Weekly Market Update: FOMC Charts 2017 Course, Trump Administration Fills InThe week opened with US stock markets riding at fresh all-time highs ahead an all but certain FOMC rate hike. Global economic readings continued to improve led by better than expected readings in the US which only solidified Fed expectations, as well as kept upward pressure on interest rates and the Dollar. Though the 25 basis point hike was widely telegraphed, markets still spent much of the latter half of the week calibrating to what it heard from Chair Yellen in the FOMC statement and her press conference. Most FOMC members now expect three rate hikes in 2017 from two previously. By emphasizing she never favored running high pressure economy some perceived the news was ultimately a bit more hawkish then what markets were expecting. The Dollar Index extended to fresh 14 year highs and the US 10-year yield topped 2.6% while stocks sold off into Wednesday's close as aggressively as we had seen since the Nov election. Buyers though quickly returned when concerns surrounding the rising US dollar and higher interest rates were pushed aside by another round of accelerating economic data and performance chasing into years end. Friday's options expiration saw generally muted trade as Treasury prices stabilized and the Dollar rally lost momentum. The Euro closed the week at the lowest levels seen in more than 13-years and gold prices finished below $1150 for the first time since February. For the week the Dow rose 0.4%, while the S&P and NASDQ finished marginally lower.In corporate news, Donald Trump again took center stage to start the week, tweeting on Monday that Lockheed's F-35 costs were 'out of control' and he planned to save 'billions' from the aircraft program, sending LMT down 4%. In less contentious fashion, Trump met midweek with prominent tech leaders, promising he's here to help the industry and will make trade deals 'fair.' Also on the regulatory front, gaming names were boosted this week when the Japanese parliament gave final passage to its casino bill, setting the stage for potentially large-scale investment into Japanese casinos in the coming decade. Shares of General Motors and Ford took a hit Wednesday when a Chinese official said the government was considering penalties on an unnamed US automaker for monopolistic behavior. Many key names reported or held Analyst Days as well this week: Athena Heath shares surged on its initial 2017 outlook, where it guided strong bookings and revenue growth. Adobe reported a strong finish to FY16 but its guidance came in slightly below consensus due to FX headwinds.In M&A news, the long-running Viacom-CBS merger saga came to an abrupt end when Shari Redstone on Monday called off the deal, choosing instead to support CEO Bakish's plans to turn Viacom around. In addition, Sumner Redstone announced he would no longer vote in Viacom board meetings and would step down from board in Feb. Rupert Murdoch's 21st Century Fox agreed to a £10.75/shr bid for European TV provider Sky, taking advantage of the weaker pound to grow Fox's global media reach. And foreign press reports of a Kraft Heinz bid for Mondelez were denied by the company, but a New York Post report indicated Brazil's 3G Capital may be raising funds to pursue Mondelez.SUNDAY 12/11BA: Boeing and Iran Air announce agreement for 80 airplanes with estimated value of $16.6BMONDAY 12/12Four major cities (Paris, Mexico City, Madrid and Athens) move to ban diesel vehicles by 2025 (update)(CN) China Association of Automobile (CAAM) Nov Vehicle Sales y/y: 2.59M units, +16.6% v +18.7% prior; YTD: 24.9M units, +14.1% v +3.3% y/y - CAAM*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 6.2% (3-month high) V 6.1%E; YTD Y/Y: 6.0% V 6.0%E*(CN) CHINA NOV RETAIL SALES Y/Y: 10.8% (11-month high) V 10.2%E; YTD Y/Y: 10.4% V 10.3%ETUESDAY 12/13*(UK) NOV CPI M/M: 0.2% V 0.2%E; Y/Y: 1.2% (highest since summer 2014) V 1.1%E; CPI CORE Y/Y: 1.4% V 