month highs above 0.5%, before reversing. Oil fell to 3-1/2-month lows after Saudi Arabia announced it has reversed about one-third of its production cuts and the Organization of the Petroleum Exporting Countries (OPEC) reported oil stocks were still rising despite agreed output cuts.
US producer prices increased 0.3% in February after rising 0.6% in January; and the year-on-year gain was the largest in nearly five years. In the 12 months through February, the PPI jumped 2.2 percent, the biggest advance since March 2012. The core PPI, a key gauge of underlying producer price pressures that excludes food, energy and trade services increased 0.3 percent in February, the biggest gain since April 2016. Core PPI increased 1.8 percent in the 12 months through February.
Small-business owner optimism dipped in February but stayed near long-time highs. The sentiment gauge from the National Federation of Independent Business fell 0.6 points to 105.3. The stronger economy increasingly seems to come at a price for small-business owners. The NFIB wrote in its release: “This is one of the tightest labor markets in the 43-year history of the NFIB survey.”
FDIC Vice Chairman Thomas Hoenig rolled out what he called “a comprehensive plan for reforming bank oversight, calling on the biggest lenders to further separate investment banking activities and accept stricter capital requirements in exchange for fewer regulations. It would require large, complex, universal banks to separately capitalize and manage their traditional commercial banking activities and their nontraditional activities, such as investment banking.In other words, a variation on the Glass-Steagall Act.
Wall Street seems largely unfazed by political turmoil and uncertainty. The major indices are still very close to record highs, and the VIX, the volatility index, is near long-time lows; closing today at 12.23. There are a couple of possible explanations: the global economy has been in recovery mode – a slow, sluggish and boring uptrend.
Per the World Bank, annual global growth since 2011 has hovered in a narrow 2.3 to 3 percent range. The International Monetary Fund’s measure pegs it in an even tighter 3.1 to 3.5 percent range since 2012. And if both institutions’ estimates are met, 2017 will be yet another year of growth being stuck within these narrow parameters. Global company earnings volatility has been low throughout the post-crisis recovery – consistently 5 percent or lower over the past five years.
In the past 20 years, there have been only two significant bouts of earnings volatility of 15 percent and higher, or global recessions. They coincided with the market crashes of 2000-02 and 2007-09. The other reason is that in a low interest rate environment investors don’t have much alternative. You ride out the risk. So, we have strong data but uncertain politics, and they seem to balance out, at least for now.
Luxury fashion retailer Neiman Marcus Group said it was exploring strategic alternatives, including a sale of the company. The move comes about two months after the company pulled its IPO. Neiman Marcus also reported a 6.1 percent drop in second-quarter revenue as issues in its new merchandising and distribution system forced the company to take additional markdowns. Hudson’s Bay has emerged as the most prominent suitor.
MoneyGram International has received a buyout bid from Euronet Worldwide that is 15% higher than MoneyGram’s current buyout deal with Ant Financial Services Group. Euronet’s bid of $15.20 a share in cash will value the company at over $1 billion. The Ant Financial bid MoneyGram agreed to in January was $13.25 a share. MoneyGram’s stock has doubled over the past 12 months through Monday.
Ruby Tuesday it was putting itself up for sale, as the casual dining industry’s slump shows no signs of ebbing. The Tennessee-based company said it’s considering “strategic alternatives,” including a potential sale or merger. The move was paired with an announcement that the company’s sales at restaurants open at least a year tumbled about 4% in the period ended Feb. 28. The chain’s quarterly revenue also fell nearly 17%, compared to a year earlier, to $225.7 million.
Networking software company Citrix Systems (CTXS) has been exploring strategic alternatives including a potential sale. Citrix, which gave activist hedge fund Elliott Management a board seat in 2015, has looked at selling itself in the past, before embarking on spin-offs and sales of smaller business units. It now has a market capitalization of $13.2 billion.
You might not be able to get there from here. A powerful nor’easter is hitting the mid-Atlantic and the Northeast with heavy snow, sleet and rain, prompting more than 6,000 flight cancellations today and more than 2,500 delayed flights, resulting in bad news for the airline stocks. The NYSE Arca Airline index (XAL) lost about 2% today, dropping to a 4-month low. Plus, the storm resulted in school closures, power outages, and warnings from officials to stay off the roads – and that is bad news for trucking stocks
Brexit is coming. UK Prime Minister Theresa May has been granted the power to trigger Article 50; however, she’s not expected to begin the formal process of the UK’s exit from the European Union until the end of the month.
The New York attorney general accused Exxon Mobil (XOM) of withholding documents from his office as it investigates whether the energy company misrepresented its understanding of climate change to investors and the public.
Lawyers for Attorney General Eric Schneiderman’s office said in court documents that Exxon hadn’t disclosed that Rex Tillerson, the former chairman and chief executive, used an alias email address to discuss risk-management issues related to climate change. Tillerson, now the U.S. secretary of state, used the pseudonym “Wayne Tracker” from at least 2008 to 2015.
The Trump administration is weighing even deeper cuts to the Environmental Protection Agency than previous versions of their budget outline suggested. In its first budget draft last month, the White House proposed a 25% cut to the EPA budget. But wait there’s more; officials are now considering cutting the agency’s $8.1 billion budget even further.
The ax looks set to fall hardest on EPA’s climate change programs, with the staff there expected to leave the agency. The EPA budget proposal is likely to run into opposition in Congress, and it is already running into opposition from mayors.
Los Angeles Mayor Eric Garcetti is coordinating the effort with dozens of other cities to purchase up to $10 billion worth of electric vehicles. Thirty cities including New York and Chicago jointly asked automakers for the cost and feasibility of providing 114,000 electric vehicles, including police cruisers, street sweepers and trash haulers. That would be comparable to about 72% of total US plug-in vehicle sales last year.
The auto makers have been fighting CAFÉ rules which set fuel efficiency standards and complaining that there is not enough demand to justify developing more efficient electric vehicles. The mayors say they would like to have more electric vehicles on the streets, including some that haven’t been developed yet, such as plug-in fire trucks and street sweepers. While the initiative would probably be spread out over several years, it would provide electric vehicle manufacturers reliable demand.
Alphabet’s Executive Chairman Eric Schmidt announced today via Twitter that “John Goodenough, inventor of the lithium battery, has developed the first all-solid-state battery cells.” And that is a pretty big deal. Goodenough’s batteries reportedly have three times as much energy density as today’s lithium-ion batteries. They store and transmit energy at temperatures lower than traditional lithium-ion packs and can be made using globally abundant supplies of sodium.
The research could result in “a safe, low-cost all-solid-state cell with a huge capacity giving a large energy density and a long cycle life suitable for powering an all-electric road vehicle or for storing electric power from wind or solar energy.” Goodenough and his team of researchers at the University of Texas have applied for patents on the solid-state battery technology and it may be a while till the batteries move to production.
Goodenough is a National Medal of Science laureate, and by the way, he is 94 years old.
Today, March 14, or 3-14, is Pi Day. Pi is the ratio of the circumference of a circle to its diameter and it is represented by the irrational number that never ends. Math enthusiasts know all about it, and the rest of the population is probably hoping for cherry pie, or maybe pizza.
