DAILY MARKET REPORTS
- U.S. stocks fell on Thursday after the United States decided to impose metal import tariffs on Canada, Mexico and the European Union, sparking fresh concerns of a trade war with its top allies.
- U.S Commerce Secretary Wilbur Ross told reporters on a telephone briefing that a 25% tariff on steel imports and a 10% tariff on aluminum imports from its allies would go into effect at midnight (0400 GMT on Friday).
- Renewed trade worries put an end to market optimism over fresh efforts in Italy to form a government.
- Data showed that U.S. consumer spending jumped 0.6% in April, the biggest gain in five months and above Reuters’ estimate of 0.4% rise, in the latest sign that economic growth was regaining momentum early in the second quarter.
- Personal consumption expenditures (PCE), the Federal Reserve’s favored measure of inflation which excludes the volatile food and energy components, rose 0.2% in April.
- General Motors surged 10.6% after Japan’s SoftBank decided to invest $2.25 billion in its autonomous vehicle unit.
- Among other stocks, struggling department store operator Sears slid 7.2% after its quarterly profit slumped nearly 30%.
- Dollar General declined about 8% and Dollar General dropped 11.5% after both discount retailers missed Wall Street estimates for their quarterly same-store sales.
US FINANCIAL MARKET
Sears Closing More Stores as Sales Shrink For 26th Quarter in a Row
- Sears said that it plans to close another 72 stores it has deemed unprofitable, as the company continues to struggle with falling sales.
- Total revenue, which includes money generated from appliance and product-repair services, fell 31% to $2.89 billion.
- Same-store sales at Sears locations fell 13.4%, while they declined 9.5% at Kmart locations.
- The company operated 894 total locations as of May 5, down from 1,275 as of around the same time the year prior.
- Sears reported a first-quarter net loss of $424 million compared with a profit of $245 million a year earlier. The prior-year quarter’s results got a $741 million lift from asset sales.
Dollar General, Dollar Tree miss same-store sales estimates
- Discount retailers Dollar General and Dollar Tree missed Wall Street estimates for their same-store sales on Thursday as an unusually cold spring weather crimped demand for seasonal products, sending their shares down.
- Sales at Dollar General stores open for more than a year rose 2.1% in the first quarter, missing the 3.24% increase expected by analysts. Dollar Tree’s same-store sales rose 1.4%, compared with expectations of 2.19% growth.
- Net sales at Dollar General rose to $6.11 billion, but came in below expectations, while rival Dollar Tree’s first-quarter sales increased to $5.55 billion but fell short of analysts’ estimate.
- Excluding one-time items, Dollar General earned $1.36 per share, falling short of analysts’ expectation of $1.40. Dollar Tree earned $1.19 per share, missing estimate of $1.23.
SoftBank Tech Fund to Invest $2.25 Billion in GM’s Self-Driving Unit
- SoftBank Vision Fund will invest $2.25 billion in General Motors’s driverless-car unit, as the auto maker battles technology companies and startups in a race to commercialize autonomous vehicles.
- GM the fund will take a 19.6% stake in GM Cruise Holdings, a newly formed entity primarily made up of Cruise Automation, the driverless-car developer that GM acquired in early 2016 for around $1 billion, including undisclosed milestone payments.
- The Vision Fund’s investment will come in two tranches: an initial $900 million payment, and another of $1.35 billion once Cruise’s autonomous vehicles are ready for commercial deployment, GM said.
- The Vision Fund’s investment values the business at $11.5 billion. GM shares surged 11% to $42.07 in morning trading.
Uber, Waymo in talks about self-driving partnership: Uber CEO
- Uber Technologies is talking with Alphabet’s autonomous driving unit Waymo about using its technology on Uber’s ride-hailing app, Uber Chief Executive Dara Khosrowshahi said, signaling a possible thaw in relations between the firms.
- Khosrowshahi said on stage at the Code Conference that Uber’s relationship with Waymo was “getting better” since Uber in February agreed to pay Waymo $245 million in shares to settle a legal dispute over trade secrets.
- Waymo has self-driven 6 million miles on public roads. Waymo plans to roll out an app-based service this year offering rides to passengers in a fully self-driving Waymo car with no driver. It also has a partnership with Lyft, a rival of Uber.
Consumer Reports recommends Tesla’s Model 3 after braking fix
- Influential U.S. magazine Consumer Reports said on Wednesday it was recommending Tesla’s Model 3 sedan after its latest tests showed that a firmware update improved the car’s braking distance by nearly 20 feet.
