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Wall Street… at Breakst

Markets Surge on Chinese Debt Flood, Pound Crashing , European PMI Worst in a Year

The pound has taken a plunge amid a split in the U.K.’s ruling political party over whether Britain should leave the European Union. Over the weekend, British PM David Cameron announced a historic referendum (set for June 23) to decide whether the U.K. should remain in the bloc, after finalizing a deal with EU leaders to reset Britain’s relationship. Almost half of the bosses of the FTSE 100 agree with Cameron’s ‘stay’ campaign, but he lost the backing of London Mayor Boris Johnson, who just became the most high profile supporter of a British exit. Sterling -2% to $1.4121.

Today’s Markets

In Asia, Japan +0.9% to 16111. Hong Kong +0.9% to 19464. China +2.4%to 2927. India +0.3% to 23789.
In Europe, at midday, London +1.3%. Paris +1.7%. Frankfurt +2%.
Futures at 6:20, Dow +1.2%. S&P +1.2%. Nasdaq +1.3%. Crude +3.5% to $30.67. Gold -2.2% to $1204.20.
Ten-year Treasury Yield +3 bps to 1.78%

EU referendum: Pound sees biggest fall in a year on Brexit fears

The pound has seen its biggest drop in more than a year against the dollar amid uncertainty about a possible British exit from the European Union.

It fell 1.65% to $1.4167, the biggest one-day drop since 2 January, 2015.

 

With first London mayor Boris Johnson voicing his support for Brexit leading to a collapse in the pound, the outlook seemed downcast.

Followed by a surprising loss, the first in 5 years, by HSBC – the bank fined for making  money laundering for criminals around the globe a breeze – as revenue dropped and loans to oil and gas companies drove a jump in impairment charges, leading to a 5% drop in its share price, but more concerning is that HSBC said bad loan impairments and provisions soared 32% to $1.62BN driven by the oil and gas sector. In other words banks are concealing far more energy losses on their books than they have so far admitted?

Then  another indication that the global slowdown is spreading to Europe, when first French composite PMI printed at 49.8 missing expectations,

then Germany’s PMI likewise missed at 50.2, which meant that the Markit composite Purchasing Managers Index for the euro zone fell to 52.7, the lowest since January 2015, from 53.6. In Germany, manufacturing took a hit from falling overseas demand, while the composite gauge for France signaled “sluggish” economic growth.

European PMI 13 month low: MArkit report

The flash Markit Eurozone PMI fell from 53.6 in January to 52.7, the lowest since January of last year. The second consecutive monthly slowing in the rate of output expansion reflected a waning in growth of new orders for a third successive month, resulting in the smallest rise in new business for 12 months.

 

Chinese loan creation, which as  reported last week will have hit $1 trillion in the first two months of 2016, which in turn pushed commodities and especially iron ore higher by 6.2%, back over $50, or $51.52 a dry ton specifically, the highest level since Oct. 27. The commodity has jumped 18 percent this year after plunging to $38.30 in December, the lowest in more than six years; the reason: Chinese corporations are taking advantage of the debt glut and doing what got them in trouble in the first place: stockpiling.

China’s unprecedented surge in Chinese loan creation, has put the mark on more than half a trillion dollars,of which CNY2.51 trillion was in new bank loans.

As a result of today’s commodity euphoria, the Stoxx 600 was led higher by miners and carmakers. BHP Billiton Ltd. and Rio Tinto Group jumped more than 5 percent, among the biggest gains in Britain’s FTSE 100 Index.  Ironlcally, U.K. equities added 1.2 percent. The FTSE 100 this year is the best performer among major national measures in western Europe, helped by a weakening pound.

Futures on the Standard & Poor’s 500 Index expiring in March rose 1.2 percent, indicating equities will extend gains after posting their strongest weekly advance since November.

