Financial Review

Take the Overs

Sinclair Noe — October 28, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 8 = 18,161
SPX – 6 = 2126
NAS – 25 = 5190
10 Y un = 1.85%
OIL – 1.03 = 48.69
GOLD + 6.50 = 1,276.00

The Federal Bureau of Investigation is reopening its inquiry into Hillary Clinton’s use of private e-mail while secretary of state, a politically explosive development less than two weeks before the presidential election. Stocks erased gains on the news.

FBI Director James Comey sent a letter to a Congressional committee saying, “In connection with an unrelated case, the FBI has learned of the existence of emails that appear to be pertinent to the investigation,” and so he is reopening the investigation.

Comey gave lawmakers no indication in his letter about the importance of the new information. We have learned that the FBI found new emails which were not found on private email server in Clinton residence. The newly discovered emails under FBI investigation were found on separate device in unrelated probe.

Apparently, the device in question belonged to Clinton aide Huma Abedin and her husband Anthony Weiner, and was part of an FBI investigation into Weiner’s sexting problems. The Clinton campaign has asked the FBI to provide more details about the discovery. Hillary Clinton has not made a public comment on the issue.

At this point we do not know any more specifics – so, let the wild speculation begin. And if you are wondering if Election 2016 can get any more sleazier, I don’t know but I would take the “overs”.

The U.S. economy grew at its fastest pace in two years in the third quarter as a surge in exports and a rebound in inventory investment offset a slowdown in consumer spending. Gross domestic product increased at a 2.9 percent annual rate after rising at a 1.4 percent pace in the second quarter. That was the strongest growth rate since the third quarter of 2014 and beat economists’ expectations for a 2.5 percent expansion pace.

Business investment improved last quarter, though spending on equipment remained weak. Business spending on equipment slipped at a 2.7 percent rate, dropping for a fourth straight quarter, but businesses increased spending to restock after running down inventories in the second quarter.

Consumer spending, which accounts for more than two-thirds of U.S. economic activity, increased at a 2.1 percent rate.

Labor costs rose 0.6 percent in the third quarter after a similar gain in the second quarter, leaving the year-on-year rate of increase at 2.3 percent.

The standout number in the GDP report was a 10 percent surge in exports, which can be linked to soybean exports and is not something that carries over to the fourth quarter. This reading of 2.9 percent GDP is the first estimate and subject to a couple of revisions but it certainly bolsters the case for a Federal Reserve rate increase in December.

The University of Michigan said Friday that its final index of consumer sentiment fell to 87.2 from 91.2 in September. The drop in sentiment suggests that consumer spending may continue to moderate.

October has a reputation as being a nasty month in the stock market, and even though we didn’t see a market crash this month, it wasn’t pretty. For the month: the Dow lost 147 points or 0.8%, the S&P lost 42 points or 1.9%, and the Nasdaq dropped 122 points or 2.2%.

Bonds worldwide have lost 2.9 percent in October; the worst monthly performance since 2013 and the days of the Taper Tantrum. The yield on the US 10-year Treasury note went from 1.61% to 1.85% in October. There’s potential for more turbulence ahead. Next week brings interest-rate decisions from the Bank of Japan, the Fed and the Bank of England. Then on Nov. 8, Americans go to the polls to choose a new president.

The eve of a presidential election is typically a time when companies put merger plans on hold and wait for clarity on matters like antitrust policy. Not this year. U.S. companies have struck a total of $249 billion in merger agreements this month, surpassing the previous record of $240 billion in July 2015.

More on the way? New reports suggest CenturyLink is eyeing a $30 billion merger with L3 Communications. Also, GE is discussing an oil & gas combination with Baker Hughes for roughly the same amount; this might take the form of a partnership rather than an acquisition.

Amazon reported earnings that missed estimates. While the 29% sales growth is impressive, shares fell 5% today, wiping out about $20 billion in market cap.

Alphabet beat on the top and bottom lines. The parent company of Google beat earnings estimates by 5% – a notable figure given the size and coverage of the stock – and still posted 20% revenue growth.

Earlier in the week, Google Fiber said it was delaying fiber-to-home service in eight cities, including Dallas, Los Angeles, and Phoenix, to focus on the 12 urban markets where it is already working. The CEO of Access, the unit that includes Google Fiber, stepped down, and 9% of its 1,500 employees will be laid off. It looked like the end of the road for Google Fiber. Maybe not.

Fiber faces challenges; it is a big investment in infrastructure, it is still a developing market, and there is competition from slower internet providers, but Google Fiber is profitable; it just won’t be fast to return a big profit. Deploying a municipal fiber network can take at least five to seven years.

For a Silicon Valley company accustomed to growth measured in months, the slow pace likely pushed Google Fiber’s capital expenditures far beyond what newly cost-conscious parent company Alphabet would countenance. The company is now returning to its original plan: proving that gigabit-speed residential internet is feasible and profitable in just a few major cities, and then expand from there.

Exxon‘s profit keeps shrinking because of lower oil prices, and the company is responding by sharply cutting investment in future production. Exxon Mobil said third-quarter income fell 38 percent to $2.65 billion. Still, it was the company’s best quarter this year. The profit was higher than analysts expected, although revenue was sharply below forecasts.

