“We should be slow to speak and patient in listening to all…Our ears should be wide open to our neighbor until he seems to have said all that is in his mind.” – St. Ignatius
Here is what I am thinking and hearing: *1.) Dr. Ed Yardeni has a different take on the poor payroll numbers two weeks ago: “I am not convinced that the demand for labor was hard hit by Trump’s escalating trade war during May. Granted, payroll employment was weak last month, rising just 75,000. That compares poorly to the average gains of 186,250 per month during the first four months of this year and 223,500 per month during 2018. The problem may be that all the anecdotal evidence of labor shortages is actually constraining the growth of payrolls. Perhaps we are finally running out of workers, or at least those with the appropriate skills and geographic proximity to fill job openings.” *2.) ECB chairman Mario Draghi said in remarks at the ECB’s annual forum in Sintra, Portugal in light of weak growth and low inflation, the central bank may have to return to some kind of monetary stimulus once again. The announcement pushed European bond yields to further lows. In addition to German 10-year bonds dropping to a – 0.30% yield, French bonds pushed to a record low and Austrian 10-year yields fell into the negative category for the first time ever. Bank of America/Merrill Lynch research shows that now close to $12 trillion of global debt is now into the negative yield category (see chart below). *3.) BofA’s Global Fund Manager survey out on Tuesday showed that professional fund managers are the most bearish since the 2008-2009 financial crisis as global growth expectations plunged by the largest monthly amount since 1994. The driving force behind the bearishness is the escalating and ongoing trade war with China. The survey polled 230 managers with $645 billion in assets. *4.) From the front lines of the trade/cold war: Trump and Xi will meet at the G20 summit next week in Japan. Not much is expected from the meeting other than a signal that talks might again resume.
The Fed kept short-term interest rates unchanged at the conclusion of its two-day Federal Open Market Committee meeting on Wednesday. Here is what they said: “In light of these uncertainties and muted inflation pressures, the Committee will closely monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”
The Labor Department said that U.S. import prices posted the largest drop in five months in May. Prices dropped by 0.3% and was the latest example of continued muted inflation that suggests that the Fed may cut interest rates going forward.
The Commerce Department said that U.S. business inventories rose by 0.5% in April. Rising inventories are a positive input to GDP.
The University of Michigan consumer sentiment index fell in June to a reading of 97.9 from a reading of 100 in May. The index for Future Expectations dropped sharply as consumer concerns over tariffs grew. The university also said that consumers were anticipating the lowest long-term inflation rate in the history of the survey.
The Fed’s Empire State manufacturing index collapsed in June, falling to a -8.6 from +17.8 in May. That is the lowest reading since October of 2016. New orders fell by 21.7 points, backlogs fell by 17.9 points and inventory plans got more negative at a -5.3.
The National Association of Home Builders (NAHB), fell by two points in June to a reading of 64. In the month, “current sales conditions” dipped one point to 71. The tracker of “sales expectation over the next 6-months” fell two points to 70 and “views of buyer traffic” declined from 49 to 48.
The Commerce Department said that housing starts fell in May by 0.9% to an annualized rate of 1.269 million units. Building permits however increased by 0.3% as lower mortgage rates helped attract interest.
The Baker Hughes count of active drilling rigs fell by 6 to a total of 969 rigs in the last week. Oil rigs fell by 1 to 788 and gas rigs fell by 5 to 181. Total active rigs in the U.S. year to date are down by 90 from 1,095, with oil rigs down 75 and gas rigs down by 13.
According to a recent Duke University survey of CFOs, two-thirds of respondents said they see a recession hitting by the end of 2020. 48.1% now see negative growth by the end of the second quarter of 2020 and 69% figure a recession will begin before the end of next year. The survey illustrated that CFOs continue to believe the economy is weakening and the prospects for their businesses are declining. They cite tariffs, strong competition, freight costs and credit risks for their collective dim view.
Here are Realtor.com’s 10 most affordable beach towns in the United States: Jacksonville, NC. (median list price – $198,846). Aberdeen, Wash. (median price list price – $229,546). Atlantic City, NJ (median list price – $241,655). Myrtle Beach S.C. (median list price – $245,233). Palm Bay, Fla. (median list price – $269,393). Port St. Lucie, Fla. (median list price – $279, 696). Virginia Beach, Va. (median list price – $284,873). Salisbury, Md. (median list price – $314,396). Morehead City, N.C. (median list price – $327, 589). Portland, Maine (median list price – $357,682).
TheStreet Inc. has agreed to be acquired by TheMaven for $16.5 million in cash, an excess cash distribution and a contingent value right. Under the terms of the deal. TheStreet shareholders will receive $33.0 million to $34.5 million or $6.19 to $6.47 per share for each TheStreet share they own.
“Symphony” is a messaging platform for Wall Street firms. The Palo Alto startup is backed by more than a dozen global financial firms from Goldman Sachs to JP Morgan and BlackRock. The company’s latest valuation, after a recent venture capital round, is now at $1.4 billion and has more than doubled its number of users to 430,000, exceeding the 325,000 clients of Bloomberg.
ZappRx is selling itself to AllScripts, a publicly traded health IT company. Terms of the deal have not been disclosed as of yet. ZappRx was a startup that aimed to modernize how people access prescription medicines.
Pfizer is acquiring Array BioPharma Inc. for $10.64 billion in cash, as the pharmaceutical company seeks to grow its pipeline of cancer therapies. Array’s portfolio includes several drugs that have been approved for the treatment of metastatic melanoma.
Sotheby’s auction house has agreed to be acquired by a private group controlled by art collector Patrick Drahi for $57 per share in an all-cash deal valued at $3.7 billion. If approved, Sotheby’s will return to private ownership after 31 years as a public company.
According to CNBC, GE Ventures is looking for a buyer of its portfolio of more than 100 startups which include the areas of energy, technology and healthcare.
Chewy, the online arm of PetSmart, went public last week at $22.0 per share, far exceeding the original range of $17 to $19.
Boeing scored an order for 200 737 MAX aircraft from British Airways at the Paris Airshow. It is the first order for the plane which was grounded in late March.
GE said that it expects to book $24 billion in orders for its aircraft engines at the Paris Airshow with a $20 billion order from IndiGo Airlines.
TechCrunch says that Amazon has purchased privately held Bebo for an undisclosed sum. The acquisition includes around 10 employees and Bebo’s intellectual property.
PG&E has agreed to pay $1 billion to various California cities, counties and governments to settle claims related to taxpayer losses for the wildfires that ravaged the state over the last two years.
Lululemon Athletica reports 1st quarter earnings of $0.74 per share on revenue of $782 million, an increase of 20.4% year over year.
Adobe Systems reports fiscal 2nd quarter earnings of $1.83 per share on revenue of $2.74 billion, an increase of 24.5% year over year.
Next week: Earnings from: FedEx, General Mills, Nike, Accenture and ConAgra. Economic reports: Case-Shiller Home Price Index/Composite 20 for April, Single Family Home Sales for May and U.S Durable Goods Orders for May.
WTI crude oil: $56.88 per barrel. 10-year U.S. Treasury note: 2.02%. Gold: $1,350 per ounce.
Sources: CNBC, Real Money Pro, Estimize.com, First Trust Economics, 361 Capital, Bloomberg, The Wall Street Journal, Yardeni Economics, Seeking Alpha, MarketWatch, Zero Hedge and Morningstar,
At the time of publication Cascade Investment Group and /or its clients owned shares of BHGE, GS, JPM, BLK, PFE, GE, BA, AMZN, ADBE, FDX, GIS, NKE, ACN, CAG
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.