Auto Makers Report Steep Sales Declines in July - Dow Jones

[Pages:5]Tuesday, August 01, 2017

Stocks

U.S. stocks rose and the Dow Jones Industrial Average on Tuesday closed at 21963, within striking distance of 22000. The blue-chip index rose as high as 21991 and closed higher for a sixth straight session of gains.

Treasurys

U.S. government bonds strengthened Tuesday as investors responded to a batch of soft economic data.

Forex

The dollar wavered Tuesday as investors digested mixed U.S. data. The WSJ Dollar Index, which measures the U.S. currency against 16 others, was recently flat at 85.75. The dollar slipped 0.2% against the Japanese yen, but rose 0.1% against the euro and 0.4% against the Russian ruble.

Commodities

Oil prices ended 2% lower, falling from a two-month high as investors once again began to doubt OPEC's ability to curtail production and make a dent in the global supply glut.

Market Snapshot*

DJIA

21963.92

+72.8

Nasdaq

6362.94

+14.82

S&P 500

2476.35

+6.05

10-Year

2.2517%

11/32

30-Year

2.8515%

31/32

Euro

$1.18355

+0.0076

Nymex Crude

$49.16

-1.01

Source: SIX Financial Information, ICAP plc *preliminary values subject to adjustments

Tomorrow's Headlines

Auto Makers Report Steep Sales Declines in July

Sales for major U.S. auto makers sharply declined in July amid a modest slump in lease deals that have kept payments low, continuing an industry slowdown that has led to a glut of inventory on dealer lots and a spate of discounts.

General Motors Co. reported a 15.4% sales decline in July compared to the same period a year ago, selling 226,107 cars and trucks. Ford Motor Co.'s said sales slid 7.4% last month to 199,318 vehicles.

Fiat Chrysler Automobiles N.V.'s posted a 10% decline in July, selling 161,477 vehicles, as its top-selling Jeep brand continued to struggle against rivals with newer sport-utility models.

While truck and sport utility demand remains strong, sales of sedans and other passenger cars have struggled amid low gas prices.

Full industry results are due later Tuesday for July, which is typically a strong selling month for auto makers. J.D. Power anticipates sales fell 5.4% in July, compared to the same month in 2016. The firm notes that manufacturers typically pull back on sales incentives after the July 4th holiday, "but this year elevated inventory levels coupled with the sales slowdown, have compelled them to maintain aggressive discounts throughout July."

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Tomorrow's Calendar

7:00 a.m.

07/28 MBA Weekly Mortgage Applications Survey Composite Idx (previous 418.5) Composite Idx, W/W% (previous +0.4%) Purchase Idx-SA (previous 240.1) Purchase Idx-SA, W/W% (previous -2.2%) Refinance Idx (previous 1414.3) Refinance Idx, W/W% (previous +3.4%)

8:15 a.m.

Jul ADP National Employment Report Private Sector Jobs, Net Chg (expected +180000)

8:30 a.m.

U.S. Department of the Treasury's quarterly refunding announcement

9:45 a.m.

Jul ISM-NY Report on Business Business Index (previous 55.5)

10:00 a.m.

Jul Online Help Wanted Index

10:00 a.m.

Jun Metropolitan Area Employment & Unemployment

10:30 a.m.

07/28 EIA Weekly Petroleum Status Report Crude Oil Stocks (Bbl) (previous 483.415M) Crude Oil Stocks, Net Chg (Bbl) (previous 7.208M) Gasoline Stocks (Bbl) (previous 230.196M) Gasoline Stocks, Net Chg (Bbl) (previous -1.015M) Distillate Stocks (Bbl) (previous 149.564M) Distillate Stocks, Net Chg (Bbl) (previous 1.852M) Refinery Usage (previous 94.3%) Total Prod Supplied (Bbl/day) (previous 21.289M) Total Prod Supplied, Net Chg (Bbl/day) (previous +0.111M)

3:00 p.m.

FRB San Francisco President John Williams speaks in Las Vegas

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Tomorrow's Headlines

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Sprint Says Merger Decision Is Near

Sprint Corp. said it would decide soon on whether to pursue a merger with either T-Mobile US Inc. or Charter Communications Inc., with an announcement coming "in the near future," according to the wireless carrier's chief executive.

"We've had sufficient conversations with several parties and soon we're going to start making decisions," Sprint CEO Marcelo Claure said on a call Tuesday after the company reported results for the three months ending June 30.

