The Mission Report

The MissionIR Report - August 2016

In-depth analysis, timely updates, latest market news


Market News

Company Updates


Oil Surge Pushes Wall Street to Record Highs

A string of strong corporate reports and a four percent surge in oil prices following comments from the Saudi oil minister – alongside forecasts for a tighter crude market in coming months – led stocks in both the United States and Europe to strong gains. Major U.S. stock indexes closed on Thursday with record highs following the release of U.S. labor data reporting a drop in jobless claims. Among them, the S&P energy sector led the way as the best-performing major S&P group, bolstered by 1.3 percent following the recent rise in oil prices.

"Energy is such a common denominator for all economies that the sort of move that we're seeing there has to be of reassurance," Bruce McCain, chief investment strategist at Key Private Bank, told Reuters. "A week or so ago oil seemed to be tumbling again, and now we've come back to a level where it seems to be stabilizing."

All told, the Dow Jones industrial average jumped 117.86 points, or 0.64 percent, to 18,613.52 on Thursday afternoon. The S&P 500 gained 10.3 points, or 0.47 percent, to 2,185.79. The Nasdaq Composite rounded out the record-breaking day with the addition of 23.81 points, or 0.46 percent, to 5,228.40.

Thursday's gains were, in large part, attributed to the forecast stabilization of oil prices. The Saudi oil minister issued comments about the possibility of future action to stabilize prices, while the International Energy Agency forecast a tightening of crude markets in the back half of 2016. Saudi Energy Minister Khalid al-Falih added that OPEC members, as well as non-members, will look to discuss the current market conditions, including any possible moves to stabilize prices, during an informal meeting scheduled to take place beginning September 26 in Algeria.

These comments were enough to push U.S. crude CLc1 to $43.49 per barrel on Thursday, an increase of 4.3 percent. Brent crude LCOc1 closed up 4.5 percent, or $1.99, at $46.04 per barrel. Both surged by more than five percent during the trading session before settling toward market close.

Outside of the energy sector, comments from a Federal Reserve official claiming that the central bank should raise interest rates further this year impacted currency and bond markets. San Francisco Fed President John Williams made the comments in an interview with the Washington Post, citing improved labor market conditions and the likelihood of higher inflation. The result was a 0.3 percent rise for the U.S. dollar against a basket of six major currencies. Although Williams is not a voter on this year's policy-setting panel, his views are seen as reflecting those of Fed Chair Janet Yellen.

Saudi Arabia, Iran Continue to Pump at High Levels

Despite the Saudi Energy Minister's recent comments about possible moves to stabilize oil prices, Saudi Arabia continues to pump record amounts of oil. Likewise, Iran is resuming production at an accelerated rate. Analysts suggest that this production doesn't bode well for a possible OPEC deal to control production following next month's meeting in Algeria. Saudi Arabia's production was measured at a record 10.67 million barrels a day in July.

"I'm skeptical that we're going to see anything out of OPEC. I don't see anything out of Saudi. Their silence is rather telling," Greg Priddy, director of global with Eurasia Group, told CNBC.

As the largest OPEC exporter, Saudi Arabia would need to be part of any potential plan to change the OPEC strategy in order to let the market set prices. That requirement was adopted by OPEC in November 2014, just ahead of a major downdraft in prices. Still, some analysts insist that OPEC is actively attempting to boost oil prices through its talks of the September meeting. The result of these efforts seems to have been an oversell, leading crude to what may be a new bottom. West Texas Intermediate crude futures briefly dipped below $40 a barrel just last week.

Saudi Arabia and Iran were at the center of the disagreement that spelled the end of OPEC efforts to freeze production last April, and the two countries are expected to play a key role in any future deal. Saudi Arabia has already said that it will not agree to any limitation on production unless all producers agree, while Iran has refused any limitations since its sanctions were lifted. Iran's current production is estimated at 3.85 million barrels a day, according to wire reports, a level that the U.S. Energy Information Administration previously estimated wouldn't be reached until next year.

One OPEC nation firmly in favor of measures to boost oil prices is Venezuela. President Nicolas Maduro recently reached out to the Saudi king about implementing measures, and he's said to be in ongoing talks with other heads of state of producing nations. The downturn in prices has led Venezuela into disarray, both politically and economically. As a result, Maduro is aiming to convince OPEC to try to return oil prices to the $70 per barrel level.

