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Wall Street… at Breakfast

FeD Yellen takes Central Stage

Fed Chair Janet Yellen is set to deliver her semi-annual monetary policy testimony in Washington today in what will be her first major appearance of the year and since the Fed’s controversial rate hike last December. The meeting will give the best insight to date on whether the central bank feels it can proceed with a rate tightening cycle or will be waylaid by problems, including financial market volatility, the oil rout, slumping Chinese growth and weakness in the global economy.

Markets wrap up:

In Asia, Japan -2.3% to 15713. Hong Kong closed. China closed. India -1.1%to 23759.
In Europe, at midday, London +1%. Paris +2.3%. Frankfurt +2.4%.
Futures at 6:20, Dow +0.7%. S&P +0.9%. Nasdaq +1.3%. Crude +2.4% to $28.60. Gold -1.1% to $1184.90.
Ten-year Treasury Yield -2 bps to 1.75%

One look at Asia this morning and it was more of the same: another deja vu session for Japan where the relentless surge in the Yen pressured the Nikkei lower by another 2.3%, pushing it down to 15713, to the lowest close since October 2014. The MSCI Asia index was likewise down 1.4% with all 10 sectors falling.

Europe, however, was a different story entirely: following yesterday’s late afternoon FT “trial balloon” that Deutsche Bank would part with much needed liquidity to repurchase bonds in the open market (perhaps to indicate how unconcerned it is about the future), the German bank was up already over 4% in the premarket, and then proceeded to absolutely explode, soaring as much as 15% higher, up 13.15% at last check in Frankfurt, on what is likely a combination of short covering and a rumor which hit about an hour ago, when a German newsletter reported that the ECB could buy bank stocks as part of its QE.

Also as a result, following 8 brutal days of carnage which sent European stocks to the lowest level since October 2013,Europe is solidly in the green, with the Stoxx up 2.3%. The European banking sector which as shown in the chart from Mark Barton below, is quite literally all green: not a single bank in Europe is in the red this morning.

From Tyler Dueden:”We expect that today’s volatile European bank euphoria will be brief if not validated by concerte actions, because while central banks have the luxury of jawboning, commercial banks are actually burning through funds – rapidly at that – and don’t have the luxury of hoping for the best while doing nothing.”

Which brings us back to Yellen’s testimony, which Jim Reid previews as follows: “Yellen can give the market hope today that the committee is acknowledging the worrying signs from both financial markets and the global economy and take a step closer to a cleaner dovish stance. That would certainly help if for no other reason than it would halt the dollar bull market (notwithstanding the recent sell-off) which has caused problems with commodities, EM, China and encouraged shrinking global dollar liquidity. However we won’t get such a turnaround in one speech. If it happens it’s likely to be a multi month story.”

Where the risks stand:

  • S&P 500 futures up 1.0% to 1867
  • Stoxx 600 up 2.3% to 316.4
  • FTSE 100 up 1.3% to 5708
  • DAX up 2.4% to 9091
  • German 10Yr yield up 3bps to 0.26%
  • Italian 10Yr yield down 8bps to 1.6%
  • Spanish 10Yr yield down 7bps to 1.69%
  • MSCI Asia Pacific down 1.4% to 117
  • Nikkei 225 down 2.3% to 15713
  • S&P/ASX 200 down 1.2% to 4776
  • US 10-yr yield up 3bps to 1.76%
  • Dollar Index up 0.15% to 96.21
  • WTI Crude futures up 1.8% to $28.45
  • Brent Futures up 1.7% to $30.84
  • Gold spot down 0.5% to $1,184
  • Silver spot down 0.7% to $15.14


In commodities, WTI and Crude have steadily risen in the European session as a result of more comments from Iran about cooperating with Saudi Arabia regarding oil output.

Overnight gold traded range bound failing to benefit from further risk off sentiment in Asia. The yellow metal has enjoyed its best start to the year since 1980, but could be set to drop according to some analysts, as Chinese purchases that ramped up prior to the Lunar New Year, slow down.


European Top News:

  • Opera to Be Sold to Chinese Tech Companies for $1.2b: 71 kroner/shr cash tender offer at 46% premium to latest close
  • Maersk Profit Plunges as Oil, Container Units Both Suffer: reports 2015 net income $791m vs $5.02b in 2014; est. $3.7b
  • Heineken, Carlsberg Forecast Profit Gains as Asia Sales Rise: Vietnam, Southeast Asia growth offsetting weak China, Russia
  • Hermes Says 2016 Sales Growth May Fall Short of Mid-Term Target: Cites global economic, geopolitical, monetary uncertainties
  • James Bond, Star Wars Studio Pinewood Puts Itself Up for Sale: Rothschild hired to conduct a strategic review of company
  • Telenor Earnings Fall Short Amid Norway Wireless Competition: Margin forecast for 2016 also trails analysts’ estimates
  • Daimler Sees $384 Million Expense for Takata Air-Bag Recall: xpense cuts net income to EU8.7b for 2015
  • ARM 4Q Sales Beat Ests., Sees 2016 Revenue ‘Broadly In Line’: says enters 2016 with robust opportunity pipeline for licensing



The first six weeks of 2016 have been largely devoid of big initial public offerings, but U.S. Foods is planning to change that. The food distributor has filed for a $100M IPO on the New York Stock Exchange, less than a year after its planned merger with rival Sysco (NYSE:SYY) collapsed due to opposition from government regulators. U.S. Foods reported sales of $17.192B for the nine months ending Sept. 30, 2015.

