Financial Review

Ain’t That a Shame

Sinclair Noe — October 25, 2017

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DOW – 112 = 23,329
SPX – 11 = 2557
NAS – 34 = 6563
RUT – 6 = 1493
10 Y + .04 = 2.44%
OIL – .30 = 52.17
GOLD + .90 = 1278.20

Cryptocurrency

• Number of Currencies: 877
• Total Market Cap: $169,285,401,598
• 24H Volume: $3,480,700,406

Top Cryptocurrencies

	Name	Symbol	Price USD	Market Cap	Vol.	Total Vol. %	Price BTC	Chg. % 1D	Chg. % 7D
	Bitcoin	BTC	5,724.2	$95.79B	$1.96B	56.46%	1	+3.89%	+3.75%
	Ethereum	ETH	295.25	$28.50B	$324.79M	9.35%	0.0521385	-0.35%	-3.81%
	Ripple	XRP	0.20140	$7.89B	$75.54M	2.17%	0.00003573	-0.90%	-4.77%
	Bitcoin Cash	BCH	328.42	$5.56B	$151.70M	4.37%	0.0579792	+1.87%	-0.16%
	Litecoin	LTC	56.330	$3.03B	$114.68M	3.30%	0.00985888	+1.29%	-5.54%
	Dash	DASH	287.59	$2.21B	$43.80M	1.26%	0.0504281	-0.88%	-2.25%
	NEM	XEM	0.20435	$1.86B	$4.19M	0.12%	0.00003598	+0.22%	-5.94%
	BitConnect	BCC	206.31	$1.51B	$16.86M	0.49%	0.0359821	+6.59%	+6.15%
	NEO	NEO	28.650	$1.43B	$35.32M	1.02%	0.00498411	-4.06%	-2.93%
	Monero	XMR	87.90	$1.34B	$59.61M	1.72%	0.0153379	-0.63%	-1.22%

The Dow and S&P 500 suffering their worst day in seven weeks. Even though overall earnings results have been beating estimates, we had a string of disappointments today.

Burrito chain Chipotle and chip maker AMD (that’s computer chips – not chips and salsa) were the S&P 500’s two biggest losers. Chipotle posted weaker-than-expected earnings late Tuesday, sinking 15%, while AMD’s results beat expectations, but investors seemed more concerned about the company’s outlook, which may not have been as strong as hoped. AMD shares dropped 13%.

Well, that’s how it goes during earnings reporting season. Yesterday investors cheered the early results from third-quarter corporate earnings, equity investors had a change of heart. Third quarter earnings are not expected to shine; with consensus forecasts of profit growth coming in at less than half the 10 percent or so seen in the first two quarters of 2017.

As we move through earnings – pay attention to guidance. The actual earnings have already happened. The market tries to look to the future.

Amgen reported higher-than-expected third quarter profit as lower research and other costs and improved operating margins helped offset sales declines in some of its biggest established products. The world’s largest biotechnology company also raised its full-year adjusted earnings forecast.

Nike posted its weakest quarterly sales growth in nearly seven years in September. Nike said it expects earnings per share to grow in the mid-teens over the next five years, driven by online sales and new product categories, sending its shares up by about three percent. The stock was the top gainer on the Dow today.

Coca-Cola topped profit and revenue estimates for the third quarter on a 3 percent rise in North American sales, gaining market share over arch rival Pepsi. Over the course of several years, both companies have shifted their strategy, focusing on selling low-calorie versions of their colas and buying healthier beverage brands, as consumers move away from sugary sodas.

But Coke seems to be winning the so-called cola-wars by adopting a more aggressive approach to selling juices, teas and vitamin water and taking the lead on franchising its bottling operations to cut costs.

Boeing racked up a further $329 million charge for its troubled KC-46 aerial refueling tanker program. Boeing raised its full-year earnings and cash flow forecasts as it beat third-quarter earnings estimates and reported higher margins in its main commercial airlines segment and overall business.

But the new charge on the air tanker, which some analysts had speculated could return to haunt Boeing despite assurances to the contrary in April, meant the program has now lopped a total of about $1.9 billion off the company’s net income after tax. Boeing share dropped about 4%.

Durable-goods orders rose 2.2% in September. Excluding transportation orders increased 0.7%. Business investment advanced 1.3% for the third month in a row, based on a closely followed measure known as core capital-goods orders. These orders have climbed 7.8% in the past year, the fastest pace since early 2012. The rise in orders last month was concentrated in commercial aircraft, military hardware and electronics.

New-home sales ran at a 667,000 annual pace in September, an 18.9% increase compared with August, and a 17% increase compared with a year ago. This is one of those economic reports that tends to include month-to-month static. For the year to date, sales are 8.6% higher compared to the same period last year.

In September, the median sale price was $319,700, compared to $314,700 a year ago. At the current sales pace, it would take 5 months to exhaust all available supply. More homes are crucial for a market starved for inventory.

Tomorrow, the European Central Bank unveils its plan to scale back purchases of bonds under its quantitative easing program. The consensus is that monthly bond purchases will be cut in half to 30 billion euros ($35 billion) for most of next year. So, any amount that differs from that number is likely to roil markets. Investors will also be listening for President Mario Draghi’s comments on the future path of interest rates.

Nobody expects the ECB’s Governing Council to announce a rate hike tomorrow, suggesting that the central bank is likely to reiterate that rates will “remain at their present levels for an extended period of time, and well past the horizon of our net asset purchases.” The longer the QE horizon the stronger the guidance will be, but a rate hike is unlikely before mid-2019 regardless of whether QE is extended for six or nine months.

Legislation to fund cost-sharing reduction payments – or CSRs – to health insurers would save the U.S. government $3.8 billion over a decade – that, according to a new analysis from the Congressional Budget Office. Trump signed an executive order to cut off CSR funding this month, citing concerns about their legality.

The CBO score of the bill may improve passage odds for the bipartisan legislation authored by Sens. Lamar Alexander, a Tennessee Republican, and Patty Murray, a Washington Democrat. The bill would reinstate cost-sharing reduction payments owed to insurers for lowering deductibles for the next two years.

It would also allow more customers to purchase a cheaper high-deductible plan and make some small changes in the way states can apply for federal waivers to tweak their health care system. Insurers have already signed contracts to offer plans with significantly higher premiums in 2018 in response to the White House’s ambiguity on CSR payments.

The CBO previously found that ending CSR payments permanently would increase deficits by $194 billion over a decade, since insurers would raise premiums for Obamacare exchange plans by 20 percent in response and the government would have to spend more on subsidies to help customers pay them. The savings are lower in the new Alexander-Murray score largely because it uses a baseline that assumes the CSR payments will be made.

Also tomorrow, The House of Representative is slated to vote to formally back the Senate’s budget resolution, fast-tracking the GOP’s effort to advance a tax overhaul with a simple majority in the Senate. With passage, Republicans would unlock the powerful legislative tool known as reconciliation, which replaces the Senate’s 60-vote threshold with a simple majority in some circumstances.