Exxon Mobil’s dividend payments continue to exceed profits, which means the company is borrowing and selling assets to finance its payments to shareholders. At the same time, cuts in capital spending are hurting the company’s ability to maintain production.

Perhaps more important than the third quarter numbers, Exxon acknowledged that it faced what could be the biggest accounting revision of reserves in its history. Exxon Mobil might have to concede that 3.6 billion barrels of oil-sand reserves and one billion barrels of other North American reserves are currently not profitable to produce.

The way Exxon Mobil accounts for the value of assets still in the ground has made the company a target of inquiries by the Securities and Exchange Commission, as well as the New York attorney general, Eric Schneiderman. Exxon Mobil has been criticized for being slow to consider the impact of anticipated future government actions to curb climate change, which may force energy companies to leave at least some fossil fuels untapped in the ground.

Other oil and gas companies, including Chevron and Royal Dutch Shell, have lowered valuations by more than $50 billion since oil prices plunged from over $100 a barrel in 2014 to the current price of around $50 a barrel. In contrast, Exxon Mobil resisted write-downs, saying that it conservatively valued its assets on a long-term basis and that price volatility was normal in commodity markets.

Chevron returned to profit, reporting huge quarterly earnings beat as the company continued to cut costs. The oil company reported third-quarter earnings of $1.3 billion, or 68 cents a share, on revenues of $30 billion. That profit was down 37 percent from a year ago, when Chevron reported earnings of $2 billion, or $1.09 a share, on revenue of $34 billion.

Anheuser Busch InBev lowered its revenue forecast. The world’s largest brewer had a rough quarter thanks to weakness in its Brazil business and lowered its revenue growth per hectoliter to be in line with inflation after previously suggesting it would outpace inflation.

MasterCard reported net income for the quarter came in at $1.2 billion, or $1.08 per share, compared with $977 million, or 86 cents during the same period a year ago. Revenue hit $2.9 billion, compared with $2.5 billion. MasterCard beat earnings and revenue estimates. MasterCard said purchase volume was up 5% in the quarter.

Amgen beat estimates on both the top and bottom lines, with the biotech giant raising its full-year forecast. Amgen’s results were being helped by sales of newer medicines.

Prescription drug distributor McKesson plunged 22 percent, to a three-year low after its revenue fell about $1.5 billion short of estimates. The company cut its annual outlook because of changes in drug prices.

Mylan’s price hikes on EpiPens have added millions to Department of Defense spending since 2008 as the agency covered more prescriptions for the lifesaving allergy injections at near-retail prices. That may change. Both the Pentagon and Mylan told Reuters that discussions are underway that could extend a military discount to EpiPens filled at retail pharmacies using rebates.

Investors expect the third quarter to mark the end of a year-long earnings recession as more companies beat expectations. Profits at S&P 500 companies are expected to rise 2.6 percent, helped largely by financial companies, according to Thomson Reuters. However, energy companies are expected to take the biggest hit.

FactSet reports that blended earnings rate is 1.6%, which is above the year-over-year blended decline of -0.5% at the end of last week and the year-over-year estimated decline of -2.2% at the end of the third quarter. Blended earnings refers to companies that have already reported plus estimates of companies yet to report.

Financial Review

Earnings Season Playlist

Sinclair Noe — October 26, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 30 = 18,199
SPX – 3 = 2139
NAS – 33 = 5250
10 Y + .03 = 1.79%
OIL – .76 = 49.20
GOLD – 6.40 = 1267.70

After the closing bell, yesterday, Apple reported its first decline in annual revenues in over a decade, profit just barely beat expectations. Apple forecast higher sales in the holiday quarter but that doesn’t seem to be enough to motivate investors. Meanwhile, iPhone sales continued their decline, falling 5% from the previous year, although that’s an improvement from the 15% drop seen in fiscal Q3.

Apple’s cash pile also continued to swell to a record of over $237 billion – if that was its own public company it would be the world’s fourteenth largest. Apple is still making money, about $9 billion in profits in the last quarter, but the bigger question is “what’s next?” The answer comes tomorrow, as Apple introduces the next generation of its MacBook laptop. And maybe something to do with Apple TV – possibly a playlist for TV. We’ll see. Apple sank 2.3 percent in today’s trading.

Boeing shares were trading at their highest level this year, after the world’s largest plane maker reported a jump in quarterly profit despite slower sales. The stock gave the biggest boost to the S&P and the Dow.

Coca-Cola reported better-than-expected quarterly revenue, helped by higher prices for sodas and strong demand for water and sports drinks in North America. Coke reported profit of just over $1 billion on revenue of $1.6 billion.

Tesla shares were up about 5% in after-hours trade, after the electric car maker reported results that were better than expected. Third-quarter was $2.3 billion in revenue, well above targets of about $1.9 billion. Tesla posted a profit of $111 million, or $0.71 on an adjusted per share basis, beating estimates that called for a loss. Tesla maintained its guidance for 24,500 vehicle deliveries in the third quarter, and its second-half estimate of 50,000 deliveries, at the low end of its full-year guidance of 80-90,000.

