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Wall Street… Breakfast

January 5

China moved to shore up shaky investor sentiment today following an equities selloff that rocked global financial markets on revived concerns about the country’s economic slowdown. The PBOC flooded its banking system with 130B yuan ($19.95B), marking the largest cash injection since September, while suspicions arose that it was also using state banks to simultaneously prop up the renminbi. Although world shares are still wobbly, traders today appear a little less frantic.

After yesterday’s historic -6.9% rout in the Shanghai Composite, which saw the first new marketwide circuit breaker trading halt applied to Chinese stocks (on its first day of operation), many were wondering if the Chinese government would intervene in both the once again imploding stock market, as well as China’s plunging and rapidly devaluing currency. And, after the SHCOMP opened down -3%, the government did not disappoint and promptly intervened in both the Yuan as well as the stock market, however with very mixed results which global stocks took a sign that the Chinese “national team” is no longer focused solely on stocks, and have resumed selling for a second consecutive day.

And yet despite all this today the close did not even manage to push the Composite into the green, with the SHCOMP closing -0.3%.

The current market snapshot looks as follows:

 

  • S&P 500 futures down 0.6% to 1996
  • Stoxx 600 down 0.3% to 355
  • FTSE 100 down less than 0.1% to 6090
  • DAX down 0.9% to 10193
  • German 10Yr yield down 1bp to 0.56%
  • Italian 10Yr yield down 3bps to 1.52%
  • Spanish 10Yr yield down 3bps to 1.69%
  • MSCI Asia Pacific down 0.4% to 128
  • Nikkei 225 down 0.4% to 18374
  • Hang Seng down 0.7% to 21185
  • Shanghai Composite down 0.6% to 3277
  • US 10-yr yield down 1bp to 2.23%
  • Dollar Index up 0.31% to 99.18
  • WTI Crude futures down 0.3% to $36.64
  • Brent Futures down 0.7% to $36.95
  • Gold spot up 0.3% to $1,078
  • Silver spot up 0.9% to $14.00

 

Today’s Markets

In Asia, Japan -0.4% to 18374. Hong Kong -0.7% to 21453. China -0.3% to 3288. India -0.2% to 25580.
In Europe, at midday, London -0.2%. Paris -0.7%. Frankfurt -0.8%.
Futures at 6:20, Dow -0.6%. S&P -0.6%. Nasdaq -0.6%. Crude flat at $36.75. Gold +0.2% to $1077.50.
Ten-year Treasury Yield -1 bps to 2.23%

Economy:

Bypassing Congress on a hot-button issue, President Obama is about to roll out executive actions on gun control, in the wake of mass shootings across the country. According to a White House facts sheet, the new actions are modest, requiring sellers at gun shops and shows to use background checks to make it easier to determine when someone can’t buy a gun for mental health reasons. Shares in Smith & Wesson (NASDAQ:SWHC) (which also hiked guidance yesterday) and Sturm Ruger (NYSE:RGR) rallied against a falling stock market on Monday following the news.

Puerto Rico is bracing for impending lawsuits following the island’s second default in the past five months. “It will be very costly for the commonwealth and our creditors,” Governor Alejandro Garcia Padilla told CNBC. “Every dollar used to pay lawyers will be a dollar not available to pay creditors.” The U.S. territory was able to pay the majority of the nearly $1B due to bondholders on Monday, but defaulted on two of the 13 bonds that had scheduled payments.

Euro-area inflation was weaker than economists predicted in December, when the European Central Bank stepped up its stimulus program. According to preliminary data from Eurostat, consumer prices remained unchanged at an annual 0.2%, below expectations for a 0.3% rise. “It’s a major disappointment,” said Jane Foley, a forex strategist at Rabobank. “We’ve seen this story again and again. Despite very weak monetary conditions, inflation is refusing to budge.” Euro -0.7% to $1.0762.

Saudi Aramco has raised its February price for its Arab Light grade for Asian customers by $0.60/bbl vs. January to a discount of $0.80/bbl to the Oman/Dubai average. However, the company kept its Arab Light official selling price to the U.S. unchanged from the previous month at a premium of $0.15/bbl to the Argus Sour Crude Index. The Northwest Europe was set at a discount of $4.85 a barrel to the Brent Weighted Average, down $0.60 from the previous month. Crude futures flat at $36.75/bbl.

Stocks :

Yahoo’s core business is getting another shake up: The company’s much touted Yahoo Screen app and site (launched in September 2013) have now been shut down. The video service had made aggressive investments in content, including everything from Saturday Night Live episodes, NFL clips, and a relaunch of Community after NBC (NASDAQ:CMCSA) canceled the popular program. Katie Couric was also hired as a Yahoo-only news anchor; her daily news reports will remain available on Yahoo’s main site. YHOO+1.1% premarket.

