Stocks Mixed As Techs Take a Hit

Charles Schwab: On the Market

Posted: 11/29/2017 4:15 PM EST

Stocks Mixed As Techs Take a Hit

 

The U.S. equity markets diverged amid continued global economic optimism following an upward revision to Q3 GDP and optimistic signs of progress in the Senate's tax reform bill. Treasury yields rose on the heels of a favorable economic outlook from Fed Chair Yellen, to the benefit of financials, but technology stocks tumbled, severely pressuring the Nasdaq. Crude oil prices were lower, extending losses ahead of tomorrow's OPEC meeting and following mixed oil inventory data, while gold was lower and the U.S. dollar was little changed.

The Dow Jones Industrial Average (DJIA) rose 104 points (0.4%) to 23,940, the S&P 500 Index fell nearly a point to 2,626, and the Nasdaq Composite tumbled 88 points (1.3%) to 6,824 In heavy volume, 922 million shares were traded on the NYSE and 2.4 billion shares changed hands on the Nasdaq. WTI crude oil fell $0.69 to $57.30 per barrel and wholesale gasoline lost $0.04 to $1.73 per gallon. Elsewhere, the Bloomberg gold spot price decreased $8.94 to $1,285.04 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was nearly flat at 93.24.

Tiffany & Co. (TIF $93) reported Q3 earnings-per-share (EPS) of $0.80, compared to the $0.76 FactSet estimate, as revenues grew 3.0% year-over-year (y/y) to $976 million, exceeding the projected $958 million. Q3 same-store sales were flat y/y, versus the forecasted 0.2% dip. TIF reaffirmed its full-year guidance. Shares finished lower.

Marvell Technology Group Ltd. (MRVL $22) posted Q3 EPS of $0.30, or $0.34 ex-items, compared to the forecasted $0.33, as revenues decreased 1.2% y/y to $616 million, just above the estimated $615 million. The chip company issued Q4 guidance that topped expectations. Shares were lower despite the results with the markets appearing to rotate out of the tech sector on the heels of the group's strong run this year, with chip companies seeing noticeable pressure.

Chipotle Mexican Grill Inc. (CMG $302) announced that Chairman and Chief Executive Officer (CEO)—and the founder of the company in 1993—Steve Ells will step down as CEO but will become Executive Chairman following the completion of a search to identify a new CEO. Shares were higher.

Shares of Autodesk Inc. (ADSK $109) tumbled over 15% after the application software company's Q3 billings figure missed expectations, resulting in a lowered full-year subscriptions outlook, despite reporting slightly stronger-than-expected Q3 top-and-bottomline results. The company also announced restructuring measures including the reduction of 1,150 employees to its workforce.

Q3 GDP revised higher, Fed comes into focus

The second look (of three) at Q3 Gross Domestic Product (chart), the broadest measure of economic output, showed a quarter-over-quarter (q/q) annualized rate of growth of 3.3%, up from the first release's 3.0% gain. The Bloomberg forecast called for an adjusted 3.2% pace of expansion. Q2 GDP grew by an unrevised 3.1% rate. Personal consumption came in at a 2.3% gain for Q3, lower than the preliminary estimate of a 2.4% increase, and compared to the expectations of a 2.5% increase. Personal consumption grew by an unrevised 3.3% in Q2.

On inflation, the GDP Price Index was revised to a 2.1% increase, versus expectations of an unrevised 2.2% gain, while the core PCE Index, which excludes food and energy, was adjusted to a 1.4% increase, compared to forecasts of an unrevised 1.3% rise.

Pending home sales rose 3.5% month-over-month in October, versus projections of a 1.0% rise, and following the negatively-revised 0.4% decline registered in September. Compared to last year, sales were 1.2% higher, versus estimates of a 3.0% gain. Pending home sales reflect contract signings and are used as a gauge of the pipeline of existing home sales, which rose more than expected in October.

The MBA Mortgage Application Index declined 3.1% last week, following the prior week's 0.1% gain. The decrease came as a 7.7% drop in the Refinance Index more than overshadowed a 1.8% increase in the Purchase Index. The average 30-year mortgage rate remained at 4.20%.

Today the Fed is garnering attention as Chairwoman Janet Yellen delivered her U.S. economic outlook to the Joint Economic Committee of Congress, noting the economic expansion is increasingly broad-based and she continues to expect gradual adjustments in the stance of monetary policy. However, she pointed out that although recent lower readings on inflation likely reflect transitory factors, it is possible that this year's low inflation could reflect something more persistent.
In afternoon action, the Central Bank released its Beige Book, an anecdotal look at business activity across the nation used as a monetary policy preparation tool for the two-day meeting set to end December 13th. The report showed that economic activity progressed at "a modest to moderate pace," through mid-November, while also noting that "price pressures have strengthened since the last report" and that the labor market remains tight. As noted in the latest Schwab Market Perspective: Incredible, Amazing…Unstop-a-bull?, President Trump's nomination of current Fed governor Jerome “Jay” Powell to replace Janet Yellen as Chairman of the Federal Reserve when her term ends early next year was largely expected and greeted relatively favorably by the market. He is, like Yellen, a relatively dovish consensus builder; and therefore will represent continuity as the Fed continues its monetary policy normalization process. Given strong economic data and the pickup in some measures of wage growth, we believe the Fed will hike rates for the third time this year next month.

Treasuries finished lower, as the yield on the 2-year note increased 2 basis points (bps) to 1.77%, the yield on the 10-year note gained 5 bps to 2.38%, and the 30-year bond rate rose 6 bps to 2.82%.
The yield curve has steepened somewhat after a recent bout of flattening that appeared to foster some market weariness, while the U.S. dollar dipped after a two-day rebound, extending a pullback as of late.

The markets shrugged off flared-up geopolitical concerns following yesterday's missile launch by North Korea, aided by the positive global backdrop and signs of progress regarding the Senate's tax reform bill, which is expected to be voted on later this week. The House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.
Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Personal income and spending will highlight tomorrow's economic calendar, with both measures forecasted to have gained 0.3% m/m during October following their respective 0.4% and 1.0% m/m gains the month prior, while weekly initial jobless claims will also be released, expected to tick higher to a level of 240,000 from the prior week's 239,000. The Chicago Purchasing Manager Survey will be released later in the morning, with economists anticipating a decline in the index to 63.0 for November from October's 66.2 reading.