Opposition from some moderate House Republicans to a proposal that would abolish state and local tax deductions is inserting some last-minute drama. Bloomberg reports Representative Tom MacArthur of New Jersey said he thinks there are more than 20 House Republicans who would vote against a key budget resolution, if a “reasonable” compromise isn’t reached on preserving the state and local tax break in some form.

MacArthur added that he didn’t think the House should hold its scheduled vote on the budget Thursday unless an agreement on the so-called SALT deduction has been reached. House GOP members concerned about the break are supposed to meet with Republican leaders this evening.

House Republicans hold 239 seats and need 217 votes to adopt the budget — a critical step to passing tax changes without Democratic support. That means 23 defections could sink the budget resolution — assuming no absences or Democratic support.

When it comes to tax reform, SALT (or state and local tax) deductions may be just one of many stumbling blocks. Once Obamacare repeal failed, the only major item on Republicans’ agenda for the rest of the year was supposed to be tax reform.

But then Trump announced his administration planned to sunset the Deferred Action for Childhood Arrivals program, and that it would end the Affordable Care Act’s subsidy payments, a move that will increase premiums for Americans and dig a deeper hole in the national deficit. Congress also keeps putting off negotiations on key policies, like the now-expired federal Children’s Health Insurance Program (CHIP). With so many policy deadlines, the possibility of a shutdown can’t be dismissed.

In the final hours of Tuesday night, the Senate voted to nullify a rule that would’ve allowed customers of banks, credit-card companies, and other financial institutions to join together in class-action lawsuits if they felt they’d been wronged.

The rule—which was introduced in July by the Consumer Financial Protection Bureau (CFPB), but was not yet in effect—would have prevented financial institutions from forcing customers with legal grievances to resolve them out of court with the company’s lawyers, in a process called arbitration.

Buried in the fine print for credit card applications and banks accounts and such is a clause that requires consumers to submit to arbitration if there is a problem. But the problem for consumers is that arbitration can be cumbersome and costly. The mandatory arbitration clauses allow companies to avoid accountability by blocking group lawsuits and forcing people to go it alone or give up.

The Senate’s nullification of the rule came about even as recent major financial-industry scandals have harmed consumers. Wells Fargo, even with its fake-account and auto-lending scandals, utilized mandatory-arbitration clauses in some of the agreements they have customers sign.

The nullification of the CFPB’s rule means that people who suffered financial harm or identity theft as a result of either of these large companies’ lapses may not have the right to take them to court. It was a huge win for banks, who feared a flood of costly lawsuits.

But for financial firms already under the spotlight for poor treatment of customers, the bad publicity may make it difficult for them to avoid court. For example, Equifax initially turned to arbitration clauses in the face of its cyber hack but public pressure and threats from state attorneys general forced it to drop the requirement for 145.5 million consumers affected by the breach.

Stocks Continue Recent Record Run

Charles Schwab: On the Market

Posted: 10/5/2017 4:15 PM EDT

Stocks Continue Recent Record Run

 

Adding to recent record highs, U.S. stocks showed resiliency amid lingering geopolitical and monetary policy uncertainty, buoyed by upbeat reads on domestic business spending and jobless claims, while the trade balance narrowed more than expected. Tomorrow, the key nonfarm payroll report for September will be in focus. Treasury yields, crude oil prices and the U.S. dollar were higher and gold experienced a minor decline. In equity news, Constellation Brands topped Q2 earnings expectations, Bloomberg reported that Amazon is testing its own delivery service and Netflix announced it will raise prices for its popular services.

The Dow Jones Industrial Average (DJIA) increased 114 points (0.5%) to 22,775, the S&P 500 Index advanced 14 points (0.6%) to 2,552, and the Nasdaq Composite rallied 51 points (0.8%) to 6,585. In moderate volume, 746 million shares were traded on the NYSE and 1.9 billion shares changed hands on the Nasdaq. WTI crude oil increased $0.81 to $50.79 per barrel and wholesale gasoline was $0.03 higher at $1.61 per gallon. Elsewhere, the Bloomberg gold spot price dipped $6.37 to $1,268.48 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.5% higher at 93.96.

Constellation Brands Inc. (STZ $209) reported fiscal Q2 earnings-per-share (EPS) of $2.48, or $2.47 ex-items, versus the $2.17 FactSet estimate, as revenues rose 3.1% year-over-year (y/y) to $2.1 billion, roughly in line with expectations. The company's beer shipments rose solidly y/y, while its wine and spirits shipments declined. STZ raised its full-year EPS outlook. Shares traded nicely higher.

United Parcel Service Inc. (UPS $118) saw pressure and FedEx Corp. (FDX $222) dipped in early action before finishing flat, on a Bloomberg report that Amazon.com Inc. (AMZN $981) is testing its own delivery service to rival these companies, according to people familiar with the matter. AMZN and FDX did not comment on the report. A spokesman from UPS told Bloomberg that Amazon is a valued customer and it supports all its customers with industry-leading e-commerce solutions and expect to expand these relationships further in the future.

Netflix Inc. (NFLX $194) rallied after announcing that it will raise prices for its most popular service by 10% as it adds more exclusive TV shows and movies.

Jobless claims decline, trade balance shrinks, factory orders rise

Weekly initial jobless claims (chart) decreased by 12,000 to 260,000 last week, below the Bloomberg forecast of a decline to 265,000, with the prior week’s figure being unrevised at 272,000. The four-week moving average fell by 9,500 to 268,250, while continuing claims rose 2,000 to 1,938,000, south of estimates of 1,950,000.

The trade balance (chart) showed that the deficit came in at $42.4 billion in August, compared to estimates of $42.7 billion. July's deficit was downwardly revised to $43.6 billion. Exports gained 0.4% month-over-month (m/m) to $195.3 billion, while imports dipped by 0.1% to $237.7 billion.

Factory orders (chart) rose 1.2% m/m in August, above expectations of a 1.0% gain, while July's figure was unrevised at a 3.3% drop. Stripping out the volatile transportation component, orders advanced 0.4% and July's 0.5% rise was unrevised. August durable goods orders—preliminarily reported last week—were positively revised to a 2.0% increase versus forecasts of an unadjusted 1.7% rise. Also, nondefense capital goods orders excluding aircraft, a gauge of business spending, were revised higher to a 1.1% gain from the initially-reported 0.9% increase, posting the second-straight monthly gain of over 1.0%.

Treasuries were lower, with the yields on the 2-year and 10-year notes, as well as the 30-year bond rising 2 basis points (bps) to 1.49%, 2.35% and 2.89%, respectively.

Treasury yields and the U.S. dollar have rebounded noticeably in the past month, with the 10-year rate off of levels not seen since November 2016 and the greenback from multi-year lows. Expectations have jumped that the Fed will announce another rate hike in December as signs of an uptick in inflation joined a positive global economic background, while the Central Bank is set begin to shrink its behemoth balance sheet this month. Also, the recently released tax reform framework appeared to foster some fiscal policy optimism but faces a long road that began with today's House approval of its budget resolution.

