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Daily from WS ,Feb 28

 

  • Trump will unveil his plan for $54 Billion Increase in Defense Spending
  • US GDP Growth Unrevised at 1.9% in Q4

 

President Donald Trump’s first budget proposal to Congress seeks a “historic” increase in defense spending, up about two percent from last year — though some in Washington are outraged by what they see as a paltry increase. The budget will be balanced -the White House says- by  cuts in  foreign aid and spending on domestic government agencies. But a fight may be brewing over slashing Social Security and Medicare, a priority for House Speaker Paul Ryan, but unpopular with older voters.

Anyway, U.S. stocks edged up on Monday, with the Dow closing at a record high for a 12th straight session, boosted by Trump’s promises of pro-growth policies. This may be the only important thing in the awaited official public facing speech, today.

In proposing a boost for the Pentagon, which would be counterbalanced by the cuts, Mr. Trump will signal a significant reordering of America’s programs at home and abroad. The proposal also would defer for now an economic stimulus, which Mr. Trump promised during his presidential campaign.

The funding request faces an uncertain fate in Congress, which must pass spending bills with 60 Senate votes and often adopts pieces of the president’s budget proposal while discarding others. Democrats are certain to oppose drastic cuts in nondefense spending, and Republicans are split between pressing for deficit reduction and higher military spending, the WSJ says.

The WSJ also noted that Trump´s Senate counterpart, Arizona GOP Sen. John McCain, said the defense budget should reach $640 billion. The funding request announced on Monday, McCain said, was only $18.5 billion above the level President Barack Obama had proposed for the same year.

Other things to watch and listen , when Trump speaks ( 9 p.m. ET) are:

 IMMIGRATION:  expected to focus his speech on issues such as public safety, including increased border security. But the defense of a legally challenged travel restriction on visitors from seven countries and new immigration enforcement guidance  was not on the schedule.

 HEALTH CARE, THE TAX CODE, INFRASTRUCTURE, THE ECONOMY : Trump might weigh in on issues such as changing the tax code, his party’s bid to overturn the 2010 Affordable Care Act, and his desire to boost infrastructure spending. Health care is a particular issue, as House Speaker Paul D. Ryan has long argued that to curb the deficit, Congress must tackle Social Security, Medicare and Medicaid, informs The New York Times

US GDP Growth Unrevised at 1.9% in Q4
The US economy advanced an annualized 1.9 percent on quarter in the fourth quarter of 2016, the same as in the preliminary estimate.

Unexpectedly Missing Expectations Despite Stronger Consumer Spending

In the third quarter, real GDP increased 3.5 percent. With the second estimate for the fourth quarter, the general picture of economic growth remains the same; the increase in personal consumption expenditures was larger and increases in state and local government spending and in nonresidential fixed investment were smaller than previously estimated .

Despite the headline miss, the revised data showed a solid rebound in Personal Consumption Expenditures, which rose 3.0%, higher than the 2.6% expected; furthermore, printing at 2.05% annualized, Consumption alone was higher than the overall GDP of 1.86%.

 

 

Today’s Markets

In Asia, Japan +0.1%. Hong Kong -0.8%. China +0.4%. India -0.2%.
In Europe, at midday, London +0.1%. Paris +0.1%. Frankfurt -0.1%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq flat. Crude -0.2% to $53.92. Gold -0.4% to $1254.
Ten-year Treasury Yield flat at 2.36%

Monday’s Key Earnings

EOG Resources (NYSE:EOG) +2.4% AH after beating estimates.
Perrigo (NASDAQ:PRGO) -12.9% AH as CFO Judy Brown resigned.
Priceline (NASDAQ:PCLN) +3.4% AH on dazzling growth numbers.

 

Economy

Saudi Arabia wants crude prices to rise to around $60 a barrel this year, according to oil industry sources. That’s the level the OPEC heavyweight and its Gulf allies believe would encourage investment in new fields but not lead to a jump in U.S. shale output. Crude prices have risen by 10% since the November output cut pact, although they’re still only trading around $54 a barrel despite record compliance.

Teams of officials from the EU and the IMF start work in Athens today knowing that eurozone finance ministers and international financial markets are keen for signs of progress on the next tranche of Greece’s €86B bailout. At stake is whether a deal can be struck on tax and pension reforms that would clear a big obstacle to the IMF becoming a full partner in the bailout.

Driven by consumption and investment, France’s economy expanded at a faster pace in Q4, with GDP rising 1.2% year-on-year. The consumer price index in February also revealed a 1.2% rise on the year, but missed forecasts, while spending figures showed a 1.4% increase. GDP revisions will also be released in the U.S. A second estimate is expected to come in at an annualized 2.1% for Q4.

