Podcast: Play in new window | Play in new window (Duration: 13:15 — 6.1MB)
DOW + 189 = 17,630
SPX + 25 =Â 2093
NAS + 49 = 5089
10 YR YLD + .02 = 2.25%
OIL + .59 = 47.98
GOLD + 1.00 = 1096.50
SILV + .14 = 14.79
The Federal Reserve FOMC met today. They will meet again tomorrow and then they will issue a statement. Investors are not expecting any major decisions this week, but they will be looking for hints on the Fed’s timing for possible future movements. While consensus for a rate rise is leaning towards September, the wild card is now China.
A growing number of market watchers are suggesting that, before the year is out, two interest rate hikes rather than just one could be on the cards. In the Treasury market, futures contracts suggested that investors were making the same mistake they made at the outset of the last three major tightening cycles, by underestimating the amount the federal funds rate will be raised. The implied rate on September 2016 contracts is 0.8 percent, while many forecasts are looking at 1.5 percent to 2 percent.
Chinese shares whip-sawed between gains and losses today, as Beijing renewed its pledge to prop up an equities market. The 144 Chinese companies with primary stock listings in the US have erased nearly $40 billion in paper wealth since the Shanghai Composite peaked in mid-June; a 30% drop. After a plunge of more than 8% on Monday, Chinese regulators said they were prepared to lend further support, while the central bank injected cash into money markets and hinted at further easing. And the Shanghai was only down 1.7% at 3663.
One report said traders saw stability in the Chinese markets and that helped rally stocks in other countries, including the US. Unfortunately, it may be little more than stability; market crashes don’t typically end with good news; they end with bad news that washes out all the remaining weak hands. Right now it looks like we’re seeing a dead cat bounce off the 200 day moving average, we’ll have to see if it holds. From there, the next levels of support are around 3370 and then around 3050.
A delegation from the so-called troika and Eurozone bailout fund are in Athens this morning to begin negotiations over an €86B bailout. The talks will start almost a week later than planned, raising pressure on Greek PM Alexis Tsipras, who is already struggling to keep his party from falling apart. A new bailout would have to be completed by mid-August if Athens is to secure billions of euros to repay ECB-held bonds that mature on August 20.
Puerto Rico owes $72 billion, a sum its governor has declared it can’t pay, but consultants in a hedge-fund-backed report issued Sunday insisted the island actually can come up with the cash. Hedge funds want their money and so they’re telling the debt-buried island to cut teachers, slash spending and collect more taxes to deal with its fiscal crisis. Instead of letting Puerto Rico restructure its debt, the hedge fund report says the government should cut spending by $2 billion a year; cutting the number of teachers at public schools, slashing subsidies to the University of Puerto Rico and reducing Medicaid and welfare benefits. The creditors also want Puerto Rico to sell off public properties and increase its collection of sales and property taxes to bring in $3 billion more a year. Seems we’ve heard this story somewhere else.
Consumer confidence fell sharply in July to a 10-month low. The consumer confidence index dropped to 90.9 from 99.8 in June.
Home prices rose steadily in May. The Standard & Poor’s/Case-Shiller 20-city home price index increased 4.9 percent in May from 12 months earlier, down slightly from a 5 percent pace in April. In Phoenix, home prices increased 0.8% from April to March, and prices are up 3.8% over the past 12 months.
The Census Bureau reports the home ownership rate was 63.4 percent in the second quarter, the lowest reading since 1967. The number of owner households decreased by 400,000, while the number of renter households increased by 2 million. While that is a good sign for the rental market, overall a lack of home buyers is likely a bad sign that incomes aren’t keeping pace with rising home prices, keeping young buyers out of the housing market.
Honeywell (HON) is buying Elster Group (ELT) for $5.1 billion. Elster Group is a German-based energy and water business owned by the UK’s Melrose Industries.
Hikma Pharmaceuticals (HKMPF) agreed to pay about $2.6 billion in cash and shares for generic drugmaker Roxane.
General Electric (GE) has offered to sell gas-turbine assets to an Italian rival in another attempt to win EU approval for its plan to buy most of Alstom’s energy business. On Monday, Alstom (ALSMY) agreed to a €300 million-euro reduction in the price it would get for selling its power turbines unit to GE , to help the latter gain antitrust clearance.
Global M&A volumes this year are on track to pass $3 trillion for the first time since 2007, according to data compiled by Bloomberg. Almost 20,000 deals worth a total of $2.1 trillion have been agreed this year. Goldman Sachs (GS) holds the top spot on M&A advisory league tables for 2015, advising on 156 deals worth a total of $578.5 billion since January 1 — about $100 billion more in value than the same period last year. Health care, including pharmaceuticals and biotechnology, has been the most active industry with 1,441 deals in the first two quarters of 2015.
Earnings season is in high gear. BP announced a second-quarter net loss of $5.8 billion. For BP, it’s the biggest loss since the Deepwater Horizon disaster in the second quarter of 2010. The most recent results included a $10.8 billion charge for liabilities related to the spill, bringing the total set aside to more than $54 billion. The company also warned that low oil prices are here to stay.
DuPont reported a 12 percent drop in quarterly profit, hurt by a fall in agriculture earnings and a stronger dollar.
Pfizer (PFE) beat Wall Street expectations for the second quarter and raised its 2015 forecast.