However, the stock markets continue to grind out record highs and amid this backdrop, see Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend's article, Tax Reform Framework Released, But The Road Ahead Is Long. Also, Schwab's Chief Investment Strategist Liz Ann Sonders offers her article on the stock market resiliency in the face of a plethora of things to worry about titled, Comfortably Numb? An Update on Investor Sentiment. Read these articles and other timely commentary from our Schwab experts on the Market Commentary page at www.schwab.com. Follow Schwab and Liz Ann on Twitter: @schwabresearch and @lizannsonders.

This bring us to tomorrow's September nonfarm payroll report, expected to show jobs grew by 80,000, after August's 156,000 gain, while private sector job growth is projected at 72,000 on the heels of the prior month's 165,000 increase (economic calendar). The unemployment rate is expected to remain at 4.4%. The noticeable decline in job growth figures to below the 176,000 monthly average thus far this year is likely to be discounted by the expected impact of last month's hurricanes. However, the wage component of the release is likely to remain a key focus giving the uncertain inflation backdrop. Average hourly earnings are expected to rise 0.3% m/m, after August's 0.1% increase, and remain at a 2.5% y/y growth rate.

Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, analyzes the relationship between inflation and unemployment in his article, Inflation May Be The Biggest Question For Investors In 2018, on the Market Commentary page at www.schwab.com. Jeff notes that global labor markets may now be at a point where wages may finally rise more rapidly and if central banks move too aggressively in anticipation of a tightening global labor market reviving inflation, the impact of their actions on financial conditions could undermine the bull market in stocks. Follow Jeff on Twitter: @jeffreykleintop.

Wholesale inventories and consumer credit are other reports due out tomorrow.
Europe mostly higher, Asia little changed

European equity markets finished mostly to the upside, shrugging off a plethora of remaining uncertainties, with Spanish stocks rebounding noticeably after a bout of volatility as Catalonia's fight for independence fostered political uncertainty after its weekend secession vote was deemed illegal. Also, the euro and British pound lost ground on the U.S. dollar to help the markets, with the U.S. dollar extending a rebound on some upbeat economic data. Bond yields in the region finished mixed. In economic news, growth in German retail and construction sectors decelerated, while U.K. new car registrations fell. The minutes from the European Central Bank's (ECB) monetary policy meeting last month showed the central bank sees any reassessment of the monetary policy stance as needing to proceed in a very gradual and cautious manner, while maintaining sufficient flexibility.

U.K. Brexit and political uncertainty continued to linger, exacerbated by yesterday's mishaps at a speech by Prime Minister Theresa May. For analysis of political and Brexit uncertainties, see Schwab's Jeffrey Kleintop's, CFA, and Vice President of Trading and Derivatives, Randy Frederick's video, Political Risk: How Should Investors Respond?, and our article,Political Risk: How Should Investors Respond?, and our article, Brexit Begins: What's Next for the U.K?, on the Insights & Ideas page at www.schwab.com. Follow Randy on Twitter: @randyafrederick. Uncertainty regarding who will be the Fed Chief in the U.S. festers in the wake of the ECB and Bank of England signaling last month moves to tighten monetary policy. As such, Schwab's Jeffrey Kleintop, CFA, offers analysis in his article, How the Shift by Central Banks May Affect the Stock Market, on the Market Commentary page at www.schwab.com.

Stocks in Asia finished near the unchanged mark but tilted to the downside despite another round of record highs in the U.S., with Japanese stocks pausing at levels not seen in more than two years, while Indian shares snapped a four-session winning streak and Australian markets were hamstrung after an unexpected drop in August retail sales. However, volume remained lighter than usual, with markets in mainland China, Hong Kong and South Korea all closed for holidays. Schwab's Jeffrey Kleintop, CFA, and Randy Frederick offer a look at global investing in the video, Is An Optimistic Outlook for Global Equities Warranted?, on the Insights & Ideas page at www.schwab.com.

Tomorrow, the international economic docket will include labor cash earnings and the Leading Index from Japan, factory orders from Germany and house prices and unit labor costs from the U.K.

Financial Review

Aggressive Spacing and Large Fonts

Sinclair Noe — September 27, 2017

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DOW + 56 = 22,340
SPX + 10 = 2507
NAS + 73 = 6453
RUT + 28 = 1485 (record)
10 Y + .08 = 2.31%
OIL + .18 = 52.06
GOLD – 11.20 = 1283.40

The Russell 2000 Index hit a new record high. The S&P 500 index hit an intraday record high but could not take out last week’s closing high.

The Trump Administration finally unveiled their tax cut plan, 9 pages of it (click here for full text). Trump spoke in Indiana today. The framework shrinks the number of tax rates to just three from seven today. The proposed rates are 12%, 25% and 35%. But it will be up to the tax committees to assign income ranges to each rate. The 12% bottom rate is higher than today’s lowest rate of 10%.

The plan doubles the standard deduction, to $24,000 for married couples and $12,000 for single filers. The framework proposes the elimination of most itemized deductions, including the state and local tax deduction. It also eliminates personal exemptions, worth $4,050 per person. So, a family of four could no longer reduce their taxable income by more than $16,000. Now this bears a closer look.

Here’s the important fine print, the plan states: “To simplify the tax rules, the additional standard deduction and the personal exemptions for taxpayer and spouse are consolidated into this larger standard deduction.” Here’s how that math works. Let’s say you are single with no dependents, and you have a moderate income. Currently, you get to take the standard deduction ($6,350) and one personal exemption ($4,050).

If you are 65 or older, you also get to take an additional standard deduction ($1,250). That adds to $10,400, or $11,650 if you’re a senior citizen. The Republican plan would replace all these provisions with a single deduction of $12,000 ($24,000 for married couples.) That’s a 15% increase — except for seniors, who get a 3% increase. Not a doubling, not even close. And then your first dollar of taxable income would be subjected to a 12% tax rate, instead of the current 10%.

Currently, you get to take the personal exemption even if you also itemize deductions, but you only get to take the standard deduction if you forego itemized deductions. Combining these provisions into a single, standard deduction would mean itemizers lose their personal exemption and get nothing back — meaning they’ll typically pay tax on an extra $4,050 of income if they’re single, or $8,100 if they’re married.

The plan does not address the prospects for repeal of popular deductions – the tax breaks for mortgage interest, charitable donations. What happens to other popular deductions is less clear.  The plan would eliminate deductions for state and local tax expenses. States are going to go crazy over that loss.

The National Conference of State Legislatures says the deduction has existed in the federal tax code since its inception. The group says, “tens of millions of middle-class taxpayers of every political affiliation” would experience a greater tax burden if the deduction were eliminated. The group says the deduction’s elimination will also impede states in their efforts to invest in education and other public services.

The plan called for a repeal of the alternative minimum tax, a provision originally intended to tax wealthy households that now reaches well into the middle class. And the plan also calls for eliminating the estate tax.

The document also outlined various provisions for businesses, including a cut in the corporate tax rate to 20 percent, or 25% for small and family-owned businesses conducted as sole proprietorships, partnerships and S corps. But while promising to “modernize” the dozens of tax breaks that favor specific companies and industries, those details remain to be spelled out. It talks about repatriating corporate capital held offshore, but it doesn’t provide any guidance or detail on what rate of tax or any conditions for repatriation.

