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Wall Street… Breakfast

 

Markets are awaiting a policy decision from the U.S. Federal Reserve later in the session and a statement that might yield signs regarding the pace of future rate hikes. Citing improved inflation and other data, the central bank raised rates last month for the first time since the global financial crisis, but uncertainty over the strength of the dollar, low oil prices and China’s outlook have prompted warnings against raising rates too fast. U.S. futures: Dow-0.4%; S&P -0.6%; Nasdaq -1%.

 

Economy

Puerto Rico plans to meet with creditors on Friday to discuss a possible restructuring of $70B of municipal bonds. The talks come as the island struggles to make progress on two tracks – striking deals with bondholders and persuading U.S. legislators that it merits relief from the federal government. Further complicating the process, the territory has more than a dozen types of bonds and is negotiating simultaneously with several creditor groups that have competing claims.

Italy’s government bonds rose for a third day after the nation reached an agreement with the European Commission on a rescue deal that will help domestic banks offload €200B of bad debt. Spanish and Portuguese sovereign securities also advanced. The details are still being finalized, but Italian Economy Minister Pier Carlo Padoan told reporters that the scheme is “a very useful instrument” based on state guarantees.

Canada has confirmed a decision to lift sanctions on Iran, saying that if Airbus (OTCPK:EADSY) is allowed to sell to the country, then its planemaker Bombardier (OTCQX:BDRAF, OTCQX:BDRBF) should be allowed to export there as well. Tehran is looking to upgrade its aging fleet with aircraft of the same range and seats as Bombardier’s 100- to 150-seat CSeries. The move comes after the U.S., EU and other major nations lifted some of their own punitive measures on the Islamic Republic.

Oil prices are retreating following a surge on Tuesday after Iraq’s oil minister alluded to flexibility from non-OPEC states in collaborating regarding production cuts. “This is a schizophrenic market. Big up days, big down days. No real direction,” said Tim Ghriskey, chief investment officer of the Solaris Group. “We need some stability in oil prices for the markets to calm down from here and become less volatile.” Crude futures -3.5% to $30.36/bbl.

Stocks

Has Apple reached its peak? The tech giant yesterday reported fiscal first-quarter earnings that beat analyst estimates, but announced the slowest-ever increase in iPhone shipments and forecast its first revenue drop in 13 years. “We’re seeing extreme conditions unlike anything we have ever experienced before,” CEO Tim Cook said on a conference call. The slowdown comes as investors worry Apple (NASDAQ:AAPL) doesn’t have another blockbuster product to replace the iPhone (Mac and iPad sales also came in weaker than expected).

Foxconn Technology has made a detailed offer to buy Sharp (OTCPK:SHCAY), including a promise not to issue any job cuts, challenging an offer by government-backed Innovation Network of Japan, Reuters reports. Foxconn (OTC:FXCOF), formally known as Hon Hai Precision Industry, previously offered ¥625B (about $5.3B) for Sharp, but the Japanese company and its lenders had not taken the offer too seriously, as it lacked a detailed restructuring plan.

Four years after unveiling its wearable glass headset, Alphabet (GOOG,GOOGL) has shut down several social media accounts linked to its Glass gadget, ending the push to popularize its pricey eyeglasses. A statement on a Google Plus page said: “Hi Explorers, we’ve had a blast hanging out with you on G+ throughout the Explorer Program.” Google stopped selling Glass to consumers last year, but unveiled a reboot of the device, called GG1, in December.

European earnings roundup: Novartis‘ (NYSE:NVS) fourth-quarter earnings missed expectations as the group prepared to overhaul its Alcon eyecare division. Royal Bank of Scotland (NYSE:RBS) warned it would slump to yet another full-year loss after it put aside £2.5B to cover a slew of regulatory issues. Strength in its U.K. business helped Santander (NYSE:SAN) offset weakness in Latin America and Spain, with Q4 earnings coming roughly in line with expectations. Ericsson (NASDAQ:ERIC) reported a 67% increase in quarterly net profit, boosted by a stronger dollar and higher revenue from a global license deal with Apple (AAPL). BASF (OTCQX:BASFY) issued a profit warning, knocked down by lower oil and gas prices, which have led to write-downs of its energy business.

