Stocks rallied on Wednesday to close near their highest levels of the year.
First, the scoreboard:
- Dow: 17,914, +193, (+1.1%)
- S&P 500: 2,082, +21, (+1%)
- Nasdaq: 4,946, +75, (+1.5%)
- WTI crude oil: $41.50, -1.6%
It was not a great day for American economic data.
The March retail sales report out Wednesday morning showed sales fell 0.3% compared to last month, an unexpected drop as economists had forecast a 0.1% increase in sales against February.
Much of this drop was attributable to a 2.1% decline in auto sales, though across the board this was a disappointing report with clothing stores, restaurants, and non-store retailers seeing declines in March. Building materials, however, were a bright spot and sales of these goods increased 1.4% in March.
Following the report, Chris Rupkey at MUFG said, “Going into today we already knew that car & light truck sales fell 5.2% to a 16.5 million annual rate in March from 17.4 million in February. Today’s report is old news and not the harbinger of hard times or recession ahead. Who keeps asking about a recession anyway?”
Speaking of recessions — or not-recessions — the Atlanta Fed’s latest GDPNow tracker shows that first quarter growth is expected to now come in at 0.3%. So, not a recession, but not great.
The Atlanta Fed’s measure, which is closely tracked for its accuracy in forecasting the first estimate of GDP growth, declined to as low as 0.1% last week after having earlier forecast economic growth of more than 2% to start 2016.
Also in the economy on Wednesday we got inflation data from the producer price index, which fell 0.1% in March against expectations for a 0.2% increase.
The latest reading consumer prices will cross the wires Thursday morning.
The Federal Reserve also released its latest Beige Book on Wednesday afternoon, a collection of anecdotes from business leaders across the country on the health of the US economy. The big takeaway is that wage growth is solid.
After rallying on Tuesday, crude oil prices did basically nothing on Wednesday.
The rally on Tuesday was triggered by reports that Saudi Arabia and Russia agreed to freeze production, with this news coming ahead of a meeting on Sunday between OPEC and non-OPEC oil giants in Doha.
On Wednesday, however, Russian oil minister Alexander Novak confirmed that talks took place but said a decision would not be announced beforehand. So we’ll see: oil rumours are perhaps the purest form of rumour left in the global business press.
So but a funny thing happened in oil markets on Wednesday: Brent crude oil, the international benchmark, slipped into a modest backwardation. Which, in English, means futures contracts for oil were less expensive than the future expected price of oil.
This is basically a normal market — or normal for folks who are long oil prices — but is a big reversal from what we’ve seen for most of the last year or so, which is a market in contango.
(We get into contango a bit here, but it’s simply the opposite of backwardation: investors are willing to pay more for a futures contract than what the actual expected price of a good will be at that point in time.)
Reuters’ John Kemp noted that Brent quickly moved from contango into backwardation and notes that given we’re still in an oil market that is oversupplied — which means you’d expect prices to remain low — contango should persist. Except, it hasn’t.
“The question,” Kemp writes, “is what is causing this sudden tightness in the nearby Brent spread? Is it the arrival of the North Sea maintenance programme? A short squeeze? A shift in the (expected) supply-demand balance? Or some combination of all these factors and others?”
For what it’s worth, Credit Suisse wrote in a note to clients on Wednesday that indicate global oil production ex-Saudi Arabia has finally started to slow down. Maybe there’s your relief.
The world’s largest privately-owned coal producer, Peabody Energy, has field for bankruptcy protection.
The filing comes after a decline in coal prices left it saddled with debt in the wake of an expansion into Australia. This filing marks the largest energy-related bankruptcy since the oil bust that began in the middle of 2014.
Peabody CEO Glenn Kellow said Wednesday, “This was a difficult decision, but it is the right path forward for Peabody.”
Of course, as Bob Bryan notes, this filing is merely the manifestation of a long-term decline in the usage of coal, which has gone from providing around 50% of the US’ electricity 15 years ago to less than a third today. And as it gets hit by the twin disruptions of regulations and cheap natural gas prices, coal is, in a word, doomed.
Facebook is a source of fascination and hatred for not only those in digital media but anybody with an internet connection.
This week the company held an event in San Francisco that was for developers but also for the media and the public. The big news out of this was Facebook CEO Mark Zuckerberg laying out his 10-year vision for the company.
It looks like this.
Which looks like Facebook wants to be everything to and for you. So but the point is that Facebook is still called a social network but it’s now really a platform.
A platform to buy stuff, to sell stuff, to keep in touch with family, friends, co-workers, and so on. And in the media it’s a platform to get your stuff distributed and, increasingly, get paid for that distribution!
Of course, though, things are complicated.
But what media types are grappling with now is how to distribute content, how to get paid for that content, and how the relationship between publishing platforms like your website, Facebook, Snapchat, and others plays out. What Facebook made clear on Tuesday by introducing things like chatbots is that it expects users will interact with content inside Facebook’s apps and outside its most hallowed product — the NewsFeed.
Things like Facebook Instant Articles, in which a publisher posts something directly to Facebook thus keeping users on the website rather than re-directing them elsewhere, are the first iteration of this, but it’s clear the integration will get deeper. As Tiku noted, Zuckerberg said Tuesday that he can now make a call to 1-800-FLOWERS from inside Facebook Messenger without literally calling 1-800-FLOWERS.
So then you can imagine sharing, reading, commenting on content of all kinds inside Messenger, VR headsets, the NewsFeed, and so on.
As Thompson notes, though, this makes sense for a company that has become a phone book of sorts, a utility that is jam-packed with information about people, information we want to share and acquire for a very long time.
But the question is how to make money with this service, and how to compensate users that provide the information — which is increasingly becoming companies like Business Insider instead of individuals?
As Thompson writes, “The truth is that Facebook chose its path way back in 2004, and cemented it in 2006: it was the place you publicly shared your identity with the world, and you had best take care exactly what that identity was.” And increasingly this is something companies more than individuals are grappling with, though it is still the individuals — and their information — that power the Facebook engine.
This all might be more confusing than concrete, but I find it interesting.
Walmart expands online grocery pickup to eight more cities. (I know readers of this space know I love Amazon, but don’t sleep on Walmart.)
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