Heating Up
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DOW + 92 = 17,733
SPX + 6 = 2077
NAS + 9 = 4844
10 Y – .04 = 1.56%
OIL – 1.84 = 46.17
GOLD – 11.30 = 1281.20
Well, this was a strange day. The major market indices started the session lower and looked ready to slide into a sixth consecutive loss, but after about an hour of trade, prices started moving higher. Even with the weakness we have seen over the last week or so, the S&P 500 is still only a little more than 2% off its 2016 closing high for the year. From that perspective, can you recall a time when the S&P 500 was this close to a high for the year but where there was this much angst on the part of investors? At one point, the Dow was down almost 170 points, with a 280-point range from sessions low to session high.
Yesterday, the Federal Open Market Committee left the fed funds rate unchanged at 0.25% to 0.50%, as expected. And the Fed’s economic forecasts are even more pessimistic now than they were just a few months ago. Fed chair Janet Yellen held a press conference and mentioned the weak labor market, low business investment and productivity, and concerns about a possible Brexit next week. The Fed’s own forecast sees U.S. growth topping out at 2% in the long run, well below the nation’s historic 3.3% growth rate. Looming in the background is persistently weak global growth. Today, other central banks delivered their policy messages.
The Bank of Japan kept monetary policy steady and lowered its inflation forecast, stating the consumer price index’s year-on-year change is likely to be slightly negative or flat for the time being. The yen surged against the dollar following the news, sparking speculation on whether Japanese policymakers would intervene to halt the strengthening currency, while the Nikkei tumbled 3.1%.
Reiterating its warning that the franc is significantly overvalued, the Swiss National Bank left its negative interest rates unchanged at record lows, conserving ammunition ahead of a British vote on EU membership. As expected, the SNB held its deposit rate at negative-0.75%.
The Bank of England kept its key interest rate at a record low of 0.5% and made no changes to its 375-billion-pound asset-purchase program. The decision marked the last before the June 23 referendum in the U.K. on whether the country should stay or exit the European Union. And the bank warned that a Brexit “could materially alter the outlook for output and inflation.”
“Leave” has surged to a 6-point lead in an important Brexit survey. A new Evening Standard newspaper poll, conducted by the reputable polling firm Ipsos MORI, shows that 53% of respondents favor Leave while 47% favor Remain. This was the first time a poll conducted by Ipsos MORI poll had favored Leave. But both sides of the Brexit campaign have temporarily stopped campaigning after Jo Cox, a Member of Parliament was shot and killed while meeting with constituents in a library. The motive behind the shooting is unknown but many people think it might be Brexit related.
Investors continued to buy up investments considered safe in times of economic uncertainty: United States government bonds, and stocks with high dividends. The yield on the benchmark 10-year Treasury note dropped to 1.52% in intraday trading; the lowest since 2012.
The number of people seeking U.S. unemployment benefits rose last week, but to a low level that indicates employers are still cutting relatively few jobs. Weekly applications rose 13,000 to a seasonally adjusted 277,000, the highest in four weeks. The less volatile four-week average declined slightly to 269,250.
Consumer prices, or prices at the retail level, rose 0.2% in May largely because of higher gasoline prices and rising rents. Although the cost of most goods and services aren’t increasing much, fuel has become more expensive. The energy index climbed 1.2% in May. Rents also jumped 0.4% in May to mark the largest monthly gain since February 2007. And they are rising at the fastest 12-month pace in almost nine years: 3.4%.
Overall price pressures are still muted, however, as the price of groceries dropped 0.6% in May, and prices are now down 0.7% in the past year. The consumer price index has risen just 1% in the past 12 months. The core rate that excludes food and energy has risen at a sharper but still low 2.2% annual pace.
Confidence among U.S. homebuilders climbed to a five-month high in June. The National Association of Home Builders/Wells Fargo builder sentiment gauge rose to 60 from 58. Home builders report cheap borrowing costs and steady improvement in the labor market have bolstered Americans’ abilities to buy homes. Builder sentiment in the West reached a five-month high.
The Philly Fed index rebounded into expansionary territory in June, with the headline index rising to 4.7 from -1.8. The key forward-looking indicators all moved in the wrong direction, with sentiment on new orders, employment, unfilled orders, inventories and capital expenditure intentions all weakening, while the hours worked sub-index remained firmly in contractionary territory in June.
