Market Snapshot*
Tuesday, August 30, 2016
DJIA
18454.3
-48.68
Nasdaq
5222.99
-9.33
S&P 500
2176.12
-4.25
10-Year
1.574%
-3/32
30-Year
2.2313%
-11/32
Euro
$1.11425
-0.0045
$46.35
-0.62
Nymex Crude
Source: SIX Financial Information, ICAP plc *preliminary values subject to adjustments
Stocks
Tomorrow’s Headlines
U.S. stocks edged lower Tuesday, as the dollar strengthened on expectations that the Federal Reserve was moving closer to raising interest rates.
EU Demands Apple Repay $14.5 B In Irish Tax Breaks The European Union’s antitrust regulator has demanded that Ireland recoup roughly 13 billion euros ($14.5 billion) of unpaid taxes over a decade from Apple Inc., a move that could intensify a feud between the EU and the U.S. over the bloc’s tax probes into American companies.
Treasurys Government-bond prices in the U.S. remained relatively flat Tuesday amid light trading as investors continued to digest remarks by federal officials.
Forex The dollar improved Tuesday as investors continued to assess the outlook for U.S. interest-rate increases this year. The WSJ Dollar Index, which measures the U.S. currency against 16 others, was up 0.5% at 86.96, a one-month high.
The size of the tax demand, which came in a formal decision issued Tuesday, risks further unsettling multinational companies already facing a slow-moving international effort to curb aggressive tax avoidance, showing their past behavior could land them with big bills for allegedly unpaid back taxes. The sum is the highest ever demanded under the EU’s longstanding state-aid rules that forbid companies from gaining advantages over competitors because of government help. The decision—which ordered a payment well above most analysts’ expectations — is likely to be the subject of years of appeals up to the EU’s top court. It
Commodities Oil prices fell Tuesday on renewed uncertainty over whether major producers can agree to an output freeze and on expectations of rising U.S. inventories. U.S. prices for October delivery settled down 63 cents, or 1.3%, to $46.35 a barrel on the New York Mercantile Exchange.
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Tomorrow’s Calendar 7:00 a.m.
8:15 a.m. 8:30 a.m. 8:30 a.m. 9:45 a.m. 10:00 a.m.
10:00 a.m. 10:00 a.m. 10:30 a.m.
3:00 p.m. 4:00 p.m.
08/26 MBA Weekly Mortgage Applications Survey, Composite Idx (previous 530.1), Composite Idx, W/W% (previous -2.1%), Purchase Idx-SA (previous 213.4), Purchase Idx-SA, W/W% (previous -0.3%), Refinance Idx (previous 2355.2), Refinance Idx, W/W% (previous -3.2%) Aug ADP National Employment Report, Private Sector Jobs, Q/Q% (expected +180000) U.S. Treasury Sec Lew speaks on U.S. priorities for G20 Leaders Summit FRB Minneapolis President Neel Kashkari speaks at the Wilder Foundation Aug ISM-Chicago Business Survey - Chicago PMI, PMI-Adj (expected 54.0) Jul Pending Home Sales Index, Pending Home Sales (previous 111.0), Pending Home Sales Idx, M/M% (expected +0.7%), Pending Home Sales Idx , Y/Y% (previous +1.0%) Aug Online Help Wanted Index Jul Metropolitan Area Employment & Unemployment 08/26 EIA Weekly Petroleum Status Report, Crude Oil Stocks (Bbl) (previous 523.594M), Crude Oil Stocks, Net Chg (Bbl) (previous +2.501M), Gasoline Stocks (Bbl) (previous 232.695M0, Gasoline Stocks, Net Chg (Bbl) (previous +0.036M), Distillate Stocks (Bbl) (previous 153.257M), Distillate Stocks, Net Chg (Bbl) (previous +0.122M), Refinery Usage (previous 92.5%), Total Prod Supplied (Bbl/day) (previous 20.741M), Total Prod Supplied, Net Chg (Bbl/day) (previous +0.116M) Aug Agricultural Prices, Farm Prices, M/M% (previous -1.4%) U.S. portfolio holdings of foreign securities preliminary results
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Tuesday, August 30, 2016 4 p.m. ET
Tomorrow’s Headlines
The S&P CoreLogic Case-Shiller Indices, covering the entire nation, rose 5.1% in the 12 months ended in June, identical to the increase reported in May.
continued could also set off a broader scramble by the U.S. and individual EU governments over the right to tax billions of dollars of offshore profits made by Apple and other large companies. Apple disputed the reasoning of the decision and said it would appeal. Chief Executive Tim Cook, in an open letter, added: “Apple follows the law and we pay all the taxes we owe.”