1.3%E*(UK) NOV PPI INPUT M/M: -1.1% V -0.5%E; Y/Y: 12.9% V 13.5%E*(DE) GERMANY DEC ZEW CURRENT SITUATION: 63.5 V 59.0E; EXPECTATIONS SURVEY: 13.8 V 14.0E(US) Both UPS and Fedex said to be struggling to keep up with record holiday shipping demand - financial press*(US) NOV IMPORT PRICE INDEX M/M: -0.3% V -0.4%E; Y/Y: -0.1% V 0.0%E*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 10 (1-year high) V 10E; MANUFACTURERS OUTLOOK: 8 (1-year high) V 9E; ALL-INDUSTRY CAPEX: 5.5% (3-quarter low) V 6.1%E(CN) NDRC to penalize an un-named US automaker for monopoly - China DailyWEDNESDAY 12/14(CN) China end of Nov Yuan forex positions CNY22.3T, lower by CNY382.7B m/m (Largest monthly drop this year and marks the 13th consecutive month of decline)*(UK) OCT AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.3%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E*(UK) NOV JOBLESS CLAIMS CHANGE: +2.4K V +6.5KE; CLAIMANT COUNT RATE: 2.3% V 2.3%E*(UK) OCT ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E*(US) NOV ADVANCE RETAIL SALES M/M: 0.1% V 0.3%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.4%E*(US) NOV PPI FINAL DEMAND M/M: 0.4% V 0.1%E; Y/Y: 1.3% V 0.9%E*(US) NOV INDUSTRIAL PRODUCTION M/M: -0.4% V -0.3%E; CAPACITY UTILIZATION: 75.0% V 75.1%E(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.6% on Dec 9th(US) US govt reportedly files first criminal charges in generic drug price fixing investigation - press(US) Association of American Railroads weekly rail traffic report for week ending Dec 10th: 538.9K carloads and intermodal units, -1.1% y/y*(US) FOMC RAISES FED FUNDS TARGET RANGE 25BPS TO 0.50-0.75% (AS EXPECTED); Average Fed official looking for three hikes in 2017*(US) FOMC UPDATED ECONOMIC FORECAST FOR DEC MEETINGMDLZ: Kraft Heinz said to consider acquiring Mondelez; Berkshire, Lemann may join acquisition - Swiss pressYHOO: Identifies data security issues concerning certain Yahoo user accounts; believes 3rd party stole data from 1B user accounts in Aug 2013*(AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +39.1K (1-year high) V +17.5KE; UNEMPLOYMENT RATE: 5.7% V 5.6%E*(KR) BANK OF KOREA (BOK) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED (6th consecutive month of holding rates)THURSDAY 12/15*(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 53.5 V 51.8E (3rd month of expansion and highest since May 2011)*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 55.5 V 54.5E (25th month of expansion)*(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 54.9 V 53.7E (42nd month of expansion and fastest pace since April 2011)*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED; maintains rate path*(UK) NOV RETAIL SALES EX-AUTO/FUEL M/M: 0.5% V 0.0%E; Y/Y: 6.6% V 6.0%E*(UK) NOV RETAIL SALES (INCLUDING AUTO/FUEL) M/M: 0.2% V 0.0%E; Y/Y: 5.9% V 5.9%EEUR/USD: *EURO MOVES BELOW $1.0460 FOR ITS LOWEST LEVEL SINCE JAN 2003*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED*(UK) BOE DEC MINUTES: VOTED 9-0 (UNANIMOUS) TO LEAVE POLICY UNCHANGED AT 0.25%*(US) INITIAL JOBLESS CLAIMS: 254K V 255KE; CONTINUING CLAIMS: 2.02M V 2.00ME*(US) NOV CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.353 V 241.413E*(US) DEC EMPIRE MANUFACTURING: 9.0 V 4.0E*(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 21.5 V 9.1E (highest since Nov 2014)*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 54.2 V 54.5E (highest since March 2015)*(US) DEC NAHB HOUSING MARKET INDEX: 70 V 63E (largest one month gain in 20 years)*(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 50BPS TO 5.75%; MORE THAN EXPECTED*(US) OCT TOTAL NET TIC FLOWS: +$18.8B V -$152.9B PRIOR; NET LONG-TERM TIC FLOWS: +$9.4B V -$26.2B PRIORORCL: Reports Q2 $0.61 v $0.61e, R$9.07B v $9.11Be*(PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED*(US) NORTH AMERICA NOV SEMI BOOK/BILL RATIO: 0.96 V 0.91 PRIOR; 2nd straight month below parityFRIDAY*(EU) EURO ZONE NOV CPI M/M: -0.1% V -0.1%E; Y/Y (FINAL): 0.6% V 0.6%E; CPI