Friday July 29 Daily Market Primer

US stocks were flat for a second day yesterday following Wednesday’s Fed meeting and in spite of very strong earnings reports by Alphabet (aka Google) and Amazon.  Oil continued its slide as crude inventories came in higher than expected, and is down 15% this month.  Stocks were down in Asia, where the Bank of Japan failed to deliver on anticipated stimulus, or “helicopter money”.  The yen jumped 2% on the announcement.  Stocks are flat to up in Europe.

US second quarter GDP came in at 1.2%, considerably lower that the Reuters consensus of 2.6%.  The Consumer Spending component was up 4.2%, the best growth since 2014.  Initial jobless claims for the prior week were 266K yesterday, slightly higher than expected.  The stock market is opening modestly down this morning.

	LAST	CHANGE	% CHG
DJIA	18456.35	-15.82	-0.09%
Nasdaq	5154.98	15.17	0.30%
S&P 500	2170.06	3.48	0.16%
Russell 2000	1217.33	-1.6	-0.13%
Global Dow	2394.8	3.25	0.14%
Japan: Nikkei 225	16224.25	-252.59	-1.53%
Stoxx Europe 600	339.47	-3.27	-0.95%
UK: FTSE 100	6721.06	-29.37	-0.44%
CBOE Volatility	12.55	-0.17	-1.34%
Australia: S&P/ASX 200	5562.4	5.8	0.10%
China: Shanghai Composite	2979.34	-14.98	-0.50%
Hong Kong: Hang Seng	21891.37	-282.97	-1.28%
India: S&P BSE Sensex	28051.86	-156.76	-0.56%
Japan: Nikkei 225	16569.27	92.43	0.56%
Singapore: Straits Times	2867.49	-51.13	-1.75%
France: CAC 40	4424.69	4.11	0.09%
Germany: DAX	10309.13	34.2	0.33%
Italy: FTSE MIB	16880.28	357.64	2.16%
Spain: IBEX 35	8612.1	132.9
U.S. 3 Month	0.226	-1/32
U.S. 2 Year	0.707	0/32
U.S. 5 Year	1.09	0/32
U.S. 10 Year	1.516	-2/32
U.S. 30 Year	2.246	-8/32
Germany 2 Year	-0.617	0/32
Germany 10 Year	-0.072	-5/32
Crude Oil	40.64	-0.5	-1.22%
Brent Crude	41.86	-0.84	-1.97%
S&P GSCI	333.74	-2.94	-0.87%
E-mini S&P 500	2161	-3.75	-0.17%

Amazon reported its fifth straight profitable quarter, with revenues of $30.4 billion and profits of $857 million, and 58% growth in its cloud computing business, Amazon Web Services (AWS).  Amazon didn’t get a 7% pop like Facebook and Apple did this week, since results were close to expectations.  Search giant Alphabet also beat on both revenue and earnings, with $17.5 billion in revenues, up 21%,  and earnings of $8.42 per share vs expected $8.03.  The stock was up about 4% in after hours trading.  In London, Lloyd’s bank cut 3000 jobs and issued a warning that Brexit will hurt the UK economy, and in Seattle, where I am this morning, Microsoft announced layoffs of 2850 over the next year as it continues to reorganize.  Hillary Clinton accepted the Democratic presidential nomination yesterday and the general election is off to the races.

Here’s the news:

BOJ disappoints

The Bank of Japan increased the size of its ETF purchases and expanded a dollar-lending facility, but avoided any big-bazooka policy changes in its statement issued overnight. Economist reaction has been one of disappointment that the bank didn't do more. The yen strengthened to 103.56 to the dollar by 6:00 a.m. ET and Japanese bonds fell the most in three years after the announcement. 

U.S. GDP

While a Bloomberg survey of economists predicts that U.S. GDP grew 2.5 percent in the second quarter, the Federal Reserve Bank of Atlanta’s GDPNow projection has declined to 1.8 percent from 2.3 percent earlier this month. The downward forecast revision was driven by a Census Bureau report that provided wholesale and inventory data for June. GDP data is due to be released at 8:30 a.m. ET. In Europe, second quarter GDP for the euro area was published this morning, coming in at 0.3 percent growth, in line with expectations.