While Mr. Claure didn't mention either company directly, The Wall Street Journal has reported on its discussions with both of them. Sprint and its parent company, Japan's SoftBank Group Corp., are considering making a formal offer to acquire Charter, the U.S.'s second-largest cable firm, according to people familiar with the matter, a massive deal that would reshape the rapidly transforming cable, wireless and media industries.

The offer being considered by Sprint's chairman and SoftBank founder, Masayoshi Son, would be to form a new publicly traded entity that would use SoftBank money to buyout shareholders of both Sprint and Charter at a premium, the people said. The transaction would be funded with roughly half cash and half stock. The deal would result in SoftBank controlling the combined company.

Europe's Largest Oil Refinery Disabled by Fire, Raising Fuel Prices Globally

The largest crude-oil refinery in Europe may not reopen until later this month after being knocked offline by a fire over the weekend, causing gasoline and other fuel prices to rise globally, according to Royal Dutch Shell PLC, the facility's operator.

The Pernis refinery in the Netherlands has the capacity to produce 404,000 barrels a day of a variety of fuels. The loss is pushing up the already-rising prices of diesel, gasoline and other fuel products around the world, said Olivier Jakob from the Switzerland-based consultancy Petromatrix.

"This is only going to add to the fire," Mr. Jakob said.

The refinery was shut down after a fire caused a power outage on Saturday, said Shell, which didn't disclose the cause of the conflagration.

New GE CEO Begins, Promising `Intense Focus' on Operations

John Flannery started his first day as General Electric Co.'s chief executive with a letter to employees, highlighting the company's transformation under its previous leader but saying "now we need an intense focus on running the company well."

GE is coming off a 16-year run of Jeff Immelt, who moved the company away from struggling and lower-margin busi-

nesses toward industrial machines and related technology and services. The stock lagged behind in his tenure, but he navigated challenges such as the 9/11 terrorist attacks and financial crisis while pushing into software development.

In his letter Tuesday, Mr. Flannery said he met with 100 investors over the past month and hears them "loud and clear" on their concerns.

Inflation Tame in June, Complicating Fed's Rate Decision

Consumer prices were flat in June from the prior month and annual inflation remained well below the Federal Reserve's 2% target, a potential yellow flag for the central bank as it considers interest-rate increases later in the year.

Inflation is turning into a conundrum for the Fed. Officials have been expecting a pickup as the economy improves, but it isn't appearing.

The Fed's preferred measure of inflation, the price index for personal-consumption expenditures, was flat in June from the prior month, the second straight flat reading. It was up 1.4% in June from a year earlier and has dropped for four consecutive months on an annual basis, from 2.2% in February.

Consumer spending didn't offer much spark either, rising a tepid 0.1% for the month. Adjusted for inflation, consumer spending was unchanged in June. Personal income was flat, the Commerce Department reported Tuesday, held back in part by a drop in the income households earn on dividends from investments.

Soft energy prices are part of the story, but not the whole story. Excluding the often-volatile categories of food and energy, so-called core prices were up 0.1% in June for the second straight month. Core prices have stabilized at 1.5% from a year earlier, which is down from 1.9% reached in February and notches below the Fed's 1.7% end-of-year projection.

Sony Profit Surges, Boosted by Strong Sales

Strong sales of image sensors for cameras in iPhones and other smartphones helped Sony Corp. post sharply higher profits in the three months through June.

Sony's operating profit in the fiscal first quarter rose to 158 billion yen ($1.43 billion), nearly triple the figure in the same quarter a year ago and the highest on record for Sony in the April-June period.

The figure was inflated by one-time factors, including income from insurance payments over earthquake damage a Sony factory in southern Japan suffered a year ago. Even without those factors, Sony said its operating profit for the quarter was on par with the previous record set in AprilJune 2007.

Net profit for the quarter was 81 billion yen on sales of nearly 1.9 trillion yen ($17.23 billion).

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Tomorrow's Headlines

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Factory Activity Continued to Expand in July

U.S. factory activity expanded for the 11th consecutive month in July, highlighting steady economic growth heading into the second half of the year.

The Institute for Supply Management on Tuesday said its index of U.S. manufacturing activity fell to 56.3 in July from 57.8 in June. A number above 50 indicates expansion.

Economists surveyed by The Wall Street Journal had expected a July reading of 56.2.

The closely watched gauge has been above the breakeven mark every month for nearly a year. So far in 2017, it has averaged 56.4, significantly better than the 51.4 average of the prior two years.