CORE Y/Y (FINAL): 0.8% V 0.8%E*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES 1-WEEK AUCTION RATE UNCHANGED AT 10.00%; AS EXPECTED*(UK) DEC CBI INDUSTRIAL TRENDS TOTAL ORDERS: 0 (nil) V -5E*(US) NOV HOUSING STARTS: 1.09M V 1.230ME; BUILDING PERMITS: 1.20M V 1.240ME(US) Atlanta Fed raises Q4 GDP forecast to 2.6% from 2.4% on Dec 14th(CN) China Navy reportedly seizes unmanned underwater US Navy vehicle in South China Sea international waters - press(US) Weekly Baker Hughes US Rig Count: 637 v 624 w/w (+2.1%) (5th straight weekly increase)(US) Fed's Bullard (FOMC voter, Dovish): in a revision to policy view, now sees an additional rate hike in 2017
Weekly Market Update: FOMC Charts 2017 Course, Trump Administration Fills In
The week opened with US stock markets riding at fresh all-time highs ahead an all but certain FOMC rate hike. Global economic readings continued to improve led by better than expected readings in the US which only solidified Fed expectations, as well as kept upward pressure on interest rates and the Dollar. Though the 25 basis point hike was widely telegraphed, markets still spent much of the latter half of the week calibrating to what it heard from Chair Yellen in the FOMC statement and her press conference. Most FOMC members now expect three rate hikes in 2017 from two previously. By emphasizing she never favored running high pressure economy some perceived the news was ultimately a bit more hawkish then what markets were expecting. The Dollar Index extended to fresh 14 year highs and the US 10-year yield topped 2.6% while stocks sold off into Wednesday's close as aggressively as we had seen since the Nov election. Buyers though quickly returned when concerns surrounding the rising US dollar and higher interest rates were pushed aside by another round of accelerating economic data and performance chasing into years end. Friday's options expiration saw generally muted trade as Treasury prices stabilized and the Dollar rally lost momentum. The Euro closed the week at the lowest levels seen in more than 13-years and gold prices finished below $1150 for the first time since February. For the week the Dow rose 0.4%, while the S&P and NASDQ finished marginally lower.
In corporate news, Donald Trump again took center stage to start the week, tweeting on Monday that Lockheed's F-35 costs were 'out of control' and he planned to save 'billions' from the aircraft program, sending LMT down 4%. In less contentious fashion, Trump met midweek with prominent tech leaders, promising he's here to help the industry and will make trade deals 'fair.' Also on the regulatory front, gaming names were boosted this week when the Japanese parliament gave final passage to its casino bill, setting the stage for potentially large-scale investment into Japanese casinos in the coming decade. Shares of General Motors and Ford took a hit Wednesday when a Chinese official said the government was considering penalties on an unnamed US automaker for monopolistic behavior. Many key names reported or held Analyst Days as well this week: Athena Heath shares surged on its initial 2017 outlook, where it guided strong bookings and revenue growth. Adobe reported a strong finish to FY16 but its guidance came in slightly below consensus due to FX headwinds.
In M&A news, the long-running Viacom-CBS merger saga came to an abrupt end when Shari Redstone on Monday called off the deal, choosing instead to support CEO Bakish's plans to turn Viacom around. In addition, Sumner Redstone announced he would no longer vote in Viacom board meetings and would step down from board in Feb. Rupert Murdoch's 21st Century Fox agreed to a £10.75/shr bid for European TV provider Sky, taking advantage of the weaker pound to grow Fox's global media reach. And foreign press reports of a Kraft Heinz bid for Mondelez were denied by the company, but a New York Post report indicated Brazil's 3G Capital may be raising funds to pursue Mondelez.