Markets

  • S&P 500 futures up 1.2% to 1937
  • Stoxx 600 up 1.6% to 332
  • FTSE 100 up 1.2% to 6024
  • DAX up 2% to 9574
  • German 10Yr yieldunchanged at 0.2%
  • Italian 10Yr yield down 3bps to 1.54%
  • MSCI Asia Pacific up 0.7% to 120
  • Nikkei 225 up 0.9% to 16111
  • Hang Seng up 0.9% to 19464
  • Shanghai Composite up 2.3% to 2927
  • S&P/ASX 200 up 1% to 5001
  • US 10-yr yield up 3bps to 1.78%
  • Dollar Index up 0.65% to 97.23
  • WTI Crude futures up 3.6% to $30.70
  • Brent Futures up 3.2% to $34.07
  • Gold spot down 1.8% to $1,204

 

In commodities, WTI and Brent futures have seen renewed strength today in tandem with the continuing rhetoric regarding an OPEC deal, with Russia stating they have set a March 1st deadline for completing consultations. While sources reported that the Iraq oil minister informed ministers that although Iraq will not join Doha’s MOU, they will not boost crude production level in next 4 months either.

Separately, the risk-on sentiment alongside the strength in the USD-index which has made a firm break above notable resistance situated at 97.17, has seen significant pressure in the precious metal complex with Gold seeing losses of over USD 20.

EuropeTop News:

  • Deutsche Telekom CEO Says Not Considering Sale of Dutch Unit: CEO Timotheus Hoettges speakss in interview on Bloomberg TV
  • Bank of Ireland Sees Dividend Next Year as 2015 Profit Soars 30%: underlying pretax, ex. items, EU1.2b in line with ests
  • AB Foods Raises FY Adj. EPS Outlook; 1H Primark Sales Miss Ests.: AB Foods now only sees “marginal decline” in FY adj. EPS, had seen “modest decline”
  • Telepizza Prepares to List Shares in Spain, Expansion Says: Could be valued at ~EU1.2b or 15 times Ebitda
  • Cortefiel Suspends IPO Plans on Political Uncertainty: Mundo: Newspaper cites unidentified people who took part in discussions
  • Unibail-Rodamco Sells Office Building for EU330m: Doesn’t disclose the name of the buyer
  • Corum CEO Tells Le Temps Swiss Watch Brand Has Become Profitable: CEO Davide Traxler cited in interview with Le Temps
  • Sanofi Says FDA Accepts NDA for Glargine, Lixisenatide Combo: Says decision anticipated in August

 

Stocks Premarket

Citing a slowdown in Asia for creating headwinds, HSBC swung to a $1.3B loss during its fiscal fourth-quarter from a year-earlier profit of $511M, as Europe’s largest bank caught China’s cold. Despite the negative results, the lender said it would maintain its dividend. HSBC further disclosed that it’s cooperating with an SEC probe for allegedly hiring individuals with ties to government officials in Asia. Other banks are also being investigated. HSBC-3.8% premarket.

Fannie Mae is at risk of needing a government bailout that could shake up confidence in the housing finance market, FT reports. Because the government does not let Fannie Mae (OTCQB:FNMA) retain profits, its capital buffer (which has dwindled from $30B before the financial crisis to $1.2B today) is on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership.

The academic study that helped propel shares of Weight Watchers (NYSE:WTW) to an 18% gain on Friday was funded by the company, observes the New York Post after scanning the fine print. Harvard Medical School professor David Ludwig notes the practice isn’t uncommon, but doesn’t quite qualify as good scientific practice. Investors in general have been quick to act on any Weight Watchers news. Last month, a single Oprah tweet sent shares skyrocketing.

Highlights from the Mobile World Congress: Samsung Electronics (OTC:SSNLF) and LG Electronics (OTC:LGEAF) unveiled their latest flagship devices, seeking to revive sales momentum and buck slowing industry growth. The new Galaxy S7 comes with an improved camera, memory storage, water resistance and a longer battery life, while the LG G5 showed off a similar range of new features. The biggest news, however, was the firms’ big jumps into virtual reality. Samsung is teaming up with Facebook (NASDAQ:FB) to push VR elements into phones and social networking, and the two companies unveiled 360 degree recorders, cameras and viewers.

