No F8 but What You Make
DOW + 149 = 17,705
SPX + 19 = 2061
NAS + 38 = 4872
10 Y + .04 = 1.78%
OIL + 1.28 = 41.64
GOLD – 2.40 = 1256.70
Earnings season is underway. Later this week big US banks will start releasing results, including JPMorgan Chase, Citigroup and Wells Fargo; the big banks are looking like one of the weakest sectors this earnings season. Expectations for earnings are low this quarter. Analysts surveyed by FactSet expect corporate profits to be down 9.1 percent from a year ago, hurt primarily by the steep drop in oil prices and other commodities. The entire energy sector is expected to report a loss this quarter.
This Sunday, oil producers meet in Doha, Qatar to consider some sort of production cuts. Iran has repeatedly showed zero interest in a production freeze at the current level, saying it would keep pumping until production reaches the pre-sanction level of around 4 million barrels a day. Today, Russia and Saudi Arabia announced a production freeze regardless of whether Iran participates in the plan to tackle a supply glut.
It may be the world’s biggest traffic jam. As seaports struggle to cope with a global oil glut, huge queues of supertankers have formed in some of the world’s busiest sea lanes, where some 200 million barrels of crude lies waiting to be loaded or delivered. The vessels, filled with oil worth around $7.5 billion at current market prices, would stretch for almost 25 miles if formed up in one straight line. Meanwhile, the latest American Petroleum Institute (API) inventory data recorded a build of 6.2 million barrels for the latest weekly data, compared with an expected build of around 1 million.
Wells Fargo chose the wrong time to expand its oil-lending. The bank targeted some of the least creditworthy borrowers in the shale industry, demanding oil and gas reserves as collateral, a type of financing thought to be low risk. With oil now hovering close to $40 a barrel, the value of those reserves held as collateral has plummeted.
This pressure was clearly illustrated yesterday when Chesapeake Energy pledged almost all of its oil and gas reserves, real estate and derivatives contracts to keep its $4 billion credit line. U.S. shale production, meanwhile, is seen reaching a two-year low.
Standard & Poor’s reported that it downgraded 44 US junk-rated companies in March, while upgrading just 15. This comes on top of the 82 issuers it downgraded in February. In the first quarter, about 45% of S&P’s downgrades hit oil & gas companies. Not a surprise, given the state the industry is in; the bigger surprise is that 55% of the downgrades hit companies outside oil & gas.
The International Monetary Fund lowered its estimate for global growth, citing volatility in financial markets, slowing momentum in developed economies and continued difficulty for emerging-market nations, as it also highlighted a growing backlash against trade and global ties. The IMF cut its estimate for global growth to 3.2% this year and 3.5% next year. That represents a downgrade of 0.2% for 2016 and another tenth for 2017 from what it forecast in January. The IMF’s estimate for the U.S. was cut to 2.4% in 2016, a downgrade of 0.2%, and to 2.5% in 2017, representing another tenth of point off its January forecast.
Several Fed policymakers are speaking today. Philly Fed President Patrick Harker, who has urged his colleagues to “get on with” raising rates again, said this morning that he wants to hold off on a second rate hike until inflation picks up. Harker said that given the behavior of oil prices, inflation is likely to be “quite low…. probably even negative” in the first quarter.
Dallas Federal Reserve President Rob Kaplan said he’s not too concerned about the slowing economic growth in the first quarter, and the US economy is likely to grow at just under 2 percent for the year. Kaplan says “we still believe the underpinnings for solid growth are there…We still think the consumer is going to remain strong this year. The job market is strong.” Kaplan sees an interest rate hike in the not-too-distant future, provided gross domestic product numbers recover as he believes they will. “I think people should expect it’s going to be a slow, patient, gradual normalization.”
Also today, San Francisco Fed President John Williams will discuss U.S. monetary policy and the global economic outlook, while the Richmond Fed’s Jeffrey Lacker speaks on “Economic Leadership in an Uncertain World”.
The National Federation of Independent Business (NFIB) said its small business optimism index dipped 0.3 point to a reading of 92.6 last month, the lowest since February 2014. It has declined from a reading of 100 in December 2014 and has pushed further off its 42-year average of 98. The soft reading fits in with recent economic data on consumer and business spending as well as wholesale inventory investment that have suggested economic growth slowed sharply from the fourth quarter’s 1.4 percent annualized rate.