How to pay for all this without an explosion in the debt and deficit? Animal spirits will lift the economy to tremendous growth – at least that is the argument we are going to here. Cut taxes for corporations and the wealthy, which will shower great jobs on the rabble, which will not only not increase the deficit, it will cut it because so much new revenue will pour in.

More likely, if you get a fiscal boost and tax reform this late in the cycle where most of the slack in the market is eroded, you’re not going to get a lot of bang for your buck. While the rhetoric of cutting taxes sounds good, don’t expect much popular support for specifics. Expect a whole bunch of opposition from various groups who are going to have their specific oxen gored.

The big disappointment is that this whole tax cut plan really doesn’t look serious. It’s 9 pages, and most of those pages have a whole lot of white space and large fonts; the plan has some flowery promises and almost no math. More generally, the plan has so many holes — left for Congress to fill in — that a full picture of who gains the most cannot be drawn at the outset.

The plan could well benefit both the rich and the middle class, at the cost of national debt, but that remains to be seen. If the proposal follows any kind of order, as Senator John McCain has called for, don’t expect anything of substance any time soon. If Republicans thought health care was tough, just wait until they try to tackle tax reform. In that sense, today’s gains on Wall Street can be called a relief rally – a relief that any type of plan was presented, albeit without many details.

The market for Treasury securities experienced one of its worst days of the year, as yields soared. It’s bad enough that the federal budget deficit has already widened, but what’s concerning now is that the government is likely to ramp up bond sales to pay for tax cuts at a time when the Federal Reserve is planning to reinvest less of the maturing proceeds from its bond holdings back into the market.

The amount of marketable US debt outstanding has already increased to $14 trillion from less than $5 trillion the past decade. And don’t forget the repatriated corporate cash isn’t really cash, it is equivalents, meaning a whole bunch is held in US Treasuries.

The pollsters at Gallup periodically ask people what they think is the most important problem in America. Taxes don’t make the top 10 list. Why? Because most Americans don’t pay much of anything in federal taxes.  In an NBC/ Wall Street Journal poll, 62% of those polled said taxes should go up on the wealthy, and 55% said taxes should rise for corporations.

The biggest threat to the U.S. economy over the next 6 months: North Korea? Rising interest rates? Terrorism? A stock market drop? Nope. Thirty-six percent of Americans chose “the political environment in Washington” as the biggest threat to the economy, according to a new survey by personal finance website Bankrate.com. That easily beat out the next four choices: the threat posed by North Korea (24%), rising interest rates (10%), terrorism (10%) and a decline in the stock market (8%).

Orders for durable or long-lasting goods such as passenger planes rose 1.7% last month. The increase stemmed mainly from a big batch of orders for commercial aircraft. Bookings surged 45%. Demand was higher for most other manufactured goods, but bookings grew at a slower pace. Orders minus transportation edged up 0.2%. The government said Hurricane Harvey appeared to have little effect. The storm slammed the Houston area hard late in the month, but probably too late to reduce orders.

The Commerce Department on Tuesday slapped preliminary anti-subsidy duties of 220 percent on Bombardier jets, which could effectively shut Bombardier out of the US market if upheld, after rival Boeing launched a trade challenge accusing Canada of unfairly subsidizing the aircraft. The dispute could spill into talks between Canada, the United States and Mexico to update the North American Free Trade Agreement. Negotiators are meeting in Ottawa.

Americans signed fewer contracts to buy homes in August, the fifth month of declines in the last six. The National Association of Realtors’ pending home sales index fell 2.6% to 106.3. That was the lowest reading since January 2016 and put the index 2.6% lower than its level a year ago. There is a supply-demand imbalance with very tight inventories.

Here we go again: Sonic may be the latest company to face a cybersecurity breach. The drive-in restaurant chain — which has 3,500 locations across the United States — said that a credit card processing company noticed peculiar activity on some Sonic customers’ cards. That’s a telltale sign that hackers targeted Sonic. The company said it’s not yet clear how many restaurants or customers may be impacted.

Amazon announced a bunch of new hardware today. Amazon introduced 5 new Echo hardware products. The big difference seems to be better speakers. Also, they announced their voice assistant, Alexa, will be available in BMW cars. Amazon also unveiled tiny “Echo Button” devices that can be configured to work and control an Amazon Echo. In one instance, Amazon showed how a family might play a game like “Trivial Pursuit” using the buttons to chime in for answers.

The Echo Connect is a $35 box that will allow you to place phone calls to landlines using your existing Amazon Echo units. The Echo already supports calling between Echos, but that acts more like an intercom system. Amazon also unveiled a new Fire TV dongle that plugs into the back of a TV (it uses HDMI). It will support 4K content. Resistance is futile.

Meanwhile, Google celebrates its 19^th anniversary today. I have no idea how we found anything 20 years ago.

Financial Review

Scored

Sinclair Noe — June 26, 2017

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DOW + 14 = 21,409
SPX +0.77 = 2439
NAS – 18 = 6247
RUT + 1 = 1416
10 Y UN = 2.14%
OIL + .42 = 43.43
GOLD – 12.10 = 1245.50

Another quiet day on Wall Street. That is the new normal. The S&P 500 this year has been more likely to move less than 0.1 percent than to move more than 0.5 percent in a trading session. The index has closed at least 1 percent higher or lower a mere four times this year.

The CBOE volatility index has fallen to 23-year lows. And still the market keeps inching higher. The market is still hovering near record highs.

The non-partisan Congressional Budget Office has released its score of the Better Care Reconciliation Act, this is the Senate version of legislation to repeal and replace Obamacare. The Senate Republican health care bill would leave 22 million fewer Americans with health insurance by 2026 than under Obamacare.

And while that is a slight improvement on 23 million that would lose insurance under the House version, it is still a dreadful number. Next year, 15 million more people would be uninsured compared with current law. Like the House bill, the Senate’s version would end enhanced funding for Medicaid expansion, though at a slower pace, while overhauling the entire Medicaid program.

It would eliminate the mandates that require nearly all Americans to have coverage and companies with more than 50 workers to provide health benefits. And it would jettison Obamacare’s taxes on the wealthy, insurers and others, while allowing insurers to charge more to older policyholders.

However, the Senate bill would maintain much of Obamacare’s subsidy structure to help people pay for individual coverage, but make it less generous, particularly for older enrollees. And it would keep more of Obamacare’s insurance regulations than the House legislation. The Senate version also provides funds to stabilize the Obamacare market over the next few years, including money for a key set of subsidies for insurers.

The legislation is wildly unpopular. Before the budget office released its report this afternoon, the American Medical Association officially announced its opposition to the bill, and the National Governors Association urged the Senate to slow down. The AARP slammed the Senate GOP bill, calling efforts to repeal and replace ObamaCare “harmful” and denouncing what it calls an “Age Tax” affecting the nation’s senior citizens.