Chipotle is optimistic on next year. The burrito chain announced diluted earnings of $0.27 a share, missing Wall Street’s estimate of $1.56 by a wide margin. Same-restaurant sales dropped 21%. The company expects a rebound next year.

Pokémon Go didn’t help Nintendo much. Despite the success of the popular iPhone game, and a big one-time gain from selling its controlling interest in the Seattle Mariners baseball team, the Japanese games company’s figures were dented by the strength of the Japanese currency. The video-game maker posted an operating loss for the quarter and cut its operating profit outlook for the fiscal year.

Airbus missed forecasts on supply chain issues, but the aircraft maker maintained its full year guidance.

Brazil provided some bright side for Santander as a pick-up in performance lifted earnings above expectations.

Provisions ate into the quarterly profit at Lloyds, as the bank set aside another £1-billion-pounds to pay compensation for mis-sold payment protection insurance.

Bayer raised guidance for the full year on strong pharma results in its first quarterly scorecard since securing the Monsanto merger.

Southwest Airlines slid after saying a revenue measure may worsen this quarter.

Biogen rallied after its quarterly profit topped estimates.

Mondelez International rose after boosting its earnings forecast.

Northrop Grumman climbed to a record after raising its earnings outlook.

Comcast posted higher third-quarter revenue and profit, benefiting from its NBCUniversal unit’s broadcast of the Rio Olympics.

Google Fiber is halting its rollout in 10 cities and laying off staff, dealing a major setback to the Internet giant’s ambitions of blanketing the nation in super-speedy Internet. The change-up comes months after the company acquired Webpass, largely seen as an admission that fixed wireless might be a preferable route to laying fiber.

AT&T’s new streaming service is coming. DirecTV Now will offer more than 100 channels for just $35 a month. The service debuts in November.

New-home sales picked up in September, to an annual rate of 593,000. That was 3.1% higher than August’s figures. Sales in September were 29.8% higher compared to a year ago. The median price of new homes sold in September was $313,500, 6.7% higher than in August, and 1.9% higher than a year ago.

In part, that reflects dwindling supply. There were 4.8 months’ worth of homes available for sale at the current pace in September, fewer than in August. Despite robust demand, builders haven’t ramped up construction of new homes since the recession. Many continue to report difficulties in finding affordable labor and lots.

An early look at trade patterns in September points to a sharper than expected drop in the U.S. trade deficit – showing a deficit of $56.1 billion in September compared to $59.1 billion in August.

A smaller deficit boosts the official growth rate of the economy, or gross domestic product. The size of the decline in September could even be enough to generate 3% GDP. While exports of American-made goods rose 0.9% in September, imports fell 1.1% and retail and wholesale U.S. inventories rose in the month.

Britain will send fighter jets to Romania next year and the United States promised troops, tanks and artillery to Poland in NATO’s biggest military build-up on Russia’s borders since the Cold War.

Germany, Canada and other NATO allies also pledged forces at a defense ministers meeting in Brussels on the same day two Russian warships armed with cruise missiles entered the Baltic Sea between Sweden and Denmark. Those warships have now made their way to the Mediterranean, headed for Syria, but Spain denied refueling at one of its ports in North Africa.

Others NATO allies joined the four battle groups led by the United States, Germany, Britain and Canada to go to Poland, Lithuania, Estonia and Latvia. Canada said it was sending 450 troops to Latvia, joined by 140 military personnel from Italy. Germany said it was sending between 400 and 600 troops to Lithuania, with additional forces from the Netherlands, Norway, Belgium, Croatia and Luxembourg.

Every year for the past 24 years, the United Nations General Assembly has held a vote to end the US embargo of Cuba. The resolution is adopted each year despite the US vote. Such resolutions are non-binding, but can carry political weight. Today, the 25^th vote was called and the US abstained.

Mercedes-Benz is launching a pickup truck in late 2017, dubbed the new “X-Class,” entering one of the most lucrative segments in the car industry.

General Motors and IBM are combining AI system Watson with OnStar to market new services to drivers. Watson, a collection of artificial-intelligence software delivered as cloud-computing services, is a high-profile part of what IBM calls its “strategic imperatives” to help spur growth. IBM says Watson artificial-intelligence technology is on track to be used in some form by a billion people by the end of next year.

IBM also announced an arrangement with the business messaging service Slack, which helps workers to collaborate in private groups. Slack will use Watson Conversation to enhance the accuracy and efficiency of Slackbot, a customer-service bot that helps Slack users troubleshoot problems. IBM announced a relationship last week with Quest Diagnostics, in which Watson will help analyze the results of genetic sequencing of tumor samples of cancer patients.

Is it possible that Microsoft might have some cool software? I suppose anything is possible. Today, Microsoft executives introduced 3D as a core feature of Window’s 10 Creator’s suite; it was a splashy rollout, the way tech companies do.