Price growth did show some sign of slowing in the country’s largest cities. The 10-city index, which includes some of the country’s largest cities, gained 4.3% from a year earlier, down slightly from 4.4% last month. The 20-city index gained 5.1% year-over-year, down from a 5.3% increase in May. Despite that slight deceleration, economists said the market remains challenging for buyers.
Fischer Pace of Rate Rises Driven By Economy
“Price gains still have a long way to drop before incomes actually start catching up,” said Ralph McLaughlin, chief economist at Trulia. “Home buyers aren’t likely to find any relief in the coming months.”
Federal Reserve Vice Chairman Stanley Fischer on Tuesday said the pace of future central bank rate rises will depend entirely on the economy’s performance.
Iraq Backs OPEC Output Freeze
When it comes to short-term interest rate increases, “we choose the pace based on data coming on,” Mr. Fischer said in a Bloomberg television interview. “I don’t think we know at the time we start whether it’s one and done or several. It depends entirely on what’s happening in the economy.” Mr. Fisher wasn’t asked for his views on the timing of a rate rise, but in a television interview last Friday, the official suggested it was possible the Fed could raise its 0.25%-to0.5% short-term target rate at the Sept. 20-21 Federal Open Market Committee meeting, and perhaps again after that. But he made no commitment to act.
Agrium, Potash Report Merger Talks Canadian fertilizer giants Agrium Inc. and Potash Corp. of Saskatchewan Inc. said they were in preliminary talks about a possible merger of equals as the industry contends with slumping earnings amid persistently low prices for crop nutrients. However, the companies also said no decision had been made, and there is no assurance the discussions would result in any potential deal, which would create a company with a total market value of more than $28 billion. Bloomberg News earlier on Tuesday reported that the fertilizer makers were in advanced merger talks, with a deal announcement possible as soon as next week. A merger would help Saskatchewan-based Potash, the world’s largest fertilizer producer by capacity, insulate its earnings against volatile moves in crop nutrient prices by giving it access to Agrium’s steadier retail business that sells fertilizer, seeds and other products to farmers. For the first six months of this year, Agrium’s retail business generated sales of $8.1 billion, down 3.6% from the year-ago period. By comparison, the sales at its smaller wholesale fertilizer operation fell 25% to $1.5 billion over the same period.
US Home Prices Continued Strong Gains in June Home prices continued to make strong gains in June, as continued price run ups put a damper on demand.
Iraq would support a decision by members of the Organization of the Petroleum Exporting Countries to limit oil output to prop up petroleum prices, Prime Minister Haider al-Abadi said Tuesday. “We support freezing oil production by OPEC due to the sharp decline of oil prices,” Mr. Abadi said at a news conference, saying it would help government-salaried oil-industry workers. The Iraqi premier’s announcement puts the weight of OPEC’s second-largest petroleum producing country behind a bid to cap oil output expected to be discussed during an energy conference in Algeria from Sept. 26 to Sept. 28. Until now, Iraq was seen as a potential impediment to a deal because its production has soared and it desperately needs oil revenue to fight a war against Islamic State.
Uber Hires Target Executive as President Uber Technologies Inc. is hiring Target Corp.’s top marketing executive to serve as a deputy to Chief Executive Travis Kalanick and oversee its operations. Jeffrey Jones, 48 years old, will join San Francisco-based Uber next month, where he will be president of ride-sharing and be responsible as well for marketing and customer support globally. He will also advise on corporate actions, such as acquisitions or a potential future initial public offering. Mr. Jones, who has been Target’s marketing chief for four years, is taking over some of the responsibilities of Ryan Graves, a former Uber CEO and director. Mr. Graves will focus on some of Uber’s experiments, such as prepared food and package delivery services. “Ryan is the progenitor of everything Uber Operations—setting the gold standard,” Travis Kalanick, Uber’s founder and CEO, wrote in a blog post. “But as we grow, marketing is becoming more and more of a thing, and it was clear we needed a real infusion of talent on that front. So we went big.” Target said Tuesday that Mr. Jones, who is the retailer’s chief marketing officer, was resigning from the company on Sept. 9, to pursue “a new opportunity.”
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Tuesday, August 30, 2016 4 p.m. ET
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GE said the 57-year-old finance executive will step aside as chief executive of GE Capital on Sept. 1 and retire from the conglomerate on Dec. 31. He will be succeeded by one of his lieutenants.
BHP Billiton Withholds Bonus Of CEO Mackenzie
In an email to employees Tuesday, GE CEO Jeff Immelt praised Mr. Sherin as a humble, steadying hand during a period of profound turmoil at the company.
BHP Billiton’s board has scrapped Chief Executive Andrew Mackenzie’s bonus after a mining-dam failure in Brazil killed 19 people and contributed to the company’s worst annual loss to date, the company said Tuesday.
