Note: strangely, yesterday’s Daily Edge never made it to the blog. It is thus incorporated in today’s post.
Dodge Construction Index Shows Weakening Trend in Mature Market
Construction starts rose four percent in June according to the Dodge Index of New Construction.
For the second quarter, construction starts are down substantially. The overall trend is also down, indicative of a mature market. (…)
U.S. New Home Sales Rise as Prices Fall Sharply
Sales of new single-family homes improved 0.8% to 610,000 during June following a 4.9% May increase to 605,000, revised from 610,000. Despite the rise, sales were 4.4% below the March peak. (…)
Home-Price Growth Flattened in May Home-price growth flattened across the U.S. in May, a sign that the rapid upward trajectory in the cost of buying a home may finally be coming to an end.
The S&PCoreLogic Case-Shiller Indices, which covers the entire nation, rose 5.6% in the 12 months ended in May, identical to a 5.6% year-over-year increase reported in April. The 10-city index gained 4.9% over the year, down from 5% in April, and the 20-city index gained 5.7%, down from 5.8% the previous month. (…)
Month-over-month, the U.S. Index rose 1% in May before seasonal adjustment, while the 10-city rose 0.7% and the 20-city index increased 0.8% from April to May.
After seasonal adjustment, the national index rose 0.2% month over month, the 10-city remained stagnant and the 20-city index rose 0.1%.
After seasonal adjustment, 14 of 20 cities saw prices rise in May. (…)
Who benefits most from state and local tax deduction?
Republicans are trying to eliminate the federal deduction for state and local taxes as part of a package to overhaul America’s tax system. Almost 44 million people claimed the deduction in 2014.
The U.S. average deduction is $11,846. Amounts by state here.
EARNINGS WATCH
As of yesterday morning from Thomson Reuters:
- 171 companies had reported with a 78% beat rate.
- The blended growth rate is now 9.9% on EPS and 4.7% on revenues. The EPS surprise factor is +6.8% overall.
- Q2 estimates have risen from +8.0% on July 1 to +9.9%.
- Q3 estimates are declining from +8.6% to +7.4% but Q4 are only shaved from +13.1% to +12.3%.
- Trailing EPS are $125.09 and are seen reaching $131.09 for 2017 as a whole.
Don’t miss my recent post: About Price/Sales, Profit Margins (and John Hussman)
From JP Morgan:
(…) According to Thomson Reuters, 77.8 per cent of US S&P 500 companies to have reported so far have beaten consensus earnings expectations. The historic average is 63 per cent, and this is set to be the most positively surprising earnings season since the third quarter of 2009, when 78.9 per cent of companies managed to surprise the Street amid the first rebound from the crisis. (…)
Meanwhile in Europe only 43.5 per cent Stoxx 600 companies have managed to beat their earnings estimates, and earnings “momentum” — the rate at which estimates are rising or falling — has been negative since early last month. (…)
Over the past decade — almost exactly matching the period of the crisis and post-crisis — European earnings have fallen by some 53 per cent, while US earnings have risen by 27 per cent. (…)
As it stands, European earnings are on course for a respectable 7.1 per cent rise from last year’s second quarter, although this falls to 4.4 per cent if energy excluded. (…)
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Citigroup boosts targets citing post-crisis recovery US bank says risks are contained as it pushes for higher returns
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Shell Leads Big Oil Revival Despite Crude Price Slump Three years into a dramatic slump in oil prices, big oil companies seem to have adapted their businesses to a point where they can still generate cash and reduce debt levels even at current oil prices.
The British-Dutch company’s equivalent of net profit rose to $1.9 billion in the second quarter, compared with $239 million at the same point last year and its cash flow from operations soared to $11.3 billion. The company said it has generated $38 billion of cash from its business over the last 12 months, enough to cover dividend payments and bring down debt levels. (…)
Total’s profit for the quarter was $2 billion, roughly the same as last year, but the company also reported a significant increase in cash flow from operations to $4.6 billion and a reduced debt ratio.
Statoil said it earned $1.4 billion in the second quarter, compared with a loss of $302 million last year. The company said it generated $4 billion in free cash flow and reduced net debt by 8 percentage points since the start of the year, despite oil prices remaining around $50 a barrel.
Though notably better than at the start of 2016 when the price of crude plummeted to $27 a barrel, oil is still more than 50% weaker than in 2014 when prices started to fall. (…) The oil-company earnings on Thursday reflect a years long campaign across the industry to bring down costs and spending to a point where the companies can operate profitably in a lower-oil-price environment.
It’s an effort that remains ongoing.
Shell said it intends to maintain tight capital discipline going forward and will continue to focus on bringing down costs and capital efficiency. Statoil said it expects costs to continue to improve this year and to squeeze out an additional $1 billion in efficiencies.
- Here is the latest crude oil cost curve. It’s difficult to see the US crude price rising substantially above $55-$60/bbl (for a sustained period) in the near-term. There is a massive amount of additional production that will kick in at these levels. (The Daily Shot)
Source: Goldman Sachs, @MattGarrett3
Facebook: Enjoy Rapid Growth While It Lasts After a big run-up in its shares, Facebook needs a new jolt of revenue growth to keep impressing investors
The social-networking giant on Wednesday reported second-quarter earnings and revenue that exceeded analysts’ expectations. Its monthly active user base now exceeds two billion people. For some perspective, the population of people in the world between the ages of 15 and 64 living in countries where Facebook isn’t banned is only about twice as high.