Along with Microsoft Paint 3D, the company showed off a way to easily scan a real-world object with a phone so that it could become a 3D file you can manipulate with software. It linked 3D objects to its flagship piece of futurism, the Microsoft HoloLens, which makes sharing and interacting with 3D objects a lot more compelling than viewing them on a two-dimensional screen.

This vision for a new world, where ordinary users create and share 3D objects as casually as they share images on Instagram and Snapchat, won’t become a reality right away. Microsoft’s HoloLens hardware is still only available as a very expensive developer kit. Most people own smartphones, but most don’t own VR headsets.

Microsoft can’t sell most people the hardware to realize its vision of the future today; they’re still working on it. But they planted some seeds to capture that market with its new software, even if it is basically a beta version.

LG Chem, the world’s largest automotive battery maker, will enter the U.S. market for home energy storage through a partnership with rooftop solar company Sunrun. The move will put LG in direct competition with electric car maker Tesla Motors Inc, which unveiled its own home battery packs, called Powerwalls, last year. Sunrun has been using Tesla batteries in its home storage systems in Hawaii since earlier this year, and this deal will add LG to its list of suppliers.

Every time you tag a friend in a Facebook photo, Facebook stores their image in its database. You might consider that an invasion of your privacy. Facebook says it is not. Tomorrow, a San Francisco court will assess whether Facebook is breaking the law by using its facial-recognition tool, to identify faces in photographs uploaded by users.

Plaintiffs in the class action case are concerned on several fronts: Facebook could be selling identifying information to retailers or other third parties. More importantly, they worry that bio-metric data is just as susceptible to theft, hacking, and the long and invasive arm of law enforcement as other types of data. And yes, there is a law that requires companies to get consent from users before storing bio-metric information.

Financial Review

Record Setting

Sinclair Noe — August 15, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 59 = 18,636
SPX + 6 = 2190
NAS + 29 = 5262
10 Y + .04 = 1.56%
OIL + 1.19 = 45.68
GOLD + 2.90 = 1339.60

The Dow Industrial Average, the S&P 500 index, and the Nasdaq Composite index all set new record highs. If you’ve been trading markets for any time, you know that when there is price movement out of the normal range and out of the established valuations – it can get scary.

We had just a couple of economic reports to start the day. Investors appeared to shrug off weaker-than-expected reading on manufacturing conditions in the New York region.  The National Association of Home Builders confidence index rose 2 points to 60.

Energy producing stocks were higher as crude oil rallied after Russian Energy Minister Novak said that Russia is open to cooperation with OPEC to help stabilize the oil market. Oil prices recently fell 20% from the June highs, largely because there is a glut of oil.

Russia and Saudi Arabia are probably the two most important oil producers on the planet, with Saudi Arabia the de facto leader of the OPEC cartel of oil-producing nations. Russia, alongside the US, is one of the two biggest non-OPEC producers. What the two nations do regarding oil policy has profound effects on the markets. For example, at April’s massively anticipated OPEC meeting about a freeze in production, Saudi Arabia refused to cooperate unless Iran joined in any production freeze; the meeting promptly ended and the proposal fell flat on its face.

Rosneft, Russia’s state-owned oil company, reported a massive fall in profits for the second quarter of 2016, with net income down from 134 billion rubles over the same period in 2015 to 89 billion rubles. If Russia can strike an agreement with Saudi Arabia that can help boost oil prices, or at least keep them stable, that will likely allow Rosneft return to stronger profitability. Rosneft’s results come just three days after a report from the highly respected International Energy Agency argued that the supply-and-demand imbalance plaguing oil was only going to get worse in 2017, something that would further depress prices.

M&A activity is kicking off the headlines this week with an array of deals. The technology sector is still leading the global M&A market this year, but the real estate segment is not far behind. The Wall Street Journal reports Honeywell is nearing a deal to acquire privately-held, JDA Software Group for about $3 billion, including debt.

Scottsdale, Arizona -based JDA, with more than 4,300 employees, provides integrated retail and supply chain planning and execution solutions. It sells software that helps retailers, including Walgreens and Advance Auto Parts, optimize their supply chains and merchandising. The company also provides warehouse management software to manufacturers and consumer products companies.

Real-estate investment trust Mid-America Apartment will buy Post Properties for about $4 billion in an all stock deal, bringing together two major apartment owners who have benefited from a boom in rental demand. Memphis-headquartered Mid-America currently owns or has ownership interest in more than 80,000 apartment units in 15 states in the Southeast and Southwest.  Atlanta-based Post Properties has more than 24,000 apartment units in 61 communities in Georgia, Texas, Florida, North Carolina, Maryland, Virginia and Washington.

Looking to become a major player in the smart meter market, Xylem agreed to acquire Sensus USA for around $1.7 billion, including debt, according to Reuters. The acquisition comes at a time when regulatory requirements and a drive for savings are pushing both companies and consumers to tightly control their water and energy consumption.

KKR is expected to bid for television distributor Entertainment One after the owner of the preschool cartoon character “Peppa Pig” rejected an offer from ITV Plc, Bloomberg reports. Last week, eOne rebuffed a $1.3 billion takeover offer from the British broadcaster, saying it undervalued the production and distribution company.

