US FINANCIAL MARKET
U.S. Stocks Drop at the Open as Portugal Debt Stress Fuels Concern
- “People will shoot first and ask questions later when news like this hits,” said Lawrence Creatura, a fund manager at Federated Investors.
- European stocks and Portuguese bonds tumbled with investor concern deepening over missed debt payments by a company linked to the Iberian nation’s second-largest lender.
- Espirito Santo Financial suspended trading in its shares and bonds, citing “material difficulties” at parent company ESI. Shares of the bank fell 17.2 %.
- The Chicago Board Options Exchange Volatility Index (VIX) spiked 8.6 % today to 12.65, the highest since June 17.
- Minutes of the Federal Reserve’s June meeting, released yesterday, showed officials have agreed they’ll end their asset-purchase program in October if the economy holds up.
- Profit at S&P 500 companies probably rose 5 % in the three months through June, while sales gained 3 %, estimates show.
- The forecasts have decreased from the start of April, when analysts predicted a 7.3 % jump in earnings and 3.7 % sales increase.
- The S&P 500 has not had a drop of 10 % in more than two years. The gauge trades at a valuation of 18 times reported earnings, the highest since 2011 when it was in the middle of a 19 % slide, its biggest during the current five-year bull market.
Boeing sees $5.2 trillion jet market and win versus Airbus on twin-aisles
- Boeing made its most bullish 20-year forecast for jetliner demand since 2011, saying the world will need 36,770 new planes worth $5.2 trillion by 2033.
- Last year Boeing predicted a 20-year need for 35,280 planes valued at $4.8 trillion.
- Boeing expects airlines to buy 25,680 new single-aisle planes over 20 years, and that the global fleet will double to 42,180. About 58 % of those planes will represent growth at airlines. The rest will replace retired aircraft.
- It also predicted beating rival Airbus in the lucrative market for twin-aisle planes as the planes are built and delivered over the next two decades.
- Boeing’s annual forecast said single-aisle airplanes such as the 737 and A320 will garner the most orders, reflecting booming demand for air travel in Asia and the growth of low-cost carriers there.
- Planes are delivered years after orders are placed, so the final numbers may change as airlines change their plans.
Bank of America resubmits request for dividend increase: WSJ
- Bank of America has asked regulators to approve a higher quarterly dividend of 5 cents per share after it withdrew a previously planned increase in April.
- The bank withdrew its previously planned increase to 5 cents from 1 cent per share, after it found errors that reduced a key capital level by $4 billion.
Amazon E-Books Proposal Puts Authors in a Tough Bind
- Amazon’s proposal to give writers all of the proceeds from digital-book sales leaves in a bind.
- The proposal set off a new round of backbiting between Amazon and Hachette in a dispute that first flared into the open in May. Hachette this week rejected Amazon’s move, asking “Amazon to withdraw the sanctions they have unilaterally imposed.”
- Amazon, seeking to ratchet up pressure on Hachette, took its appeal directly to writers at the publishing house this week by asking them what they thought of gaining all of the proceeds from sales of e-books. Accepting Amazon’s deal without a publisher’s approval would violate publisher-writer contracts and open authors up to lawsuits, said Joseph Capobianco.
IBM Invests $3 Billion in Chip Research amid Talks to Sell Unit
- The company will fund two programs to create smaller, more powerful chips that can be used in systems like IBM’s Watson technology — which analyzes data in plain English — and to develop semiconductor parts out of materials other than silicon.
Las Vegas Drought Drains Lake Mead to Lowest Since 1937
- The lake, now at 39 % of capacity, has been dropping since 2012.
- Lake Mead, created by Hoover Dam in 1936 and 1937, holds mountain snowmelt from the Colorado River for farms, homes and businesses predominately in southern Nevada, southern California and most of Arizona.
- No metropolitan area depends on the lake more than Las Vegas, which lacks groundwater or other local sources.
Shale Seen Shifting Flows at America’s Biggest Oil Port
- For more than 30 years, the Louisiana Offshore Oil Port (LOOP) has been a symbol of U.S. dependence on foreign oil, pumping Nigerian and Saudi Arabian crude from the world’s biggest supertankers into underground storage caverns beneath the marshes of southern Louisiana.
- Now, with domestic production at a 28-year high, LOOP’s managers are thinking the previously unthinkable: They want to reverse the flows and send North American oil out as well as take foreign oil in.
- Total U.S. imports fell to 6.47 million barrels a day in the week ended May 16, the least since 1997.
- U.S. produces up to 8.5 million barrels a day today, the highest level since 1986.
- Production in Canada has risen 42 % to 3.6 million barrels a day in the past five years. The U.S. allows re-exports of foreign crude that hasn’t been mixed with domestic oil.