Pressure could reach a boiling point ahead of the September meeting. While analysts expect oil to head higher after the end of U.S. refining maintenance, a drop is expected in the interim. According to John Kilduff, a partner with Again Capital, key technical numbers point to prices near $35 per barrel, and the trough is expected to come right around the time of OPEC's informal meeting.

U.S. Labor Market Strengthens

The number of Americans filing for unemployment benefits once again dropped last week, an indication of labor market strength in early August that could lead to faster economic growth. Additional data showed a surprise rise in import prices for July, the result of the drop in petroleum prices being offset by gains in the cost of other goods. Despite this, the resurgent dollar is expected to continue curbing underlying inflation in the months to come.

"The data remain consistent with a still-strong trend in employment growth, which means the backdrop for consumer spending remains favorable," Jim O'Sullivan, chief U.S. economist at High Frequency Economics, told Reuters.

New claims for state unemployment benefits fell by 1,000 to a seasonally-adjusted total of 266,000 for the week ended August 6, according to the Labor Department. This marked the 75th consecutive week that claims have come in below the 300,000 threshold, the longest such streak since 1973. The four-week average of claim, which better measures labor market trends, rose by 3,000 to 262,750 following last week's results. A Wednesday report added to the sunny outlook by showing layoffs have fallen to a near two-year low as of June. As the labor market continues to approach full employment, further declines in unemployment claims are expected to be minimal or nonexistent.

In another report, the Labor Department stated that import prices were up 0.1 percent last month following a 0.6 percent increase in June. In the 12 months through July, import prices fell just 3.7 percent, the smallest annual decrease since November 2014, after recording a decrease of 4.7 percent in the 12 months through June. Last month's increase in import prices came in the face of a 0.6 percent rise in the dollar against the currencies of the U.S.'s primary trading partners.

A strong dollar and cheap oil are expected to combine to dampen imported inflation pressures in the months to come. This means that surpassing the Fed's two percent target seems unlikely in the near term. As a result, it seems that the U.S. central bank is unlikely to raise interest rates anytime soon, despite the labor market's climb toward full employment. The economy added 547,000 jobs in June and July, and the low number of unemployment claims for July suggests continued job growth in early August.

Retail Earnings Highlight Changing Tide

The state of the traditional American department store took a hit when Macy's announced on Thursday plans to close 100 of its stores next year. As shopping and spending patterns continue their dramatic shifts, retailers are struggling to adopt new strategies capable of reaching shoppers who are less inclined to visit physical stores.

Luxury brands such as Coach, Michal Kors and Fossil are taking similar measures, with each announcing reductions to wholesale distribution in an effort to combat what they feel is an overly promotional environment. Coach, for example, said Tuesday that it will close 25 percent of its locations within department stores in North America following reports that sales in these locations declined in the mid-teens in the fourth quarter. Luxury brands depend on a sort off brand cachet to survive, meaning that they need to make products less available while relieving the pressure to discount that often goes hand-in-hand with the tried-and-true department store formula.

Throw in the ease with which consumers can shop online, and retailers are in a tough spot. While the overwhelming majority of purchases still take place in stores, shoppers are visiting far less often than they once did. As Simeon Siegel, research analyst with Nomura, told USA Today, "The internet means shoppers need to go to malls less."

The numbers support this hypothesis. Online sales have more than doubled since 2009, according to eMarketer, growing from $145.8 billion to $343 billion last year. Meanwhile, retail mainstays such as Macy's, Sears, Kmart and Ralph Lauren have announced store closures in an effort to implement a leaner business model in markets where fewer stores are required to reach customers.

Still, it's too soon to throw in the towel for department stores. Both Macy's and Kohl's saw significant stock bumps following the release of better-than-expected earnings reports on Thursday. While brands are increasingly developing their own presence in an effort to better control relationships with customers, stores that offer a variety of brands and merchandise are still often the focal points of shopping malls. Unlike standalone stores, malls combine shopping with added benefits such as dining and entertainment, providing more incentive for customers to leave the comforts of home and visit physical locations. These experiences could play a role in the survival of physical retail stores as we've known them, but a change in strategy is likely in order.