American International Group is nearing a deal to sell its mortgage-guaranty unit to Arch Capital Group for about $3.4 billion. The Wall Street Journal reported the companies could strike a deal as soon as early this week, although it added that the talks could still fall apart.

San Francisco Federal Reserve President John Williams says central bankers and governments must come up with new policies to buffer their economies against persistently low interest rates that threaten to make future recessions deeper and more difficult to avoid.

Williams said setting higher inflation targets, tying monetary policy directly to economic output, instituting government spending programs that automatically kick in during economic downturns, and boosting investment in education and research are all policies that should be considered.

Williams also called for changes to fiscal policy, perhaps tying tax rates or government spending to unemployment rates. Doing so, he said, would allow “predictable, systematic adjustments of fiscal policy that support the economy during recessions and recoveries.”

Google’s high-speed-internet business is slowing down. Alphabet’s Google Fiber unit is rethinking how to deliver internet connections in about a dozen metro areas, including Los Angeles, Chicago and Dallas, after its initial rollouts proved more time-consuming and expensive than anticipated. In San Jose, Calif., and Portland, Ore., Alphabet has suspended projects while investigating alternate technologies.

Google Fiber is now considering wireless technology to connect homes rather than underground fiber-optic cables. Elsewhere, Google is leasing existing fiber or asking cities or power companies to build the networks. The strategy shift comes after Google Fiber reached just six metro areas in four years, illustrating the difficulty and expense of digging up streets and laying thousands of miles of cables.

About 40 companies have signed on to the so-called Privacy Shield agreement, the new data-protection pact that allows American firms to transfer information on European citizens to servers in the U.S. Among them: Microsoft, Workday and Salesforce.com. According to the Commerce Department, “there are nearly 200 applications currently involved in our rigorous review process” and the list will be updated on a rolling basis.

Volkswagen has won German regulatory approval for technical fixes on another 460,000 diesel cars fitted with software that cheats emissions tests, raising the number of vehicles cleared for repair to over 5 million. Approval by Germany’s motor vehicle authority KBA is valid for countries throughout Europe where 8.5 million diesel cars are affected by VW’s scandal. About 11 million autos are implicated globally.

Meanwhile, German carmaker Audi is rolling out technology that will allow its vehicles in the United States to communicate with traffic signals. It’s called vehicle-to-infrastructure technology, or V-to-I. The technology allows traffic signals and other infrastructure to exchange safety and other operational data wirelessly to vehicles over the cloud.

For example, the system allows the vehicle to display a countdown before a red light turns to green. The countdown will also appear on the dashboard if the vehicle determines it will not be able to make an approaching light before it turns red, to allow the driver to begin to brake. Audi plans to roll out the capability in five to seven U.S. cities this year.

Nissan Motor has come up with a new type of gasoline engine it says may make some of today’s advanced diesel engines obsolete. The new engine uses variable compression technology, which Nissan engineers say allows it at any given moment to choose an optimal compression ratio for combustion – a key factor in the trade-off between power and efficiency in all gasoline-fueled engines. The technology comes at a time when diesel engine technology has been tarnished by Volkswagen’s emissions cheating scandal.

The new Variable Compression-Turbo (VC-T) powertrain, expected to be officially unveiled at next month’s Paris motor show, will initially be showcased in an Infiniti car to be unveiled next year. The turbo-charged, 2-liter, four-cylinder VC-T engine averages 27 percent better fuel economy than the 3.5-liter V6 engine it replaces, with comparable power and torque. Nissan says the new engine matches the diesel engine in torque – the amount of thrust that helps determine the car’s acceleration. The engine is also cheaper than today’s advanced turbo-charged diesel engines.

Financial Review

Fed Day

Sinclair Noe — June 15, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW – 34 = 17,640
SPX – 3 = 2071
NAS – 8 = 4834
10 Y – .02 = 1.60%
OIL – 1.00 = 47.49
GOLD + 6.00 = 1292.50

It’s Fed Day. The Federal Open Market Committee (the FOMC) released a policy statement leaving the fed funds rate unchanged at 0.25 percent to 0.5 percent, in the first unanimous decision since January. The FOMC statement read: “The pace of improvement in the labor market has slowed while growth in economic activity appears to have picked up.”

The Fed expressed confidence that jobs will rebound, saying that it expects “labor market indicators will strengthen.” It said that the “drag from net exports appears to have lessened” and housing has improved, while business fixed investment has been “soft.”

At the start of the year, the Fed was projecting up to 4 rate increases in 2016; they have now revised that down to 2 rate hikes. The median long-run projection for the federal funds rate fell to 3 percent from 3.3 percent in March. Most market watchers do not expect a rate hike in July, although that is subject to change between now and then, if we see a really significant pickup in economic data.

The risk of the Fed prematurely raising interest rates at this point is extremely low. They are going to let this cycle lengthen and strengthen by keeping rates low. Unfortunately, this means the economic data of the past few months has really been bad. Job gains and overall output have disappointed, projections of future growth have declined, and inflation expectations remain far short of targets. And if there is a Brexit next week, we may be wondering why the Fed didn’t cut rates.