SUNDAY 12/11
BA: Boeing and Iran Air announce agreement for 80 airplanes with estimated value of $16.6B
MONDAY 12/12
Four major cities (Paris, Mexico City, Madrid and Athens) move to ban diesel vehicles by 2025 (update)
(CN) China Association of Automobile (CAAM) Nov Vehicle Sales y/y: 2.59M units, +16.6% v +18.7% prior; YTD: 24.9M units, +14.1% v +3.3% y/y - CAAM
*(CN) CHINA NOV INDUSTRIAL PRODUCTION Y/Y: 6.2% (3-month high) V 6.1%E; YTD Y/Y: 6.0% V 6.0%E
*(CN) CHINA NOV RETAIL SALES Y/Y: 10.8% (11-month high) V 10.2%E; YTD Y/Y: 10.4% V 10.3%E
TUESDAY 12/13
*(UK) NOV CPI M/M: 0.2% V 0.2%E; Y/Y: 1.2% (highest since summer 2014) V 1.1%E; CPI CORE Y/Y: 1.4% V 1.3%E
*(UK) NOV PPI INPUT M/M: -1.1% V -0.5%E; Y/Y: 12.9% V 13.5%E
*(DE) GERMANY DEC ZEW CURRENT SITUATION: 63.5 V 59.0E; EXPECTATIONS SURVEY: 13.8 V 14.0E
(US) Both UPS and Fedex said to be struggling to keep up with record holiday shipping demand - financial press
*(US) NOV IMPORT PRICE INDEX M/M: -0.3% V -0.4%E; Y/Y: -0.1% V 0.0%E
*(CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED
*(JP) JAPAN Q4 TANKAN LARGE MANUFACTURING INDEX: 10 (1-year high) V 10E; MANUFACTURERS OUTLOOK: 8 (1-year high) V 9E; ALL-INDUSTRY CAPEX: 5.5% (3-quarter low) V 6.1%E
(CN) NDRC to penalize an un-named US automaker for monopoly - China Daily
WEDNESDAY 12/14
(CN) China end of Nov Yuan forex positions CNY22.3T, lower by CNY382.7B m/m (Largest monthly drop this year and marks the 13th consecutive month of decline)
*(UK) OCT AVERAGE WEEKLY EARNINGS 3M/Y: 2.5% V 2.3%E; WEEKLY EARNINGS (EX BONUS) 3M/Y: 2.6% V 2.6%E
*(UK) NOV JOBLESS CLAIMS CHANGE: +2.4K V +6.5KE; CLAIMANT COUNT RATE: 2.3% V 2.3%E
*(UK) OCT ILO UNEMPLOYMENT RATE 3M/3M: 4.8% V 4.8%E
*(US) NOV ADVANCE RETAIL SALES M/M: 0.1% V 0.3%E; RETAIL SALES EX AUTO M/M: 0.2% V 0.4%E
*(US) NOV PPI FINAL DEMAND M/M: 0.4% V 0.1%E; Y/Y: 1.3% V 0.9%E
*(US) NOV INDUSTRIAL PRODUCTION M/M: -0.4% V -0.3%E; CAPACITY UTILIZATION: 75.0% V 75.1%E
(US) Atlanta Fed cuts Q4 GDP forecast to 2.4% from 2.6% on Dec 9th
(US) US govt reportedly files first criminal charges in generic drug price fixing investigation - press
(US) Association of American Railroads weekly rail traffic report for week ending Dec 10th: 538.9K carloads and intermodal units, -1.1% y/y
*(US) FOMC RAISES FED FUNDS TARGET RANGE 25BPS TO 0.50-0.75% (AS EXPECTED); Average Fed official looking for three hikes in 2017
*(US) FOMC UPDATED ECONOMIC FORECAST FOR DEC MEETING
MDLZ: Kraft Heinz said to consider acquiring Mondelez; Berkshire, Lemann may join acquisition - Swiss press
YHOO: Identifies data security issues concerning certain Yahoo user accounts; believes 3rd party stole data from 1B user accounts in Aug 2013
*(AU) AUSTRALIA NOV EMPLOYMENT CHANGE: +39.1K (1-year high) V +17.5KE; UNEMPLOYMENT RATE: 5.7% V 5.6%E
*(KR) BANK OF KOREA (BOK) LEAVES INTEREST RATE UNCHANGED AT 1.25%; AS EXPECTED (6th consecutive month of holding rates)