US ECONOMY & POLITICS
Fed mulls policy exit, eyes end of asset purchases
- Fed has begun detailing how it plans to ease the U.S. economy out of an era of loose monetary policy.
- It will end its asset purchases in October.
- The minutes showed the Fed participants also “generally agreed” that monthly bond purchases would end in October, with a final reduction of $15 billion in monthly purchases of U.S. Treasuries and mortgage-backed securities.
- According to the minutes, there continues to be division over when the Fed should stop reinvesting proceeds of the $4.2 trillion in assets it purchased to support financial markets.
- Ending reinvestment will put the central bank’s balance sheet on a declining path, and some members argue that should not take place until interest rates have been increased.
Fewer Americans Than Forecast Filed Jobless Claims Last Week
- Jobless claims declined by 11,000 to 304,000 in the week ended July 5.
- The median forecast of 45 economists surveyed by Bloomberg called for 315,000.
- The four-week moving average, a less volatile measure than the weekly figures, dropped to 311,500 last week from 315,000.
Growth Seen Beating 3% in Sixth Year of U.S. Expansion
- GDP will expand 3.1 % from July through December following a 3.3 % advance last quarter, according to the median forecast of 74 economists.
- This year’s pickup in hiring is among reasons economists are downplaying the 2.9 % slump in GDP in the first three months of the year.
- The first-quarter contraction in the economy pulled the 2014 median growth estimate down to 1.7 % from the 2.2 projected last month.
- Accelerated consumer spending, which is projected to grow 2.8 % next year after climbing 2.2 % in 2014, is one reason for the improved performance.
- Business investment, propelled by improving sales, will play a role in sustaining bigger gains in GDP.
- Economists forecast spending on new equipment will climb at an average 5 % pace in the second half of the year after a 10 % second-quarter advance that reflected a snap-back from a first-quarter drop.
- State and local spending on construction projects climbed 6.1 % in the three months ended in May, the biggest gain over a similar period in four years.
Fed’s Bullard Says Unemployment Drop to Push Inflation
- “I think we are going to overshoot here on inflation,” St. Louis Fed’s President Bullard said yesterday.
- He predicted inflation of 2.4 % at the end of 2015, “well above” the Fed’s 2 % target.
- The St. Louis Fed chief, who calls himself the “North Pole of inflation hawks,” estimates full employment at about 6 %.
- Bullard, 53, also said he’s confident the economy will expand at a 3 % pace through the rest of the year after an “unnerving” 2.9 % first-quarter contraction.
U.S. wholesale inventories rose in May
- Wholesale inventories rose 0.5% in May.
- It reinforces the view that economic growth should surge in the second quarter following a weak start to the year.
EUROPE & WORLD
Europe Stocks Drop to 2-Month Low on Portugal, Italy Bank
- Banks in Portugal, Italy and Spain sank, sending an industry gauge for its biggest slump since March.
- Espirito Santo International is considering making a request for protection from creditors in Luxembourg if it can’t reach a debt renegotiation agreement with its main creditors.
- Banque Privee Espirito Santo, fully owned by Espirito Santo Financial, said on July 8 that there was a delay in payments of some of the last maturities of short-term debt securities issued by ESI.
- Portugal’s PSI 20 Index tumbled 4.3 %.
U.K. Trade Deficit Is Widest in Four Months on Exports
- The gap was 9.20 billion pounds ($15.8 billion) compared with 8.81 billion pounds in April.
- Exports rose 0.6 % and imports climbed 1.7 %, largely due to 1.2 billion pounds of aircraft purchases.
French Stocks Seen Extending Losses on Economy Concern
- France’s economic recovery has fallen behind the euro area for the past three quarters.
China June trade data misses forecasts, doubts over economy linger
- Overseas shipments gained 7.2 % from a year earlier, the customs administration said today in Beijing, compared with the 10.4 % median estimate.
- Imports rose 5.5 %, leaving a $31.6 billion trade surplus.
- China will release second-quarter gross domestic product data on July 16. The economy probably grew 7.4 % from a year earlier.
Australia Unemployment Returns to 11-Year High; Bond Yields Drop
- The unemployment rate rose to 6 % from a revised 5.9 %.
- Bond yields dropped and the local dollar weakened after the report suggested the economy’s momentum has slowed.
Japan Machine Orders Fall by Record in Spending Caution Sign
- Core orders, a leading indicator of capital spending, dropped 19.5 % from April.
- Large companies across all industries plan to raise capital spending 7.4 % this fiscal year through March, a Bank of Japan report showed this month.
TODAY in HISTORY
- Wyoming became the 44th state in the United States (1890)
- The Bahamas became independent from Great Britain (1973)
- The Coca-Cola Company announced that it was bringing back the original Coke and calling it Coca-Cola Classic (1985)
- President Bush lifted economic sanctions against South Africa (1991)
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