The GOP plan allows insurance companies to charge older adults up to five times more than younger people, while under ObamaCare older Americans can only be charged three times as much as younger people. The lobbying group for seniors accused Senate GOP leaders of crafting legislation in “secrecy” that “would hit millions of Americans with higher costs and result in less coverage for them.”

Here are a few other key findings from the CBO:
Premiums would increase in 2018 and 2019 compared to the current baseline, but decline thereafter: According to the CBO, premiums would increase 30% more than the current projection in 2018 and 10% higher than the current baseline in 2019. From 2020 and beyond, the change in the risk pool with older and poorer Americans likely priced out would bring these premiums down.

Deductibles and out of pocket costs would increase substantially: The benchmark plan on the individual insurance market would have an actuarial value of 58%, meaning insurance was obligated to cover 58% of the total costs. That is down from the current 70% benchmark value. According to the CBO, that opens the door for higher deductibles and out-of-pocket costs.

Earlier today, Republicans released changes to their healthcare bill, adding a measure that would penalize people who let their insurance coverage lapse. The revised bill would impose a six-month waiting period for anyone who lets their health insurance lapse for over 63 days and then wants to re-enroll in a plan in the individual market.

The legislation would decrease federal deficits by a total of $321 billion over a decade; more than the $119 million in savings in the House bill, between 2017 and 2026. The savings are made possible by cutting $862 billion in spending over that time-frame while also reducing tax revenue by $541 billion. It represents a big tax cut for wealthy taxpayers, but even bigger spending cuts, mainly to Medicaid.

That means the legislation can continue under the budget reconciliation process, which only requires 51 votes to pass. As of today, it does not have enough votes to pass. Five Republican senators have said they would not vote for the BCRA, several others have indicated they are leaning in the direction of a vote against and it doesn’t look like the CBO score will help turn those to support the bill.

Senate Majority Leader Mitch McConnell is insisting on a vote this week before lawmakers leave town for the July 4th recess, but a vote could be delayed, especially if it looks like it will go down in flames. Look for tweaking, name calling, arm twisting and much more over the coming days or weeks.

The Supreme Court will allow most of the Trump administration’s travel ban to go forward before it hears a case on the matter in October. The ruling grants a stay of lower court rulings that had piled up against the administration. The court’s decision found that the lower courts’ preliminary injunctions, which fully halted the key provisions of the executive order, were too broad.

So, the court narrowed these injunctions, ruling that the travel ban “may not be enforced against foreign nationals who have a credible claim of a bona fide relationship with a person or entity in the United States.”

That would apply to people who have family members stateside, those who have been admitted to a college or hired by an employer. However, “all other foreign nationals are still subject to the provisions” of the order.

In practice, the court’s ruling means Trump’s travel ban won’t be able to affect the great majority of foreign nationals who were trying to get to the U.S. from the six countries. It was already extremely difficult to get a visa from these countries unless you had family ties or a specific invitation.

The court also set arguments on the merits of the case for the first day of its next term in early October. The government may now exclude citizens from six Muslim-majority countries from coming into the United States unless they have some meaningful connection with a “person or entity” in the country. The court’s order also allows the government to exclude refugees, even those who are already vetted and poised to resettle here, unless they have the required connections.

SCOTUS agreed to consider whether employees who report misconduct at their companies are entitled to protections as “whistleblowers” if they report the alleged wrongdoing only internally, not to the Securities and Exchange Commission.

The announcement is welcome news for corporate defendants that have lamented the broad way in which the SEC and some federal courts have interpreted the 2010 Dodd-Frank financial overhaul, which is ambiguous about whether employees who only make internal corporate reports of securities fraud are protected under federal law.

The Supreme Court also agreed to consider whether the Constitution’s religion clauses allow a bakery to deny service to gay couples. In a separate ruling, the Supremes ruled that the Constitution requires states to list married same-sex couples on their children’s birth certificate. The decision marks a landmark victory for gay rights, confirming that the court’s decision in Obergefell v. Hodges protects all rights relating to marriage, not simply the recognition of marriage itself.

The Supreme Court ruled that taxpayer-funded grants for playgrounds available to nonprofits under a state program could not be denied to a school run by a church.

The Supreme Court declined to hear a Second Amendment challenge to a California law that places strict limits on carrying guns in public. The California case essentially bans carrying guns openly in public and allows carrying concealed weapons only if applicants can demonstrate good cause.

Orders for durable goods such as planes and computers fell in May for the second month in a row and registered the biggest drop in six months. Durable-goods orders slipped 1.1% last month following a similar decline in April. A key measure of business investment known as core capital-goods orders, meanwhile, fell 0.2% to mark the first decline of 2017. Businesses that were eagerly anticipating tax and regulatory relief may be taking a wait-and-see attitude.

Government websites in Ohio, Maryland and New York have been hacked with what appears to be pro-ISIS propaganda. It was not immediately clear who the group is — or whether it is genuinely affiliated with ISIS. The Ohio sites were back to normal this morning.

Twitter, Facebook, YouTube and Microsoft have formed the Global Internet Forum to Counter Terrorism. The group will share technical tools for combating extremist content, such as violent imagery and terrorist propaganda, and commission research to guide future resources. It’ll also work with academic and policy experts to learn more about terrorism.

Martin Shkreli, the former pharmaceutical executive is going to trial. In 2017, Shkreli sparked outrage in 2015 for increasing the price of Daraprim, a drug used by AIDS patients, by more than 5,000% from $13.50 to $750 a pill while he was CEO of Turing Pharmaceuticals. But the trial deals with charges of securities fraud, wire fraud and conspiracy for allegedly cheating investors out of more than $11 million between 2009 and 2014 in what federal prosecutors called a “Ponzi scheme.”

Financial Review

Scotch and Cigarettes

Sinclair Noe — March 24, 2017

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

Subscribe: iTunes | Android | RSS

DOW – 59 = 20,596
SPX – 1 = 2343
NAS + 11 = 5828
RUT + 1 = 1354
10 Y – .02 = 2.40%
OIL + .31 = 48.01
GOLD – 1.70 = 1243.90

House Speaker Paul Ryan pulled his Obamacare repeal bill from the floor this afternoon, a day after President Donald Trump had threatened to walk away from health care reform if he didn’t get a vote. Ryan reportedly met with Trump, presented the expected vote totals and recommended the President pull the bill.

The decision was ultimately Trump’s. Trump had gambled big by presenting holdout House conservatives with a take-it-or-leave it ultimatum on Thursday night and put his own credibility on the line. It also puts Ryan in a much-weakened political position, after being defied by his own conference.

And somewhere John Boehner is puffing on a cigarette and enjoying a Friday afternoon Scotch.

So, what now? The GOP effort to repeal Obamacare is dead. The House meltdown on Obamacare repeal has serious implications for the American health care system, with Republicans apparently unable to repeal the law but also unwilling to fix the deficiencies that the White House says will collapse the law.

Ryan told fellow Republicans they are “moving on” from health care; which means the next issue will likely be tax reform, another complex and divisive issue, made even more complicated because health care represents nearly 20% of the economy.