THURSDAY 12/15
*(FR) FRANCE DEC PRELIMINARY MANUFACTURING PMI: 53.5 V 51.8E (3rd month of expansion and highest since May 2011)
*(CH) SWISS NATIONAL BANK (SNB) LEAVES SIGHT DEPOSIT INTEREST RATE UNCHANGED AT -0.75%; AS EXPECTED
*(DE) GERMANY DEC PRELIMINARY MANUFACTURING PMI: 55.5 V 54.5E (25th month of expansion)
*(EU) EURO ZONE DEC PRELIMINARY MANUFACTURING PMI: 54.9 V 53.7E (42nd month of expansion and fastest pace since April 2011)
*(NO) NORWAY CENTRAL BANK (NORGES) LEAVES DEPOSIT RATES UNCHANGED AT 0.50%; AS EXPECTED; maintains rate path
*(UK) NOV RETAIL SALES EX-AUTO/FUEL M/M: 0.5% V 0.0%E; Y/Y: 6.6% V 6.0%E
*(UK) NOV RETAIL SALES (INCLUDING AUTO/FUEL) M/M: 0.2% V 0.0%E; Y/Y: 5.9% V 5.9%E
EUR/USD: *EURO MOVES BELOW $1.0460 FOR ITS LOWEST LEVEL SINCE JAN 2003
*(UK) BANK OF ENGLAND (BOE) LEAVES INTEREST RATES UNCHANGED AT 0.25%; AS EXPECTED
*(UK) BOE DEC MINUTES: VOTED 9-0 (UNANIMOUS) TO LEAVE POLICY UNCHANGED AT 0.25%
*(US) INITIAL JOBLESS CLAIMS: 254K V 255KE; CONTINUING CLAIMS: 2.02M V 2.00ME
*(US) NOV CPI M/M: 0.2% V 0.2%E; CPI EX FOOD AND ENERGY M/M: 0.2% V 0.2%E; CPI INDEX NSA: 241.353 V 241.413E
*(US) DEC EMPIRE MANUFACTURING: 9.0 V 4.0E
*(US) DEC PHILADELPHIA FED BUSINESS OUTLOOK: 21.5 V 9.1E (highest since Nov 2014)
*(US) DEC PRELIMINARY MARKIT MANUFACTURING PMI: 54.2 V 54.5E (highest since March 2015)
*(US) DEC NAHB HOUSING MARKET INDEX: 70 V 63E (largest one month gain in 20 years)
*(MX) MEXICO CENTRAL BANK (BANXICO) RAISES OVERNIGHT RATE BY 50BPS TO 5.75%; MORE THAN EXPECTED
*(US) OCT TOTAL NET TIC FLOWS: +$18.8B V -$152.9B PRIOR; NET LONG-TERM TIC FLOWS: +$9.4B V -$26.2B PRIOR
ORCL: Reports Q2 $0.61 v $0.61e, R$9.07B v $9.11Be
*(PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
*(US) NORTH AMERICA NOV SEMI BOOK/BILL RATIO: 0.96 V 0.91 PRIOR; 2nd straight month below parity
FRIDAY
*(EU) EURO ZONE NOV CPI M/M: -0.1% V -0.1%E; Y/Y (FINAL): 0.6% V 0.6%E; CPI CORE Y/Y (FINAL): 0.8% V 0.8%E
*(RU) RUSSIA CENTRAL BANK (CBR) LEAVES 1-WEEK AUCTION RATE UNCHANGED AT 10.00%; AS EXPECTED
*(UK) DEC CBI INDUSTRIAL TRENDS TOTAL ORDERS: 0 (nil) V -5E
*(US) NOV HOUSING STARTS: 1.09M V 1.230ME; BUILDING PERMITS: 1.20M V 1.240ME
(US) Atlanta Fed raises Q4 GDP forecast to 2.6% from 2.4% on Dec 14th
(CN) China Navy reportedly seizes unmanned underwater US Navy vehicle in South China Sea international waters - press
(US) Weekly Baker Hughes US Rig Count: 637 v 624 w/w (+2.1%) (5th straight weekly increase)
(US) Fed's Bullard (FOMC voter, Dovish): in a revision to policy view, now sees an additional rate hike in 2017
Closing Market Summary: Friday Slip Leads to Weekly DeclineThe stock market registered a modest decline on Friday to end the week on a slightly lower note. The S&P 500 shed 0.2%, ending the week lower by 0.1%. The Dow Jones Industrial Average (-0.04%) also posted a Friday loss, but gained 0.4% for the week.
