Signage of Saudi Aramco's initial public offering (IPO) is seen during a news conference by the state oil company at the Plaza Conference Center in Dhahran, Saudi Arabia November 3, 2019.
Hamad Mohammed | Reuters
Shares of Saudi Aramco surged on their second day of public trading, pushing the kingdom's record IPO to a gargantuan $2 trillion valuation and briefly touching Crown Prince Mohammed bin Salman's long-held target for the company.
Share rose 10% to 38.7 riyals apiece ($10.32) but slipped back to 37 riyals within minutes of the market open.
The figure, nearly $1 trillion higher than the world's next-largest public companies Microsoft and Apple, was long ridiculed and regarded with disbelief by much of the international financial community.
Riyadh on Wednesday made history by listing 1.5% of its state-run oil giant on its local stock exchange, the Saudi Tadawul, in what was the largest IPO on record. Shares went limit up, rising 10% in price as trading started, giving the company a valuation of $1.88 trillion on its first day of trading.
While the massive valuation will be seen as a win for the Saudi crown prince, it lacked the international interest the kingdom had hoped for, relying instead on local investors after the company canceled overseas roadshows in London and New York.
The long-awaited IPO of world's most profitable company forms the centerpiece of Crown Prince Mohammed bin Salman's Vision 2030 program aimed at transforming the Saudi economy. The crown prince first floated the idea in 2016, stunning market observers with his suggestion of the $2 trillion valuation. That figure was brought down by financial advisors and banks earlier this year to a range of between $1.5 trillion and $1.7 trillion.
Consumers are paying more for gas, rent and health care, but inflation is still fairly low.
The numbers: U.S. households paid more for energy, health care and rent in November, pushing the rate of inflation up to the highest level in a year.
The consumer price index rose 0.3% last month following an even bigger increase in October, the government said Wednesday. Economists polled by MarketWatch had forecast a 0.2% advance.
The recent spike lifted the increase in the cost of living over the past 12 months to 2.1% from 1.8%. That’s the highest level since November 2018.
Yet even though consumer prices have been bubbling up, inflation in the U.S. is still low by historical standards.
What happened: Gasoline prices actually fell in November, but not as much as they normally do at this time of year. As a result, the government’s seasonal adjustments showed a 1.1% increase.
The cost of rent and medical care both increased again, up 0.3% each. Prices also rose slightly for food, clothes, education and used vehicles.
Prices for new cars and trucks fell for the fifth month in a row. Airfares also declined.
Meanwhile, another closely watched measure of inflation that strips out food and energy rose 0.2% last month. The yearly increase in the so-called core rate was unchanged at 2.3%.
Real or inflation-adjusted hourly wages were flat in November. They’ve risen a modest 1.1% in the past year.
Big picture: The pace of consumer inflation slowed earlier this year after touching a six-year peak of 2.9% in mid-2018, giving the Federal Reserve the leeway to cut interest rates to shore up the economy amid a tense trade dispute with China.
Consumer prices could continue to creep higher if the economy speeds up, but the Fed doesn’t expect inflation to sharply exceed its 2% goal anytime soon.
The Fed’s preferred inflation gauge known as the PCE is also significantly weaker. The PCE index rose just 1.3% in the 12 months ended in October.
Even if prices rise faster than expected, the central bank is prepared to let inflation hover above 2% for a while after years of undershooting its target. The Fed is expected to leave interest rates unchanged on Wednesday after its latest meeting to evaluate the economy.
Market reaction: The Dow Jones Industrial Average
DJIA, -0.10%
and S&P 500
SPX, -0.11%
were set to open with little movement in Wednesday trades. Investors are watching closely to see if the U.S. and China complete what they are calling “phase one” of a broader trade compromise.
The Federal Reserve is going to announce its latest interest-rate decision on Wednesday, and how the central bank describes its thinking is likely to drive market direction, unless there is a major development on the U.S.-China trade front.
