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Pence Wealth Management Financial Markets Report

US FINANCIAL MARKET

  • U.S. stocks opened higher on Wednesday, putting the S&P 500 on track for a second straight advance, after Alcoa reported adjusted profits that beat expectations.
    • Alcoa is forecasting that global demand for aluminum will exceed production this year.
    • Investors were also looking ahead to minutes from the most recent Federal Reserve meeting. The Fed releases the minutes of its March 18-19 meeting at 2 p.m. ET today.
  • Executives from Comcast and Time Warner Cable are expected to defend their plan to merge as they go before the Senate Judiciary Committee today.
  • Mars to buy most of P&G’s pet food business for $2.9 billion. P&G said it expected core earnings to be reduced by 3 cents per share in fiscal 2013 and by 4 cents per share in fiscal 2014 after it accounts for the business as a discontinued operation.
    • Mars, controlled by the Mars family, had annual sales of more than $33 billion in 2013 and was ranked 5th in Forbes’ list of America’s largest private companies. P&G had sales of $84.16 billion in 2013.
  • Toyota to recall nearly 6.5 million vehicles for steering, other faults. It was its second-largest recall announcement. In total, about 2.34 million of the vehicles to be recalled were sold in North America. Another 810,000 were sold in Europe.
  • In smartphone mass-market, Samsung and Apple have margins on their minds. The iPhone remains the most expensive smartphone, with an estimated average selling price this year of $649, more than double the average price of $247 for Android phones, Samsung’s mainstay products.
    • Average selling prices of iPhones will drop only 6 % to $610 by 2018, while Android prices will decline 18 % to $202.
  • Intel closes Costa Rica operation, cuts 1,500 jobs. Chipmaker Intel, struggling with a shrinking personal computer market, is shutting its assembly and test operation in Costa Rica. The cuts in Costa Rica are consistent with Intel’s announcement in January that it would reduce its global workforce of 107,000 employees by about 5 % this year.
  • BMW is planning a second North American factory to cater to the rising demand for its vehicles, Bloomberg reported on Tuesday. BMW is planning to build its bestselling 3-Series at the new plant and has been short-listing locations, with at least two sites in Mexico still being considered.
    • In an effort to fend off competition in the region from Audi and Mercedes-Benz, BMW announced a $1 billion plan on March 28 to expand production capacity by 50 % making its South Carolina plant the largest facility worldwide.
      • BMW reported a 17 % surge in March. Last month’s gain pushed first-quarter deliveries up 12 % to 428,259 vehicles.
      • BMW outsold second-ranked Audi by 15,409 vehicles in the first three months. March sales at Audi climbed 15 %, while deliveries at third-place Mercedes-Benz rose 13 % to 374,276. BMW’s gains were led by demand for its portfolio of SUV, which are built at a South Carolina plant.
  • JPMorgan’s Dimon says U.S. banks healthy, Europe lagging. “Profits may still vary for different kinds of reasons. But if you look at the equity, outstanding loans, debt capacity, you would see the (U.S.) banking system is sound.”
  • Big U.S. banks must boost capital by $68 billion under new rules, U.S. regulators said on Tuesday. The rules would limit banks’ reliance on debt, part of efforts to prevent another financial crisis.
    • By 2018, banks must rely more on funding sources such as shareholder equity, rather than borrowing money. The Financial Services Roundtable, a trade group for large banks, issued a statement blasting the limits, which are more stringent than the international Basel III agreement.
    • The rules require the eight biggest bank holding companies to maintain top-tier capital equal to 5 % of total assets.
    • Insured bank subsidiaries must meet a 6 % ratio. That’s higher than the 3 % ratio included in the Basel agreement.
    • Smaller U.S. banks would be held to the 3 % ratio.
  • Untaxed U.S. corporate profits held overseas top $2.1 trillion. Foreign profits held overseas by U.S. corporations to avoid taxes at home nearly doubled from 2008 to 2013 to top $2.1 trillion.
    • Under U.S. law, corporations do not have to pay income tax on most of their overseas profits until they are brought into the US.
    • GE had the biggest pile of earnings stored abroad, at $110 billion. Next were Microsoft, with $76.4 billion; Pfizer, with $69 billion, and Merck, with $57.1 billion; and Apple, with $54.4 billion.

US ECONOMY & POLITICS

  • U.S. wholesale inventories rose at a slower pace in February.  Inventories increased 0.5 % after a revised 0.8 % gain in January. February’s increase was in line with economists’ expectations.
    • Inventories are a key component of GDP changes. The component that goes into the calculation of GDP – wholesale stocks excluding autos – rose 0.5 % in February. Farm inventories jumped 2.7 % after falling 0.9 % the prior month.
    • Businesses accumulated too much stock in the second half of last year and are placing fewer orders with manufacturers while they work through the pile of unsold goods.
  • Mortgage applications fell last week as refinance down. The Mortgage Bankers Association’s (MBA) index of mortgage application activity, which includes both refinancing and home purchase demand, fell 1.6 % in the week ended April 4. Fixed 30-year mortgage rates averaged 4.56 % in the week, unchanged from the week before.
  • Medicare Millionaires Totaling Almost 4,000 Seen in Data. Medicare paid almost 4,000 doctors and medical professionals more than $1 million apiece in 2012, including seven who received more than $10 million.
    • Eye doctors were among the highest compensated, including one Florida ophthalmologist paid $21 million in 2012. The disclosures were gleaned from $77 billion in payment data released by the government this morning.

EUROPE & WORLD

  • Greece to end its bond market exile on Thursday. Greece will issue its first sovereign bond in almost four years. Greece is sounding out an indicative yield of 5.25 % to 5.5 %.
    • “We aim to raise up to 2.5 billion euros on Thursday,” one government official said. “It will be a great success if the coupon is below 5.3 %.”
    • Greece has been since kept afloat by 218 billion euros of EU/IMF bailout money and about 15 billion euros of treasury bills.
    • Greece’s debt currently stands at about 320 billion euros, or 175 % of GDP.
    • About 80 % of Greece’s debt is in the hands of the EU/IMF.
    • It is rated nine notches below investment grade at Caa3 by Moody’s. Standard and Poor’s and Fitch rank Greece six notches below investment grade at B-.
  • Spain Rejects Catalonia’s Call for Power to Vote on Independence. The Catalan parliament’s request for the authority to call the referendum was rejected by 299 lawmakers of the national assembly’s 350.

TODAY in HISTORY

  • The first full-color film, The World, The Flesh and the Devil, was shown in London (1914)
  • NASA announced the selection of America’s first astronauts, including Alan Shepard and John Glenn (1959)
  • Winston Churchill became the first honorary U.S. citizen (1963)

Sources: Reuters, Bloomberg.

This information has been prepared from sources believed to be reliable, but no representation is being made as to its accuracy or completeness. The information provided should be used only as general information and is not intended to provide specific advice or recommendations for any individual. The economic forecasts set forth in the material may not develop as predicted. All indices, such as the S & P 500, are unmanaged and may not be invested into directly.

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