Europe and Asia mixed ahead of data, North Korean missile launch has little impact

European equity markets traded mixed, with financials getting a boost as bond yields in the region gained solid ground. Global economic optimism remained elevated, bolstered by signs of progress in tax reform and today's upbeat revision to Q3 GDP out of the U.S., along with cooled political concerns on this side of the pond. In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years. However, the apparent rotation out of the tech sector that intensified in the U.S. made its way over to Europe late in the session to cause the markets to give up some solid early gains. Crude oil prices extended a weekly loss ahead of tomorrow's OPEC meeting and following some mixed inventory data in the U.S. The pound rallied against the U.S. dollar to hamstring the U.K. markets after Britain and the European Union reportedly agreed to reach a Brexit divorce bill, which could pave the way for negotiations of the exit to move forward. German consumer price inflation was mostly hotter than expected, French Q3 GDP rose at a pace that matched forecasts and eurozone economic confidence improved. The euro moved higher versus the greenback.

Stocks in Asia finished mixed, following the solid gains in the U.S. yesterday on further signs the economy is running healthy and progress toward tax reform. However, the markets likely treaded with some caution ahead of key economic data out of Japan and China tomorrow, which will coincide with the highly-anticipated OPEC production meeting and potential U.S. tax reform vote, and follow today's U.S. GDP revision and testimony from Fed Chief Yellen. The markets mostly shrugged off yesterday's latest missile launch by North Korea. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans, while offering analysis of the global stock market rally that has been bolstered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.

The yen gave back some recent gains to help lift Japanese equities and overshadow a softer-than-expected retail sales report, while markets in South Korea and India dipped. Mainland Chinese stocks ticked slightly higher, but those traded in Hong Kong fell and Australian listings saw modest gains.

A whole host of reports are slated for tomorrow's international economic calendar, including industrial production from South Korea and Japan, building approvals and consumer credit from Australia, manufacturing data out of China, retail sales and employment data from Germany, CPI and PPI from France and Italy, GDP from Spain, and CPI and employment figures from the Eurozone.

Financial Review

Tax Gimmicks 

Sinclair Noe — November 28, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW + 255 = 23,836
SPX + 25 = 2627
NAS + 33 = 6912
RUT + 23 = 1536
10 Y + .01 = 2.34%
OIL – .36 = 57.75
GOLD – .60 = 1294.40

Cryptocurrency

• Number of Currencies: 916
• Total Market Cap: $318,106,894,241
• 24H Volume: $16,102,299,246

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	10,028.0	$170.97B	$6.71B	41.70%	1	+1.31%	+25.73%
	Ethereum	ETH	476.79	$46.48B	$1.43B	8.89%	0.0480758	+2.41%	+33.12%
	Bitcoin Cash	BCH	1,465.90	$25.65B	$1.25B	7.74%	0.151402	-1.06%	+28.52%
	Ripple	XRP	0.26999	$11.22B	$712.82M	4.43%	0.00002883	-3.54%	+23.99%
	Litecoin	LTC	98.780	$5.50B	$507.40M	3.15%	0.0100979	+4.54%	+44.48%
	Bitcoin Gold	BTG	314.88	$5.33B	$104.80M	0.65%	0.0317219	-4.41%	+24.48%
	Dash	DASH	619.01	$4.94B	$157.58M	0.98%	0.0635303	+1.06%	+26.26%
	IOTA	MIOTA	1.41960	$4.02B	$450.84M	2.80%	0.00014381	-2.29%	+59.65%
	Cardano	ADA	0.139936	$3.63B	$283.76M	1.76%	0.0000139	+184.73%	+390.74%
	Ethereum Classic	ETC	29.5348	$3.11B	$1.42B	8.81%	0.00315962	-6.06%	+77.49%

Record highs for the Dow, the S&P, Nasdaq, and Russell.

The big push to record highs came in the final 2 hours of trade as the Senate Budget Committee passed the tax-cut bill. The Tax Cuts and Jobs Act now moves to the full Senate for debate and a possible vote as early as Thursday.

The 12-11 party-line vote came after Republican leaders addressed objections raised by GOP committee members who threatened to block it. Just one GOP senator on the panel would have had the power to block the bill given the majority’s one-vote margin in committee.

GOP committee member Bob Corker of Tennessee said he reached an agreement with Senate tax writers on a broad outline for a revenue trigger provision that he and other GOP senators are seeking. He has sought a “backstop” that would create automatic tax increases if the tax bill doesn’t spur strong economic growth as Republicans have promised.

Senator Ron Johnson, a Wisconsin Republican, pushed to change the way pass-through businesses would be treated by increasing a proposed 17.4 percent deduction for pass-through business income to at least 20 percent. Johnson would pay for the heftier tax break by eliminating the corporate deduction for state and local taxes. Senator Lisa Murkowski of Alaska was swayed by a provision that opens the Arctic National Wildlife Refuge to oil drilling.

Here’s the problem with the compromises required to push the bill out of committee. By making the plan more generous to the wealthy by doing more for pass-throughs, this would also add to the deficit – which would then trigger the tax increases.

The tax hike trigger is supposed to appease Republican deficit hawks – notably, Senators Corker and Flake. But looking beyond the quick patch, they still must sell the plan to the public, which thinks the whole idea is a big giveaway for corporations. To win over middle-class voters, they offer a short-term tax cut – and because they know that the tax cuts will bust the deficit, the individual tax cuts will expire in 2025 and taxes on the middle class will go up.

The whole point of back-loading the losses on to the middle class later is to prevent the permanent corporate tax cuts from ballooning the long-term deficit. As of now, how this tax hike trigger would work, and whose taxes would go up, are unspecified. Three guesses….

For all of this to go through, consider the most likely way it would happen: The deficit hawks would have to accept a plan that on paper does balloon the deficit in the short term, based on triggers that allow them to claim tax hikes will kick in if growth doesn’t offset that. (Either these triggers remain unspecified, or Republicans will be declaring that some specific groups may be hit with tax hikes later.)

Meanwhile, to make conservatives happy, the plan would have to include still more benefits for the rich under the guise of mainly helping small businesses.

It looks like a few senators managed to add a few gimmicks to justify letting those who have argued that they don’t believe in increasing the deficit to vote for a bill which does exactly that. More broadly, the lesson is that it’s hard to take an inherently flawed concept like a large regressive tax cut enacted at a time of low unemployment, rising interest rates, and high debt, and then tack on extra provisions that make it workable.