Asahi Group Holdings has agreed to buy SABMiller’s (OTCPK:SBMRY) Peroni and Grolsch beer brands, which are seen as necessary “Megabrew deal” casualties because of Anheuser-Busch’s (NYSE:BUD) deep penetration in Europe. Asahi (OTCPK:ASBRF), Japan’s biggest brewer with 38% market share, is likely to pay over ¥400B ($3.5B) for the two labels. An earlier line-up of bidders for Peroni and Grolsch included several private equity firms, conglomerates and other brewers.

Amid growing concerns about the bank’s financial health and broader rout of financial stocks, Deutsche Bank (NYSE:DB) is “considering buying back several billion euros of its debt,” FT reports. UBS has also reacted to the sharp falls in bank share prices by freezing salaries for its investment bankers until at least mid year. Like several of its peers, UBS’s investment banking operations have been hit by trading conditions which CFO Kirt Gardner described last week as “treacherous.” DB +9%; UBS +6.4% premarket.

HSBC has been sued by the families of U.S. citizens murdered by drug gangs in Mexico, claiming the bank let cartels launder billions of dollars to operate their business. HSBC already paid nearly $2B in penalties in December 2012 to resolve charges that it failed to stop hundreds of millions of dollars in drug money from flowing through the bank from Mexico, and promised to fix the problems.

More trouble for daily fantasy sports… ESPN (NYSE:DIS) and DraftKings (Private:DRAFT) have unwound their exclusive advertising relationship – a deal worth $250M – that will allow ESPN to sell ad time to the site’s competitors. Separately, 21st Century Fox (FOX, FOXA) has disclosed a write-down on 59% of its investment in DraftKings. During the latter half of 2015, Fox had invested about $160M for a minority stake in the company.

Nokia has failed to get its hands on 100% of shares in newly-acquired rival Alcatel-Lucent (NYSE:ALU), after winning nearly 80% of the French-American company last month. Following a second round of bidding, Nokia (NYSE:NOK) was still left with only 91.25% in Alcatel-Lucent, thus failing to reach the 95% threshold that would have allowed it to make a clean sweep by delisting all remaining shares from the Paris stock exchange. Nokia now has the option of buying those shares in the open market, but probably at a higher price than its original offer. NOK +1.7%; ALU -3.3% premarket.

A 2013 report to Amazon’s leadership “envisioned a global delivery network that controls the flow of goods from factories in China and India to customer doorsteps in Atlanta, New York and London,” Bloomberg reports. Sources now say the project, codenamed Dragon Boat, is “proceeding.” The initiative will provide competition for Alibaba (NYSE:BABA) and various cargo middlemen, as well as logistics partners UPS and FedEx (NYSE:FDX). AMZN+2.1% premarket.

Daimler says it will take a €340M charge against its 2015 profit to fix about 840K U.S. vehicles with potentially defective Takata (OTCPK:TKTDY) air bags. The cost of replacing the devices, already the largest consumer-safety recall in U.S. history, will reduce Daimler’s (OTCPK:DDAIF) net income to €8.7B. Takata’s air bag inflators can deploy with too much force, spraying fragments at vehicle passengers.

Tesla Motors has confirmed it will take orders for the Model 3 next month at $35K (but buyers will likely pay less on a net basis due to federal and state tax incentives). The latest word from Palo Alto is that the Model 3 is still on schedule, although CEO Elon Musk will face some Q&A later today following the EV automaker’s earnings. TSLA +1.8% premarket.

A significant barrier to Google’s plan to put driverless cars on the roads has been removed, after the NHTSA supported its interpretation that a robot could meet the legal definition of a driver. Google (GOOG, GOOGL) has also filed for another potential use of its artificial intelligence system in a patent award that described an “autonomous delivery platform” for trucks. The driverless transport vehicle would carry several lockers that could only be opened by the recipient of a package, using a PIN code or credit card.

Tuesday’s Key Earnings
Coca-Cola (NYSE:KO) +1.6% increasing global volumes, cost-cutting.
CVS Health (NYSE:CVS) +1% after meeting expectations.
Disney (DIS) -2.1% AH on perceived weakness at ESPN.
Panera Bread (NASDAQ:PNRA) +3.4% following strong same-store sales.
SolarCity (NASDAQ:SCTY) -29.8% AH after missing installation targets, guiding light.
Viacom (NASDAQ:VIAB) -21.5% as ad sales, movie revenues declined.


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