Royal Dutch Shell faces a crucial test this week when its proposed $45B acquisition of BG Group (OTCQX:BRGYY), the British oil and gas producer, will be put to both companies’ shareholders. Shell (RDS.A, RDS.B) investors are expected to vote today, and BG’s tomorrow. Some have been skeptical about Shell going ahead with such a big acquisition at a time of falling oil prices, but big stakeholders like the Norway oil fund support the deal.

Three major U.S. shale oil firms heavily slashed their 2016 capital spending plans yesterday in a bid to survive $30 a barrel oil prices, with one of them saying prices would need to rise more than 20% just to turn a profit. The cuts from Hess Corp. (NYSE:HES), Continental Resources (NYSE:CLR) and Noble Energy (NYSE:NBL) ranged from 40% to 66%, marking the second straight year of pullbacks by a trio of businesses normally seen as among the most resilient shale oil producers.

FedEx +1.5% premarket after authorizing a new share repurchase program covering up to 25M shares ($3B at current prices). “Since FY14, we have returned nearly $8B to shareowners through the repurchase of over 57M shares, and we remain committed to delivering long-term value for shareowners,” Chairman Frederick Smith said. FedEx’s (NYSE:FDX) prior repurchase authorization announced in September 2014 has been completed.

President Obama is calling for the rapid development of tests, vaccines and treatments to fight the mosquito-transmitted Zika virus, which has been linked to brain damage in thousands of Brazilian babies. American health officials are eager to step up efforts studying the link between Zika infections and birth defects, citing a recent study estimating the virus could reach regions where 60% of the U.S. population lives. Healthcare stocks on watch?

Sitting on a double-digit loss that’s the deepest in his firm’s history, Bill Ackman has admitted to investors that he made mistakes last year in not cutting big holdings in Valeant Pharmaceuticals (NYSE:VRX) and Canadian Pacific (NYSE:CP). Despite Pershing Square’s -19.3% gross return, Ackman still sees plenty of new investment opportunities for 2016. He also disclosed “large notional short positions in the Chinese yuan” and “purchased puts on the Saudi Riyal” as a hedge.

On the floor of the New York Stock Exchange, high-frequency traders are now king. Barclays (NYSE:BCS) has become the last of the big investment banks to relinquish the once-hallowed “designated market maker” status by selling its business to GTS, which will join other DMMs such as IMC Financial, KCG and Virtu on the NYSE (NYSE:ICE). GTS currently accounts for 3%-5% of daily cash equities volume in the U.S., but is now set to be designated market maker for 1,200 listed securities, including Berkshire Hathaway (BRK.A,BRK.B), Exxon Mobil (NYSE:XOM), Twitter (NYSE:TWTR) and Alibaba (NYSE:BABA).

Despite a slight drop in sales, Toyota (NYSE:TM) managed to hang on to the title of world’s best-selling automaker in 2015. The company sold 10.15M cars last year, while Volkswagen (OTCPK:VLKAY) came in second with 9.93M autos, followed in third place by General Motors (NYSE:GM) with 9.8M vehicles. Volkswagen had been top in the first half of 2015 before a diesel emissions scandal set back sales.

Tuesday’s Key Earnings
3M (NYSE:MMM) +5.3% topping estimates, affirming its outlook.
AT&T (NYSE:T) -2.1% AH following light revenues.
Apple (AAPL) -2.8% AH on worries that growth is stalling.
DuPont (NYSE:DD) +0.9% after stepping up its cost cutting goals.
Freeport-McMoRan (NYSE:FCX) +6.4% on pledges to intensify debt reduction.
J&J (NYSE:JNJ) +4.9% following an earnings beat.
Lockheed Martin (NYSE:LMT) -0.5% on plans to divest its IT unit.
P&G (NYSE:PG) +2.5% as margins popped on productivity gains.
Sprint (NYSE:S) +18.7% on subscriber adds, decreased costs.
U.S. Steel (NYSE:X) -7.4% AH after losing nearly $1B in Q4.
VMware (NYSE:VMW) -6.5% AH due to soft Q1/2016 guidance.

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