- The magazine last week flagged “big flaws” in the car, including braking slower than a full-sized pickup truck, while also highlighting many positives.
- The update improved the Model 3’s overall score enough for a recommendation, said Consumer Reports, which had also raised other concerns such as the car’s wind noise, stiff ride and uncomfortable rear seat.
- During the retest, Consumer Reports found that Model 3 stopped at 133 feet from 60 mph, matching Tesla’s earlier claims on the car’s braking distance.
Apple to Tout Digital Health, AR Features at Software Conference
- On Monday, Apple executives will take the stage at the Worldwide Developers Conference in San Jose to lay out the iPhone maker’s software strategy for the next year and tease future hardware ambitions.
- Each year when it upgrades the operating systems that power the iPhone and iPad, Mac, Apple Watch, and Apple TV, the company touts enhancements that tie people ever closer to their devices and keep them engrossed in the latest apps and games.
- This year, the company will highlight the opposite: using gadgets less.
- Apple engineers have been working on an initiative dubbed Digital Health.
- These details will be bundled into a menu inside of the Settings app in iOS 12, the likely name of Apple’s refreshed mobile operating system.
America’s Teens Are Choosing YouTube Over Facebook
- Snapchat and even Facebook’s own Instagram are getting more clicks from the kids these days than the aging social network.
- Three years ago, Facebook Inc. was the dominant social media site among U.S. teens, visited by 71 percent of people in that magic, trendsetting demographic. Not anymore.
- Now, only 51 percent of kids between 13 and 17 use Facebook, according to Pew Research Center. The world’s largest social network has finally been eclipsed in popularity by YouTube, Snapchat and Facebook-owned Instagram.
US ECONOMY & POLITIC
U.S. Slaps Steel, Aluminum Tariffs on Canada, Mexico, European Union
- The U.S. will impose tariffs on steel and aluminum imports from its closest neighbors and allies, Commerce Secretary Wilbur Ross said Thursday.
- Starting Friday, steel and aluminum products from Canada, Mexico and the European Union will be subject to the same tariffs as most other nations when imported into the U.S., Mr. Ross told reporters in a call.
- Canada and Mexico had previously received temporary exemptions to the tariffs while U.S. officials seeks to negotiate a new version of the North American Free Trade Agreement, or NAFTA.
- EU officials say their shipments don’t hurt national security and have vowed to retaliate against U.S. exports.
U.S. Inflation Firms in April, Stays at Fed Target for Second Month Straight
- The personal-consumption expenditures price index, a broad measure that serves as the Fed’s preferred inflation yardstick, rose a seasonally adjusted 0.2% in April from March. From April 2017, the index was up 2%, matching the Fed’s annual goal for inflation.
- Excluding volatile food and energy prices, the price index rose 0.2%, more than the 0.1% consensus estimate in a survey of economists by The Wall Street Journal. From a year earlier, so-called core prices were up 1.8%.
U.S. Consumer Spending Rose in April
- Personal-consumption expenditures, a measure of household spending on everything from health care to magazines, increased a seasonally adjusted 0.6% in April from the prior month, the Commerce Department said Thursday.
- Personal income—reflecting Americans’ pretax earnings from wages, salaries, investments and other sources—rose 0.3% in April.
- Economists forecast a 0.4% increase in spending and a 0.3% rise in personal income from the prior month.
- Consumer spending accounts for more than two-thirds of U.S. economic output, making it a key driver of the economy.
- Meanwhile, consumers saved less. The personal saving rate in April was 2.8%, compared with 3% in March.
US Jobless Claims Declined in Week Ended May 26
- Initial jobless claims, an indication of layoffs across the U.S., fell by 13,000 to a seasonally adjusted 221,000 in the week ended May 26, the Labor Department said Thursday.
- Economists had forecast 225,000 new applications for jobless benefits last week.
- The four-week moving average of claims, which smooths out weekly jitters, posted a slight increase of 2,500 to 222,250.
- Thursday’s report also showed the number of continuing unemployment benefit claims—those drawn by workers for more than a week—decreased by 16,000 to 1,726,000 in the week ended May 19. Continuing claims are reported with a one-week lag.
Fed unveils rewrite of ‘Volcker Rule’ limits on bank trading
- U.S. regulators on Wednesday proposed simplifying a rule introduced after the 2007-2009 financial crisis that bans banks from trading on their own account in order to make compliance easier for many firms.