Still, shifting focus to tax reform from the quagmire that is health care reform might be a positive in the eyes of Wall Street.

Stocks rose from session lows to end little changed. Investors now have a weekend to consider implications. Treasuries rose. The dollar slipped for a second week. The S&P 500 Index capped its worst week since the election as political wrangling in Washington dominated sentiment. Banks sank 3.8 percent in the week. Shares of hospital operators finished sharply higher.

New orders for key US-made capital goods fell in February, but shipments surged. The Commerce Department said non-defense capital goods orders excluding aircraft, a closely watched proxy for business spending plans, dipped 0.1 percent last month after rising 0.1 percent in January. A recovery in oil prices from multi-year lows is driving demand for equipment in the energy sector, helping to lift the manufacturing sector after a prolonged slump.

Separately, orders for durable goods advanced 1.7% while the increase in January was raised several notches to 2.3%, reflecting a pickup in manufacturing that kicked in toward the end of last year. The increase in bookings last month was spearheaded by commercial aircraft, whose orders jumped almost 48%. That offset a nearly 1% drop in orders for new cars and trucks.

US auto sales in March will increase almost 1.9 percent from a year earlier, even as consumer discounts continue to remain at record levels. Per industry consultants J.D. Power and LMC Automotive, March U.S. new vehicle sales are expected to be about 1.62 million units.

Oil posted its third weekly drop ahead of this weekend’s meeting in Kuwait, at which OPEC and its production-cutting allies will assess the effectiveness of their actions to date. Talks will also be overshadowed by the question of whether the persisting glut requires curbs to be extended beyond the summer.

US shale producers are drilling at the highest rate in 18 months but have left a record number of wells unfinished in the Permian Basin in Texas, the largest oilfield in the country – a sign that output may not rise as swiftly as drilling activity would indicate. A record 1,764 wells were left unfinished in the Permian in February. In February alone, 395 wells were drilled and only 300 completed. That was the highest drilling rate in the Permian in two years.

President Trump announced this morning the granting of a permit for construction of the controversial Keystone XL pipeline, calling it “the first of many infrastructure projects” that he would approve in order to put more Americans to work.  The $8 billion project would span 1,200 miles, connecting Alberta’s massive tar sands crude with pipelines and refineries on the Texas gulf coast that are particularly well-suited to handling the thick oil.

TransCanada, the Calgary-based firm that has been trying to win approval for the pipeline for nearly 10 years, announced that the State Department has signed and issued a construction permit for the project. Because of the approval, TransCanada will drop an arbitration claim it filed for $15 billion in damages under the North American Free Trade Agreement. And Trump made no mention of using US steel, as he earlier said would be required of any new pipeline.

That doesn’t necessarily mean the pipeline will be built – at least not any time soon – but it will result in many new jobs…, for attorneys. Since Obama had nixed the pipeline based on an environmental assessment commissioned by the State Department in early 2014, opponents will likely argue in court that Trump can’t reverse the decision without conducting a new assessment.

The Presidential Permit is only one part of a web of federal, state, and local permits that must be obtained prior to starting construction. TransCanada may still need to reach deals with hundreds of potentially affected landowners, plus state and local regulators on the pipeline’s route.

Dallas Fed President Robert Kaplan sees three interest rate rises in 2017 as “a reasonable baseline.”  Kaplan said he is not looking for a pause in rate hikes if US employment and inflation figures continue to improve, adding that it would be right for the Fed to begin trimming its balance sheet in the future. Kaplan is a voting member on the FOMC.

New York Fed President William Dudley said today that the economy will cope “just fine” with gradual policy tightening. Meanwhile, St. Louis Fed President James Bullard does not share that confidence, and believes 2 more hikes might potentially be overkill. Bullard told reporters, “It’s not necessary to raise rates that quickly if the goal is to keep inflation near target and keep unemployment between 4.5 and 5 percent.”

US financial regulators are telling four foreign banks to improve their living wills. Barclays, Credit Suisse, Deutsche Bank and UBS were each given until July 2018 to improve their resolution plans, which are intended to map out a strategy so their US operations could be closed under bankruptcy law without taxpayer assistance in the event of an unexpected crisis.

At the same time, the Federal Reserve and the Federal Deposit Insurance Corporation said livings wills presented by 16 large US banks would be functional. Only Northern Trust’s living will have shortcomings that must be addressed.

Germany’s state-owned development bank KfW mistakenly transferred more than $5.4 billion to four banks because of a technical glitch that repeated single payments multiple times. We don’t know how that could happen but the money has been recovered. Maybe the “send” key got stuck or something.

Apparently, this kind of glitch is not uncommon. In June 2015, Deutsche Bank’s foreign exchange unit mistakenly sent $6 billion to a hedge fund client and recovered the sum a day later. And of course, there have been multiple hacks on multiple banks, including the Federal Reserve Bank of New York.

Still, the KfW blunder is distinctive because KfW’s own website touts it’s been awarded the title of the world’s safest bank by Global Finance magazine. You’ve probably never heard of KfW, but if it does register it might be because of an ill-timed payment of more than 300 million euros KfW made to Lehman Brothers in September 2008, just as the U.S. investment bank filed for bankruptcy.

At the time, the German lender failed to refresh its counter-party check that would have prevented it from processing the regular transaction. The transfer turned into a political scandal in Germany, with newspaper Bild calling KfW “Germany’s dumbest bank.”

Passengers on some flights to the US and UK must check in most types of electronic devices starting at 3 a.m. ET on Saturday. The ban includes laptops, cameras, gaming devices and tablets such as iPads. Some airlines flying to the U.S. have already started enforcing the new rules. Officials said the move is a response to fears that terrorist groups may target commercial aircraft by smuggling explosive devices in electronic devices.

On a party-line vote of 50-48, the Senate has approved overturning regulations from last October that put strict requirements on consumer privacy protection. The FCC, then led by Tom Wheeler, voted to require ISPs to get consumer consent before using data like health and financial information, as well as precise geolocation in ads and internal marketing. Major providers opposed the restrictions at the time.

The YouTube advertising exodus continues as Johnson & Johnson, JPMorgan and LYFT join other major advertisers in the US and the UK to pull ads from the platform, due to concerns they may have appeared on channels that broadcast offensive videos. Whether the recent events are a harbinger of bigger problems may depend on whether Google can give businesses more control over ad placement.

Japan’s Toshiba Corp has informed its main lenders it is planning for US nuclear unit Westinghouse Electric to file for bankruptcy on March 31. Reuters reports Toshiba expects a Chapter 11 filing for Westinghouse would expand charges related to the US unit in the current financial year to around $9 billion, about 30% higher than earlier estimates.

The decision comes only three months after Toshiba first warned of multi-billion dollar charges for Westinghouse. The ensuing financial meltdown has already caused Toshiba to put up its prized memory chip unit for sale, consider a sale of a majority stake in Westinghouse and miss deadlines to file earnings that have put it at risk of a delisting.

