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Wall Street… Breakfast

Europe And U.S. Markets Look To Decouple From China, but could They?

Stocks in Europe are battling to shake off another sharp turn lower in China. Steady gains of under 1% were being put in by major indexes in the U.K., Germany, and France before they slipped back into negative territory. A recovery in German automaker stocks Volkswagen (OTCPK:VLKAY) and Daimler (OTCPK:DDAIF), along with solid gains in the banking sector, have helped to shift the focus back toward European corporate news. Volatility-measuring VSTOXX Index is showing little reaction to the earlier tumble in Asian stocks. U.S. stock futures are pointing higher in early action.

Today’s Markets

In Asia, Japan -0.4% to 17,698 . Hong Kong -2.8% to 19,889. China -5% to 3192. India -0.4% to 24825.
In Europe, at midday, London -0.2%. Paris -0.1%. Frankfurt -0.1%.
Futures at 6:20, Dow +0.2%. S&P +0.3%. Nasdaq +0.2%. Crude -1.6% to $32.62. Gold +0.5% to $1103.80.
Ten-year Treasury Yield Flat at 2.14%.


Oil prices are sharply lower to start off the week as concerns over demand from China impact trading again, along with some fresh worries. Morgan Stanley is the latest major investment firm to forecast oil prices could fall into the $20s with the U.S. dollar continuing to strengthen against major currencies. There is also news that Saudi Arabia is considering an IPO for its state oil company, a development that adds a new layer of anxiety with traders. Brent crude is down 1.42% to $32.69, while WTI crude futures are1.6% lower at $32.62.

A British referendum on staying in the European Union is expected by many to occur this year. A British exit from the EU could create significant ripple effects, including adding tension between U.K. members Scotland, Northern Ireland, Wales, and England. Prime Minister David Cameron is working on EU fixes to attempt to placate the anti-EU movement.


  • JPM strategists note that earnings expectations have been managed aggressively going into earnings season. Four months ago, the “hurdle rate” for S&P 500 stocks was +5% Y/Y; now it’s -4% Y/Y. “If this were to materialize, it would be the weakest quarter for EPS delivery so far in the upcycle.”
  • Energy sector earnings consensus signals only single-digit losses, while oil prices are 36% below the 21015 average.
  • Sees euro-zone earnings outperforming U.S. for second year running.
  • Overall, firm says risk/reward for stocks is poor. Use bounces as selling opportunities.

Arch Coal filed for Chapter 11 bankruptcy. The company aims to eliminate $4.5B in debt through a reorganization. Arch Coal (NYSE:ACI) has ample financing in place to ensure normal mining activities stay on course. Shares of the coal mine operator are down 99% over the last year, with a bankruptcy filing widely anticipated.

Asahi Group Holdings is expected to fire off offers for SABMiller’s (OTCPK:SBMRY) Grolsch and Peroni beer brands as early as this week. The beer properties could be unloaded to Asahi (OTCPK:ASBRF) for as much as $3.41B. Grolsch and Peroni are seen as necessary merger casualties due to acquirer’s Anheuser-Busch’s (NYSE:BUD) deep penetration in Europe.

Performance Sports Group ex-chairman Graeme Roustan says he will consider taking the company private if current trends don’t improve for the retailer. A go-private deal would see Roustan partner with some major shareholders and return to the chairman position. Shares of Performance Sports Group (NYSE:PSG) ended at a 52-week low last week and are down 30% over the last month.

Employees report that it’s tough times at Yahoo (NASDAQ:YHOO) with many having lost faith in Marissa Mayer’s leadership. Only 34% of employees believe that Yahoo’s prospects are improving, compared with 61% at Twitter and 77% at Google. A clean third of all employees have left in the past year. As some investors press Yahoo to fire her, Mayer is crafting a last-ditch plan to streamline the company, including significant layoffs that are expected to be announced before month’s end.

A new software update from Tesla Motors (NASDAQ:TSLA) upgraded the self-parking capabilities for Model S and Model X owners, including handling perpendicular parking spaces. Software version 7.1 allows Tesla vehicles to drive 39 feet at 1 mph in self-driving mode with the owner outside the car. Another tweak limits the top speed of autonomous driving on the road to just 5 mph over the legal limit. Improvements to HomeLink and AutoSteer were also part of the upgrade.

Apple Music is reported to now have more than 10M paying subscribers. Back in October, Apple (NASDAQ:AAPL) reported 6.5M subscribers. Industry leader Spotify said in June it has 20M paying subs.

Star Wars: The Force Awakens smashed a major record again, this time with the best Saturday opening day ever in China. The film brought in $33M in the last territory in the world it debuted. A Hollywood Reporter poll suggested theater operators expect the Star Wars film to gross between $200M and $330M in China – a mark that would be positive for Disney (NYSE:DIS) and IMAX (NYSE:IMAX).

The North International Auto Show fires up in Detroit this week with more than 50 model reveals anticipated. Concept cars expected to be unveiled include the Acura Precision Concept luxury model from Honda (NYSE:HMC), a large SUV model from Kia Motors (OTC:HYMLF), and Nissan’s high-end Infiniti Q60. General Motors (NYSE:GM) will offer up a deeper look at the Chevrolet Bolt pure EV, while aiming to gain ground on Tesla Motors which is skipping the event. On the hydrogen side, the Toyota Mirai and its evolving vision will be highlighted, while a FCV introduction from Audi (OTCPK:VLKAY) is rumored.

Stocks to watch for a Barron’s bounce are headlined by HanesBrands (NYSE:HBI) which is tapped to rise as much as 30% over the next year. Hanesbrands is poised to benefit from strategic acquisitions and product innovation, according to the publication. An interview with Fidelity’s John Dowd yields Schulmberger (NYSE:SLB), ExxonMobil (NYSE:XOM), EOG Resources (NYSE:EOG), and Newfield Exploration (NYSE:NFX) as strong long-term picks from the energy sector. Deckers Outdoor (NYSE:DECK) is also mentioned favorably. A new line of Uggs is seen helping Deckers recover from its recent slide.



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