- The rewrite of the so-called Volcker Rule marked another step by regulators under U.S. President Donald Trump to ease rules introduced by the 2010 Dodd-Frank financial reform law in a bid to boost lending and economic growth.
- Banks have long complained the rule meant to ban lenders that accept U.S. taxpayer-insured deposits from engaging in proprietary trading is too vague and complex.
- The rewrite seeks to make clear which trades qualify for safe harbors, such as when banks facilitate client trades and hedge risks, and to expand those exemptions.
- The proposal eases one of the more controversial aspects of the rule which only permits trades related to market-making and underwriting by making it easier for firms to show such trades met near-term demand from clients.
Storm Clouds Gather Over the Fed
- Investors have unwound bets the Fed will pick up the pace of interest-rate increases over the past few days as political and financial turmoil rattles countries such as Italy, Turkey and Argentina.
- The Fed has penciled in three rate increases for 2018, and investors still see a more than 70% chance of that happening. But they have grown increasingly skeptical the Fed will deliver a fourth increase this year.
- Markets are now pricing in just a 24% chance the Fed raises rates four or more times this year, according to CME Group data. That is down from over 50% last week.
- Political turmoil unfolding in Italy–which is now facing the prospect of snap elections that could strengthen the position of anti-euro parties–and volatility across emerging markets are the main culprit behind the markets’ dimmer outlook.
Pending home sales fall more than expected as costs for buyers rise
- Pending home sales, which measure signed contracts to buy existing homes, fell a wider-than-expected 1.3% compared to March, according to the National Association of Realtors. It was the third lowest level of the past year.
- Pending sales were 2.1% lower compared to April of 2017 the fourth straight month showing an annual decline. The Realtors point, again, to the continuing supply crisis in housing today.
- Weakening affordability is going hand-in-hand with short supply, especially on the lower end of the market. As home prices continue to rise, potential buyers have less and less wiggle room in their wallets.
- Mortgage rates jumped sharply in April, with the average rate on the popular 30-year fixed hitting its highest level in seven years.
EUROPE & WORLD
Deutsche Bank’s U.S. Operations Deemed Troubled by Fed
- The Federal Reserve has designated Deutsche Bank’s sprawling U.S. business in “troubled condition,” a rare censure for a major financial institution that contributed to constraints on its operations, according to people familiar with the matter.
- The Fed’s downgrade, which took place about a year ago, is secret and hasn’t been previously made public.
- The “troubled condition” status—one of the lowest designations employed by the Fed—has influenced moves by the bank to reduce risk-taking in areas like trading and lending to customers.
- It also means the bank has had to clear decisions about hiring and firing senior U.S. managers with Fed overseers. Even reassigning job duties and making severance payments for certain employees require Fed approval, the people said.
Brazil oil worker strike gains steam in another blow to government
- A 72-hour strike by Brazilian oil workers halted refineries and rigs on Wednesday, union leaders said, a new blow to President Michel Temer on the heels of a trucker protest that has strangled Latin America’s largest economy for over a week.
- The oil sector strike included workers on at least 25 of the total 46 oil rigs Petrobras operates in the lucrative Campos basin, responsible for nearly half of Brazil’s petroleum production.
- The strike by workers demanding changes at state-led oil firm Petroleo Brasileiro SA is the latest challenge for the company known as Petrobras, whose shares have tumbled nearly 30% in two weeks over fears that political interference would unwind recent investor-focused policies.
- The economic and political storm has shaken the lame duck Temer government ahead of October elections and rattled nerves about the path forward for Petrobras, Latin America’s biggest producer of crude.
Italy’s anti-establishment leaders meet to try to avert elections
- Italy’s anti-establishment political leaders Matteo Salvini and Luigi Di Maio met on Thursday for last-ditch talks to resurrect a coalition government and avert a new snap election, the prospect of which has rattled global markets.
- President Sergio Mattarella torpedoed an initial attempt by the League and 5-Star to form a coalition, rejecting their candidate for the economy portfolio, 81-year-old economist Paolo Savona, a eurosceptic who has spoken out against the single currency.
- A source from Di Maio’s 5-Star Movement said there was hope of an agreement by Friday, but still no decision on a nominee for economy minister, a key post in any line-up.
- There was no immediate indication from the League on the prospects of success.
TODAY in HISTORY
- The first U.S. Copyright Law was enacted, protecting books, maps, and other original materials. (1790)
- The hull of the Titanic was launched in Belfast. At the ceremony, a White Star Line employee claimed, “Not even God himself could sink this ship.” (1911)
- South Africa became an independent (1961)
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