Facebook’s Oculus will release its virtual reality Rift headset to consumers for pre-order on Wednesday but one big question remains: how much will it cost? In a blog post on Monday, Oculus (NASDAQ:FB) revealed very little except that pre-orders will open from 8 a.m. Pacific time and that each headset will come with two free games – Lucky’s Tale and CCP’s EVE: Valkyrie. Last year, Oculus executives hinted that the Rift headset and a computer needed to run it would cost no more than $1,500 together.

New York City will begin replacing thousands of pay phones this month with free Wi-Fi hot spots that will sit atop a 9.5-foot tall box featuring electronic advertising screens and an Android tablet that can be used to place free phone calls. The $200M project, called LinkNYC, is being run by CityBridge, a joint venture between three tech companies: Qualcomm (NASDAQ:QCOM), CIVIQ Smartscapes, and Intersection – which has backing from Alphabet (GOOG, GOOGL). The move could also put pressure on wireless carriers Verizon (NYSE:VZ), AT&T (NYSE:T), T-Mobile (NASDAQ:TMUS) and Sprint (NYSE:S).

Confirming earlier reports, Orange (NYSE:ORAN) said it’s in talks for a deal involving Bouygues’s (OTCPK:BOUYY) telecommunications unit, a move that would reduce the number of wireless carriers in France from four to three. “These discussions are not limited by any particular calendar and hold no commitment to any particular predefined outcome,” the company announced in a statement. Sources and analysts suggest that Orange’s offer could fetch as much as €10B.

The FCC is delaying its informal deadline by 15 days to review the proposed $56B merger of rivals Charter Communications (NASDAQ:CHTR) and Time Warner Cable (NYSE:TWC). The break will give the agency more time to assess the impact of the proposed deal on TWC’s regional sports networks and Charter’s residential pricing/packaging. Comparing that with the agency’s informal 180-day “shot clock,” after the pause, the review is scheduled to wrap in late March.

Fairchild Semiconductor plans to say that a revised takeover proposal from a group led by China Resources Holdings and Hua Capital Management is likely a superior offer for the company, sources told Bloomberg. Fairchild (NASDAQ:FCS), which agreed to a merger in November with ON Semiconductor (NASDAQ:ON), said last week it received a modified offer from a bidder identified as “Party G” – the same group as the one led by China Resources’ semiconductor arm. The improved bid would value the company’s equity at $2.46B.

More tech/media deals: Dell is close to selling its Perot Systems unit to French IT consulting firm Atos (OTCPK:AEXAF) for $4B. Microchip Technology (NASDAQ:MCHP) is planning to submit a binding offer for Atmel (NASDAQ:ATML) by early next week, challenging the latter’s planned merger with Dialog Semiconductor (OTC:DLGNF). Activision Blizzard (NASDAQ:ATVI) confirmed its acquisition of Major League Gaming, adding to its e-sports portfolio, but did not disclose financial details. Lastly, China’s Dalian Wanda Group has sealed a deal to take a majority stake in U.S. movie studio Legendary Entertainment that values the company at $3B-$4B.

Global asset manager Legg Mason is in talks to buy a majority stake in real estate investment manager Clarion Partners in a transaction that would value the company at about $850M, Bloomberg reports. Under the terms being discussed, Legg Mason (NYSE:LM) would buy 80% of the firm, while Clarion’s current management would retain a 20% stake. A deal could be announced as early as this month.

Early news from the Consumer Electronic Show: Nvidia (NASDAQ:NVDA) has revealed a new lunchbox-size super-computer for self-driving cars, saying Volvo (OTCPK:GELYY) will be the device’s first customer. The Drive PX 2 has computing power equivalent to 150 MacBook Pro computers, and can deliver up to 24T “deep learning” operations – allowing the computer to use artificial intelligence to program itself to recognize driving situations – per second. Partnerships between automakers and Silicon Valley on self-driving technologies appear to be taking center stage at the annual tech conference.

General Motors is hedging against a future with fewer car owners with a $500M stake in Lyft (Private:LYFT). The deal taps into potential changes in the auto industry (autonomous cars, car-sharing and ride-hailing services) and even employment. GM also named Chief Executive Mary Barra as the chairman of its board, succeeding Theodore Solso, who will continue serving as lead independent director.

Latest Volkswagen drama…The U.S. Justice Department has finally filed a civil lawsuit against the automaker for allegedly violating the Clean Air Act by installing illegal defeat devices in nearly 600K vehicles. “So far, recall discussions with the company have not produced an acceptable way forward,” reads a statement from the DOJ. The allegations against VW (OTCPK:VLKAY), along with its Audi (OTCPK:AUDVF) and Porsche (OTCPK:POAHY) units, carry penalties that could cost the companies billions of dollars.

Automakers this morning will also report new U.S. vehicles sales for December, which are expected to close out the best year in history with a bang. Analysts predict that the industry sold at least 1.6M vehicles during the month, which would push annual sales for 2015 past the record of 17.4M vehicles in 2000. The gains are partly a result of holiday promotions and sales incentives, as well as continued low gas prices.

 

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