The US government posted a $108 billion budget deficit in March, more than double the amount from the same period last year. The government had a deficit of $53 billion in March of 2015. The current fiscal year-to-date deficit was $461 billion, up 5 percent from a $439 billion deficit this time last year. Receipts last month totaled $228 billion, while outlays stood at $336 billion.
U.S. import prices rose in March for the first time in nine months as the cost of petroleum products increased, but the lingering effects of a strong dollar suggested inflation will continue to increase gradually. The Labor Department said import prices gained 0.2 percent last month after a downwardly revised 0.4 percent drop in February. It was the first time since June that import prices rose and the largest increase since May. Prices of imported products were down 6.2 percent in the 12 months through March. Weak import prices have contributed to holding inflation below the Federal Reserve’s 2 percent target.
A committee in Brazil’s lower house of Congress has voted to recommend President Rousseff’s impeachment for allegedly manipulating public finances, a step that increases the chances of her removal from office. A vote in the full lower house is expected to take place on Sunday. If the proceedings continue to Brazil’s Senate, the chamber could decide by a simple majority to put Rousseff on trial, suspending her position for up to six months, and VP Michel Temer would become acting president.
Alibaba is making its biggest overseas bet yet. The Chinese online retailer announced it was buying a controlling stake in the Singapore-based Lazada Group for about $1 billion. The acquisition will allow Alibaba to take advantage of growth opportunities in Southeast Asia.
About 40,000 Verizon workers say they’ll go on strike tomorrow unless the company negotiates a new contract with the Communications Workers of America and the International Brotherhood of Electrical Workers. At issue are pension benefits, outsourcing, and health care costs.
No. 3 U.S. railroad CSX Corp reported a lower quarterly net profit, in line with analysts’ expectations, citing declines in most freight segments, especially coal. First-quarter net income came in at $356 million, or 37 cents per share, down more than 19 percent from $442 million, or 45 cents per share, a year earlier.
Facebook Messenger wants you to chat with businesses and get updates from them, too. That’s the future Facebook pitched at F8, its annual conference for software developers in San Francisco. Facebook handed the more than 50 million businesses on Messenger the tools needed to build interactive experiences, or “chat bots,” that reach the 900 million people who use the messaging app each month.
Chat bots are chat robots, interactive software powered by artificial intelligence often with an assist from humans, which are designed to simulate human conversation. They are popping up on messaging services where you can use them to perform simple tasks. Chat bots are already popular in Asia, where messaging services such as WeChat help users schedule doctor’s appointments, shop for the latest styles, play games or the lottery and send money to friends.
One example of how business is using chat bots already – KLM Airlines recently began allowing passengers to check in, get flight updates, make travel changes and talk to customer service reps in its Messenger app. For some reason I’m just guessing that might not be as good as talking to an actual person, at least not yet.
Among other F8 stuff, Facebook is launching live video streaming working across all devices and services. Mark Zuckerberg gave a demonstration by streaming video from a drone flying in the conference hall. A more compelling use might be high quality live broadcasts – think TV, news, sports, and such. Or you could just start your own TV show. Already some TV stars are getting bigger audiences on the Live Platform than they’re getting on their TV shows.
Facebook also revealed a 360-degree video camera and software system today at its F8 developer conference, which is the kind of video you want for 3D or virtual reality. The camera, which will cost at least $25,000 to build, includes 17 different capture devices that are synchronized, and can record two hours of 360-degree video at up to 60 frames per second. Facebook is also releasing software that stitches the footage together seamlessly. But Facebook doesn’t really want to get into the camera business, so both the hardware and software, as well as the stitching code, are open source projects.
According to research firm Gartner, global shipments of personal computers fell 9.6% to 64.8 million units during the first quarter, marking the first time since 2007 that shipments dropped below 65 million units (IDC reported similar results worldwide). In the U.S., PC shipments totaled 13 million devices, representing a 6.6% decline from a year earlier and the lowest volume in three years. The sector has faced headwinds in recent quarters which include an economic slowdown in China, the strong U.S. dollar and the growing popularity of smartphones.