The statement said the Fed continues to monitor global market risks but in a press conference following the release, Fed chair Janet Yellen said next week’s referendum in the U.K. on whether to remain in the European Union was a factor in the U.S. central bank’s decision to hold interest rates steady. The Bank of England has begun a series of extra market operations aimed at boosting bank funding around the referendum. The European Central Bank said last week the bank is prepared to offer euro liquidity.

The dollar extended losses, touching a 20-month low versus the yen. Fed Chair Janet Yellen said in a news conference, that while the currency is “certainly relevant” to Fed rate decisions, “I really would not go so far as to say it is a constraint on monetary policy.” Treasuries gained, with two-year note yields touching the lowest since February. Gold rallied again.

Oil prices extended their losses for the fifth straight day, the longest losing streak since February. Goldman Sachs published a research note predicting the price recovery is likely to stall. The bank explained that the restart of Canadian production, prospects of a solution to Nigerian outages, larger-than-expected output from OPEC members, and the risk of smaller-than-expected production declines as result of higher crude prices are likely to temper price gains going forward.

With opinion polls showing momentum swinging to the “Leave” camp, British finance chief George Osborne is warning voters that he will increase taxes and cut spending if they decide to leave the bloc in next week’s referendum. Meanwhile, the world’s biggest banks are drafting senior traders to work through the night of June 23, which might be one of the most volatile 24 hours for markets since Black Wednesday of 1992. If it sounds like political fear mongering…, yea, that’s about right.

The Labor Department said its producer price index, a measure of prices at the wholesale level, increased 0.4 percent last month after rising 0.2% in April. In the 12 months through May, the PPI slipped 0.1% after being unchanged in April. The core PPI, a measure of underlying producer price pressures that excludes food, energy and trade services dipped 0.1% last month.

Industrial production fell more than expected in May on a decline in utilities output and auto manufacturing, a sign that the economy may be losing some steam in the second quarter. Industrial output declined 0.4 percent last month. American producers are still battling the fallout from the plunge in energy prices that has sapped the appetite for investment, while a strong dollar and slow global growth have weighed on exports. Manufacturers could find some relief as companies have trimmed stockpiles, leaving them with fewer goods on hand should consumer spending continue to climb.

Chinese stocks rose the most in two weeks today as investors shrugged off MSCI’s decision not to add mainland shares to its key Emerging Markets Index. This marks the third year running it has given Chinese A-shares the thumbs-down, given lingering concerns about market accessibility. MSCI noted that it would consider including the equities as part of its 2017 review, but did not rule out a potential off-cycle announcement.

California has overtaken France as the world’s sixth-largest economy, growing by 4.1% in 2015. The most-populous U.S. state, with a gross domestic product of $2.5 trillion, has also eclipsed recession-plagued Brazil. Irena Asmundson, chief economist of the California Department of Finance said, “This is the result of both good growth in California and exchange-rate movements of the dollar vs. other currencies.”

In an effort to make good on a pledge to cut its carbon output anywhere from 80 percent to 95 percent by 2050, Germany is mandating that new cars registered there will have to be emissions-free by the year 2030. The German government is planning to provide subsidies that it hopes will boost the sale of electric cars. In a plan similar to those in other countries, people who buy electric or hybrid cars would be eligible for cash incentives. The Environment Ministry is hopeful that the move will help to sell around 500,000 electric cars by the year 2020.

As many as 8,000 more jobs are set to go at Bank of America’s consumer arm as the digital banking revolution gathers pace and reduces the need for back-office staff and bank tellers. The biggest US retail bank by deposits also plans to add sales staff — including mortgage loan officers, small business bankers and personal investment advisers. Even so, the overall headcount is expected to decline by several thousand as the number of consumers who visit branches falls steadily.

Office Depot said it planned to hire 8,000 temporary and full-time workers during the busy back-to-school season. Office Depot said temporary staffing will rise by a third as it prepares for the increased customer traffic from July through September. Some of the new hires will help fulfill the “buy online, pick up in store” service that the company offers.

U.S. Senator Charles Grassley, chairman of the Senate Judiciary Committee, is urging federal antitrust officials to conduct a “careful analysis” of Dow Chemical’s proposed $130 billion merger with DuPont. Among the concerns: A decrease in farming competition, raising barriers to entry for smaller companies, hurting innovation and higher prices.

Google Fiber is looking to expand in Texas. The Alphabet unit is working with Dallas leaders to learn more about the city’s existing infrastructure, local topography and other factors that could impact the building of a fiber network. The service, which costs $70 per month, is already available in Austin and is set to roll out in San Antonio.

The U.S. and Venezuela are launching high-level diplomatic talks to ease tensions in the South American country amid deepening social and economic crises. Secretary of State John Kerry said the talks with Washington’s ideological foe would begin in Caracas “as soon as possible” and that the U.S. was looking at ways to provide assistance.

More political earthquakes in Brazil… The country’s Supreme Court has denied ex-president Lula da Silva a privileged legal protection, increasing the likelihood he will be arrested in connection with a corruption probe centered on the state run oil company, Petrobras. Meanwhile, Speaker Eduardo Cunha has lost his seat for allegedly lying about undeclared Swiss bank accounts and President Dilma Rousseff has been stripped of some perks, including her use of Air Force planes and hotel bill allowances.