The best solution is for Congress to manage the budget in a responsible way, enacting stimulus if the economy is in recession but aiming for deficit-neutral tax reform. But GOP senators are also facing intense pressure to “get to yes” on the bill rather than leaving town without a signature 2017 legislative accomplishment, so the old trigger idea is making a comeback despite significant conceptual flaws. Sometimes discretion is the better part of valor.

Republican leaders conceded that they have yet to round up the votes needed for passage in the Senate, where they hold a narrow 52-48 majority. Best estimates are that there are 8 Republican senators that could kill the tax plan; two of them are from Arizona. As the tax fight played out, a new battle opened on another front as Democrats canceled a White House meeting with Trump to discuss spending, immigration and other issues after Trump said on Twitter that he did not think a deal was likely. Lawmakers must renew government funding before it expires on Dec. 8 or risk a shutdown.

Earlier in the day came word North Korea fired an intercontinental ballistic missile for the first time in four months. The missile flew east for about 53 minutes before landing off the north of Honshu, Japan’s largest island, nearly 600 miles from the launch site. The missile was fired high into the air, reaching a maximum altitude of around 2,800 miles, in an arc like the North’s two previous intercontinental ballistic missiles, or ICBMs, which were launched in July.

The distance traveled appeared to be significantly greater than that of the two previous ICBMs. It is estimated the missile has a range of about 8,000 miles, able to reach Washington or any other part of the continental United States – although they would probably have to develop their missiles even more before they could reliably deliver nuclear armed weapons such distance. Washington is applying what it calls “maximum pressure and sanctions” to stop North Korea from reaching the stage where it would be able to deliver a nuclear warhead on its ICBMs.

Jerome Powell, Trump’s pick to be chairman of the Federal Reserve, told senators at his confirmation hearing today that he believes some bank regulations can be rolled back — something the administration and Wall Street favor. But he stressed that he will protect the central bank’s political independence, calling it vital for the Fed’s role.

Powell also strongly hinted in his appearance before the Senate Banking Committee that the Fed would hike rates again in December. Powell said he believed that the Dodd-Frank Act, passed in the wake of the 2008 financial crisis, the law had imposed unnecessary burdens on small banks. But the law had succeeded in making the financial system stronger, including ensuring that no major institution now is too big to fail. Which is a little strange because loose regulation didn’t prevent the meltdown in 2008 and the big banks are even bigger now.

The National Retail Federation reports more than 174 million U.S. shoppers made purchases over Thanksgiving weekend and Cyber Monday, beating the industry group’s expectations and signaling a strong start to the holiday quarter. The NRF, which had estimated about 164 million shoppers, attributed the even stronger turnout to better technology and discounting, low unemployment, rising consumer confidence and good weather across the country.

Shoppers on average spent $335.47 over the five-day period, with older millennials spending the most at $419.52 each. Online shopping rose sharply this year, with Cyber Monday becoming the largest online sales day in history at $6.6 billion. Sales on Thanksgiving and Black Friday also topped prior years and e-commerce leader Amazon.com said it broke sales records this weekend.

Not just Amazon, many traditional brick and mortar retailers also bulked up their online operations. The NRF said retailers’ investments in technology had paid off, noting that internet-only shoppers totaled more than 58 million during the 5-day period, over 64 million shopped both online and in stores, and about 51 million spent only in brick-and-mortar stores.

Bitcoin hit an all-time high above $10,000 in some smaller exchanges and digital currency indexes, but remained just below that milestone in major trading platforms such as Luxembourg-based BitStamp and U.S.-based GDAX. Still, bitcoin has gained more than 900 percent so far this year.

The Arby’s Restaurant Group is buying Buffalo Wild Wings, paying $157 in cash for each of the 15.51 million outstanding shares. The total value of the agreement swells to around $2.9 billion after Wild Wings’ debt is included.

Arby’s is controlled by the private equity firm the Roark Capital Group, which says it will be taking Buffalo Wild Wings private and continue to operate it as an independent brand. Shareholders of the chicken wing and sports bar chain will need to approve the deal before it’s finalized. Buffalo Wild Wings has more than 1,250 locations in 10 countries; Arby’s has more than 3,300 restaurants in seven countries.

Markets Break Out of Midday Anxiety

Charles Schwab: On the Market

Posted: 11/28/2017 4:15 PM EST

Markets Break Out of Midday Anxiety

U.S. equities were solidly in the green, with the major indexes notching fresh highs, shrugging continued tax reform uncertainty and anxiety over North Korea's latest missile test. The gains came courtesy of a 17-year high in Consumer Confidence, reports of record-breaking Cyber Monday figures, and a more than two-decade high in regional manufacturing activity. Treasury yields were slightly lower and the U.S. dollar gained ground, while crude oil prices fell ahead of Thursday's OPEC meeting, and gold reversed to the downside.

The Dow Jones Industrial Average (DJIA) jumped 256 points (1.1%) to 23,837, the S&P 500 Index rose 26 points (1.0%) to 2,627, and the Nasdaq Composite gained 34 points (0.5%) to 6,912. In moderate-to-heavy volume, 834 million shares were traded on the NYSE and 2.0 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.12 lower to $57.99 per barrel and wholesale gasoline lost $0.02 to $1.77 per gallon. Elsewhere, the Bloomberg gold spot price decreased $1.28 to $1,293.24 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—moved 0.4% higher to 93.25.

Arby's Restaurant Group Inc., owned by Roark Capital Group, announced an agreement to acquire Buffalo Wild Wings Inc. (BWLD $156) for $157 per share in cash, for a total transaction value of about $2.9 billion, including the assumption of debt. BWLD traded solidly higher.

Dow memberUnitedHealth Group Inc. (UNH $216) issued mixed 2018 guidance with its earnings-per-share outlook having a midpoint below the Street's expectations, while its revenue forecast was above estimates. UNH reaffirmed its 2017 guidance. Shares were higher.

Thor Industries Inc. (THO $154) rallied nearly 20% after posting fiscal Q1 earnings-per-share (EPS) of $2.43, well above the $1.84 FactSet estimate, as revenues grew 30.6% year-over-year (y/y) to $2.2 billion, north of the forecasted $2.0 billion. The Recreational Vehicle (RV) maker said industry demand remains exceedingly high and it believes the industry will continue to grow for the foreseeable future.

Consumer Confidence hits fresh 17-year high, home prices rise more than expected

The Consumer Confidence Index (chart) unexpectedly rose to a fresh 17-year high of 129.5 in November from the upwardly revised 126.2 in October, and compared to the Bloomberg estimate of a 124.0 reading. Both the Present Situation Index and the Expectations Index of business conditions for the next six months increased. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—rose to 20.2 from the 19.6 level posted in October.