Stocks off Lows, but Still Red on Close

Charles Schwab: On the Market

Posted: 3/6/2017 4:15 PM ET

Stocks off Lows, but Still Red on Close

U.S. equities finished the regular trading session off the day's lows, but in the red as investors seemingly focused on geopolitical concerns and the possibility that the Federal Reserve may move to raise its target rate as early as next week. Treasuries, crude oil prices and gold were lower, while the U.S. dollar advanced. In light economic news, factory orders exceeded estimates and durable goods orders for January were favorably revised.

The Dow Jones Industrial Average (DJIA) lost 51 points (0.2%) to 20,954, the S&P 500 Index lost 8 points (0.3%) to 2,375, and the Nasdaq Composite decreased 22 points (0.4%) to 5,849. In moderately-heavy volume, 796 million shares were traded on the NYSE and 1.8 billion shares changed hands on the Nasdaq. WTI crude oil ticked $0.13 lower to $53.33 per barrel and wholesale gasoline added $0.02 to $1.67 per gallon. Elsewhere, the Bloomberg gold spot price ticked $8.84 lower to $1,225.97 per ounce, and the Dollar Index—a comparison of the U.S. dollar to six major world currencies—was 0.1% higher at 101.67.

General Motors Co. (GM $38) announced an agreement with French automaker PSA Group Ltd. to sell its European operations, Opel and Vauxhall, to the parent of Peugeot SA(PUGOY $21) for about $2.2 billion. GM lost ground, though PUGOY advanced. 

TG Therapeutics Inc. (TGTX $10)surged to close over 90% higher after announcing positive results from a study of its leukemia treatment.

Factory orders report tops forecasts to kick off economic week

Factory orders (chart) rose 1.2% month-over-month (m/m) in January, versus the Bloomberg expectation of a 1.0% increase, while December's figure was unadjusted at a 1.3% gain. January durable goods orders—preliminarily reported a week ago—were adjusted higher to a 2.0% increase, from the preliminary reading of a 1.8% gain, and versus expectations of a downwardly revised 1.0% rise. Orders of nondefense capital goods excluding aircraft—a proxy for business spending—were revised slightly higher to a 0.1% dip from the first estimate of a 0.4% decline.

Treasuries were mostly lower, with the yield on the 2-year note flat at 1.30%, while the yield on the 10-year note rose 1 basis point (bp) to 2.49% and the 30-year bond rate gained 3 bps to 3.10%.

Tomorrow, the domestic docket will include the release of the trade balance, expected to have widened to a $48.5 billion shortfall in January after the prior month's $44.3 billion deficit. In the final hour of trading we will receive the January consumer credit report, forecasted to show consumer borrowing advanced $17.8 billion after increasing $14.2 billion in December.

With earnings season all but in the books and Fedspeak going quiet ahead of the March 14-15 meeting, all eyes will likely focus on this week's U.S. economic calendar, which will also deliver reads on the trade balance and 4Q nonfarm productivity and unit labor costs. However, the docket will be headlined by Friday's key nonfarm payroll report for February.

As noted in the latest Schwab Market Perspective: "Phenomenal" Expectations, U.S. stock indexes broke to the upside, on better economic data but also heightened expectations of tax and regulatory reform. The bar is now set higher for policy action to support the rhetoric, setting up the possibility for a market pullback and/or a pickup in volatility. The economic picture continues to look good, but inflation is heating up, which has put a March rate hike by the Federal Reserve firmly on the table. An earnings growth recovery has helped fuel a global rally, but there are risks that expectations and valuations have gotten a bit extended. Read more at www.schwab.com/marketinsight.

With last week's speech by Federal Reserve Chairwoman Janet Yellen solidifying March rate hike expectations and the markets highly-anticipating details of President Donald Trump's plans for tax, healthcare and regulatory reforms, along with infrastructure spending, see Schwab's Chief Fixed Income Strategist, Kathy Jones' article, What would a shake-up at the Fed mean for bond investors? at www.schwab.com/onbonds, and follow Kathy on Twitter: @kathyjones. In the wake of President Trump's first speech in front of Congress last week, Schwab's Vice President of Legislative and Regulatory Affairs, Michael T. Townsend offers his latest article, Presidential Reset: What Does Trump's Speech Mean for His Agenda?, at www.schwab.com/insights.

Finally, as the stock markets remain near all-time highs, Schwab’s Chief Investment Strategist Liz Ann Sonders delivers a look at investing strategies in the current bull market in her latest article, Radioactive: Is Passive's Dominance Over Active Set to Wane?, at www.schwab.com/marketinsight and follow Liz Ann on Twitter: @lizannsonders.

Europe dips, Asia mostly higher

European equities finished mostly lower in late-day action, with global caution setting in amid heightened geopolitical risks as U.S. political uncertainty remains and North Korea fired ballistic missiles off its east coast, while a key French Presidential election draws near. Schwab's Chief Global Investment Strategist Jeffrey Kleintop, CFA, and Vice President of Trading and Derivatives, Randy Frederick discuss the French political front in the video, Why Should the French Presidential Election Be Important to Investors? at www.schwab.com/insights. Also, be sure to check out Jeff's article, Five Reasons to Stay Invested Despite Heightened Uncertaintyat www.schwab.com/oninternational. Follow Jeff and Randy on Twitter: @jeffreykleintop and @randyafrederick. M&A news ramped up, with Standard Life PLC. (SLFPY $19) and Aberdeen Asset Management PLC. In economic news, eurozone investor confidence improved much more than expected for March. The euro and British pound saw pressure versus the U.S. dollar, while bond yields in the region finished mixed.

Stocks in Asia finished mostly to the upside, shrugging off festering political risk in the U.S. and Europe, which was met with news that North Korea fired multiple ballistic missiles off its east coast, as well as heightened expectations of a rate hike in the U.S. later this month. However, a rise in the yen weighed on Japanese markets, while stocks trading in mainland China and Hong Kong advanced as the markets digested a cautious economic outlook by the government amid its annual legislative meeting. Australian securities rose and South Korean equities ticked higher. Indian listings advanced, extending its run as of late to a two-year high. Schwab's Director of International Research, Michelle Gibley, CFA, provides some timely analysis of global investing in her articles, Currency Hedging: 5 Things You Need to Knowand Emerging Markets: Why They Deserve a Place in Your Portfolioat www.schwab.com/oninternational, and be sure to check out our release, Why Your Portfolio Needs International Stocks—Despite 2017 Risks at www.schwab.com/insights.

Tomorrow, the international economic docket will yield the release of house prices from the U.K., factory orders from Germany, PPI from Italy and GDP from the Eurozone. Meanwhile, in central bank action, the Royal Bank of Australia will announce its monetary policy decision, with no changes to its current stance expected.

Financial Review

The Mark Inside

Sinclair Noe — January 27, 2017

Podcast: Play in new window | Download (Duration: 12:08 — 5.6MB)

Subscribe: iTunes | Android | RSS

DOW – 7 = 20,093
SPX – 1 = 2294
NAS + 5 = 5660
RUT – 5 = 1370
10 Y – .02 = 2.48%
OIL – .64 = 53.14
GOLD + 2.90 = 1192.20

Major market indices traded in a tight range today. The Nasdaq pulled out another record high close. Meanwhile the VIX, the volatility index closed at 10.52, a multi-year low, indicating a certain complacency among investors, not in all sectors for sure, but with regards to overall market risk.