Equities spent the Friday affair inside narrow ranges amid a mixed showing from individual sectors. Most countercyclical groups displayed strength from the start, but their gains were not sufficient to offset losses among cyclical sectors. In addition, a late morning report indicated that the Chinese Navy seized an unmanned U.S. Navy submarine that was conducting operations in the South China Sea. The incident took place yesterday and the U.S. government demanded the return of the Navy drone.
The news weighed on sentiment, keeping the market near its low into the afternoon. Treasuries climbed off their lows in reaction to the news, but afternoon backtracking left the 10-yr note in the middle of its range. The benchmark yield slipped one basis point to 2.59%.
Heavily-weighted technology (-0.8%) and financials (-0.9%) lagged from the start, which prevented the market from staging a meaningful rebound. The financial sector narrowed its December gain to 4.3% while technology trimmed this month's advance to 2.5%. Oracle (ORCL 39.13, -1.73) and Adobe Systems (ADBE 103.52, -1.58) were among the notable laggards after both reported earnings. However, their bottom-line beats were overshadowed by weak guidance. Oracle lost 4.2% while Adobe fell 1.5%. High-beta chipmakers also lagged, sending the PHLX Semiconductor Index lower by 1.0%.
Staying on the cyclical side, the consumer discretionary sector (-0.5%) also contributed to the weakness in the market as retail stocks recorded broad-based losses in the wake of yesterday's report from the NPD, which showed a 3.0% year-over-year decline in cumulative dollar sales in the first five weeks of the holiday shopping season. The SPDR S&P Retail ETF (XRT 45.91, -0.64) surrendered 1.4%.
The energy sector (+0.6%) was the only cyclical group that spent the day above its flat line, thanks to a 2.0% spike in crude oil, which settled at $51.90/bbl. The energy component gained 0.8% for the week after marking a new 2016 high on Monday ($54.51/bbl).
Similar to energy, countercyclical sectors recorded gains. Real estate (+1.2%) and utilities (+1.2%) held the lead throughout the day while consumer staples (+0.5%), telecom services (+0.6%), and health care (+0.1%) posted modest gains.
Investor participation was well above average due to quadruple witching. More than two billion shares changed hands at the NYSE floor.
Economic data was limited to Housing Starts and Building Permits:
- November housing starts declined 18.7% to a seasonally adjusted annual rate of 1.090 million units (consensus 1.225 mln).
- Building permits declined 4.7% to a seasonally adjusted annual rate of 1.201 million (consensus 1.236 million), although permits for single-family homes increased 0.5% to 778,000
- The November report followed a big beat in October, thus market reaction was limited
Investors will not receive any economic data on Monday.
- Russell 2000 +20.7% YTD
- Dow Jones Industrial Average +13.9% YTD
- S&P 500 +10.5% YTD
- Nasdaq Composite +8.6% YTD
What a Michael Kors Bag at Macy’s Says About Christmas Sales
Retailers are getting savvier about adjusting their prices based on short-term demand
Slashing prices can be a sign that a company is struggling to move its inventory, or a preplanned part of the pricing strategy. Both are on display as Christmas gets closer.
The rise of e-commerce has spread holiday sales out more evenly across November and December. As a result, sales aren’t as front-loaded toward Black Friday as they might once have been. That has made holiday pricing an increasingly complex task as retailers try to carefully time promotions while still selling some items at full price.
Inventory Check: We Went to the Stores (Dec. 2)
Evidence of that balancing act was starting to show when Heard on the Street made our third trip this week to four bricks-and-mortar stores— Macy’s, J.C. Penney, Ralph Lauren and Gap—to check up on the basket of five items we have been tracking at each of them.
Perhaps the most notable changes occurred at Macy’s. The department store was in the midst of its 30%-off “friends and family” sale last week and had some additional promotions on top of that. In a notable reversal, many of the items we are tracking were selling at full price this week, including some that had been on sale since our experiment began Nov. 29.
