Spend More, Buy The Same

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DOW – 86 = 17,787
SPX – 2 = 2096
NAS + 14 = 4948
10 Y – .02 = 1.83%
OIL – .37 = 48.96
GOLD + 10.50 = 1216.40

As we wrap up the month of May, here’s the tally: The Dow gained 14 points for the month, the S&P 500 gained 29 points, and the Nasdaq was the winner with a gain of 173. The 10-year Treasury was flat. Oil added $3 a barrel. Gold lost $78 an ounce.

Consumer spending increased 1% in April to mark the biggest gain in almost seven years, as Americans splurged on new cars and trucks. Higher gas prices also contributed.  Inflation-adjusted spending rose a smaller but still healthy 0.6% in April.

The April spending figure was the biggest one-month climb since a 1.3 percent increase in August 2009. The Commerce Department also reported incomes were up 0.4 percent, matching the March gain.

Wages and salaries, the most important component of incomes, gained 0.5 percent. An inflation gauge closely watched by the Federal Reserve showed prices are up 1.1 percent over the past year. Core inflation, which excludes volatile food and energy costs, rose 1.6 percent.

Both measures are still below the Fed’s target of 2 percent annual price increases, but they have ticked up in recent months. The increased spending on gasoline due to higher prices coincided with a reduction in the savings rate, as April spending outstripped income. Higher gas prices skew the data because you’re not buying more, just spending more.

Consumers’ confidence fell in May to the lowest level since late 2015 as Americans turned slightly more pessimistic about overall business conditions and the jobs market a survey shows. The consumer confidence index dropped to 92.6 from a revised 94.7 in April; that’s the lowest level since November and well below the post-recession high of 103.8 set in early 2015.

The present situation index, a measure of current conditions, slid from 117.1 to 112.9. The future expectations index declined to 79 from 79.7. That’s the weakest reading in almost two and half years.

Indications on the fundamental health of the consumer are suddenly building rapidly and include solid gains for home prices. House prices jumped 0.9% in March. Prices in the S&P/Case-Shiller 20-City Index were 5.4% higher than a year ago, the same pace as in February.

Limited inventory is driving the outsize price gains. The number of homes currently on the market is less than two percent of the number of households in the US. That’s the lowest since the mid-1980s. House prices in the Phoenix area rose 0.3% in April and are up 5.6% in the past 12 months.

Euro area inflation stayed negative in May, according to a flash estimate from Eurostat, edging up to negative-0.1% from negative-0.2% the month before. The latest figure is a far cry from the 2% inflation target set by the ECB, and comes after the central bank announced further stimulus measures in March in a bid to stimulate the bloc’s economy. Meanwhile, the Eurozone’s jobless rate came in flat at 10.2% for April, as unemployment dropped by 63,000.

In a letter written to its European and IMF creditors, Greece said it cannot implement some of the extra changes sought in exchange for fresh bailout loans, including banking regulation, sales of bad loans, pension reforms and privatization. The disagreement could further delay the disbursement of bailout funds which Athens badly needs to pay off IMF loans in June, and bonds of the ECB maturing in July.

First-quarter earnings season is close to over, and the numbers are gloomy. Overall profit for S&P 500 companies was the weakest in 6 1/2 years. The financial sector showed a double-digit percentage decline, while utilities saw earnings fall into the red. A full 98.4% of S&P 500 companies have now reported, and profit measured by earnings per share is down 7% from a year ago, according to FactSet. On the heels of a 3.2% decline in the fourth quarter, that marks the fourth straight quarter of year-over-year earnings declines, and it was the biggest drop since the third quarter of 2009.

Global markets appear to be “well-prepared” for a summer interest rate hike, according to St. Louis Fed President James Bullard, although he didn’t specify a date for the policy move. “As far as a rate hike in June or July, I would prefer to reserve judgment,” he told a news conference on Monday in Seoul. Bullard added that a rebound in U.S. GDP seems to be materializing in the second quarter, and described last week’s revised first quarter growth figure of 0.8% as “encouraging” but “still weak.”

