Morning in Arizona

Morning in Arizona

The Headline Animator

Wednesday, March 29, 2017

London Calling

Financial Review

London Calling


DOW – 42 = 20,659
SPX + 2 = 2361
NAS + 22 = 5897
RUT + 4 = 1371
10 Y – .02 = 2.39%
OIL + 1.23 = 49.60
GOLD + 2.10 = 1254.40

Brexit is Brexit. Prime Minister Theresa May formally began Britain’s divorce from the European Union today, declaring there was no turning back. With the simple hand-off of a letter in Brussels, the British government became the first to trigger Article 50 — the mechanism for nations to exit the European Union.

The UK now has two years to negotiate the terms of the exit before it comes into effect in late March 2019. Over the next 2 years, the Brits will negotiate with 27 other EU states on finance, trade, security and other complex issues.

As the BBC points out: “Unpicking 43 years of treaties and agreements covering thousands of different subjects was never going to be a straightforward task. It is further complicated by the fact that it has never been done before and negotiators will, to some extent, be making it up as they go along.

The post-Brexit trade deal is likely to be the most complex part of the negotiation because it needs the unanimous approval of more than 30 national and regional parliaments across Europe, some of whom may want to hold referendums.” The outcome of the negotiations will shape the future of Britain’s $2.6 trillion economy, the world’s fifth biggest, and determine whether London can keep its place as one of the top two global financial centers.

For the EU, already reeling from successive crises over debt and refugees, the loss of Britain is the biggest blow yet to 60 years of efforts to forge European unity in the wake of two world wars. Its leaders say they do not want to punish Britain.

But they are expected to take a hard stand, in hopes of discouraging other member states possibly considering a similar break away. German Chancellor Angela Merkel has rejected one of Theresa May’s key Brexit demands, insisting negotiations on Britain’s exit from the European Union cannot run in parallel with talks on the future UK-EU relationship.

Meanwhile, Prime Minister May is trying to hold the UK together. Nicola Sturgeon has pledged to press on with a fresh independence referendum after dismissing Theresa May’s promise of substantial new powers for Scotland after Brexit. The first minister said May’s decision to trigger article 50, was one of the most destructive acts by a British leader in modern history, threatening hundreds of thousands of jobs across the UK.

Donald Tusk, the president of the European council, warned after receiving May’s letter that there would be “no winners” from Brexit, and the next two years would be a matter of “damage control”.

Is right now as good as it gets for the US economy? San Francisco Fed President John Williams seems to be saying we’re getting pretty darn close. Williams said that the economy was “in a good place,” and that the Fed’s job has now changed from getting the economy back on track to keeping the economy on track.

It’s an important distinction. As the economy has recovered from the Great Recession of 2009 when the unemployment rate hit 10%, the Fed has moved from stabilizing the US economy and bringing it back to life, to now keeping an eye on making sure it doesn’t overheat as the rate of unemployment has dropped to 4.7%. And right now, we basically have a Goldilocks economy – not too hot, not too cold. Williams said he “would not rule out more than three increases total for this year.”

Meanwhile, Federal Reserve Bank of Boston President Eric Rosengren argued today that four hikes in 2017 may be needed to guard against economic overheating. Rosengren said, “The economy is in a much better spot. We’re basically where we want to be, and we don’t want to grow so much faster than potential at this point that we end up getting to an unsustainable unemployment rate that would be reflected either in inflation or in higher asset prices.”

Chicago Fed President Charles Evans filled out the trio of Fedspeakers today, saying the fundamentals of the US economy are good and calling for another one or two increases in short-term interest rates this year. Evans cast doubt on the Trump administration’s stated intention to boost the growth rate to a 3% to 4% range. The Chicago Fed president said sustainable growth at that level would require “some truly astounding turnarounds in demographic and technological trends,” and the odds of this occurring “seem to be pretty low.”

Contract signings for home sales boomed in February to the second-highest level in a decade. The National Association of Realtors reported pending home sales rose 5.5% in February after falling 2.8% in January. A sale is listed as pending when the contract has been signed but the transaction has not closed. The NAR said the rising stock market and steady hiring helped, as did fears from home buyers of rising interest rates.