Earnings

Both Amazon.com Inc. and Google parent Alphabet Inc. saw their shares rise after announcing earnings that beat estimates after the bell yesterday. In Europe, bank earnings continue with UBS Group AG, Barclays Plc. and Banco Bilbao Vizcaya Argentaria SA all higher in the market this morning after announcing results and guidance that impressed investors. European bank investors will be stuck late in the office today as the European Banking Authority releases its latest stress-test results at 4:00 p.m. ET.

Markets mixed

The MSCI Asia Pacific Excluding Japan Index fell 0.7 percent overnight, while Japan's stocks had a very volatile session, with the Topix index closing 1.2 percent higher, having changed direction at least 10 times during trading. In Europe the Stoxx 600 Index was 0.4 percent higher at 6:10 a.m. ET, with a surge in lenders accounting for much of that gain. The FTSE 100 Index slipped 0.1 percent, deepening its first weekly decline in six. S&P 500 futures were also down 0.1 percent.

Clinton coalition

Hillary Clinton accepted the Democratic nomination for president last night in a speech that sought to build a broad coalition to defeat Republican nominee Donald Trump. She also used the speech to attack Trump's qualifications, adding that his message is based on generating fear and division. Trump disagreed with Clinton's assessment, in a tweet.

Euro-area GDP slowed. The preliminary flash estimate showed that gross-domestic-product growth in the euro area slowed to 0.3% in the second quarter, down from the first quarter's print of up 0.6%. Growth was higher by 1.6% on a year-over-year basis.
The S&P 500 just did something for the first time since Richard Nixon was president. The S&P 500 ended Thursday's session inside a 1% trading range for the 11th straight session. This really is the "dullest market in decades," as Tom Leveroni and Shourui Tian of Nautilus Investment Research called it.
The IMF caved to political pressure during the 2010 Greece rescue. That's according to an audit conducted by the International Monetary Fund's Independent Evaluation Office. "The Fund too readily accepted the ECB and EC decision to not restructure Greece's massive debt, which would have lightened Athens' financial burden, before embarking on the first 110 billion euro bailout," AFP said, citing the audit.
Google beat on the top and bottom lines. The search giant earned $8.42 a share on revenue (ex-TAC) of $17.5 billion. Google saw its cost per click fall 7% year-over-year (versus an expected fall of 6%), and its paid clicks surge by 29% year-over-year (versus 27% expected).
Amazon posted a record profit. The online retailer earned $1.78 a share as revenue climbed 31% to $30.4 billion. The company earned money for a fifth straight quarter on the way to a record profit of $857 million. Amazon Web Services revenue grew at 58% year-over-year to $2.88 billion.
Microsoft is laying off workers. The tech giant says it will lay off 2,850 employees over the next year, according to a 10-K released after Thursday's closing bell. The layoffs will include employees in the sales group and elsewhere in the organization.
Hillary’s Moment
Hillary Clinton accepted the Democratic Party’s nomination for president Thursday, casting herself as a leader whose steadiness and unifying approach stand in contrast with her opponent. Following a personal introduction by her daughter, Chelsea, Mrs. Clinton repeatedly slammed Donald Trump, while recognizing that many Americans don’t like her much, either, and outlined a plan to boost jobs, increase infrastructure spending and overhaul immigration. She leaves the DNC with a largely unified party, having put forth a portrait of the country that is not just different from the one the Republicans offered last week, but almost its opposite, writes our Washington bureau chief Gerald F. Seib. Her first order of business now is a bus trip through the electoral battlegrounds of Pennsylvania and Ohio as she looks to parry with Mr. Trump in the Rust Belt. Meanwhile, we report that owners and employees of hedge funds have generated nearly $48.5 million for groups working on Mrs. Clinton’s behalf. The total for Mr. Trump is about $19,000.
The Mobile Advertising Age
Google parent Alphabet said Thursday that quarterly profit soared 24%, the second internet giant in two days, following Facebook, to report blockbuster earnings driven by consumers’ rapid shift to mobile devices. Companies bought more ads on Alphabet’s search engine and other products, while users increasingly clicked on those ads. Revenue, fueled by advertising, rose 21% to $21.5 billion in the second quarter from a year earlier. Google’s success capturing advertisers and users as they shift to mobile devices is helped by its Android smartphone software, which gives its search engine and other services top billing on more than a billion devices. Advertisers’ spending on mobile search ads increased 63% in the second quarter from a year earlier, while overall search-ad spending rose just 10% over the period.
Going for Gold
They vault higher, swim faster, punch harder and kick more violently than ever. They are the women of the U.S. Olympic team, the main reason our reporters project Team USA to win both the gold and overall medal races at the Games of the 31st Olympiad beginning next week in Rio de Janeiro. Star gymnast Simone Biles, swimming sensation Katie Ledecky and several breakout starts are ready for the Games to start—whether or not Rio is. The scrutiny facing Rio epitomizes the changing perception of the Games in the 21st century, writes our sports columnist Jason Gay. The fairy tale-haze over the Olympics has lifted, but great accomplishments are still possible. We take a look at why Brazil enlisted many of its athletes in the military, what makes Usain Bolt the fastest-ever human and how Olympic basketball differs from NBA basketball.