Consumer sentiment is running high and has shown up in record high Cyber Monday sales that came on the heels of robust year-over-year (y/y) Black Friday weekend sales to bolster the outlook for the holiday season. Also, as Schwab's Director of Market and Sector Analysis, Brad Sorensen, CFA, notes in our article, Holiday Shopping Season: Are Consumers Set to Stuff Some Stockings?, a strong consumer bodes well for the overall U.S. economy as consumer spending makes up nearly 70% of economic output.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 6.2% year-over-year (y/y) gain in home prices in September, versus the Bloomberg expectation of a 6.0% gain. Month-over-month (m/m), home prices were up 0.5% on a seasonally adjusted basis for September, above forecasts calling for a 0.3% rise.

The advance goods trade deficit widened much more than expected to $68.3 billion in October, from the unrevised $64.1 billion in September, and compared to expectations of $64.9 billion.
Preliminary wholesale inventories unexpectedly declined, dropping 0.4% m/m in October, versus forecasts for a 0.4% increase, and following September's downwardly revised 0.1% rise.

The Richmond Fed Manufacturing Activity Index jumped to 30 in November, the highest since 1993, from 12 in October, and versus estimates of a rise to 14, with a reading above zero denoting expansion.

Treasuries were mostly higher, with the yield on the 2-year note flat at 1.74%, while the yields on the 10-year note and the 30-year bond dipped 1 basis point to 2.32% and 2.76%, respectively.
The broadest global economic growth in a decade and solid earnings performance have conspired to keep stocks near record highs and be up every month this year. However, the U.S. dollar has pulled back and the markets appear to be getting a bit concerned with what the recent flattening of the yield may be signaling.

In his latest article, Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, addresses the question Are Stocks too Expensive?, noting that although world stock market valuations are above average, similar valuations have produced double-digit gains over the following 12 months during the past 50 years. Jeff concludes that valuations support a globally diversified portfolio offering the best diversification benefits in 20 years.

The markets are also grappling with OPEC's looming production meeting this week, as well as flared-up European political uncertainty, which has joined scrutiny of U.S. tax reform. The Senate could vote on its tax reform plan this week after the House passed its bill two weeks ago, with several key differences setting the stage for a complicated reconciliation process.

Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend notes in his latest commentary, Tax Reform Bills Progress, but Many Hurdles Remain, we believe the prospects for a tax reform bill being signed into law before the end of the year are improving, but we still think it is too early for investors to take any drastic action. The bill is virtually certain to be changed many times in the weeks ahead. If and when a tax bill passes, there will be time to review the details and amend your tax and financial plans accordingly.

Tomorrow, investors will get the second look (of three) at Q3 Gross Domestic Product, the broadest measure of economic output, with economists expecting a revised 3.2% quarter-over-quarter (q/q) rate of expansion from the 3.0% in the first report, personal consumption to be adjusted slightly higher to 2.5% from the previously-reported 2.4%, and the GDP Price Index and core PCE to remain at their initial increases of 2.2% and 1.3%, respectively. Later in the morning pending home sales will be reported, with the conduit of existing home sales expected to have increased 1.2% m/m during October, while in afternoon action the Fed will release its Beige Book. MBA Mortgage Applications will also be reported (economic calendar).

Europe higher as U.K. bank stress test results were positive, Asia mixed

European equity markets traded higher, with energy stocks rebounding from a recent pullback that has come amid the weakness in crude oil prices leading up to this week's OPEC meeting. Financials were modestly higher as the markets digest the Bank of England's (BoE) banking sector stress test results that showed all banks passed with no need to strengthen their capital positions for the first time, per Bloomberg. However, U.K. banks were mixed as BoE Governor Carney continued to warn about the risk of a bumpy Brexit process for the sector. Brexit talks remain deadlocked but developments in Ireland, which averted an election, appeared to help ease some of the concerns. Moreover, reports suggesting German coalition talks could resume helped cool political uneasiness, along with polls in Spain ahead of next month's vote in Catalonia. However, uncertainty regarding U.S. tax reform continued to fester.

Schwab's Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives Randy Frederick point out in the video, Political Risk: How Should Investors Respond?, that a long history of these developments shows us that holding a well-diversified portfolio may buffer the short-term market moves that are often the result. So, investors should avoid overreacting to the political and geopolitical drama and stick to their long-term financial plans. The euro and the British pound were lower versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mixed on the heels of the lackluster session in the U.S. yesterday. The markets remained relatively skittish amid lingering U.S. tax reform and European political uncertainties, the looming OPEC meeting that has weighed on crude oil prices, exacerbated by flared-up geopolitical concerns after reports suggested Japan had noticed radio signals that North Korea could be making preparations for another missile launch. Schwab's Jeffrey Kleintop, CFA, notes in his article, Missiles and Markets: An investor guide to geopolitical risks investors should avoid overreacting to geopolitical developments and stick to their long-term financial plans. However, despite some resurfacing uneasiness, Asian markets remain near record levels and Jeffrey Kleintop, CFA, notes that the global market rally seen this year has been fostered by broad economic growth and is expected to continue in 2018 in his latest article, 5 Reasons Investors Should Give Thanks.
Stocks in Japan and Hong Kong finished flat, with the yen paring gains seen on the North Korean reports, while headlines regarding the possibility that China could limit investor flows into Hong Kong-listed shares stymied conviction. Meanwhile, mainland Chinese equities rose, rebounding from a recent fall, while those listed in South Korea also moved to the upside, but markets in Australia and India declined.

Items on tomorrow's international economic calendar include retail sales and the trade balance from Japan, consumer spending and GDP from France, CPI from Spain and Germany, and confidence data from the Eurozone.