Gross domestic product, the value of all goods and services produced, rose at a 1.9 percent annualized rate in the fourth quarter, following the prior quarter’s 3.5 percent rate of growth.

For the full year, the U.S. grew just 1.6%, down from a 2.6% clip in 2015; still, even if growth was a bit sluggish, it marks 7 straight years of growth. A wider trade deficit — a negative for GDP — was by far the biggest anchor in the fourth quarter. The economy would have topped 3% growth if the trade gap has basically been unchanged.

Consumers increased spending by a solid 2.5%, with strong purchases of big-ticket items such as new cars or computers. Businesses also ratcheted up overall spending, including the first increase in equipment purchases in five quarters.

Home builders boosted investment in new housing by just over 10%, marking the first advance in three quarters. Companies also stocked up more: the value of inventories jumped by $48.7 billion after barely any change in the spring and fall. The GDP estimate is the first of three for the quarter, with the other releases scheduled for February and March when more information becomes available.

Today’s GDP report shows that there is still plenty of room for economic growth, and President Trump’s proposals for tax cuts and infrastructure spending could certainly bolster the economy in the short-term. But in economics, things tend to cut both ways. Expansionary fiscal policy would likely lead to a stronger dollar, which would harm US manufacturing.

We could also see a higher federal deficit. And then remember the Federal Reserve is standing by to make sure we maintain price stability; and even though the Fed is not expected to hike rates at their FOMC policy meeting next week, they anticipate 3 hikes this year, which would be much more likely in the face of fiscal accommodation.

Orders for long-lasting goods made in the U.S. fell in December for the second month in a row, largely because of a cutback in demand from the Pentagon. New orders for durable goods dropped 0.4% last month. Bookings for defense-related equipment, including jets and other major hardware, accounted for the unexpected decline. Orders were also weak for primary metals, fabricated parts and computers. One strong area: orders for new cars rose 2%.

Mexican President Enrique Pena Nieto scrapped a planned trip to meet with President Trump, who has repeatedly demanded that Mexico pay for a wall on the U.S. border. And then today, it was announced that Pena and Trump talked on the phone for about one hour but nothing new on a wall or how to pay for it.

White House spokesman Sean Spicer, in a not so internal monologue, told reporters Trump was considering a 20% tax on Mexican imports to pay for the wall’s construction; that was later corrected to be just one of a “buffet of options” on the table. Just a reminder, the US has a $68 billion trade deficit with Mexico and is our third largest trading partner.

Mexican billionaire Carlos Slim, who once opposed a Donald Trump presidency and later said it would be “very good for Mexico,” held a press conference today in Mexico City. Slim offered his services to help Pena negotiate with Trump and called on Mexicans from all political parties to unite behind President Pena in his discussions with Trump.

Slim says Trump’s plans to bring manufacturing jobs to the US would only result in higher prices for consumers. Slim is Mexico’s wealthiest man and one of the world’s richest people, with an empire that encompasses telecoms, mining, banking and construction.

Theresa May last night offered to help President Trump to prevent the West from being “eclipsed” by China as she urged him not to shirk his “obligation” to lead the world. The U.K. Prime Minister also hopes he can be an economic ally – after Britain’s divorce from Europe, she’ll need a trade deal with the US.

The pair met face-to-face today, making her the first foreign leader to step into Trump’s Oval Office, and then they held a very brief joint press conference. May said Trump had committed 100% to NATO. May said the UK was opposed to lifting sanctions on Russia. Trump said he believes in torture. They both said they thought they could have a friendly relationship.

The US is Britain’s biggest export destination after the EU, accounting for over 15% of the country’s exports. Last week, May confirmed that Britain would leave the EU’s single market and customs union, allowing it to sign trade agreements of its own after the process of exit is complete.

The process includes the “Brexit bill,” which Parliament must approve to empower the prime minister to start the two-year negotiation period for Britain to leave the 28-nation bloc. The EU is hanging tough on not starting any sort of Brexit talks until Britain pulls the Article 50 trigger. The EU treaty stipulates that departure happens in 24 months irrespective of whether an exodus includes neat and clean trade bills.

Pretty much everyone agrees that a Brexit by default rather than a negotiated Brexit would be worse for the UK. And while there is a mechanism for extension, it requires unanimous approval of the 27 remaining states. The UK is so widely disliked in the EU that no one expects an extension to be granted.

So, the importance of a UK-US trade deal becomes even more important, even though it can’t technically be negotiated just yet. At the very least, it means Prime Minister May is negotiating from a position of weakness.

Trump has scheduled a phone conversation with Russian President Vladimir Putin and German Chancellor Angela Merkel on Saturday – not a three-way call. Trump’s PR team has been laying the groundwork for possibly removing sanctions against Russia, imposed after Russia invaded Ukraine and annexed Crimea.  Today, Arizona Senator John McCain said easing sanctions was a “reckless course.”

Alphabet’s revenue beat analysts’ estimates, but its profits per share missed expectations due to the company paying a much larger tax rate than anticipated. Alphabet, along with Microsoft and Intel, which also reported results yesterday, continue to show that cloud services remain the biggest growth area in tech. Microsoft shares hit an all-time high in trading today, and market cap topped $500 billion for the first time in 17 years. Apple, Amazon, and Facebook report earnings next week.

Starbucks slashed its 2017 revenue forecast. Starbucks’ first-quarter results were mostly in line with estimates but said it saw 2017 revenue growth of 8% to 10%, down from its previous estimate of a double-digit rise.

Chevron missed profit and revenue estimates for the fourth quarter. CEO John Watson said the earnings reflect the low oil and gas prices during the past year. The company cut capital and operating costs by $14 billion in 2016.

In Europe, UBS Group kicked off a run of bank earnings releases this morning saying all its money-management units saw net redemptions in the last quarter. UBS investors pulled out $15.2 billion in the fourth quarter and margins at its wealth management business declined for a third straight quarter, even as rising stock markets and higher interest rates in the U.S. lifted earnings.

Sears tumbled more than 9% to under $8 per share on Thursday, sending the company’s stock to its lowest price since its merger with Kmart back in 2004. The decline piled on to a 7% drop in Sears’ shares a day earlier, when Fitch Ratings called attention to the chain’s “significant” cash burn. The company also ended up at the top of a Bloomberg Intelligence list of retailers with the highest risk of bankruptcy.

Iranian supertankers are sailing to Europe for the first time since sanctions were eased last year as one of the world’s biggest crude shippers moves to step up deliveries. While European refiners have been taking small cargoes of Iranian oil, these are the first vessels operated by the National Iranian Tanker Company rather than independent shippers. Each of the very large crude carriers can carry more than 2 million barrels.

Lunar New Year celebrations are underway. Markets in China and across much of Asia will be shuttered over the next week in celebration of the Lunar New Year.