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Wall Street Breakfast

 

WS Breakfast 2

 

Today’s Markets preview

In Asia, Japan -2.2% to 19504. Hong Kong -0.8% to 22236. China -1.7% to 3525. India -1% to 25638.
In Europe, at midday, London -0.2%. Paris -0.5%. Frankfurt -0.4%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.4%. Crude +1.8% to $41.82. Gold +0.1% to $1062.30.
Ten-year Treasury Yield -2 bps to 2.30%

Thursday’s Key Earnings

Ambarella (NASDAQ:AMBA) -6.7% AH after soft FQ4 guidance.
Dollar General (NYSE:DG) +4.2% on positive store traffic.
Kroger (NYSE:KR) +4.7% on strong sales and a new all-time high.
Medtronic (NYSE:MDT) +0.7% following an earnings beat.
Sears (NASDAQ:SHLD) -6.9% on falling comparable-store sales.

European stocks are lower for a second day after Asian shares tumbled as disappointment with the European Central Bank’s stimulus decision reverberated across global markets. On Thursday, the central bank announced a stimulus plan that was weaker than most had expected, causing a bumpy ride on trading floors and pushing up the euro more than 3%, its biggest one day gain in five years. Next up on the investor radar is today’s U.S. jobs report. The data could cement a highly anticipated interest rate hike this month, signaling the end to an era of easy lending. U.S. futures are all up 0.4%.

Economy

So what numbers are economists looking for in November’s employment figures? U.S. job growth likely remained solid, with forecasts for 200,000 non-farm payrolls and an unchanged unemployment rate of 5%. Yesterday, Fed chair Janet Yellen said in a testimony before Congress that economic data is sufficiently strong to start raising benchmark interest rates later this month. She also outlined that the economy needs to create just under 100,000 jobs a month to keep up with growth in the working age population.

What effect has the drama had on debt securities? The value of the U.S. fixed-income market slid by $162.5B on Thursday while the eurozone’s shrank by €98.3B ($107.4B) as the ECB’s smaller-than-expected stimulus boost and hawkish comments from Janet Yellen pushed up yields around the world. The benchmark U.S. 10-year note yield jumped 13 bps to 2.32%, the most since Feb. 6, while Germany’s 10-year bund yield surged 20 bps to 0.67%. “A lot of people lost money,” said Charles Comiskey, head of Treasury trading at Bank of Nova Scotia. “In the old days, this would have been a one-week trade. In the new world, and in the less liquid market we live in today, it takes one day for the repricing.”

Traders are also closely watching today’s OPEC meeting in Vienna, where the cartel is expected to keep its production ceiling of 30M barrels per day. The situation is little changed from a year ago, when Saudi Arabia refused to slash production, a move which sent oil prices to the mid-$30s and upped the rivalry with U.S. shale producers. Earlier reports suggested that Riyadh could be ready to compromise on output cuts with other non-OPEC members, but by this morning those rumors had been widely dismissed. Crude futures +1.8%to $41.82/bbl.

China is launching a stock index circuit breaker next year, according to financial magazine Caixin, as policymakers attempt to shore up investor sentiment still creaking from a summer rout. Under the proposal, a move of 5% in either direction from the index’s previous close would trigger a 30-minute halt in trading of stocks, options and index futures. Moves of 7% from the previous close would result in a trade suspension for the rest of the day.

The House and Senate have taken a concrete step toward reviving the Export-Import Bank, by voting to renew the embattled institution’s funding as part of a five-year transit construction measure. Obama is expected to sign the bill into law today, hours before current funding is scheduled to run out. Ex-Im Bank’s charter had expired on June 30 after some conservative Republicans targeted it as a waste of government money.

The Senate also voted late Thursday to repeal the core of Obamacare, but the step won’t succeed in undoing the statute since the President has vowed to veto the measure and Democrats have the power to block an override. The new legislation would repeal the expansion of Medicaid adopted by 30 states as well as many of the law’s tax increases and strip federal funding from Planned Parenthood. Effects of the Affordable Care Act have been felt far and wide, with UnitedHealth (NYSE:UNH) recently warning that it may pull out of the Obamacare exchanges after 2016 due to poor financial performance.

Stocks

The blowout year for mergers and acquisitions just keeps getting bigger. According to Dealogic, global M&A volume just soared to $4.304T, pushing 2015 to date ahead of 2007’s total, when the previous record of $4.296T of mergers was struck. U.S. targeted M&A volume hit a record high in September and currently stands above $2T for the first time ever. What’s driving the dealmaking? Cheap debt, increased boardroom confidence, pressure to become more efficient in a slow-growth economy and a desire to keep up with consolidating rivals.

Avon Products climbed 7% yesterday following reports that the company was in advanced talks with Cerberus over the sale of its North American business. As part of the deal, Cerberus would make a minority investment in Avon (NYSE:AVP) that would strengthen the company’s balance sheet and might get the P-E firm some board seats. Take the report with caution, however, as rumors have swirled around Avon throughout 2015. Its shares whipsawed Wednesday amid rumors that Oprah Winfrey invested in the company, and also spiked in May after a hoax takeover bid. AVP -57.5% YTD.

Valeant Chief Executive Michael Pearson will not testify at next week’s Senate subcommittee hearing on drug pricing, reports the New York Post. Last month, Senators Susan Collins and Claire McCaskill, who together lead the Senate Special Committee on Aging, announced plans for a December hearing as part of a Senate probe into drug pricing. At that time, they asked for information on pricing from four drug companies, including Valeant (NYSE:VRX).

Several Japanese electronics companies are mulling a combination of their PC operations, according to the Nikkei, thereby creating a firm possessing 30% of the Japanese PC market. Toshiba (OTCPK:TOSBF), Fujitsu (OTCPK:FJTSY), and Sony (NYSE:SNE) spinoff Vaio are reportedly “aiming to hatch a basic agreement as early as this month and launch the combined company in April 2016.” The news comes during a rough year for PC sales. IDC estimates global shipments fell 10.8% Y/Y in Q3, with Japanese sales hurt by a weak yen, high inventories, and a relative lack of Windows 10 promotional efforts.

South Korean regulators are investigating whether nine executives from Samsung, the country’s largest conglomerate, used insider trading to profit illegally from the merger of two subsidiaries. The executives are said to have bought 40B-50B won ($34.5M-$43.1M) worth of Cheil Industries shortly before the plan to combine it with Samsung C&T was announced in May. The merger was completed after shareholders voted in favor of it in July.

Uber is raising even more money, and the new valuation will make it larger than stalwarts of the S&P 500, including Dow Chemical (NYSE:DOW), BlackRock (NYSE:BX), and Netflix (NASDAQ:NFLX). According to Bloomberg, the car-booking startup is looking to raise as much as $2.1B in a financing round that would give it a valuation of $62.5B. Competition is heating up though. Some of Uber’s (Pending:UBER) largest rivals – Didi Kuaidi, GrabTaxi, Lyft and Ola – have just announced a global ride-sharing agreement that they say will cover nearly 50% of the world’s population.

Volkswagen’s suspended top engineer has left the German group after 30 years, as the automaker pushes ahead with the search for culprits in its diesel emissions scandal. The board picked Stefan Knirsch, head of engine development, to succeed Ulrich Hackenberg. Meanwhile, Audi’s (OTCPK:AUDVF) supervisory board has appointed VW’s (OTCQX:VLKAY) new chief executive Matthias Mueller as chairman, replacing long-time CEO Martin Winterkorn who vacated the post in November.

 

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