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Wall Street at breakfast

 

Shanghai Plunges 6.4% Overnight Ahead Of G20 Meeting

It didn’t take long after China’s Lunar New Year holiday for the Shanghai Composite to return to its old ways. The index today dropped 6.4%, extending its fall this year to 22%, as surging money-market rates signaled tighter liquidity and the offshore yuan weakened for a fifth day, while the country’s vice finance minister warned of pressure on exports. The plunge comes as world leaders gather for a G20 meeting in Shanghai, where current market turmoil and a global economic slowdown are expected to be key topics of discussion.

Chinese stocks remained relatively quiet and resilient, levitating quietly day after day. That all changed overnight when the Shanghai Composite plunged by 6.4% with the drop accelerating into the close. This was the biggest drop in over a month and was big enough to almost wipe out the entire 10% rebound from the January lows in one session.

Today’s Markets

In Asia, Japan +1.4% to 16140. Hong Kong -1.6% to 18889. China -6.4% to 2741. India -0.5% to 22976.
In Europe, at midday, London +2.2%. Paris +2%. Frankfurt +1.1%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude -0.5% to $31.99. Gold -0.3% to $1235.40.
Ten-year Treasury Yield -2 bps to 1.72%

Economy

Meanwhile, the IMF is calling for urgent and bold action to combat the slowing world economy ahead of the gathering of G20 finance ministers and central bank chiefs. “The G20 must plan now for coordinated demand support using available fiscal space to boost public investment,” IMF staff said in the report. The calls for an organized stimulus program followed warnings that China’s slowdown, financial market turbulence and the collapse in commodity prices were major headwinds that could derail a global recovery.

The U.S. and China have agreed to a U.N. resolution that would punish North Korea with “significant new sanctions” for its recent rocket launch and nuclear test. Ambassador Samantha Power will submit a draft resolution to the Security Council today, following nearly six weeks of negotiations that strained relations between Washington and Beijing. Other tensions? China has warned American officials not to adopt punitive currency policies that could disrupt relations after Donald Trump’s win in the Nevada caucus.

“I regard it as unwise to continue a normalization strategy in an environment of declining market-based inflation expectations,” St. Louis Fed President James Bullard said Wednesday evening. The so-called break-even expected inflation rate in five years’ time has dropped as global markets sold off this year, and investors are now predicting a price measure of less than 1.5%, he added. Bullard, long a hawkish member of the Fed who has pushed for higher rates, reversed course in a separate speech last week when he raised a red flag about inflation.

President Obama is considering appointing a Republican to the Supreme Court, several sources related late Wednesday, but leaders in the Senate held firm to their threat to block anyone he nominates. The reports indicated that Nevada Governor Brian Sandoval, a former federal judge, was among the possible candidates. As governor, Sandoval has taken a traditional stance in support of gun rights, but his more moderate views on social issues, such as abortion rights, could make him an attractive choice for the Democratic president.

Eurozone consumer prices rose less than initially estimated last month, increasing the pressure on the European Central Bank to take steps to sustain the region’s recovery. According to the European Union’s statistics office, the inflation rate was 0.3%, less than the 0.4% reported on Jan. 29. ECB policy makers will review their stimulus package at a monetary-policy meeting on March 9-10, when they’ll also release revised economic projections.

Argentina and a group of hedge funds are nearing a deal that would pay investors about 70% of what they say they are owed, as the government moves closer to re-entering the global bond markets following its 2001 default. The deal would see Elliott Management and other big hedge funds – representing about two-thirds of holdout creditors – receive $5B in repayments. A big win for new Argentine President Mauricio Macri?

Moody’s Investors Service has become the third major rating agency to downgrade Brazil’s debt to junk, slashing its rating by two notches to Ba2 as the former emerging market star sinks deeper into its worst recession in decades. “Every day it’s something, and you don’t know what the next thing will be,” said Samar Maziad, Moody’s lead analyst for Brazil. “There’s very little visibility on what the future will be.”

The Zika outbreak will likely worsen before nations besieged by the mosquito-borne virus see relief, warned the head of the World Health Organization. “Don’t be surprised to see microcephaly reported in other parts of Brazil,” Margaret Cha announced at a news conference in Rio de Janeiro. Much still remains unknown about Zika, including its proposed link to microcephaly, a condition marked by unusually small heads that can result in developmental problems.

Stocks

Sharp has agreed to a takeover by Taiwan’s Foxconn. But a last minute report from sharp´s headquarters have delayed the signing as Foxconn executiveas are assesing the new piece of info.  (OTC:FXCOF), This would mark the largest acquisition of a Japanese tech firm by a foreign company and one that will bolster the latter’s position as Apple’s (NASDAQ:AAPL) biggest supplier. The ¥700B ($6.2B) offer was more than double a ¥300B investment (along with a ¥200B credit line) offered by state-backed Innovation Network Corp of Japan. Under Foxconn’s wing, Sharp (OTCPK:SHCAY) is expected to get help with fixing its finances and access to the company’s wide distribution channels.

BT Group has escaped the immediate threat of a split in its national broadband network but has been ordered by the U.K.’s communications watchdog to open its cable network Openreach to rivals. The stricter regulatory environment, unveiled by Ofom, will give competitors greater access to BT‘s network, provide comprehensive details of its infrastructure, and comes after months of feverish lobbying from all sides of the telecoms and media market. BT -1.5% premarket.