Financial Review

Tax Plan Puffery

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

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DOW + 72 = 23,430
SPX + 3 = 2582
NAS + 7 = 6790
RUT + 10 = 1503
10 Y + .02 = 2.37%
OIL – .32 = 56.23
GOLD – 17.40 = 1277.00

Cryptocurrency

• Number of Currencies: 912
• Total Market Cap: $242,651,274,595
• 24H Volume: $8,257,485,175

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	8,083.4	$135.23B	$3.68B	44.57%	1	-1.96%	+22.72%
	Ethereum	ETH	372.17	$35.70B	$841.59M	10.19%	0.0457184	+1.22%	+16.29%
	Bitcoin Cash	BCH	1,219.00	$20.46B	$816.53M	9.89%	0.149375	-2.23%	-5.14%
	Ripple	XRP	0.24100	$9.29B	$208.90M	2.53%	0.00002952	+0.25%	+16.61%
	Litecoin	LTC	71.540	$3.89B	$182.29M	2.21%	0.00884957	-1.35%	+17.62%
	Dash	DASH	475.10	$3.67B	$173.21M	2.10%	0.0584733	-0.51%	+12.63%
	IOTA	MIOTA	0.94100	$2.67B	$96.62M	1.17%	0.00011773	-1.83%	+66.39%
	NEO	NEO	35.353	$2.30B	$249.48M	3.02%	0.0043399	-1.75%	+24.43%
	Monero	XMR	137.36	$2.13B	$63.47M	0.77%	0.016987	+0.44%	+13.23%
	NEM	XEM	0.20779	$1.88B	$14.50M	0.18%	0.00002568	-2.78%	+8.70%

It was a light volume session on Wall Street today. Stocks moved higher but closed well off session highs. This will be a holiday shortened week with the markets closed on Thursday and just a half session for stocks on Friday. We should all be thankful to take a few days away from the debate over the tax plan.

Sen. Susan Collins of Maine objects to the last-minute decision by Republican tax writers to include a repeal of Obamacare’s individual mandate — a critical source of revenue for the bill. Alaska Sen. Lisa Murkowski, another swing Republican, also has voiced objections to scotching the individual mandate. And Sen. Ron Johnson of Wisconsin wants more generous treatment for pass-through businesses.

Meanwhile, Sens. Bob Corker of Tennessee and Jeff Flake of Arizona, among others, have said the bill’s deficit impact could cost their support. If 3 Republican senators vote against a tax plan, it will not pass; that number might dip down to just 2 defectors depending on how the special election in Alabama swings. We don’t know if some of these senators have solid objections or if they are just negotiating.

This weekend, the White House indicated it might be willing to give in on repealing the individual mandate. But yanking the provision would exacerbate a problem troubling other potentially critical Republican votes in the Senate. It generates more than $300 billion in sorely needed revenue. Deficit hawks are working to wrench the bill in the other direction.

Corker, for one, has been categorical in declaring he’ll oppose a tax bill that adds “one penny” to the deficit. Late last week, he said he is working with like-minded colleagues to rein in the Senate version’s cost, now estimated at $1.4 trillion. In fact, the bill costs much more than that, thanks to expiring provisions for wage earners.

The White House budget director claims the bill will more than pay for itself through the economic growth it unleashes. But that’s just puffery. The administration so far has failed to produce an analysis justifying the claim. No independent study backs it up, either, and some paint a dire picture of the tax package’s impact on the nation’s fiscal health.

For example, even factoring in new economic growth from lower rates, the Penn-Wharton Budget Model found the measure would add up to $6.9 trillion to the debt by 2040.

Federal Reserve Chair Janet Yellen said she will step down from its Board of Governors once her successor, Jerome Powell, is sworn into the office. The announcement was expected, although Yellen could have stayed on as a governor even after stepping down as the chair, because her term as governor does not end until January 31, 2024.

Her decision to leave will give Trump an additional fourth spot to fill on the Fed’s seven-person Board of Governors in Washington, including for a vice chairman. This Wednesday, we’ll get the minutes of the last Fed FOMC meeting.

The Department of Justice will file a lawsuit today to block AT&T’s $85 billion acquisition of Time Warner. The No. 2 U.S. wireless carrier struck a deal in October 2016 to buy Time Warner, which also owns the premium channel HBO and movie studio Warner Bros, to compete with emerging technology companies by bundling video entertainment on its mobile service. The deal is opposed by an array of consumer groups and smaller television networks because it would give AT&T too much power over the content it would distribute to its wireless customers.

The legal challenge comes after AT&T rejected a demand by the Justice Department earlier this month to divest its DirecTV unit or Time Warner’s Turner Broadcasting – which contains news network CNN – to win antitrust approval. AT&T’s chief executive said then that he would defend the deal in court to win approval if necessary. Time Warner ended down 1.1 percent today.

Nebraska regulators today approved a Keystone XL oil pipeline route through the state, breathing new life into the long-delayed $8 billion project, although the chosen pathway is not the one preferred by the company that hopes to build it and could mean more time is needed to study the changes.

The Nebraska Public Service Commission’s vote also is likely to face court challenges and may even require another federal analysis of the route, if the project’s opponents get their way. Environmental activists, American Indian tribes and some landowners have fiercely opposed the project since it was proposed by TransCanada Corp in 2008. It would carry oil from Canada through Montana, South Dakota and Nebraska to meet the existing Keystone pipeline, where it could proceed as far as the U.S. Gulf Coast.

TransCanada has said that it would announce in late November or early December whether it planned to proceed with building the pipeline — which would carry an estimated 830,000 barrels of oil a day. Approval of the route gives TransCanada the ability to gain access to the land of holdout landowners through eminent domain proceedings.

North Korea is back on the list of state sponsors of terrorism, a designation that allows the United States to impose more sanctions. The designation came a week after Trump returned from a 12-day, five-nation trip to Asia in which he made containing North Korea’s nuclear ambitions a centerpiece of his discussions.

The Treasury Department will announce additional sanctions against North Korea on Tuesday. The designation will be largely symbolic, as North Korea is already heavily sanctioned by the United States. The United States has designated only three other countries – Iran, Sudan and Syria – as state sponsors of terrorism.

There is a possibility the move could backfire. North Korea could respond in several ways, including renewing missile or nuclear tests. The move also could undercut Trump’s efforts to solicit greater Chinese cooperation in pressuring North Korea to halt its nuclear and ballistic missile tests. In any case, it will do little to open the way for US dialogue with North Korea.

Chancellor Angela Merkel of Germany faced the greatest crisis of her career after negotiations to form a new government collapsed. The breakdown abruptly raised the prospect of new elections in Germany. Merkel said she was hopeful about forming a majority government. But if forced to choose, she would prefer to go through new elections rather than try to lead a minority government.

At a time when the European Union is facing a host of pressing problems, from Brexit negotiations with Britain, to the rise of right-wing populism, to separatism in Spain’s Catalonia region, the possibility of political instability in a normally reliable Germany prove disconcerting.

The potential for instability in Germany would be a major blow to the European Union. The political instability stems from the elections in Germany on Sept. 24, when Merkel’s Christian Democrats finished first. But their share of the overall vote dropped significantly, while the far-right Alternative for Germany scored a record vote, entering Parliament for the first time as the third-biggest grouping. Merkel was unable to form a coalition among the remaining parties.