But the really big news coming from the Fed is likely to be delivered in January, and it will have an impact longer than just a day. All year the central bank has been undertaking a policy review that is likely to culminate in a policy shift.
Lena Komileva, chief economist at G-Plus Economics, in the call of the day forecasts the Fed will shift from targeting inflation of 2% over the “medium term” to doing so over an average of the business cycle. Inflation in the current recovery, as measured by the personal consumption expenditure price index, has averaged just 1.5%.
“A resetting of the Fed’s inflation target implies that the Fed would be prepared to let labor markets run hot for a while and tolerate an inflation overshoot for a number of years, in effect ensuring that U.S. yields remain comfortably below nominal GDP levels for the foreseeable future,” he says.
That said, Komileva does say the market is overpricing the risk of a rate cut next year, even with a more dovish Fed. “The potential for a bearish re-steepening of the yield curve remains high, especially as equity markets are buoyant, the U.S. consumer remains resilient and the global industrial down-cycle plateaus. This appears to assume a very pessimistic outlook for U.S. political risk and U.S.-China trading relations heading into the 2020 U.S. presidential elections,” she says.
The buzz
The Fed decision comes at 2 p.m. Eastern, with no change in rates expected after three straight quarter-point reductions. Chairman Jerome Powell will take questions from the media starting at 2:30 p.m., and one topic is likely to be tensions in the short-term money market.
The consumer price index rose a sharp 0.3% last month, the government said Wednesday. Economists polled by MarketWatch had forecast a 0.2% advance.
Tesla
TSLA, +2.74%
will make 500,000 cars a year at its new German factory, according to a report. Ahead of an investor presentation, Home Depot
HD, -0.29%
forecast comparable-store sales growth between 3.5% and 4% next year.
The U.S. Army is looking to fund construction of rare earths metals processing facilities, Reuters reported, citing a government document it saw.
Ollie’s Bargain Outlet Holdings
OLLI, +0.12%
may climb, after reporting a better-than-forecast profit and promoting its interim chief executive to run the company following the death of its founder.
GameStop
GME, +2.84%
may slide, after the videogame retailer missed sales estimates.
The markets
U.S. stock futures
ES00, +0.10%
inched higher ahead of the Fed decision.
Anyone who has been following Jeffrey Gundlach, the DoubleLine Chief Executive and so-called bond king, is familiar with this chart. It shows the ratio of copper
HG00, +0.96%
to gold
GC00, +0.24%
versus the yield on the 10-year
TMUBMUSD10Y, -0.60%
Treasury.
Gundlach likes the predictive value of the ratio since copper is sensitive to swings in the economy, while gold climbs when investors get frightened. Gundlach told investors in a webcast on Tuesday night that he expects long-term yields to rise as recession risks fade.
Need to Know starts early and is updated until the opening bell, but sign up here to get it delivered once to your email box. Be sure to check the Need to Know item. The emailed version will be sent out at about 7:30 a.m. Eastern.
Saudi Arabia's giant state-owned oil monopoly last week pulled off the biggest IPOin history, raising $25.6 billion by selling 1.5% of the company. That exceeded even Alibaba's 2014 market debut in New York.
The IPO on Saudi Arabia's Tadawul stock exchange in Riyadh valued Aramco at roughly $1.7 trillion, making it the most valuable publicly traded company in the world ahead of Apple(AAPL), which is worth nearly $1.2 trillion.
Shares in Saudi Aramco shot up to 35.20 riyals ($9.39) following their debut on Wednesday, the maximum daily increase allowed by the exchange. That brought the company's valuation to $1.88 trillion.
The vast majority of buyers for the stock are in Saudi Arabia. Samba Capital, which managed the IPO, said Tuesday that 97% of retail investors who received shares were from the country. More than 75% of shares sold to institutional investors went to Saudi companies, funds and government institutions.
First promoted in 2016, the company's partial privatization was supposed to usher in a new era of economic liberalization in Saudi Arabia.