Speaking with journalists after an event in Oklahoma, Dallas Fed President Robert Kaplan clarified a comment he made in recent weeks about an upcoming rate hike, stating “sooner rather than later means in the near future.” Odds the Fed will raise rates at its mid-March meeting quickly jumped from 44% to 50% after he spoke. Kaplan is a voting member on the FOMC.

Stocks

South Korean authorities have formally charged the heir of Samsung – Jay Y. Lee – with bribery and embezzlement in the corruption scandal that has rocked the country’s political establishment. The move threatens Samsung’s succession plan and will see the dismantling of its corporate strategy office. Samsung Electronics (OTC:SSNLF) President Park Sang-Jin has also resigned, as well as Vice Chair Choi Gee-Sung.

Smiles will likely be seen at Apple’s (NASDAQ:AAPL) annual meeting today as shareholders gather in Cupertino. The stock has surged almost 20% YTD. Yesterday, Warren Buffett revealed he more than doubled his holding in the tech giant in January, stating it has “quite a sticky product.” Berkshire (BRK.A, BRK.B) now owns 133M shares of Apple, a 2.5% stake in the firm, that is worth about $17B.

Plans for LinkedIn? Microsoft’s (NASDAQ:MSFT) ambitious acquisition is about revenue growth, not cost savings, CFO Amy Hood said at the Morgan Stanley Technology, Media and Telecom Conference. “To add more customers. To increase their impact. To have it grow faster. To accelerate our business… I’m deeply, deeply focused on driving revenue growth.”

Orders for Snap’s IPO have begun to come in at the high-end of its range, and its “book” is already oversubscribed, sources told Reuters. SNAP also expects investors buying up to a quarter of the shares in its $3.2B initial public offering this week to agree not to sell them for 12 months. A year-long lock-up period is atypically long, potentially signifying strong demand for the IPO.

YouTube viewers worldwide are now watching more than 1B hours of videos a day, threatening to eclipse U.S. television viewership, which is estimated at 1.25B hours. YouTube (GOOG, GOOGL) surpassed the figure, which represents a 10-fold increase since 2012, late last year. Comparatively, Facebook (NASDAQ:FB) and Netflix (NASDAQ:NFLX), as of January 2016, counted 100M and 116M hours of daily video views, respectively.

It goes to show… Comcast (NASDAQ:CMCSA) has announced a deal that will allow customers with the latest gear to search for and watch YouTube videos through their cable boxes. The deal follows a similar tie-up with Netflix (NFLX) unveiled last July. YouTube apps are available through many smart TVs and internet-connected boxes like Roku, but those don’t allow for an integrated search across traditional TV networks and Netflix.

Setting up shop in Italy for the first time, Starbucks (NASDAQ:SBUX) will open a Roastery in Milan next year, turning to its upscale brand to gain a foothold in the country. It will be the company’s first Roastery in Europe, and the fifth announced to date. The properties are playgrounds for coffee enthusiasts and significant investments for Starbucks, which aims to dominate the craft coffee segment.

Uber has asked Amit Singhal, senior vice president of engineering, to leave the company for failing to disclose a sexual harassment allegation stemming from his recent tenure at Alphabet (GOOG, GOOGL). The firing comes at a sensitive time for UBER, which is under fire after a former employee said she’d experienced sexism and harassment while working there and that management had failed to address her concerns.

Calling actions of certain employees “deeply inappropriate,” Takata’s (OTCPK:TKTDY) finance chief, Yoichiro Nomura, entered a guilty plea on the company’s behalf during court proceedings on Monday. The agreement requires the firm to pay a $25M criminal fine; $125M to consumers harmed or yet to be affected by the air bags; and $850M to automakers currently shouldering recall costs.

Morgan Stanley gave some wealth management clients incorrect tax information that caused some to underpay and others to overpay, according to a regulatory filing. “We are committed to making this right,” said a Morgan Stanley (NYSE:MS) spokesman. The bank is setting aside $70M to cover the costs and is in discussions with the IRS over the errors that occurred in tax years 2011 through 2016.

Intelsat shares soared 25% just before yesterday’s close on word that SoftBank (OTCPK:SFTBY) is in advanced talks to combine the company with OneWeb, a satellite startup it’s backing. A merger would create a business with an enterprise value of about $18B, and SoftBank would commit to reducing some of Intelsat’s (NYSE:I) debt – which amounts to about $15.4B at last report. A deal could be outlined alongside Intelsat’s earnings this morning.

Space tourism is upon us. SpaceX (Private:SPACE) will launch a crewed mission next year beyond the moon for two private customers, marking the first time in 45 years humans will return to deep space. “There is likely a market for at least one or two of these per year,” according to Elon Musk, who said the missions could contribute “something on the order of 10%-20% of revenues.”

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