"The headline ISM manufacturing index and many of its subcomponents are consistent with an improvement in business sentiment and activity in the sector as it comes out of the doldrums of the past two years," Blerina Uruci, economist at Barclays, said in a research note.

Athenahealth Makes a ShareholderBacked Shake-Up, Keeping CEO

Jonathan Bush, the sometimes outspoken founder and head of Athenahealth Inc., will cede his chairmanship but stay as chief executive in a shake-up that has the backing of two of his biggest shareholders, months after activist investor Elliott Management Corp. piled into the stock.

Mr. Bush will also give up operational control of the healthcare-software company to a new president. Both roles are expected to be filled following searches with external candidates, the company said Tuesday.

Yet Mr. Bush will remain as the daily leader of the company, a decision applauded by typically quiet mutual-fund investors at T. Rowe Price and Morgan Stanley who have said his visionary leadership has been key to the company's growth, even if the company needs to mature into a more disciplined financial enterprise.

Each firm owns more than 10% of the stock and has been an investor for several years, and their support is a rare example of public backing by longtime holders of an executive facing an activist investor.

BP Says It Can Now Profit at Oil Below $50

BP PLC is once again raking in billions of dollars in cash.

The British oil giant, which on Tuesday was the last of the world's biggest Western oil companies to report quarterly earnings, said it can now break even when oil is at $47 a barrel, cushioning it against an extended period of low prices.

Though BP's equivalent to second-quarter net profit was, by oil industry standards, a relatively modest $553 million, that compared with a loss of $2.2 billion a year earlier. And that was despite oil prices stuck at $50 a barrel or less for much of the year and further costs associated with the Deepwater Horizon oil spill in 2010.

Low oil prices, driven by a glut in supply, have forced the entire industry to pivot, cutting costs and seeking new avenues for growth. Like peers Exxon Mobil Corp. and Royal Dutch Shell PLC, BP has moved to ramp up production through relatively low-cost projects that make money at depressed crude prices.

BP also cut $7 billion in costs last year, the effects of which are beginning to bear fruit, Chief Financial Officer Brian Gilvary said in an interview.

Senate Democrats Lay Out Conditions On Tax Deal

Senate Democrats outlined their conditions for working with the Trump administration and congressional Republicans on tax policy, and their principles didn't seem to leave much room for common ground.

In a letter dated Tuesday, Democrats argued against tax cuts for the top 1% of households, declared it crucial that Republicans not use the fast-track procedures known as reconciliation and said they wouldn't back deficit-financed tax cuts.

"Tax reform cannot be a cover story for delivering tax cuts to the wealthiest," says the letter, which was just signed by 45 of the 48 members of the Senate Democratic caucus. "We will not support any effort to pass deficit-financed tax cuts, which would endanger critical programs like Medicare, Medicaid, Social Security and other public investments in the future."

Each of the Democrats' conditions will be hard for Republicans to meet in the tax bill they hope to turn into law by the end of the year, unless they alter the direction the party has been heading in or more Democrats prove willing to bend.

Republicans plan to use reconciliation, which will allow them to pass a bill without Democratic votes, though they have said they are open to working with Democrats.

Venezuela Opposition Leaders Taken From Homes

Dozens of intelligence officers dragged out two opposition leaders from homes in the middle of the night, a day after President Nicolas Maduro vowed to jail opponents after winning a disputed vote.

Videos posted by family members showed officers armed with automatic weapons taking Leopoldo Lopez, the country's most popular politician, and Antonio Ledezma, the elected mayor of Caracas, and shoving them into patrol cars. Mr. Lopez and Mr. Ledezma's political parties said they don't know where the politicians were taken.

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Talking Points

Bitcoin Splits In Two, And Both Versions Rally

Bitcoin Cash, a tweaked version of the digital currency created by one side in an industry rift, started trading Tuesday. If it wants to be bitcoin's equal, it is about 10% of the way there.

Most digital currency exchanges and services at this point aren't supporting Bitcoin Cash. One exchange that is, China-based ViaBTC, has been allowing trading in the coin even before it goes live. On that basis, Bitcoin Cash was most recently trading at about 11% of a bitcoin's value, roughly in line with traders' projections in the days leading up to the launch.

With the original bitcoin trading at around $2,750, Bitcoin Cash was worth around $300. Another virtual currency tracker, , showed Bitcoin Cash falling to about $242 from a high of about $400 in volatile trading.