The Saudi government initially discussed floating 5% of the company in 2018 in a deal that would raise as much as $100 billion. It was looking at international markets such as New York or London, as well as Riyadh, signaling that the country was open to global investment.
Yet the project was shelved amid concerns about legal complications in the United States, doubts about the $2 trillion valuation, and international outrage triggered by the murder of journalist Jamal Khashoggi in a Saudi consulate in Turkey.
The deal was revived earlier this year, but received muted interest from international investors. Concerns included lower oil prices, the climate crisis and geopolitical risks associated with the company.
The price of shares will likely be supported in coming days by last week's decision from OPEC, Russia and other oil producing nations to deepen production cuts in an attempt to shore up prices. Brent crude, the international benchmark, is up 1.8% in the past week.
The new mid-engined Corvette Stingray will debut with GM's new "digital vehicle platform," which it shares in common with these super-sized SUVs and allow the vehicles to receive over-the-air updates that add new features in the future. As Autoblog pointsout, the 2021 Tahoe and Suburban enjoy a refreshed appeal with more interior space and improved ride, mostly thanks to some added length, adaptive suspension tech and a switch to independent rear suspension.
We'll focus on the tech inside these trucks though, which starts with a 10-inch color infotainment system up front that supports both Android Auto and Apple CarPlay. Higher end trim levels have an 8-inch screen in the instrument cluster, and there's even an available 15-inch Heads-Up Display, standard on the High Country edition and available on Premier SUVs that even has a small 3x7-inch color display.
For folks in the back, an available rear seat entertainment option adds two 12.6-inch LCDs. They have independent HDMI connections to view different things at the same time, plus they have the ability to mirror Android phones, send content from one to the other, or allow riders to pick out spots on the map and send them to the navigation system up front. There's also a bunch of USB ports and on most models, wireless chargers with charger cooling.
Safety and driver assist tech in these SUVs will include an HD rear vision camera that puts video right in the rearview mirror, automatic emergency braking and HD surround vision. There's no word on pricing yet, but the new Tahoe and Suburban will go on sale in mid-2020.
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How low can unemployment go?
The Federal Reserve's final policy meeting of the decade concludes today.
The central bank will release its latest monetary policy decision at 2 p.m. ET and Fed Chair Jerome Powell will hold a press conference at 2:30pm ET. No changes to the Fed’s benchmark interest rate policy are expected. And as Brian Cheung notes, the central bank is likely to set a “high bar” for future changes in the target policy range, which currently sits at 1.5%-1.75%.
But along with its 2:00 p.m. ET announcement, the Fed will also release an updated edition of its Summary of Economic Projections (SEP). The SEP includes Fed forecasts for GDP, unemployment, inflation, and interest rates over the next one-, two-, and three-year periods, as well as over the longer term.
And while investors most closely will look for the Fed's interest rate forecasts included in its dot plot, staff projections on unemployment are worth paying close attention to this afternoon. Last week, the November jobs report showed the unemployment rate fell to 3.5%, matching the 50-year low first hit in September.
As of September, Fed officials estimated that NAIRU — the non-accelerating inflation rate of unemployment — stood at 4.4%. NAIRU is the unemployment rate below which it is expected inflation would begin rising and higher rates would be necessary. In other words, when unemployment falls below NAIRU, it would be expected that — all else equal — inflation and wages would increase and higher rates and economic growth would follow.
And yet as we’ve seen for some time now, the unemployment rate has consistently moved lower and inflation pressures have remained muted.
If we take a look back at the Fed’s SEP released in December during each of the last five years, a clear theme emerges when it comes to the labor market: the Fed has been too conservative in judging the health of the labor market. And they’ve been too conservative for years. It’s part of why Neil Dutta at Renaissance Macro said that if the Fed doesn’t lower its NAIRU estimate in today’s SEP they are “nuts.”