“He could juggle 10 balls at once,” Mr. Immelt wrote. “I could trust him with any task, large or small... He was equally comfortable in the boardroom as he was on the factory floor.”
The bonuses of other senior BHP executives also will be cut by varying amounts, said a spokesman for the world’s largest mining company by market value. The spokesman said Mr. Mackenzie won’t be paid his short-term incentive bonus for the year ended June 30 but didn’t specify whether Mr. Mackenzie’s other benefits, such as his pension, would be affected.
Consumer Confidence Close To 12-month High
The details of senior management’s compensation package will be unveiled in full when BHP’s annual report is published in a couple of weeks.
The Conference Board’s consumer-confidence index climbed to 101.1 in August from 96.7 in July, the group said Tuesday. That was the highest reading since September 2015.
Mr. Mackenzie earned a salary of $1.7 million last year, an amount that has been frozen since he took over as CEO in 2013. Last year BHP paid $2.3 million to Mr. Mackenzie as a bonus, half in cash and half in deferred shares due to vest in fiscal 2018.
Economists surveyed by The Wall Street Journal had expected an August reading of 97.0.
Tomorrow’s Headlines
The deadly Fundao dam collapse on Nov. 5 ranks among Brazil’s worst environmental disasters, destroying villages and polluting more than 400 miles of rivers. Brazilian federal prosecutors filed a civil case against Vale SA, BHP and Samarco Mineracao SA in May calling for 155 billion reais ($48 billion) in damages, comparing the fallout from the dam’s collapse to that of BP PLC’s Deepwater Horizon oil spill in 2010 in the Gulf of Mexico.
Regulators Find Deficiencies in 13 Deloitte Audits, 12 by PWC The government’s audit regulator found deficiencies in 13 audits conducted by Deloitte & Touche LLP and 12 audits conducted by PricewaterhouseCoopers LLP in its latest annual inspections of the Big Four accounting firms. The 13 deficient audits found by the Public Company Accounting Oversight Board represent 24% of the 55 audits and partial audits reviewed by the board in its 2015 inspection of Deloitte, issued Tuesday. That is up slightly from the previous year’s report, when the board found 11 deficient audits at Deloitte of 53 surveyed, a 21% deficiency rate. The 12 deficient audits found by the PCAOB represent 22% of the 55 PwC audits and partial audits inspected by the board in its latest inspection, also released Tuesday. That is down from a 29% deficiency rate the previous year, when 17 of 58 audits surveyed were found to be deficient.
GE Capital CEO Keith Sherin To Retire Keith Sherin, who helped steer General Electric Co. through the depths of the financial crisis and then shrank the company’s massive lending business, is retiring after 35 years at the company.
A gauge of U.S. consumer confidence rose to the highest level in nearly a year in August, suggesting that household spending will remain a key support for the economy.
“Consumers’ assessment of both current business and labor market conditions was considerably more favorable than last month,” said Lynn Franco, the group’s director of economic indicators. The survey’s present-situation index increased to 123.0 from 118.8, while the expectations index improved to 86.4 from 82.0.
Farm Incomes To Hit Lowest Level Since 2009 U.S. farm incomes will hit their lowest point this year since 2009, the U.S. Department of Agriculture said Tuesday, deepening pain in the Farm Belt amid a multiyear downdraft in commodity prices. The forecast reflects a painful slump in the U.S. agricultural economy driven by bumper corn and soybean harvests, swelling grain inventories and tougher export competition. Farmers are expecting record corn and soybean harvests again this fall, potentially pushing prices for the nation’s two most common crops down even further. As a result, the USDA said, net farm income will drop 11.5% to $71.5 billion this year, from $80.7 billion in 2015. That would be the third straight annual pay cut for farmers since incomes soared to record levels in 2013. Futures prices for corn have already fallen about 13% this year, and prices for the grain are trading at seven-year lows. Wheat prices have tumbled more than 21% in 2016 to trade at 10-year lows thanks to excess supplies. Domestic growers are also battling a strong U.S. dollar that has encouraged some of their foreign customers to find grain elsewhere. Clement weather this summer has fueled expectations that U.S. farmers will harvest the largest U.S. corn and soybean crops in history, with the USDA earlier this month projecting that the nation’s corn crop will reach about 15.2 billion bushels, and the soybean crop about 4.1 billion bushels.
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Tuesday, August 30, 2016 4 p.m. ET Copyright Dow Jones & Co., Inc.