Today’s emerging-market disaster comes courtesy of Chile. The nation had the world’s worst-performing stock market and major currency today due to some political turmoil. The prospect of a clear victory for billionaire Sebastian Pinera in next month’s run-off election evaporated following a poor performance in the first round on Sunday.

Many investors had taken for granted that Pinera would win the second round on Dec. 17, with the benchmark IPSA index rallying 39 percent this year through Friday in dollar terms on hopes the tax cuts he pledged would revive investment, growth and corporate profits. But that’s now in doubt, and the IPSA index retreated as much as 4.8 percent to 5,134.58 in Santiago on Monday, its biggest intraday loss since January 2012.

Chipmaker Marvell Technology Group said it would buy smaller rival Cavium for about $6 billion, as it seeks to expand its wireless connectivity business. In the last two years, the chip industry has witnessed a series of deals as companies try to gain market share in emerging areas such as automotive technologies and connectivity. The most recent is a bid by Wi-Fi chipmaker Broadcom for rival Qualcomm for $103 billion, in what could be one of the biggest technology deals ever.

The opioid crisis has ravaged some communities across the country. Of the estimated 50,000 Americans who died of drug overdoses in 2015, some 63% involved opioids. That same year, more than 33,000 Americans died of drug overdoses involving opioids. It’s estimated more than 54,000 people died from opioids in 2016.

According to a new report from The Council of Economic Advisers, an agency that is part of the Executive Office of the President, the economic cost of the opioid crisis in 2015 was $504 billion, much higher than previous estimates. One study from the Beth Israel Deaconess Medical Center in Boston found that the average cost of treating an opioid overdose victim in intensive care units jumped 58% between 2009 and 2015.

As the addiction persists, patients arrive in a worse condition and require longer stays. In 2015, average cost among 162 academic hospitals was $92,400 per patient in intensive care. The U.S. spent nearly $8 billion on criminal justice-related costs due to selling and consuming opioids, which was almost entirely a cost to state and local governments.

The cost in lost productivity is about $20 billion. Some seven in 10 employers have felt some effect of prescription drug usage among their employees. And fatal overdoses cost nearly $22 billion in health care and lost productivity costs.

Markets Mixed

Charles Schwab: On the Market

Posted: 9/26/2017 4:15 PM EDT

Markets Mixed

 

U.S. equities finished mixed and near the flatline, unable to hold onto an early morning advance, as ramped up North Korean rhetoric and festering geopolitical anxiety were met with uncertainty from Federal Reserve Chair Janet Yellen's speech today in Cleveland. Treasuries, gold and crude oil prices all finished lower, while the U.S. dollar gained ground. News on the economic front was mixed, as September new home sales surprisingly decreased, consumer confidence inched lower and regional manufacturing activity unexpectedly jumped further into expansion territory.

The Dow Jones Industrial Average (DJIA) declined 12 points (0.1%) to 22,284, the S&P 500 Index was nearly unchanged at 2,497, and the Nasdaq Composite gained 10 points (0.2%) to 6,380. In moderate volume, 737 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil lost $0.39 to $51.88 per barrel and wholesale gasoline was $0.02 lower at $1.65 per gallon. Elsewhere, the Bloomberg gold spot price tumbled $14.64 to $1,296.14 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.4% higher at 93.02.

After the close yesterday, Red Hat Inc. (RHT $110) reported Q2 earnings per share (EPS) of $0.77 ex-items, versus the $0.67 FactSet estimate, while revenues jumped 20.6% year-over-year (y/y) to $723 million. The open source solutions company's CEO stated that strong demand for technologies that enable hybrid cloud computing contributed to accelerated revenue growth in the first half of the fiscal year. Shares of RHT were nicely higher.

Darden Restaurants Inc. (DRI $78) today announced Q1 EPS of $0.99 ex-items, matching the FactSet estimate, while its consolidated revenues increased 12.9% y/y to approximately $1.9 billion. The company reaffirmed its fiscal 2018 financial outlook, which includes the expected full financial impact of hurricanes Harvey and Irma. DRI shares finished lower.

Amid a host of developments including the recent war of words between President Trump and North Korea's Kim Jong Un, raging culture wars, potential healthcare reform, uninvited and unwanted hurricanes, toxic partisan conflict in DC; and the Fed taking a giant step toward policy normalization, Schwab's Chief Investment Strategist Liz Ann Sonders, dives deep to provide us an update on investor sentiment. Read her latest article Comfortably Numb? An Update on Investor Sentiment, on the Market Commentary page at www.schwab.com and follow Liz Ann on Twitter: @lizannsonders.

New home sales unexpectedly decline, regional manufacturing surprises to the upside

New home sales (chart) surprisingly declined 3.4% month-over-month (m/m) in August to an annual rate of 560,000, below the forecasts calling for 585,000 units and the upwardly revised 580,000 unit pace in July. The median home price was up 0.4% y/y to $300,200. New home inventory increased to 6.1 months of supply at the current sales pace from 5.7 in July. Sales fell m/m in the Northeast, South, and West, but were flat in the Midwest. New home sales are based on contract signings instead of closings. The impact of the three recent major hurricanes may increase the volatility of the economic data for a few months.

The Consumer Confidence Index (chart) dipped to a level of 119.8 in September from the downwardly revised 120.4 in August, and compared to the Bloomberg estimate of a 120.0 reading. The Present Situation Index declined, while the Expectations Index of business conditions for the next six months rose marginally. On employment, the labor differential—consumers’ appraisal of jobs being “plentiful” minus being “hard to get”—declined to 14.5 from the 16.0 level posted in August.

The Richmond Fed Manufacturing Activity Index jumped to 19 in September, versus an unrevised level of 14 in August and compared to the Bloomberg expectation of a decline to 13, with a reading above zero denoting expansion.

The 20-city composite S&P CoreLogic Case-Shiller Home Price Index showed a 5.8% y/y gain in home prices in July, versus the Bloomberg expectation of a 5.7% increase. Month-over-month (m/m), home prices were up nearly 0.4% on a seasonally adjusted basis for July, topping forecasts calling for a 0.2% rise.

Federal Reserve Chair Janet Yellen addressed the National Association for Business Economics today in Cleveland, where the Fed head noted that trends in employment, wages and prices may have shifted from what the central bank forecasters had originally expected. Yellen indicated that though the central bank expects that longer-run inflation should trend toward its two percent target, the Fed is making room for the possibility that it could be wrong.

