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Wall Street… Breakfast

 

Markets Data 12 Jan

European stocks and U.S. futures are sporting solid gains after the Shanghai Composite managed to squeeze out a 0.2% advance in a volatile session overnight. Oil continued its plunge, dropping to within pennies of a $29 handle before rebounding to $31.12 per barrel – still lower by 0.9% for the day. The Q4 earnings season is underway after Alcoa (NYSE:AA) last night reported mixed results. Still to come this week are Intel (NASDAQ:INTC), JPMorgan (NYSE:JPM), Wells Fargo (NYSE:WFC), and Citigroup (NYSE:C), among others.

Today’s Markets

In Asia, Japan -2.7% to 17219. Hong Kong -0.9% to 19712 . China +0.7% to 3216. India -0.6% to 24682.
In Europe, at midday, London +1.2%. Paris +2.2%. Frankfurt +2.4%.
Futures at 6:20, Dow +0.6%. S&P +0.6%. Nasdaq +0.7%. Crude -0.9% to $31.12. Gold -0.2% to $1094.10.
Ten-year Treasury

Economy

U.K. industrial production fell 0.7% in December from the previous month as warm weather cut into energy demand. The monthly decline was the most in almost three years. Manufacturing output was down 0.4% during December as a strong pound factored into the decision-making process of companies. The pound fell 0.3% to $1.4488 after the reports. Later this week, the Bank of England decides if 0.5% is the right level for its benchmark interest rate.

Consumer confidence in Japan rose slightly in December. The adjusted consumer confidence index increased to 42.7 from 42.6 in November. Economists expected a reading of 42.4.The consumer confidence index hasn’t topped 50 since 2006, even after several years of central bank easing amid Abenomics.

The energy sector is on watch again today after crude oil prices fell lower. Oil prices are at 12-year lows and a dip into the $20s is becoming closer and closer. Once again, the word “glut” is the dominant theme with traders. “OPEC is producing flat-out into a market that is oversupplied by over 1 million barrels per day,” noted Jefferies earlier today. The impact of yuan manipulation in China is also a growing concern.

Stocks

Automobile sales in China rose 4.7% to 24.6M units last year to mark the slowest pace of sales growth since 2012, according to data from the China Association of Automobile Manufacturers. A sizable tax cut from Beijing during the last quarter wasn’t enough to help lift sales past the growth rate seen in the bustling U.S. auto market. General Motors (NYSE:GM) and Ford (NYSE:F) outpaced major domestic automakers in China through their local joint ventures.

McDonald’s could face pressure from the European Union after consumer groups in Italy filed fresh complaints. The company is accused of charging franchisees rents at excessive levels above market rates. McDonald’s is already one of the targets of an EU investigation into its tax arrangement with Luxembourg.

Starbucks plans to open 500 stores in China every year until 2021 as it stays optimistic demand for coffee in the tea-drinking nation will explode. CEO Howard Schultz thinks China will become the largest market for Starbucks (NASDAQ:SBUX) sometime in the future. The confidence from the Seattle juggernaut on China stands in contrast to the conservative positioning of some other large U.S. companies.

Alcoa kicked off the Q1 earnings season with a mixed showing, as EPS beat expectations but revenues tumbled 18% from the year-ago quarter amid sharply lower aluminum prices. The company projected 2016 global aerospace sales to increase 8%-9% from a year ago on continued strong demand for large commercial aircraft and jet engines, while forecasting 1%-4% global production growth in automotive, including 1%-5% growth in North America. Shares were lower in after-hours trading with Citigroup weighing in on the disappointing earnings.

Private-equity firm Apollo Global Management was said to be in advanced talks to buy Apollo Education (no relation) for about $1B. The educator, operator of the for-profit University of Phoenix, had been in talks with a number of firms over a control-changing purchase. The latest news came after a see-saw Monday where Apollo Education (NASDAQ:APOL) gained strongly premarket following Q1 earnings; sank to a loss in the afternoon; and rocketed after hours on the AGM (NYSE:APO) deal report. A buyout could come in the next few weeks.

Carl Icahn denied a report that he was building up a stake in Time Warner (NYSE:TWX), telling CNBC “I don’t own one share” of the company and expressing annoyance at speculator rumors. Sources had told Reuters that Icahn was gathering a position, raising a specter of his 2006 run at breaking up the company, and the news came handily amid activists rumbling about a possible sale of Time Warner or spinoff of its HBO Network business.

United Airlines announced its passenger unit revenue may have fallen more than expected in Q4, as the November attacks in Paris slowed traveler demand and lower oil prices hurt sales to energy clients at its Houston hub. United (NYSE:UAL) disclosed Q4 consolidated passenger revenue per available seat miles fell 5.75%-6.25% Y/Y, worse than its earlier forecast for a 4%-6% drop for the quarter.

Lululemon hiked guidance after strong store execution during the holiday season helped to boost results. The company now expects FQ4 revenue of $690M-$695M (+15% Y/Y) and EPS of $0.78-$0.80. That’s up from prior guidance of $$670M-$685M and $0.75-$0.78, and almost entirely above a consensus of $678.3M and $0.78. Comparable sales are expected to be at a high-single digit rate in constant currency, better than prior guidance for mid-single digit growth. Lululemon (NASDAQ:LULU) presents today at the ICR Conference.

China’s market ructions are likely masking a credit crisis and a bleak outlook for its economy, according to UBS economic adviser George Magnus. “Beneath all of the financial turbulence there lurks, in my view, a credit crisis,” Magnus told Tom Keene and Francine Lacqua on Bloomberg Television on Monday. “I fear the worst now.”

The Bank of Thailand is likely to stay on hold at its next policy meeting on Feb. 3,Goldman Sachs said in a Jan. 8 note. Economic growth remains sluggish in Thailand and headline inflation is likely to rise only moderately in the first quarter, it added. Goldman forecast a cut of 25 basis points in the policy rate early in the second quarter.

Barclays sees AUD/USD at 0.63 by the end of 2016 as any hawkish repricing of the Reserve Bank of Australia’s rate expectations will likely be outweighed by the drop in terms of trade, according to a note dated Jan. 10. It cited a narrowing of the Australian-U.S. policy rate differential as the Fed raises rates.

Yuan depreciation may increase capital outflows and cause a tightening of liquidity,Nomura wrote in a note dated Jan. 8. It estimated that capital outflows may have reached more than $500 billion since the change in China’s foreign exchange regime on Aug. 11. Depreciation may cause a further weakening of the property market, leading to even slower property investment, which is already struggling, Nomura said.

Sri Lanka’s central bank will likely keep its policy rates on hold over the coming months, with a tightening bias, in order to manage the cost of refinancing for public debt, ensure price stability and down play the risk of a balance of payment crisis, BMI Research wrote in a Jan. 7 report.

BNP Paribas is bearish on the Philippine peso given a deterioration in the balance of payments due to a widening trade deficit and stagnating overseas remittances, according to a Jan. 8 note.

Economic growth in Indonesia is expected to continue decelerating markedly through the first half of 2016, ANZ wrote in a Jan. 8 note. It sees Bank Indonesia as one of the first central banks in Asia to cut rates this year, with a move in either January or February

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