The Michael Kors “Selma” satchel experienced the biggest swing in price. It was 25% off on Nov. 30 and 50% off on Dec. 6, thanks to a combination of two different promotions. This week, we found it selling for full price at $398. In addition, there was only one of the bags left on the floor where last week they had seemed plentiful. Macy’s said the Dec. 6 price was a planned promotion that sold “incredibly well.” The retailer said its inventory on the product is now lower, so supply-and-demand economics have led it to believe it can sell out of the bag at the regular price.
Indeed, the price reversal demonstrates how retailers have gotten better at managing their inventory and reacting quickly to an uptick in sales of a certain item or category, according to Simeon Siegel of Nomura. As long as markdowns are listed on placards instead of on stickers, they can be easily reversed.
“One of the most negative things e-commerce has done is that it’s given the consumer more visibility on inventory,” Mr. Siegel said. “And it behooves the retailers to benefit from that as well.”
Of course, that nimbleness also means retailers must plunge further into discounting when the data requires it. The sweater we have been following at Gap was selling for $25 during our most recent visit. That is down from $35.97 on Dec. 6 and $41.97 on Nov. 29. The sweater’s original price? $59.95.
But all wasn't lost. The sweater didn’t have a sticker on its tag—yet.
Shifting Political Landscape in U.S. Prompts Saudi Arabia to Rethink Financial Strategy
With U.S. political climate unclear, Saudi’s sovereign wealth fund could pause investments
Saudi Arabia is re-evaluating its multibillion-dollar U.S. financial strategy because of shifts in the American political landscape, including whether to go elsewhere with the public stock debut of its state oil company, according to people involved in the planning.
Two events—the recent passage of legislation that could allow U.S. terror victims to sue Saudi Arabia and the election of Donald Trump, a vocal supporter of the bill—prompted the reassessment by senior Saudi officials and outside advisers, people involved in the discussions said.
Saudi Arabia’s sovereign-wealth fund has paused its U.S. investments until they can figure out the implications of the bill and the new direction of the White House, said a person familiar with the fund’s decision making.
The initial public offering of Saudi Arabian Oil Co., the world’s biggest oil producer better known as Aramco, tentatively set for next year or 2018, could raise more than $100 billion in proceeds and rank as the largest in IPO history. The prospect has set banks scrambling for a deal that could bring $1 billion in fees.
While Saudi officials haven’t decided where to list the shares, bankers say the New York Stock Exchange is the best place to debut such a large offering. The government has been meeting with officials from numerous exchanges, including London, people familiar with the process said.
Saudi officials and investors are also looking at how they will invest money from the kingdom’s massive Public Investment Fund. Saudi officials have indicated they are effectively turning the sovereign-wealth fund into a war chest for non-oil investments abroad—a coffer that would expand with proceeds from the Aramco IPO.
A spokesman for the fund declined to comment on the terror legislation’s passage and how the fund is reacting to it. Saudi Aramco and NYSE declined to comment on the prospect of the IPO being held outside the U.S.
The Saudis have been particularly alarmed by the federal legislation approved in September to allow victims of the Sept. 11, 2001, terrorist attacks to sue Saudi Arabia to seek damages. Surviving relatives have accused Saudi Arabia of supporting the 9/11 attackers, 15 of 19 of whom were Saudi. Saudi Arabia denies any official connection to the attacks.
The prospect of being found liable for the attacks has made Saudi leaders worry that big transactions in the U.S. could expose their assets to legal judgments, said people involved in the country’s investment planning.
Saudi Arabia had beefed up its lobbying operation to wage a furious effort to defeat the terrorism legislation. After Congress overrode a veto of the bill by President Barack Obama , lobbyists for Saudi Arabia pressed lawmakers to amend it. Lobbyists have argued that the measure is too broad and could have the unintended result of prompting lawsuits against the U.S. by foreign individuals.
Those lobbyists also had raised the specter that the law could affect Saudi Arabia’s U.S. investment plans. A shift in Saudi Arabia’s U.S. investing strategy now could become a negotiating point in the kingdom’s broader relationship with the U.S.