A World Health Organization panel has elevated the Zika virus to a public health emergency, but spurned calls to postpone or move the 2016 Olympic Games, which are scheduled to begin in Rio de Janeiro in six weeks. Brazil is hosting the Games during its winter, when the concentration of mosquitoes that spread Zika and other viruses is low. The country is also intensifying its efforts to control mosquitoes around cities and event venues.

Twenty-five years after classifying coffee as a possible carcinogen leading to bladder cancer, the World Health Organization has reversed course, saying today that coffee is not a carcinogen, and has even been seen to reduce the risk of liver and uterine cancers. At the same time, however, they presented other scientific evidence which suggests that drinking anything very hot, over 150 degrees, including water, coffee, tea and other beverages, probably does cause cancer of the esophagus. Still, that might be the best news of the day.

Or maybe this: If you watch any NBA basketball, you are probably familiar with TBS sideline announcer Craig Sager; With his signature flamboyant suits and good-natured interviews between timeouts, Sager has become one of the most beloved figures in the NBA. Sager was diagnosed with acute myeloid leukemia in 2014, and said in March that the cancer was no longer in remission.

The Turner-owned TNT broadcasts the playoffs through the conference finals, but the NBA Finals have been on ABC since 2003. For more than a decade before that, the series aired on NBC. Because he’s worked more than 30 years for Turner Sports, Sager has never worked the championship series. That will change tomorrow, when Sager joins ABC’s broadcast of game six of the NBA Finals between the Golden State Warriors and Cleveland Cavaliers.

Financial Review

The Yellen Rally

Sinclair Noe — March 30, 2016

Podcast: Play in new window | Download (Duration: 13:16 — 6.1MB)

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DOW + 83 = 17,716
SPX + 8 = 2063
NAS + 22 = 4869
10 Y + .01 = 1.83%
OIL + .02 = 38.30
GOLD – 17.60 = 1225.30

Federal Reserve Chair Janet Yellen said a lot of what markets wanted to hear at her speech to the Economic Club of New York yesterday. Yellen said global and financial uncertainties posed risks to the domestic economy. She emphasized that rate hikes by the Fed would be gradual while spelling out what she means by data dependence. Market-implied odds of a rate rise at the April FOMC meeting fell to zero following her speech.

World stocks are flying higher as investors welcomed Fed Chair Janet Yellen’s “cautious” stance on raising U.S. interest rates. The dollar plunged as Yellen started speaking yesterday and is now headed for its worst month since 2010. Oil futures rose 3 percent this morning, rallying in reaction to a weaker dollar. Equity markets rallied across the globe.

On Wall Street, both the Dow and S&P 500 have closed at 2016 highs two consecutive days and have more than completely wiped out losses from the worst start to a year ever for stocks. With one trading day left in the first quarter, the Dow is up 1.7% for 2016 and the S&P 1.0%. Only the Nasdaq remains in the red for 2016, down 2.8%. This is a stark turn from the dark days of early February, when the three major U.S. indexes had 2016 losses ranging from 10% to 15% when the market hits its low for the year.

Japan missed out on the global rally, however, after announcing that industrial output dropped 6.2% in February due to sluggish demand both at home and abroad. The month-on-month fall marks the biggest drop since March 2011, when a devastating earthquake in Japan crippled the country’s supply chain. Japanese factory activity is closely monitored by market watchers as a proxy for the trend of the national economy. Nikkei -1.3%.

Huge industrial overcapacity will drag on China’s growth this year, according to the Asian Development Bank, which cut its growth outlooks for the world’s second-largest economy. The ADB’s new forecast sees GDP growth slowing to 6.5% this year and 6.3% in 2017, compared with Beijing’s expectations of between 7% for 2016 and an average of 6.5% over the next five years.

The Brazilian Democratic Movement Party – the country’s largest – has left the governing coalition of President Dilma Rousseff, sharply raising the odds she could be impeached in a matter of months. While not totally unexpected, the loss of this key ally will likely lead other parties to follow suit.

ADP’s monthly report on private sector employment shows companies took on 200,000 workers in March; the increase in employment followed a revised 205,000 gain the prior month. The government releases their monthly jobs report on Friday; most estimates are running just above 200,000 new jobs in March.

Confirming earlier reports, Boeing says it will eliminate about 4,000 jobs in its commercial airplanes division by the middle of this year, and another roughly 550 jobs in a division that conducts flight and lab tests. The job cuts will include hundreds of executives and managers, but will not be executed through involuntary layoffs.

Lawmakers in Washington have revealed legislation that would give Puerto Rico the ability to restructure some of its $70 billion debt, weeks before an expected crippling default of the island’s de facto finance authority. Although it wouldn’t grant access to Chapter 9, the plan would award the territory some of the legal tools found in bankruptcy as long as it first jumps through a number of hoops. The restructuring process also calls for putting Puerto Rico’s finances under a presidentially appointed oversight board.