Well, that didn’t take long. Yesterday, President Trump signed an executive order, repealing the Clean Power Act. Already, the lawsuits are flying. The Northern Cheyenne Tribe, located in southern Montana, said the administration lifted a moratorium on coal leases on public land without first consulting with tribal leaders about the impact the coal-leasing program has on the tribe, its members and lands.

In a separate lawsuit filed on yesterday by environmental group Earthjustice, a coalition of conservation groups challenged the administration’s moratorium decision, arguing that it imperils public health for the benefit of coal companies.

And the idea of a clean environment has even attracted some strange bedfellows. Exxon Mobil has written to the Trump administration urging it to keep the US in the 2015 Paris climate agreement. Calling the accord “an effective framework,” Exxon cited several reasons to stay in the pact, including the opportunity to support greater use of natural gas, since it creates lower carbon emissions than coal when used for power generation.

Also, the CEO of ConocoPhillips, is saying that the U.S. should stay in the Paris Climate Agreement. For ConocoPhillips and Exxon – as well the non-US oil and gas heavyweights; BP, Royal Dutch Shell, Eni, Total, and Statoil—backing the Paris Agreement is not just riding the trend of increasingly environmentally-conscious businesses.

Those companies with operations all over the world stand to benefit from the Paris Agreement because the nations’ efforts to cut carbon emissions will lead to transitioning from coal-fired plants to gas-fired plants. And natural gas is quite a substantial portion of all those majors’ businesses, investments and profits.

Meanwhile, the White House and House Republicans have quietly begun new talks on repealing Obamacare.  The New York Times writes, Trump’s chief strategist Stephen Bannon has been meeting with members of two Republican factions that sank the bill last week, the Freedom Caucus and the Tuesday Group. Trump told senators at a White House reception Tuesday night that “we are all going to make a deal on health care.”

Following last week’s vote in the Senate, the US House has voted 215-205 to repeal Obama-era regulations governing consumer privacy protection at Internet service providers. If passed into law, the repeal will again allow ISPs to sell consumer information, including browsing history, without customer consent.

A New York law that barred retailers from charging customers more when they use credit cards instead of cash hit a legal roadblock Wednesday when the Supreme Court sent the law back to a lower court for more review. The justices agreed with merchants in New York state that the law curtailed their free speech by mandating what they say to their customers about the credit card fees.

The lower court had upheld the New York law as a pricing regulation only and not as a matter of free speech. The Supreme Court has a standing belief that money is speech, and therefore protected. Maybe now we’ll find out if credit cards are protected speech.

The evolution of stock picking has taken a toll on jobs and fees at BlackRock, as the world’s biggest money manager said it will increasingly rely on data-mining technology to make investment decisions. Over forty staff will be laid off, including some portfolio managers. The revamp marks BlackRock’s biggest attempt to rejuvenate its actively managed equities business as investors shift to ETFs.

Last year, Samsung received dozens of complaints about the Galaxy Note 7 overheating, and in some cases exploding, the company recalled the phones. But replacement phones continued to catch fire, and the company had to recall the devices a second time before killing the product altogether. Samsung lost billions in revenue.

Today, Samsung unveiled the new Galaxy S8, with a big version and a bigger version; they will arrive in stores next month with a starting price of $750. Perhaps the most curious bit of news, though, isn’t about the phones so much as it is an accessory that supports them: the DeX. Short for “desktop extension,” it’s a little dock that effectively turns the Galaxy S8 or S8 Plus into a desktop computer.

Amazon closed today at $874, a new record high. Amazon’s stock price has rocketed 50% in the past 12 months, adding to the net-worth of its largest shareholder, founder Jeff Bezos. The Amazon founder is now worth $75.6 billion, per Bloomberg, surpassing Berkshire Hathaway CEO Warren Buffet ($75.5 billion) and Amancio Ortega, chairman of Inditex fashion group ($74.1 billion). Bill Gates is still the richest man in the world with a net-worth of $86 billion.

Marijuana will be legal for all Canadians over the age of 18 by July 1, 2018. Prime Minister Justin Trudeau’s Liberal Party will officially announce the plan on April 10. The legislation is expected to easily pass through Parliament, as it holds support from major political parties both to the right, and left of Trudeau’s Liberals. As well, a majority of Canadians support legalizing marijuana.

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