The trade show in Barcelona also saw Sony (NYSE:SNE) introduce a host of interactive “smart” products including a wearable camera, a personal assistant, and an adaptive projector, seeking revenues from different types of devices to counter slowing smartphone growth. Separately, Orange (NYSE:ORAN) released a $40 smartphone (called Rise 31) to boost its presence in the Middle East and Africa, and struck a partnership with Google (GOOG, GOOGL) to bring local internet services to its customers.

Payment card operators are also taking part in Mobile World Congress. MasterCard (NYSE:MA) is bringing facial recognition services dubbed “selfie pay” to the U.K. to improve identity verification for mobile phone payments. British users will be able to scan fingerprints or snap selfies to validate their identities for completing online purchases. Meanwhile, Visa (NYSE:V) wants to turn your car into a mobile payments platform, showing off a concept app that will let drivers pay for fuel and parking without leaving their vehicles.

Though Tesla Motors has relied on strong buzz, referral programs, and some cult of personality to replace traditional advertising in the past, there’s some debate on if that approach will be enough for the mass-market Model 3. Investment firms have been all over the map when trying to project advertising costs for the Model 3 in their 2018-2020 earnings models and CEO Elon Musk hasn’t tipped his hand when asked about the issue on recent conference calls. Does Tesla (NASDAQ:TSLA) go light, or top a billion like GM, Ford (NYSE:F), and Toyota (NYSE:TM) do without blinking?

U.S. auto safety regulators are examining whether an additional 70M-90M Takata (OTCPK:TKTDY) airbag inflators should be recalled because they may endanger drivers, according to Reuters. That would nearly quadruple the 29M inflators that have been called back so far. A torrent of new recalls would translate into billions of dollars in additional costs for the company and also add years to the replacement process.

U.S. authorities have asked Volkswagen to produce electric vehicles in the U.S. as a way of making up for its rigging of emission tests, Germany’s Welt am Sonntag reports. The plan would see VW (OTCPK:VLKAY) manufacture electric cars at its plant in Tennessee, and help build a network of charging stations for electric vehicles. “Talks with the EPA are ongoing and we are not commenting on the contents and state of the negotiations,” a VW spokesman said. The EPA also declined to comment.

Lumber Liquidators’ laminate flooring has been found to have a 3x higher risk of causing cancer than previously stated, according to the U.S. Centers for Disease Control and Prevention, reversing their own findings from earlier this month. A report released Feb. 10 used incorrect ceiling heights, lowering the airborne concentration of formaldehyde that should have been examined, the agency said in a statement. The estimated risk of tumors is six cases to 30 cases per 100K people, above the two to nine cases in the earlier report. LL-19.5% premarket.

More energy exports are leaving the U.S.…Swiss commodities trader Trafigura is shipping one of the first crude oil cargos of benchmark WTI in the coming weeks to Israel, following the lifting of the decades old American crude oil export ban. A liquefied natural gas tanker also docked on Sunday at the Sabine Pass terminal in Louisiana, with only days to go before the U.S ships its first export cargo of seaborne gas from the lower 48 states. Cheniere Energy (NYSEMKT:LNG) expects the first load to leave the facility by early March.

AT&T is investing about $10B in its global business solutions division, as it seeks to boost the unit that offers services such as wireless connectivity, cloud storage and security to companies. Roughly half of the money will be spent on a range of enterprise-related projects, including a fiber network in Mexico and projects involving the so-called “Internet of Things.” According to the Progressive Policy Institute, AT&T (NYSE:T) is the biggest capital spender in the United States.

AT&T is also partnering with Intel (NASDAQ:INTC) to test and optimize how drones perform on LTE connections beyond line of sight, at higher altitudes, or when faced with external interference. The collaboration is designed to show how a network that has primarily been designed to connect devices (such as smartphones) on the ground can be reappropriated for unmanned aerial vehicles. T +0.9% premarket.

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