Is Novartis in more hot water? An anonymous whistle-blower has accused the Swiss drug maker of paying bribes in Turkey through a consulting firm to secure business advantages worth an estimated $85M. The alleged benefits include getting medicines added to drug lists approved for prescription in government-run hospitals, and avoiding price cuts in other countries by changing the names of two drugs. Last week, the U.S. asked Novartis for records of 80K “sham” doctor events.

A jury has rendered a verdict in a General Motors case involving a defective ignition switch; the switch was defective but it did not cause the accident in question. This was the first trial to reach a verdict since the company recalled millions of vehicles with the part. The eight jurors, who deliberated less than a day following a two-week trial in Manhattan, found that the ignition switch made the 2007 Saturn Sky involved in the crash on a New Orleans bridge unreasonably dangerous and that GM failed to warn about its safety risks. But the cause of the crash was icy road conditions and not the switch, and so they awarded no damages.

Takata has estimated that a comprehensive callback of its airbag inflators could total about $24 billion, that is about $7 billion more than a recent projection by analysts, sending its shares tumbling by a fifth to an all-time low. Bloomberg reports that the worst-case recall scenario would involve 287 million airbag inflators.

A District Court has ruled that MetLife isn’t so important after all, striking down a designation made by financial regulators that MetLife should be consider a systemically important financial institution, of SIFI. The designation as a SIFI requires a financial institution to hold extra reserves to insure against collapse. At the heart of the case is whether the government can designate non-banks as systemically important.

The 2010 Dodd-Frank Wall Street reform law authorized the U.S. to designate banks as ‘systemically important’ after AIG received a government bailout of $182 billion during the 2008 financial meltdown. MetLife argued in court that the Financial Stability Oversight Council (FSOC) used a secretive and flawed process when, in 2014, it determined that a collapse of the insurer could devastate the U.S. financial system just as much as failure of a major bank.

Last week the Supreme Court heard arguments in the Zubik v Burwell case, also known as the Little Sisters of the Poor case, which involves a challenge by religious nonprofit organizations to federal regulations requiring that employer-provided health insurance plans include contraception for women at no additional cost to the employee. The Little Sisters, a Roman Catholic order of nuns, operates homes for the elderly. Other plaintiffs include Catholic Charities and the Most Rev. David Zubik, the bishop of Pittsburgh.

The nonprofits argue that Obamacare is violating the Religious Freedom Restoration Act by requiring them to indicate in writing that they object to providing birth control to female employees, a bureaucratic step that allows the coverage to be provided and paid for by insurance companies or third-party administrators.

Yesterday the court issued an order asking lawyers on both sides to submit supplemental briefs, requiring the two parties comment on an imaginary workaround that would allow religious objectors to the Affordable Care Act’s contraception mandate to notify their insurers that they object to providing birth control, but in an even more subtle fashion than the workaround already given them.

First, the nonprofit will go to its insurer and say, in no uncertain terms, “We want insurance for our employees with no coverage for contraception.” They would not have to send in any government form or pay for any insurance they did not ask for. The insurer, the order suggests, would then send a notice to the employees saying that “the insurance company will provide cost-free contraceptive coverage, and that such coverage is not paid for by petitioners and is not provided through petitioners’ health plan.” If this sounds like a distinction without a difference, you might actually be qualified to be a supreme court justice, but don’t worry because you could never be confirmed.

Capping weeks of drama and intense negotiations, Foxconn Technology has finally clinched a deal to take over Sharp, but with a lower price tag than their original agreement. The Taiwanese firm will pay about $3.5 billion for a two-thirds controlling stake in Sharp, nearly $900 million less than its initial offer. Foxconn is reportedly planning to overhaul Sharp’s management including replacing its CEO.

Alphabet’s Google Fiber is introducing a home phone service, Fiber Phone, in addition to its existing high-speed internet and cable TV offerings (and potentially a triple play package). The service is set to provide unlimited local and nationwide calls for $10 per month, while adopting the same international calls rates as Google Voice. According to the company, a user’s Fiber number “lives in the cloud,” allowing them to use it on any phone, tablet, or laptop.

Microsoft’s Build 2016 kicks off today. Chief executive Satya Nadella addressed developers at the three-day conference in San Francisco, where the focus will be on HoloLens, an augmented-reality headset. Tweaks to the newish Windows 10 operating system will also get attention. Nadella kicked off the conference with a vision of the future filled with chatbots, machine learning and artificial intelligence.

Nadella said “Bots are the new apps,” and if you’re wondering what bots are, well, it involves “People to people conversations, people to digital assistants, people to bots and even digital assistants to bots. That’s the world you’re going to get to see in the years to come.” If you still don’t’ know what bots are, ask Cortana or Siri.

More than 80 years after the Hindenburg disaster, airships are poised for a comeback. Straightline Aviation has signed a letter of intent to acquire 12 new Lockheed Martin hybrid airships – 280 feet long, able to carry 20 tons of cargo – in a deal valued at about $480 million. The company plans to use the massive blimps to run air operations for oil-and-gas companies, transporting their equipment and commodities to and from remote locations.