Some 66% of Facebook’s monthly active users continue to visit it daily. But while 45% top-line growth from a year earlier and 24% growth in average revenue per user would be impressive for almost any company, those figures represented Facebook’s slowest growth since the third quarter of 2015. Growth in daily and monthly active users also slowed sequentially. (…)
CANADA
Loblaw sees higher minimum wage rules hitting profit
Loblaw Companies Ltd. says minimum wage increases in Ontario and Alberta and health care reform in Quebec are expected to hurt its bottom line.
The grocery and drug store operator says the minimum wage increases announced in Ontario and Alberta are expected to increase its labour expenses by about $190-million in 2018.
Loblaw also says changes in Quebec are expected to have a more significant incremental impact in 2018 than in prior years. (…)
(…) Each 30-pound robot is equipped with sensors to help it navigate the store’s layout and avoid bumping into customers’ carts. When it detects product areas that aren’t fully stocked, the data is shared with store management staff so the retailer can make changes, said Dave Steck, Schnuck Markets’ vice president of IT and infrastructure.
The primary focus of the data collection is to determine the store’s in-stock position, but other shelf data such as price errors may also be examined. (…)
Fed Ready to Shrink Bond Portfolio as Soon as September
The rate-setting Federal Open Market Committee said it expects to begin shrinking the bondholdings “relatively soon,” using a phrase that often has preceded action at the next policy meeting. (…)
Officials offered little indication that several weak inflation readings had altered their plans to raise short-term interest rates once more this year. They voted unanimously to leave their benchmark rate in a range between 1% and 1.25%. (…)
The statement issued after a two-day FOMC meeting noted the recent weakness in inflation but didn’t deviate significantly from the statement released after last month’s meeting. (…)
The Fed won’t actively sell assets. Instead, it will allow a preset amount of holdings to mature every month without reinvestment. The amounts allowed to mature would initially be set at a relatively low level—$10 billion a month—and they would increase every quarter by $10 billion up to a maximum of $50 billion. Officials have said they want the plan to run quietly in the background once it starts. (…)
As PE Dry Powder Hits Record High, Purchase Price Multiples Also Grow
As sponsors sit on piles of cash they want to put to use—private equity dry power as of May increased to a record $906 billion—PE shops have had to pay up on secondary deals (and on any LBO this year).
The average purchase price multiple on sponsor-to-sponsor transactions in 2017 is 10.6x, up from 10.4x in 2016 and the most since LCD started tracking this data (it was 9.4x in 2007). The average PPM on all 2017 LBOs was 10.3x (also the most on record). (…)
The Myth of Trump’s Do-Nothing Presidency
Six months into his presidency, Donald Trump’s detractors portray him as a do-nothing president with no big wins on issues such as health care, taxes and infrastructure.
That may be true if the benchmark is legislation, but that is an incomplete benchmark. To gauge a president’s impact you have to go beyond the laws he signs to the vast authority he wields through departments and agencies that apply the law. On that score, Mr. Trump is on track to do a lot. On finance, the internet, immigration and drugs, to name just a few issues, Trump appointees have begun nudging the economy and the country in a more conservative, pro-business direction. (…)
In Mr. Trump’s first six months, rule-making has changed dramatically. The latest update on regulatory actions released last week by the White House Office of Management and Budget contained 1,731 preliminary, proposed or final rules, down 40% from its peak under Mr. Obama in 2011 and a 17-year low, according to Sofie Miller of George Washington University’s Regulatory Studies Center. Many actions taken under Mr. Trump are actually reversals of earlier rules. Ms. Miller says of 66 completed actions at the Environmental Protection Agency, a third were rule withdrawals. (…)
Trump has kept his promises — to Wall Street
Donald J. Trump made many promises during his successful campaign for the presidency, but according to a running tally from PolitiFact, he has kept less than 10%. (…)
But he has kept his word to Wall Street, which overwhelmingly opposed him in 2016, showing uncharacteristic discipline and diligence in attempting to dismantle the Dodd-Frank Act, passed by Congress and signed by President Barack Obama in 2010. (…)
Here’s what the Trump administration and Congress are doing to help Wall Street and big banks, an industry that contributed 13 times as much to Hillary Clinton’s campaign as it did to Trump’s, according to OpenSecrets.org:
• Last month, the House of Representatives passed the Financial Choice Act, which would exempt stronger institutions from restrictions on risk taking; replace Dodd-Frank’s methods of liquidating failing banks; gut the reviled Consumer Finance Protection Bureau, and eliminate the new fiduciary rule, which requires investment advisers of retirement accounts to act in the best interests of their clients.
• In April, the president signed executive orders that ordered the Treasury Department not to use its liquidation authority to bail out insolvent banks and imposed a 180-day moratorium on designating financial institutions that aren’t banks as “systemically important” and thus subject to greater oversight. Both the president and Treasury Secretary Steven Mnuchin acknowledged those orders were largely symbolic.
• The president nominated Randal Quarles as Federal Reserve vice chairman of supervision, a post created by Dodd-Frank that hasn’t been officially filled since 2010. If confirmed by the Senate, Quarles will oversee the Fed’s financial regulation, or deregulation: he has opposed higher capital standards for banks.
• In what could be Wall Street’s biggest victory, Gary Cohn, director of the president’s National Economic Council, may have the inside track to succeed Janet Yellen as Fed chair next year. Putting the former Goldman Sachs president in charge of the Fed’s much-enhanced regulatory authority under Dodd-Frank (you can bet they won’t repeal that now) would only cement the dominance of the Vampire Squid in this administration. I’m sure the president’s ardent supporters in Youngstown, Ohio, would be thrilled. (…)
Still missing:
Source: Moody’s Investors Service (via The Daily Shot)