In addition to economic data, the Fed will be looking for clues on the Brexit; a referendum vote is scheduled for one week after the June FOMC meeting. The pound dropped after a new poll showed a jump in support for the campaign to take Britain out of the European Union. A new survey showed 45 percent of respondents supported leaving, 42 percent for ‘Remain’ and 13 percent were undecided.

A different poll, by ORB for the Daily Telegraph newspaper this week showed 51 percent of definite voters surveyed supported remaining in the bloc, and 46 percent wanted to leave, a narrower lead for the remain camp than in ORB’s previous poll. Whatever the outcome, the drop in the pound shows just how sensitive investors are to shifts in public opinion, highlighting the risk of more volatility with just over three weeks of the campaign left to go.

Last Thursday, oil prices popped a few cents above $50 a barrel. US crude output fell in March for a sixth month in a row, slipping to 9.12 million barrels per day from 9.13 million bpd in February. Add in supply disruptions in Nigeria, Venezuela, and Canada (due to the wildfires); combined with the start of the summer driving season and it results in about a 9% increase in oil prices for the month of May. Will the higher prices hold?

Iraq will supply 5 million barrels of extra crude to its partners in June, according to industry sources, joining other Middle East producers by lifting market share ahead of an OPEC meeting this week. Saudi Arabia, Kuwait, Iran and the United Arab Emirates also plan to raise supplies in the third quarter. Despite the news, OPEC will continue to discuss issues including an output freeze when the group gathers June 2.

Saudi Arabia is considering selling as much as $15 billion of bonds this year in what would be the country’s first foray into international capital markets. Qatar last week attracted $23 billion in orders for its $9 billion sale, the biggest-ever from the Middle East. And while the bond sales may provide some breathing room, the sales are just a stopgap measure to cover budget deficits, meaning OPEC producers will need to pump more.

Great Plains Energy (GXP) is buying rival Westar (WR) for about $8.6 billion, creating one large power provider in Kansas and Missouri with more than 1.5 million customers. Great Plains Energy owns Kansas City Power & Light, which provides power in Kansas and Missouri. Westar’s customers are in Kansas.

Jazz Pharmaceuticals (JAZZ) has agreed to buy Celator Pharmaceuticals (CPXX), which makes a treatment for a form of leukemia, for $1.5 billion in cash; that represents a 73% premium to Friday’s close.

Nearly 40,000 striking Verizon employees (VZ) will return to work on Wednesday after reaching a tentative contract agreement that includes 1,300 new call center jobs, nearly 11% in raises over four years and the first contract for Verizon Wireless workers. The pact, announced by the Communications Workers of America union, stands to end a six-and-a-half-week work stoppage and one of the longest U.S. strikes in recent years.

The Supreme Court wants no part of a dispute involving Donald Trump’s namesake casino. The justices turned away an appeal from a union representing more than 1,000 workers at the Trump Taj Mahal in Atlantic City, New Jersey. The workers said they were improperly stripped of pension and health benefits when the casino’s parent company, Trump Entertainment Resorts, sought bankruptcy protection in 2014. Trump no longer owns the casino or the entertainment company. Trump Entertainment is now a subsidiary of billionaire Carl Icahn’s Icahn Enterprises LP.

Cracking down on rising online racism and the recent wave of radicalization, Google (GOOGL), Facebook (FB), Twitter (TWTR) and Microsoft (MSFT) have signed up for new EU rules on taking down hateful content posted on their platforms. The “code of conduct” will require the companies to “review the majority” of flagged speech within 24 hours – and remove it, if necessary – and even develop “counter narratives” to combat the growing problem.

The U.S. auto industry’s home state of Michigan is preparing for the advent of self-driving cars by pushing legislation to allow for public sales and operation of the vehicles. The move is a significant expansion beyond existing state laws which currently sanction such cars for testing only.

Volkswagen (VLKAF) saw its net profit fall 19 percent in the first three months of the year, but still posted a profit despite a costly scandal over cars rigged to cheat on diesel emissions tests. First quarter profits fell to $2.6 billion. Revenue fell 3.4 percent to 50.96 billion euros due in part to shifts in currency exchange rates. Still, the company reported it had bulked up on its cash reserves and said it was well-funded to deal with the effects of the scandal, which include costs for recalls, fines and lawsuits.