With most calendar-year results now in, FactSet estimates companies in the S&P 500 earned 0.4% more per share in 2015 than the year before, marking the weakest growth since 2009. But this is based on so-called pro forma figures. Under GAAP, S&P earnings per share fell by 12.7%, highlighting the sharpest decline since the financial crisis (reported earnings were also 25% lower than the pro forma figures – the widest difference since 2008 when companies took a record amount of charges). The implication: Even after a brutal start to 2016, stocks may still be more expensive than they seem.

More woes for Bill Ackman? The billionaire investor has managed to erase his entire 40% return of 2014, a performance that put him at the pinnacle of the hedge fund world. Ackman’s portfolio dropped 17.3% so far this year, adding to 2015’s 20.5% nosedive. Pershing Square Capital Management, which now oversees $12B, did not detail exactly what caused its most recent losses and a spokesman declined to comment.

European earnings roundup:AB InBev (NYSE:BUD) served up mixed results, hiking its dividend more than expected but warned of continued challenges in key emerging markets. Deutsche Telekom (OTCQX:DTEGY) raised its dividend (for the first time since 2007) on the back of better-than-expected Q4 results, thanks to strength in its U.S. business. Seadrill (NYSE:SDRL) soared after beating earnings estimates on cost cuts, while saying it would announce a refinancing plan to tackle its $10B debt in the first half of the year. Lloyds (NYSE:LYG) shares also jumped as it hiked its dividend, but more payment protection insurance charges dented its pre-tax profits.

The United States has exported its first liquefied natural gas cargo from the lower 48 states, after a tanker set sail from Cheniere Energy’s (NYSEMKT:LNG) Sabine Pass export terminal in Louisiana. The fuel headed to Brazil is expected to be received by Petrobras (NYSE:PBR), according to a report from Bloomberg. Shipping indicates the tanker was fully loaded.

A landmark ruling by a Vancouver judge has cleared the way for Canadian medical marijuana users to grow pot at home, but recreational marijuana use still remains illegal across the country (despite Prime Minister Justin Trudeau’s pledge to legalize the drug). The decision struck down a ban introduced by Canada’s previous Conservative government, and saw shares of local medical marijuana producers plunge on Wednesday: Canopy Growth (OTC:TWMJF)-5%; OrganiGram Holdings (OTCQB:OGRMF) -11.5% and Aphria (OTC:APHQF)-5%.

The U.S. government wants to create a new category of “micro” drones that are built with materials that won’t harm people in a crash, opening the door for more widespread uses in crowded places and sensitive locations. “The department continues to be bullish on new technology,” Transportation Secretary Anthony Foxx said in the release. The FAA is also finishing a set of regulations for other drones that weigh less than 55 pounds. The new micro category won’t have a weight limit, so long as the devices can’t hurt people. Related stocks: AMBA, AVAV, OTCQX:DRNE, GPRO, INVN, IXYS, TRMB

“As far as our country is concerned, back taxes concerning this company amount to €1.6B,” a French finance ministry official told Reuters with regards to Google (GOOG, GOOGL). The remarks come after Finance Minister Michel Sapin ruled out a tax settlement similar to the $185M deal Alphabet recently struck with British authorities, stating France is seeking “far greater” sums. Other Google news: The company is rolling out Google Fiber to certain San Francisco apartment buildings and condos, using existing cables beneath the city.

Microsoft has agreed to acquire Xamarin, a four-year-old San Francisco maker of software development tools, extending the software giant’s reach deeper into devices that don’t run its Windows operating system. Xamarin has raised $82M in three funding rounds from venture-capital firms including Charles River Ventures, Floodgate, Ignition Partners, Insight Venture Partners and Lead Edge Capital. Terms of Microsoft’s (NASDAQ:MSFT) transaction weren’t disclosed, though a person close to the deal pegged the price at between $400M-$500M.

China’s homegrown competitor to Uber Technologies (Private:UBER) is adding to its war chest. Didi Kuaidi (Private:DIDI) “has received at least $1B in commitments for a new fundraising round, valuing the ride-hailing service at more than $20B. Tencent (OTCPK:TCEHY) and Alibaba (NYSE:BABA) are among Didi’s backers, while Baidu (NASDAQ:BIDU) has invested in Uber. Didi also recently formed an alliance with non-Chinese Uber rivals Lyft (Private:LYFT), GrabTaxi (Private:GRAB) and Ola.

Wednesday’s Key Earnings
Annaly Capital (NYSE:NLY) flat as its discount to book value narrowed.
Chesapeake Energy (NYSE:CHK) +22.2% after beating estimates.
Energy Transfer Partners (NYSE:ETP) -9.5% AH following a big Q4 miss.
HP (NYSE:HPQ) -1.4% AH on weak PC and printing revenues.
Lowe’s (NYSE:LOW) +1% as comparable-store sales advanced.
Salesforce (NYSE:CRM) +8.8% AH boosted by solid guidance.
Target (NYSE:TGT) +4% as e-commerce growth overtook rivals.
TJX Companies (NYSE:TJX) +2% outpacing broad retail in Q4.
Transocean (NYSE:RIG) +0.4% AH after topping expectations.

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