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Friday, March 17, 2017

St. Patrick’s Day Minus the Green

Financial Review

St. Patrick’s Day Minus the Green

Podcast: Play in new window | Download (Duration: 13:15 — 7.6MB)

DOW – 19 = 20,914
SPX – 3 = 2378
NAS + 0.24 = 5901
RUT + 5 = 1391
10-Y – .02 = 2.50%
OIL + .03 = 48.78
GOLD + 3.00 = 1229.80

The Nasdaq Composite hit a record intraday high of 5,912. Today was a quadruple witching session on Wall Street. A quadruple witch occurs on the third Friday of the last month of every quarter, in March, June, September, and December, and refers to the simultaneous expiration of options and futures tied to individual stocks and stock-indexes.

On these days, volume is unusually high as traders offset, close, and roll out of positions. In the opening minute of Friday’s session, one trader dumped 9.24 million shares of Apple stock in a single block trade. At $141 a share, that’s worth about $1.3 billion. No one has claimed the trade yet.

A quad witch is often associated with added volatility, but the reality is that the sessions are usually tame. And for the most part, the markets have been downright somnambulant. The markets are still near record highs, but they have been moving very slowly. For all the talk of animal spirits, the markets most resemble a sloth.

Eighteen years ago, when the Dow Jones industrial average was trading at half its current level, 100-point daily moves were twice as significant. That’s just math. But back then, 100 point days were more frequent.  So far, this year, the Dow has only closed higher or lower by more than 100 points on 13 days, including Wednesday— a bit more than a quarter of its sessions. If this pace keeps up, 2017 will be the year with the second least 100-point moves since 2006.

For the week, the Dow gained less than 0.1 percent and the Nasdaq added 0.7 percent. The S&P index rose 0.2 percent for the week. It’s the seventh weekly gain for the S&P 500 in the last eight, and the index is within 1 percent of its record high. Financial stocks fell in sync with bond yields. The two have tended to move in the same direction recently, because higher rates would allow banks to charge more for loans and earn bigger profits.

The U.S. dollar slipped, continuing its slide in the wake of the Federal Reserve’s decision to raise interest rates, but sticking to its guidance of 3 hikes this year. MSCI’s all-country world stock index was little changed after touching an all-time high earlier in the day.

Treasury Secretary Steven Mnuchin is attending his first G20 meeting Friday. The two-day summit in Germany is a chance for leaders from the world’s largest economies to hear directly from the Trump administration.

G20 leaders have been looking for clarity about what the Trump administration’s “America First” policies will mean for the world economy, and the event could provide signals about currency policy, deregulation and trade. The world’s biggest economies will pledge to jointly fight cyber-attacks on the global banking system, however the G20 finance chiefs dropped an earlier reference for enhanced security requirements for financial services.

Eleven non-OPEC oil producers that joined a global deal to reduce output to boost prices delivered 64 percent of promised cuts in February, an industry source said on Friday, still lagging the higher levels of OPEC itself.

Angela Merkel met with President Trump today bolstered by a delegation of high-profile German business figures, including CEOs of BMW and Siemens, as well as representatives of other German companies with American operations. It’s the first meeting for the two leaders, who have been on the opposite sides of many issues – from trade to immigration, and Russia to NATO.

In January the euro zone recorded a trade deficit for the first time in three years as a rise in exports from a year earlier was more than offset by a larger increase of imports.

Secretary of State Rex Tillerson arrives in Beijing on Saturday, having declined to rule out a pre-emptive strike against North Korea during the early leg of his tour.

Apple upped its commitment to China. It will establish two more R&D centers, in addition to the two it’s building, as part of a $500 million investment in the country. Apple’s iPhone sales have been slowing in China, because of domestic competition. CEO Tim Cook is at an economic forum with senior government officials in Beijing this weekend.

Social media companies Facebook, Alphabet and Twitter must amend their terms of service for European users within a month or face the risk of fines. U.S. technology companies have faced tight scrutiny in Europe for the way they do business, from privacy to how quickly they remove illegal or threatening content.