Facebook might owe US $5B in back taxes

Facebook has received a notice from the IRS that indicates it could owe between $3 billion and $5 billion in US taxes, as well as penalties and interest. The notice follows an audit of the company's transfer of foreign operations to Ireland in 2010.

Bloomberg (28 Jul.),  The Wall Street Journal (tiered subscription model)

Forbes: Bezos replaces Buffett as world's 3rd-richest person

Amazon founder and CEO Jeff Bezos has become the third-richest person in the world, taking the spot from Berkshire Hathaway Chairman and CEO Warren Buffett, according to Forbes. The No. 1 spot remains with Microsoft co-founder Bill Gates.

Forbes (28 Jul.),  Reuters (28 Jul.), 

Bezos (Chip Somodevilla/Getty Images) 

 Oracle to pay $9.3B for cloud provider NetSuite

To strengthen Oracle's position in the cloud-services market, the software giant has agreed to acquire cloud provider NetSuite for $9.3 billion. The $109 per share that Oracle is paying is a 19% premium above NetSuite's share price when markets closed Wednesday.

The New York Times (free-article access for SmartBrief readers) (28 Jul.) 

Stock markets around the world trade mixed. Overnight, Japan's Nikkei (+0.6%) led and Hong Kong's Hang Seng (-1.3%) lagged. In Europe, Spain's IBEX (+1.4%) paces the gains. S&P 500 futures are down 2.00 points at 2,162.75.
Earnings reporting remains heavy. AutoNation, Chevron, Exxon Mobil, Phillips 66, and United Parcel Service are among the names announcing their quarterly results ahead of the opening bell.

US economic data flows. GDP will be released at 8:30 a.m. ET before Chicago PMI and University of Michigan consumer confidence cross the wires at 9:45 a.m. ET and 10 a.m. ET. The Baker Hughes oil-rig count is due out at 1 p.m. ET. The US 10-year yield is higher by 2 basis points at 1.52%.

Islamic State Threat in Europe Shifts

Amazon Posts Another Blockbuster Profit

How Mobile Games Rake In Billions

Oil Nears a Bear Market

In Derivatives Trading, London is King

Bill Gross is running his $1.5 billion mutual fund by himself — again.

Brexit sends U.K. consumer confidence falling most since 1990.

Credit Suisse: Clients are among the most bearish on global equities ever.

TRACE, but for Treasuries.

Today at 8:30 ET we get the first look at U.S. Q2 GDP. The big number everyone will be watching is the Personal Consumption component. It's expected to post growth of an annualized 4.4 percent, which would be its best reading in years. Most people will probably miss it, but also at 8:30 the latest quarterly installment of the Employment Cost Index comes out. This is yet another reading that attempts to measure wage pressure. This index, unlike average hourly earnings, also captures stuff like employee benefits, and is arguably a more holistic way of looking at employment costs. For a while last year this was the hot index everyone was paying attention to, as it looked like it was providing a signal of faster average-hourly earnings. These days, attention's largely shifted to the Atlanta Fed's Wage Growth Tracker. But still ECI is well worth watching. Economists expect a 0.6 percent sequential rise, which would be the same pace of growth as in Q1.

Source: Bloomberg, BI, WSJ, CFAI Fin. Newsbrief, Reuters, NYT, Forbes