Talking Points
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EU Could Go After Facebook On Irish Taxes Next
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Apple Inc.’s Irish tax woes could ensnare another tech giant already facing a tax investigation: Facebook Inc. The European Union demanded Tuesday that Apple pay Ireland $14.5 billion in back taxes, after ruling that a deal with Dublin allowed the company to avoid almost all corporate taxes across the entire bloc for more than a decade. Ireland’s tax deal with Apple raises questions about Facebook’s tax arrangements in the country, where the social network has major operations. “The EU commission could look at whether the arrangements that Facebook and other tech companies have are similar to what Apple has,” said Reuven AviYonah, a professor at the University of Michigan Law School. “People will be looking at whether their arrangements with Ireland amount to what they are accusing Apple of doing.” A Facebook spokeswoman said, “We pay all taxes required by law everywhere we operate.” She didn’t respond to questions about the fiscal arrangements the company has with Ireland. She noted that Facebook continues to make significant investments in Ireland, including a new headquarters and data center outside Dublin. Facebook’s tax practices are already under investigation in the U.S. Last month, the Internal Revenue Service sued Facebook for documents related to how it transferred some assets to Ireland in 2010. The IRS said it suspected that Facebook’s accountants had undervalued some of the assets by “billions of dollars.” Facebook said in a quarterly filing in July that it could be on the hook for $3 billion to $5 billion in additional taxes as a result of this IRS investigation. The probe focuses on how the assets were valued in the transfer, rather than the taxes it pays once the money has left the U.S. That distinguishes it from the EU’s ruling, according to independent tax expert Robert Willens. Facebook doesn’t need to have an arrangement with Irish authorities identical to Apple’s to face scrutiny in Europe, said Mr. Willens. Any tax arrangement with Irish authorities in exchange for investing certain amounts in Ireland could be affected by the EU’s decision to recoup money from Apple. Facebook’s tax relationship with Ireland could be disclosed by the company or by the EU.
American Cos Feeling The China Slowdown American companies are feeling the slowdown in China. A new survey from the US-China Business Council, a nonprofit group whose members do business with China, found that 17% of firms expect falling revenue in their China operations this year. One-fifth say they plan to cut staffing resources for their Chinese operations. The council’s survey of 119 firms found that nearly three-quarters have an optimistic or somewhat optimistic take on the coming five years, the lowest share recorded in the past decade. Firms say they are concerned about the political and regulatory environment in China, decelerating domestic market growth and rising competition and costs. The world’s second-largest economy has had a rocky year, and sudden drops in the value of China’s currency have roiled global markets. The Chinese government has ramped up stimulus efforts, but worries about growth and the value of the yuan remain. More than a third — 35% — of companies said the profitability of their Chinese business is down from a year earlier. In 2015, 30% of companies said their profitability had dropped; the year prior it was 27%.
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Tuesday, August 30, 2016 4 p.m. ET
programs and, on Monday, other plans soon to offer a generic version at half price.
Talking Points continued Among firms that have recently changed plans in China, Wal-Mart Stores Inc. opted to strike a deal for a partnership with one of the country’s largest e-commerce firms, deciding against pursuing the market on its own. Ford Motor Co. has also been facing pressure from domestic rivals there. The council’s survey, conducted in May and June, showed some bright spots. Just 10% of companies said they were pessimistic about China, and two-thirds said they expect continued revenue growth in their China business. And 90% of firms polled said their operations in the country are profitable, up from 85% who reported profitability in 2015.
Senators Weigh In On EpiPen A group of 20 senators called the recent price-lowering overtures from the company that makes the EpiPen emergency auto-injector a “well-defined industry tactic to keep costs high through a complex shell game.” The sheer number of senators — 19 Democrats plus independent Sen. Bernie Sanders — represents a ratcheting-up of the stakes over the dramatic price increases of the emergency epinephrine product from Mylan NV. Mylan has sought recently to quell criticism by announcing discount
Mylan has faced a backlash from Congress, as well as from parents of children with severe and life-threatening allergies, over its nearly 550% list-price increase over eight years. Since it acquired the rights to the EpiPen in late 2007, Mylan has increased the list price of a two-pack to $608.61. In a letter Tuesday to Mylan chief executive Heather Bresch, Sen. Elizabeth Warren and colleagues described Mylan’s discount programs as “short-term co-pay assistance for expensive drugs,” but noted that “insurance companies, the government and employers still bear the burden of these excessive prices.” The higher insurance and government costs, the senators wrote, “are eventually passed on to consumers in the form of higher premiums.” They added that the generic price that will be offered by Mylan “is still three times higher than the cost of the branded EpiPen in 2007.” Mylan didn’t immediately comment on the letter or on the broader pricing dispute. The company has, however, offered to provide more financial help to patients, covering their out-of-pocket costs up to $300, up from the previous $100. It said it will also expand the number of low-income families eligible for subsidies. On Monday, Mylan said it will offer a generic version of its product for $300. Despite the discount programs, the senators wrote to Ms. Bresch, “you did not, however, agree to lower the price of brand-name EpiPens.”
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