Treasuries were lower, as the yields on the 2-year and 10-year notes, as well as the 30-year bond all advanced 2 basis points to 1.44%, 2.24% and 2.78%, respectively.

The markets continue to digest last week's monetary policy decision from the Fed, which expectedly signaled an October start for the reduction of the Central Bank's massive $4.5 trillion balance sheet, but resuscitated expectations for another rate hike in December. The Fed's decision is discussed by Schwab's Liz Ann Sonders in her commentary, The Fed's on the QT, on the Market Commentary page at www.schwab.com, where you can also find Schwab's Chief Global Investment Strategist Jeffrey Kleintop's, CFA, analysis of the global monetary policy front in his article, How the Shift by Central Banks May Affect the Stock Market.

Tomorrow's economic calendar will hold preliminary durable goods orders, forecasted to have gained 1.5% m/m during August following July's 6.5% plunge, while ex-autos, orders are expected to gain 0.4% m/m. As well, pending home sales will be reported, with economists anticipating a 0.2% m/m decline for August after falling 0.8% in July, and MBA Mortgage Applications will round out the day.

European equities lack decisive direction, Asia finishes mostly lower

European equities oscillated between gains and losses before ultimately closing mixed amid the rising tension between North Korea and the United States and as the outgoing government of Germany's Chancellor Merkel rejected a proposal to pool euro-area sovereign debt. The proposal, supported by French President Macron, would have been aimed at utilizing the region's bailout fund, the European Stability Mechanism (ESM), with a goal of granting additional powers to the ESM to turn it into a sort of European Monetary Fund. The German Chancellor is in the midst of complex coalition talks in an attempt to build a new government. For analysis of the political front, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, on the Insights & Ideas page at www.schwab.com. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick.

Elsewhere, a recent speech by U.K. Prime Minister Theresa May seemingly failed to spark trade negotiation optimism; though some European Finance Ministers said the speech was constructive and likely a step in the right direction as EU leaders will have their first chance to approve trade talks in mid-October. The British Prime Minister is meeting with the President of the European Council today, while their counterparts held a fourth round of Brexit discussions in Brussels. For a look at the process, see our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. The euro and British pound dipped versus the U.S. dollar and bond yields in the region were mixed. In economic developments, import prices for Germany rose in line with forecasts, business confidence in France missed expectations and finance loans for housing in the U.K. increased, but were lower than projections.

Stocks in Asia finished mostly to the downside, but losses were limited as the markets seemingly attempted to stabilize amid the recent host of catalysts. Mainland Chinese equities and those traded in Hong Kong advanced modestly, after both indexes came under pressure yesterday amid increased measures aimed at curbing the country's housing market where record home sales helped to spark a surge in Chinese property developers this year. Japanese securities decreased amid strength in the yen, and as minutes released from the Bank of Japan's July meeting indicated some optimism regarding consumer price inflation. Separately, the island nation also released economic data that showed producer price inflation slightly exceeded expectations. Markets in Australia declined, led lower by consumer discretionary issues, stocks in South Korea fell amid the festering North Korean rhetoric, while Indian listings were also lower. For analysis of global investing amid this backdrop, see Schwab's Jeffrey Kleintop's, CFA, and Randy Frederick's video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

Tomorrow's international economic calendar will be light with the only item of note being industrial orders from Italy.

Financial Review

Falling Leaves

Sinclair Noe — September 25, 2017

Podcast: Play in new window | Download (Duration: 13:16 — 7.6MB)

Subscribe: Android | RSS

DOW – 53 = 22,296
SPX – 5 = 2496
NAS – 56 = 6370
RUT + 1 = 1451
10 Y – .04 = 2.22%
OIL + 1.43 = 52.09
GOLD + 13.20 = 1311.30

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	3,946.1	$65.48B	$1.37B	42.06%	1	+0.41%	-0.96%
	Ethereum	ETH	295.46	$27.84B	$461.77M	14.14%	0.0743875	+0.09%	2.49%
	Bitcoin Cash	BCH	463.90	$7.59B	$319.61M	9.79%	0.115731	+2.79%	-2.86%
	Ripple	XRP	0.18620	$7.02B	$35.87M	1.10%	0.00004642	+1.30%	-1.61%
	Litecoin	LTC	52.580	$2.77B	$214.73M	6.58%	0.013211	+0.75%	-3.52%
	Dash	DASH	343.33	$2.60B	$60.08M	1.84%	0.0870719	-1.12%	5.57%
	NEM	XEM	0.23614	$2.09B	$2.84M	0.09%	0.00005895	+1.14%	-3.66%
	IOTA	MIOTA	0.54778	$1.53B	$10.26M	0.31%	0.00013932	-1.48%	-6.10%
	Monero	XMR	94.33	$1.41B	$28.15M	0.86%	0.0236862	+0.26%	-4.71%
	NEO	NEO	26.999	$1.33B	$91.78M	2.81%	0.00675399	+3.88%	32.73%

North Korea’s foreign minister said Trump has “declared war” on his country and threatened to shoot down US jets in international airspace. Ri Yong Ho said the “declaration of war” meant North Korea could target US bombers. He said: “The question of who won’t be around much longer will be answered then.”

That was a reference to Trump’s recent tweet that the North Korean foreign minister, and leader Kim Jong-un “won’t be around much longer”.

Maybe the North Koreans are good market timers and they timed their rhetoric for maximum market impact. So far, no weapons have been fired but it offers a good excuse for selling stocks, if you were looking for an excuse.  A better justification is that stocks have been on a record-setting run and we are now heading into the end of the month and the end of the quarter, so it’s a good time to make the ledger look pretty.

Yet another justification is that the bull market is getting long in the tooth. This can’t go on forever, can it? And the answer is no, it can’t last forever, but that doesn’t mean the bull can’t keep running a bit longer.

One of the more nettlesome concerns is that the bull market is not very broad – mostly wrapped up in the fortunes of the FAANG stocks. And even if you suppose the FAANGs will continue to dominate, they are getting a bit too big to expect exponential growth rates, and that means valuations ranging around 18-time forward earnings are a bit on the rich side. It just doesn’t seem realistic to expect the next 5 years to be as strong as the last 5.

Today’s case in point – Apple, flirting with correction territory as Digitimes reported that Apple suppliers were shipping just 40 percent of the components originally ordered for the premium phone, which goes on sale in early November. Apple is still going to sell a whole bunch of phones but maybe not the phenomenal growth we’ve come to anticipate.