"The average consumer now can see everything so quickly, and they can evaluate where to get it cheapest," Oliver Chen, head of Cowen and Co., told USA Today. "The whole retail paradigm has been destroyed."

eXp World Holdings, Inc. (EXPI)

eXp World Holdings, Inc. recently surpassed a major growth milestone when its real estate brokerage division, eXp Realty, reached the 1,500 agent mark. This total, which includes agents and brokers from all of its markets in the United States and Canada, further demonstrates the strong growth the company has achieved in recent months. On January 1, 2016, eXp Realty's agent base included just 864 agents, and the company surpassed 1,000 agents on February 29. Although originally launched in October 2009, EXPI's Agent-Owned Cloud Brokerage™ began making major waves in the real estate industry in 2014, when it introduced an innovative initiative of sharing equity with agents and brokers that catapulted the company toward an accelerated rate of both growth and agent retention.

"eXp Realty continues to attract Increasing numbers of top agents who are entrepreneurial in their approach to the business and who recognize agent ownership as a fundamental shift in the way in which real estate professionals are valued as partners," Glenn Sanford, founder and chief executive officer of EXPI, stated in a news release. "The Company is excited about its current growth trajectory and is continually looking to attract high quality professionals to the brokerage."

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Monaker Group, Inc. (MKGI)

Monaker Group, Inc. recently offered shareholders an update on its progress during the first half of 2016, noting the company's ongoing efforts to establish a foothold in the alternative lodging rental market. Monaker placed a significant amount of focus on increasing the inventory of its next generation NextTrip platform following its beta launch in February. While the site included 125,000 alternative lodging rental units upon launch, the company had 1.1 million units under contract as of June 1, with plans to add more than 200,000 timeshares or resort units to the NextTrip Resorts platform before the end of the year. By including consumer-friendly features such as real-time booking and the option to search and book airlines, rental cars, tours and other travel products from a single site, Monaker will look to accelerate its growth in the travel industry during the back half of 2016.

"During the first five months of 2016, Monaker has built the foundation for significant growth within one of the fastest growing travel sectors," Bill Kerby, chairman and chief executive officer of Monaker, stated in a news release. "We look forward to strong revenue acceleration for the balance of the year, tied to the launch of our state-of-the-art alternative lodging and timeshare booking platforms… under our brand."

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Moxian, Inc. (MOXC)

Moxian, Inc. recently bolstered its latest payment and transaction platform by adopting a number of Oracle database solutions. Leveraging these solutions, the company will enable intelligent Big Data analytics, clearing the way for a more informative picture of its targeted customers, their demands and payment data. Oracle Exadata Database Machine is expected to remove what was once a performance bottleneck in Moxian's efforts to track virtual currency across its applications. The high-performance platform will allow Moxian to quickly perform ultra-large table query of billions of records in as little as a minute, analyzing data received from over 10,000 stores while effectively enhancing cost performance and optimizing return on investment.

"Moxian is committed to providing high quality services to end-users and the company's merchant clients," James Tan, chief executive officer of Moxian, stated in a news release. "Oracle's solutions meet Moxian's needs with their rich features and best-in-class performance, scalability, stability and reliability. As Moxian continues to expand in domestic and overseas markets, we look forward to furthering our successful relationship with Oracle."

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OurPet's Company (OPCO)

OurPet's Company recently released its financial results for the fiscal quarter ended June 30, 2016. Despite recording a decrease in year-over-year revenues attributed to a temporary reduction in purchase orders from a major retail customer, the company continued to set the stage for future growth with a strong showing at the SuperZoo National trade show. According to the news release, the customer is currently in the process of clearing out existing private-label inventory in order to make room for soon-to-launch OurPet's branded products. Outside of the planned sales drop from the company's customer in the pet specialty space, OPCO's news release was promising and the company's management team anticipates a solid performance in the last six months of 2016.

"This planned depletion of the customer's private label inventory resulted in a temporary OurPet's revenue disruption of approximately $521,000 for the second quarter of this year. Had this customer's inventory reduction not occurred, we believe we would have shown strong revenue growth for the 2nd quarter instead of the revenue decline and obviously greater sales growth for the first six months of 2016," Dr. Steven Tsengas, president and chief executive officer of OPCO, stated in a news release. "[W]e typically experience our strongest sales in the second half of the year. We have no reason to believe this year will be any different."

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