Depending on where Bitcoin Cash stabilizes, it could have a total market value of several billion dollars, instantly making it one of the most valuable virtual currencies.

The new bitcoin spawn promises users a currency optimized for fast and cheap transactions, as opposed to bitcoin, which has grown in popularity despite limits on how fast it trades. After rallying sharply in recent weeks, bitcoin declined about 5% Tuesday, according to Coindesk.

While trades were being reported and Bitcoin Cash prices fluctuated to as high as 15% of a bitcoin, trades aren't expected to be confirmed for several hours.

It is unclear how successful the new cryptocurrency will be, or how much activity it will generate.

There was some confusion about something as simple as what symbol the new currency should carry. Many were using BCC, but that code was already employed for a digital currency called BitConnect. Others were using BCH for Bitcoin Cash.

Bitcoin Cash was announced as a project on July 22, a response to a controversial industry compromise settled on a week earlier. That compromise agreement was aimed at resolving a two-year-old impasse over a technical issue: how best to expand network capacity.

The agreement remained controversial enough that this splinter group took the extreme step of "forking" bitcoin's software, essentially creating an updated version of the program and running it live.

Launching a new version of bitcoin is technically complicated, and many exchanges were choosing to sit this one out, literally, at least until it was clear whether or not the new currency was stable.

Gemini, the U.S. exchange owned by the Winklevoss twins, suspended bitcoin deposits and withdrawals on Monday night, and said the suspension would remain in effect until "after we believe the Bitcoin Network has stabilized, which is anticipated to be sometime Wednesday." Transactions using U.S. dollars or ether, another popular virtual currency, wouldn't be affected, they said.

San Francisco-based Coinbase also said they would not support Bitcoin Cash, though should the upstart survive its first days and prove itself stable and secure, it may revisit the issue.

The future of Bitcoin Cash will be dependent upon how many users it pulls from bitcoin proper. Just like the original, Bitcoin Cash is dependent upon "miners," the groups that run the software and confirm transactions in exchange for newly created bitcoins. It is impossible to say how many miners Bitcoin Cash will attract, but it wasn't expected to be large, at least not initially.

That means Bitcoin Cash's network will initially be slow. The first "block" of transactions may not be confirmed for 24 hours, noted Jeff Garzik, a Bitcoin Core

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Talking Points

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developer in an email. "After this initial slow period, the software self-adjusts to the lower hashrate, and starts producing blocks more quickly."

Unicorns Lose Their Shine

Snap Inc. and Blue Apron Holdings Inc. were supposed to herald a return of the great technology IPO. They have instead become vehicles of market dismay.

Both companies now trade well below their initial public offering prices. More disturbingly for venture-capital investors, those prices are below what some paid for their pre-IPO stakes. The result is renewed doubt about valuations across Silicon Valley's private companies, whose worth has been climbing for a decade.

On Monday Snap shares touched a fresh low in volatile trading after some early shareholders in the messaging-app owner were allowed to sell their holdings for the first time.

In another ominous sign, yoga-studio owner YogaWorks Inc. in mid-July postponed its IPO on the eve of its debut, citing market conditions. AppNexus Inc., an advertisingtechnology company that was planning to go public as early as this fall, is now more likely to wait until next year, people familiar with the matter said.

Analysts and underwriters say that the weak performance of Snap, the largest tech IPO in more than two years, is stoking doubts among late-stage private investors. Such doubts could interrupt the cycle of ever-increasing funding rounds that has underpinned the lofty valuations of many tech startups.

The relationship between private and public markets has never been so lopsided. Currently, nearly 170 private companies are valued by their owners at $1 billion or more, according to Dow Jones VentureSource. That's up from about 60 just three years ago. Thirteen private companies now fetch a valuation of $10 billion or more. Before the financial crisis, no venture-backed company had ever achieved a billion-dollar valuation before going public, according to McKinsey & Co.

Funding dedicated to private startups is robust. North American venture firms as of July 2017 had nearly $96 billion in uninvested capital, the most on record, Preqin estimates. Separate from that, SoftBank Group Corp. recently launched a $100 billion vehicle to invest in private tech firms, the largest such fund ever.

The IPO market, meanwhile, is on shaky ground. While the roughly $30 billion raised in 105 offerings in the U.S. in through July is nearly triple the comparable amount last year, it's an easy comparison: Last year marked the slowest for IPOs in more than a decade, according to Dealogic.

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