Meanwhile, Facebook dropped 4.6% today – that’s $20 billion market cap evaporating. Facebook dropped its plans to issue a new class of non-voting shares. A special committee of the company’s board previously approved the plan to issue the shares, but a class action lawsuit was filed to block the share issuance.

Facebook is also dealing with investigatory pressure from US lawmakers. The company announced it would cooperate with regulators as they investigate Facebook’s role in the 2016 election.  Of course, Apple and Facebook aren’t going away anytime soon, so maybe you buy the dips.

Toss in a Federal Reserve that seems intent on tightening accommodation and the growth story looks even more implausible. The Federal Reserve is on track to sell some of its bond holding and gradually raise interest rates. We know this from last week’s FOMC statement.

New York Fed President William Dudley said today that he expects inflation will pick up, citing the soft dollar and strong overseas growth among the reasons he expects slightly above-average U.S. economic activity and a long-sought rise in wages.

Dudley said: “With a firmer import price trend and the fading of effects from a number of temporary, idiosyncratic factors, I expect inflation will rise and stabilize around the 2 percent objective over the medium term,” adding, “In response, the Federal Reserve will likely continue to remove monetary policy accommodation gradually.”

Meanwhile, Chicago Fed President Charles Evans delivered a speech today entitled: “the puzzle of low inflation”. Whatever the Fed does, it will be slow and incremental. Imagine the Fed’s balance sheet as a lawn full of autumn leaves. Dudley wants to use a rake. Evans wants to pick up each leaf individually. Nobody is even thinking about using the leaf blower.

Still the Fed is in tightening mode. Federal Reserve economists worry that the central bank may have a hard time lowering interest rates when future economic crises arise. The reason is simple: Demographics. San Francisco Fed economists believe that the aging population in the U.S. is putting long-term downward pressure on rates, a phenomenon that won’t allow a lot of room to provide stimulus through rate cuts.

Sen. Rand Paul reiterated his opposition to the Graham-Cassidy health care bill, despite revisions. Sen. John McCain of Arizona has opposed the bill’s initial version and Texas Republican Sen. Ted Cruz said Sunday he was against it. Maine Republican Sen. Susan Collins seems likely to do the same.

Alaska Sen. Lisa Murkowski is undecided but had opposed earlier GOP bills to repeal Obamacare that the Senate rejected in July. Republican leadership is using a tried-and-true method to get wavering colleagues to vote yes: money. Lots of it. An extra $14 billion in aid for Maine, Texas, Kentucky, Arizona, and Alaska. So, Senate Majority Leader Mitch McConnell believes he knows who he’s dealing with, now he’s just negotiating the price.

Germans voted over the weekend. Chancellor Angela Merkel’s party remained the biggest parliamentary bloc, but only pulled about 33% of the vote, meaning Merkel will have to build a coalition. Voters flocked to the anti-immigration Alternative for Germany (AfD); the first far-right party to enter the German parliament in more than half a century pulled about 13% of the vote.

Japan’s Prime Minister Shinzo Abe said he will dissolve the Lower House for a snap election when the Diet convenes for an extraordinary session Thursday, in a high-stakes political gamble that observers say could determine whether he survives as Japan’s leader. There are several issues at stake, including a 2019 planned tax hike needed to fund education and social security; also, Abe’s authority to act in the event of North Korean aggression by amending Japan’s pacifist Constitution.

Voting stations set up for the referendum on Kurdish independence from Iraq have closed their doors and counting of ballots has begun. Turnout was near 80%. The referendum is opposed by the Iraqi central government in Baghdad as well as the neighboring countries of Turkey and Iran, besides major international powers.

The Kurds are likely to approve the referendum, but they are not expected to result in any immediate declaration of independence. While the result is non-binding for the Iraqi government, it is binding for the Kurdish leadership to follow the will of the people.

Brent crude surged to its highest in more than two years as Turkey threatened to shut down Kurdish oil shipments through its territory. Crude has risen more than 9 percent this month in New York, as U.S. refiners recovered from Hurricane Harvey and both OPEC and the International Energy Agency sweetened their worldwide demand forecasts. Oil should start to level off near these levels, unless the bulls get greedy.

One of the world’s “big four” accountancy firms – Deloitte – has been hacked. The hackers compromised confidential emails and plans of some blue-chip clients. In addition to emails, the hackers had potential access to usernames, passwords, IP addresses, architectural diagrams for businesses and health information.

Some emails had attachments with sensitive security and design details. The breach is believed to have been US-focused and was regarded as so sensitive that only a handful of Deloitte’s most senior partners and lawyers were informed. It is possible the hack compromised data for 6 months or more.

Deloitte says only a small number of its clients had been “impacted”. Deloitte provides auditing, tax consultancy and high-end cyber-security advice to some of the world’s biggest banks, multinational companies, media enterprises, pharmaceutical firms and government agencies. Another day, another hack. I think we are seeing a trend here.

Intel unveiled its latest Core desktop processors today, proclaiming up to 25 percent frame-rate improvements for PC gaming versus the previous models. The processors will be available for sale on Oct. 5. It wasn’t enough to lift Intel shares today, but it did help push competitors AMD and Nvidia sharply lower.

Target is raising the minimum hourly wage for its workers to $11 starting next month and then increasing it to $15 by the end of 2020. The retailer said the move will help it better recruit and retain top-quality staff and provide a better shopping experience for its customers. Target quietly raised entry-level hourly wages to $10 last year, from $9 from the previous year, following initiatives by Wal-Mart and others to hike wages.

But Target’s hike to $15 per hour far exceeds not only the federal minimum of $7.25 per hour but the hourly base pay at Wal-Mart and plenty of its other retail peers whose minimum hourly pay now hovers around $10. Target said the pay hike will affect thousands of its more than 300,000 workers, but it declined to quantify the percentage of its workforce. It said the increase to $11 per hour will apply to the more than 100,000 hourly workers that Target will be hiring for the holiday season.

Brown University has initiated a $120 million campaign to drop all loans from financial aid packages awarded to their undergraduates. Student debt is at an all-time high — the average outstanding balance is $34,144, up 62 percent over the last 10 years — and Brown will become the sixteenth U.S. institution, and the sixth in the Ivy League (excluding Cornell and Dartmouth), to offer all its undergraduates a loan-free education.

In 2016, the average Brown student graduated with a debt of $23,810, compared with $8,908 for Princeton, which adopted the no-loans policy in 2001. The plan aims to replace financial aid packages with grants that do not have to be repaid.