Meanwhile, Google is facing a wave of angry customers after advertisements from major brands and the UK government appeared alongside content from hate preachers and extremist groups. The British government has summoned the tech firm to explain itself after a newspaper investigation showed that taxpayer-funded ads were used on inappropriate content including Ku Klux Klan videos.

Mule Software launched its IPO today, valuing the company at about $3 billion; trading under the ticker MULE, shares popped 40%. Mule is considered a meat and potatoes software technology offering – an enterprise software firm with moderate valuations but solid business model, even though it is not yet turning a profit.

Sinopec is reportedly near a deal with Chevron in South Africa. The Chinese oil and chemical giant could pay around $1 billion for Chevron’s South African assets. The purchase would give China its first refinery in Africa.

The Japanese government said it was not considering steps to support Toshiba and would share developments involving the firm and its US nuclear unit Westinghouse with Washington.

The Federal Reserve reports manufacturing production rose 0.5 percent last month. Despite the increase in manufacturing output, overall industrial production was unchanged in February because of a 5.7 percent weather-driven plunge in utilities generation. Industrial production fell 0.1 percent in January.

Mining output increased 2.7 percent last month, lifted by a 7.1 percent surge in oil and gas well drilling. Manufacturing, which accounts for about 12 percent of the U.S. economy, is regaining ground as the prolonged drag from lower oil prices, a strong dollar and an inventory overhang fades.

The index of consumer sentiment rose to 97.6 in March from 96.3 in February, based on a preliminary reading by the University Michigan. Two months ago, the index shot up to the highest level since 2004, largely because of more confidence among Republicans and independent voters.

The March survey shows Republicans are still gung-ho. A gauge that examines what they expect in the next six months climbed to 122.4. The expectations index for Democrats, by contrast, slumped to 55.3.

The Conference Board said its leading economic index rose 0.6% in February — the third straight gain of that magnitude — to reach its highest level in more than a decade. The report points to widespread gains across most of the leading indicators pointing to an improving economic outlook for 2017, although GDP growth is likely to remain moderate.

The leading economic index is constructed using 10 components, including the new-orders gauge of a manufacturing purchasing managers index and the interest rate spread between the 10-year Treasury and federal funds rate. Only the building permits component was a drag.

Tesla raised about $1.2 billion, roughly 20 percent more than it had planned, by selling common shares and convertible debt, ahead of the launch of the Model 3 sedan. Tesla announced on Wednesday that it planned to raise more than $1 billion in capital in 2017 — a combination of $250 million in equity and $750 million in convertible debt, with an additional $15 million going to the  underwriting bankers for the offering.

Tesla has more than $2 billion cash on hand, so this tells us that they expect to spend that cash on the Model 3 roll-out. It also tells us that Wall Street still like the electric car company.

J.C. Penney has released the list of 138 stores it plans to close in an effort to cut costs and grow sales at its strongest locations. The release comes a few weeks after Penney’s said it would close to 140 stores this year. Roughly 5,000 jobs will be affected by the closures. The list includes one store in Arizona – in Bullhead City.

Earlier this month, Wells Fargo piously announced there would be no cash bonuses for top executives for 2016; this, in response to the bogus account scandal. For a fleeting moment, it seemed that the Wells Fargo board of directors had an actual spine. Of course, they do not.

While cash bonuses have indeed been curtailed, they are more than compensated with stock bonuses. And then some. Thanks to 2016’s bumper crop of stock awards, each of the top executives’ compensation increased. This is how they bring accountability and transparency to the C-suite. Brilliant.

The American Gaming Association (AGA) predicts that Americans will wager $10.4 billion on March Madness games this year. That would be more than $1 billion more than last year’s $9.2 billion total, and a 13% spike. And 96% of these bets are placed illegally. The total money that fans bet legally, at Nevada sports-books, will come in at just $300 million.

There might even be a few wagers over a pint of Guinness this evening. With St. Patrick’s Day falling on a Friday this year, spending is expected to reach $5.3 billion, up from $4.4 billion last year, per the National Retail Federation; 27% of that will go on a party or a bar.

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