Arizona’s seasonally adjusted unemployment rate increased one-tenth of a percentage point from 5.5% in April to 5.6% in May. The U.S. seasonally adjusted unemployment rate decreased three-tenths of a percentage point from 5.0% in April to 4.7% in May. A year ago, the Arizona seasonally adjusted rate was 5.8% and the U.S. rate was 5.5%.
Arizona lost 19,400 Non-farm jobs in May. Three of the eleven sectors posted gains, one remained unchanged, and seven sectors posted losses. The gains were recorded in Manufacturing, Construction, and Trade, Transportation, and Utilities. The losses were recorded in Financial Activities, Information, Education and Health Services, Leisure and Hospitality, Professional and Business Services (-5,400 jobs); and Government (the big loser -13,100 jobs). Natural Resources and Mining remained unchanged.
Disneyland debuts in Shanghai. The theme park, which cost $5.5 billion and took five years to build, opened its doors today. Disney hopes it can tap into China’s growing middle class, as 330 million people live within a three-hour drive or train ride from the park.
California’s insurance commissioner called on the U.S. government to block Anthem’s $48 billion takeover of rival health insurer Cigna, saying the deal would limit competition in the state’s health-insurance market. While Commissioner Dave Jones doesn’t have legal authority to block the merger, his opposition, plus a 22-page letter he sent to the U.S. Justice Department, adds an influential voice to the debate. The takeover would give the combined Anthem-Cigna a greater than 50 percent market share in 28 counties in California, and a market share exceeding 40 percent in 38 counties.
Volkswagen unveiled a major restructuring today, the broadest overhaul of the company in decades. VW announced plans to deliver 30 electric plug-in models by 2025. The product overhaul and pledge to cut $9 billion in spending come as VW is already facing a bill of more than $18 billion to cover the costs of its emissions scandal.
The company rigged some 11 million diesel cars worldwide with software to cheat emissions standards. The admission triggered a litany of government investigations, a U.S. sales slump, and a management shakeup. This also follows a mandate from the German government that as of 2030, all new cars registered in Germany must be emissions free. The plan is to add one million hybrid and all-electric cars by 2020 and 6 million by 2030.
After three successes, a leftover SpaceX rocket booster crashed Wednesday while trying to land on an ocean barge. In fact, the rocket’s failed landing was, according to a Twitter post by Elon Musk, “Maybe [the] hardest impact to date.” The attempt came minutes after the Falcon 9 rocket successfully launched two satellites into orbit from Cape Canaveral, Florida.
Facebook founder Mark Zuckerberg’s philanthropy venture has made its first major investment, leading a funding round in a startup that trains and recruits software developers in Africa. Google Ventures was also part of the $24 million funding round. The startup, which has nearly 200 engineers currently employed by its Nigeria and Kenya offices, will use the funds to expand to a third African country by the end of 2016.
Philadelphia is set to become the first major American city with a soda tax despite a multimillion-dollar campaign by the beverage industry to block it. The City Council is expected to give final approval today to a 1.5 cent-per-ounce tax on diet and regular soda, iced tea, energy drinks, juice drinks with less than 50% juice, and other sugary beverages.
Microsoft is getting into the marijuana business, announcing a partnership to begin offering software that tracks marijuana plants from “seed to sale,” as the pot industry puts it. The software is meant to help states that have legalized the medical or recreational use of marijuana keep tabs on sales and commerce, ensuring that they remain in the daylight of legality. But until now, even that boring part of the pot world was too controversial for mainstream companies. It is apparent now, though, that the legalization train is not slowing down: This fall, at least five states, including the biggest of them all — California — will vote on whether to legalize marijuana for recreational use.
Get ready, here it comes. An excessive heat watch has been posted for California and Arizona, warning of temperatures that could hit 119-degrees this weekend. The forecast calls for record highs and record high-lows. High lows can sound a bit funny to say but what they translate to is misery: Temperatures stay so warm overnight that there is little relief from the heat even after the sun has set. The only consolation is that we are not expected to break the all-time record high of 122-degrees from June 26, 1990. Small consolation.
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