Many in Washington expected legislators to soften the law after the November elections, something Senate Majority Leader Mitch McConnell (R., Ky) hinted at in September. At that time, former Secretary of State Hillary Clinton was forecast to win the election. The White House declined to comment.
But congressional leaders haven’t revisited the law since Mr. Trump’s victory, and have now adjourned until next year, likely leaving the law to the next Congress and a president who has indicated no interest in changing it.
Mr. Trump was strident in his support of the bill. He called Mr. Obama’s veto shameful and said it would “go down as one of the low points of his presidency.”
A Saudi Aramco employee sits by the company’s stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, in September. ENLARGE
A Saudi Aramco employee sits by the company’s stand at the Middle East Petrotech 2016, an exhibition and conference for the refining and petrochemical industries, in Manama, Bahrain, in September. PHOTO: HAMAD I MOHAMMED/REUTERS
In a statement before Congress voted to overturn the veto, Mr. Trump said: “If elected president, I would sign such legislation should it reach my desk.” Mr. Trump didn’t respond to requests for comment.
Mr. Trump has said he is a friend of Saudi Arabia, and picked Gen. James Mattis, a longtime supporter of Saudi Arabia, as his defense secretary. Yet he has also questioned U.S. military support to the country.
In another potential challenge to Saudi Arabia, Mr. Trump has been an advocate for increasing U.S. oil production, in part to limit imports.
Saudi companies have stakes in U.S. refineries and are trying to expand into petrochemicals. But Trump adviser Harold Hamm, the chief executive of oil producer Continental Resources Inc., said recently that Saudi Arabia shouldn’t be allowed to own petrochemical plants in the U.S., since it would collide with U.S. business interests by having the plants process Saudi oil, rather than buying from U.S. producers.
“They move in just their oil, nobody else,” said Mr. Hamm, who was Mr. Trump’s top energy adviser during the presidential campaign. “We’re on to that. It shouldn’t be permitted.”
The Saudi government, through a spokesman, declined to comment on Mr. Hamm’s statements.
The offering is part of a Saudi strategy to reduce its reliance on oil and diversify its economy. Under a plan devised by the country’s deputy crown prince, Saudi Arabia is planning to offer a portion—likely 5% or so, say people familiar with the matter—of Aramco on public markets. Proceeds from the offering would be used to invest domestically and abroad.
In June, the fund put $3.5 billion into ride-hailing company Uber Technologies Inc. Even during those negotiations, the U.S. political climate was a concern for the Saudi investors and their advisers, says a person familiar with the process.
But at that point, those people thought there wouldn’t be enough votes in Congress to override Mr. Obama’s veto. After completing the deal, the Saudi fund was weighing large investments in other Silicon Valley tech companies, said two people familiar with the matter.
In June, Deputy Crown Prince Mohammed bin Salman met with several top venture capital investors in Silicon Valley and indicated he planned to do more deals such as the investment in Uber.
In September, Congress voted to override Mr. Obama’s veto.
The following month, the Saudi fund said it would invest $45 billion in a fund run by Japanese internet and telecommunications giant SoftBank Group Corp.
Several people familiar with the Saudi government’s investment plans say Saudi officials decided to make the huge investment in SoftBank after the terrorism legislation, and the money that went into SoftBank could have gone directly into U.S. investments or U.S. investment firms. There were concerns about their exposure if they invested directly, one person said.
The Saudi fund was also interested in SoftBank on its own merits, said a person familiar with the matter, including the ability to put a large amount of money to work with a single investment and the likelihood that the fund would have access to deals from some of the world’s top entrepreneurs.
Some of the money that went to SoftBank appears likely to end up in the U.S. via SoftBank investments. SoftBank Chief Executive Masayoshi Son met with Mr. Trump at Trump Tower in New York on Dec. 6 and told reporters afterward he would invest $50 billion—some of it from the fund the Saudis backed—in the U.S. and create 50,000 new jobs.
As a passive investor in the SoftBank fund, the Saudi sovereign-wealth fund won’t be able to dictate where the SoftBank money goes, and it could still ultimately make sizable investments in the U.S., one person said.
Gapping down
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