Federal Reserve Chairman Jerome Powell attends a panel at the Federal Reserve Board Building in Washington. (AP Photo/Jacquelyn Martin)
Earlier this year, Minneapolis Fed president Neel Kashkari said the Fed had “misread” the labor market given its history of NAIRU estimates that were too high. “It seems clear to me that we are not yet at maximum employment,” Kashkari said back in May. And with the labor market having averaged job gains of 205,000 over the last three months and wage gains having flattened out after accelerating to post-crisis highs in 2017 and’18, it seems we are still not at maximum employment.
Inflation, meanwhile, has consistently run below the Fed's 2% target. This has led to questions about the efficacy of the Phillips Curve, which purports to show the relationship between falling unemployment and rising wages, and has been declared by none other than Jay Powell to have but a "faint heartbeat."
In December 2014, when the Fed was a year out from its first interest rate increase since the crisis, the SEP estimated that longer-run NAIRU was between 5.2% and 5.5%. As of December 2014, the actual unemployment rate was 5.4%. A year later, the Fed's median NAIRU estimate was 4.9% and the actual unemployment rate stood at 5%.
By December 2016, the state of play had flipped and actual unemployment moved below longer run estimates of what would be required for the Fed to meet its objectives of 2% inflation and maximum employment. Since then, this dynamic has remained.
The Fed’s NAIRU estimate moved down to 4.8% in the final month of 2016 and the unemployment rate had dropped to 4.7%. In 2017, the Fed raised rates three times.
In December 2017, SEP estimates for NAIRU continued chasing actual unemployment lower, with longer run estimates of steady state unemployment sitting at 4.6% while actual unemployment hit 4.1%. By the end of 2018, with the Fed having raised rates seven times in 21 months, estimated long run unemployment had declined to 4.4% while the unemployment rate stood at 3.9%.
Expected tweaks from the Fed to its employment outlook, however, are modest.
Economists at Deutsche Bank think the Fed could tweak its NAIRU estimate by 0.1%, pushing its median longer run expected unemployment rate to 4.1% today from 4.2% in December. Economists at Wells Fargo don’t foresee any “meaningful adjustments” to the Fed’s unemployment estimates.
8:30 a.m. ET: CPI month-on-month, November (0.2% expected, 0.4% in October); CPI excluding Food and Energy month-on-month, November (0.2% expected, 0.2% in October); CPI year-on-year, November (2.0% expected, 1.8% in October)
2 p.m. ET: Federal Open Market Committee interest rate decision
Earnings
Post-market
4:05 p.m. ET: Lululemon (LULU) is expected to report adjusted earnings of 94 cents per share on $899.44 million in revenue
Other notable report: American Eagle Outfitters (AEO)
Saudi stock market officials watch the market screen displaying Saudi Arabia's state-owned oil company Aramco after the debut of Aramco's initial public offering (IPO) on the Riyadh's stock market in Riyadh, Saudi Arabia, Wednesday, Dec. 11, 2019. (AP Photo/Amr Nabil)
Saudi Aramco shares spiked 10% on Wednesday soon after the company started trading its shares publicly for the first time. That's the daily limit on the exchange.
The surge in share price means the company is now worth $1.9 trillion.
That massive market capitalization dwarfs giant publicly listed Goliaths like Apple and Alphabet.
Crown Prince Mohammad bin Salman had been seeking a valuation of $2 trillion.
Saudi Aramco shares spiked 10% on Wednesday on their first day of trading publicly on the Tadawul exchange.
The surge hit the exchange's daily limit and means the company, which earlier this week was valued at $1.7 trillion after raising $25.6 billion in its initial public offering, is now worth a whopping $1.9 trillion. That dwarfs the market capitalizations of the biggest US giants, including Microsoft, Apple, and Google's parent, Alphabet.
Crown Prince Mohammad bin Salman had been seeking a valuation of $2 trillion for the state-owned oil giant, whose public offering was meant to help finance his Vision 2030 plan of diversifying the Saudi economy away from oil.
According to The Wall Street Journal, Saudi officials had been pushing for the country's wealthy to buy shares in the company when it went public, and according to the Financial Times, that was happening until Tuesday evening.
Getty Images
