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From Wall Street at Breakfast

Equities Hold Gains Ahead Of Fed, Data Heavy Week

Global shares are trading higher across the board, buoyed by last week’s gains on Wall Street that saw the Dow and S&P 500 close above their 200-day moving averages for the first time this year. Investors are also shaking off initial skepticism over the ECB’s latest stimulus package and are increasing bets that oil prices could be bottoming out. Cautious sentiment could prevail following today’s session though, with policy decisions by the Bank of Japan on Tuesday, the U.S. Federal Reserve on Wednesday and the Bank of England on Thursday.

Today’s Markets

In Asia, Japan +1.7% to 17233. Hong Kong +1.2% to 20435. China +1.8%to 2860. India +0.4% to 24804.
In Europe, at midday, London +0.6%. Paris +0.5%. Frankfurt +1.6%.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq flat. Crude -2% to $37.72. Gold flat at $1257.70.
Ten-year Treasury Yield flat at 1.97%

Economy

Traders are also gearing up for a week packed with economic data, as February retail sales and inflation reports get set to dominate the calendar. What else is on tap? Housing Starts, Industrial Production, Job Openings, Philly Fed, Consumer Sentiment Index, and the Commerce Department’s current account for the fourth quarter. The reports could shed more light on the health of the U.S. economy and the future path of monetary policy.

Morgan Stanley, one of the Wall Street banks that deals directly with the Federal Reserve, has cut its bond yield forecasts for 2016, saying the U.S. central bank will wait until December before raising interest rates. “The global backdrop for rates markets looks so supportive that 2016 may become known as the ‘Year of the Bull,'” according to the company report. Treasury 10-year yields will fall to 1.45% by the end of September, analysts wrote, approaching the record low of 1.38% set in 2012.

Morgan Stanley: Recession risks have risen

Even with a turnaround in global equities and signs of a more robust U.S. economy, investors are still piling into gold. Money managers are holding the biggest net-wager on a rally in more than a year, with net-long holdings climbing 21% to their highest level since February 2015, while holdings in bullion-backed funds have advanced for 10 consecutive weeks, their longest streak since 2012. All this comes as Goldman Sachs, the bank that foresaw the yellow metal’s collapse in 2013, continues to stick by its prediction that prices will start to retreat.

China’s central bank won’t resort to excessive stimulus to bolster growth but will keep a flexible stance in the event of an economic shock – domestic or global, Governor Zhou Xiaochuan declared Saturday at the National People’s Congress. “The current monetary policy is prudent with a slight loosening bias,” Zhou told reporters. Under the banner of prudent policy, the PBOC cut interest rates six times since November 2014 and reduced the amount of cash that commercial lenders must hold as reserves.

The Bank of Japan’s policy board is set to discuss this week whether to exempt $90B in short-term funds from its newly imposed negative interest rate, after the securities industry warned that investment money would be driven into bank deposits. The debate highlights the difficulties facing the BOJ after its Jan. 29 decision to push a key policy rate below zero for the first time by imposing a 0.1% charge on some excess reserves parked with the central bank.

German Chancellor Angela Merkel suffered one of her largest political setbacks over the weekend after her Christian Democratic party saw sharp losses in regional elections, as many voters gave a thumbs-down to her open-door refugee policies. The anti-immigrant Alternative for Germany grabbed 24.2% of the vote in the eastern state of Saxony-Anhalt – its best result in any state since its founding three years ago. While the result may box Merkel in a bit on migrants and Greece, analysts say it won’t put her chancellorship at risk, and she doesn’t face any real challenge to lead her party in next year’s federal election.

President Obama will visit the U.K. sometime in April to try to convince the British public to vote on remaining in the European Union when a referendum is held in June, according to a report in The Independent on Sundaynewspaper. Obama’s visit comes at a time of fraught campaigning by both sides of the political establishment to persuade Brits to vote either to “stay” in the EU, or to “leave.”

More than one million people marched through cities across Brazil on Sunday to protest political corruption, a weak economy, and to call for the impeachment of President Dilma Rousseff, in a showing that could accelerate efforts to remove her from office. The demonstration in Sao Paulo was the largest ever recorded by polling firm Datafolha, surpassing even the 1984 rallies to demand direct presidential elections near the end of the country’s 20-year military dictatorship.

A car bomb tore through a crowded transport hub in Ankara yesterday, killing at least 37 people and wounding 125 others, in the second such attack in the area in less than a month. NATO member Turkey is currently facing multiple security threats. As part of a U.S.-led coalition, it is fighting Islamic State in neighboring Syria and Iraq. It is also battling PKK militants in its southeast, where a ceasefire collapsed last July, triggering the worst violence since the 1990s.

Next weekend’s oil talks may be in jeopardy after Iranian Oil Minister Bijan Zanganeh said his country won’t join a group production freeze until it doubles its post-sanctions output. “They should leave us alone as long as Iran’s crude oil has not reached 4M. We will accompany them afterwards.” Other remarks: Zanganeh announced that U.S. companies are welcome to invest in the country’s oil and gas industry, and said that Iran saw $70 per barrel as a suitable crude price, but would be satisfied with less. Oil futures -2% to $37.72/bbl.

Stocks

Markets have been waiting for U.S. oil companies to cut production amid lower crude prices, but many of the companies have been paying their top executives to keep the oil flowing, according to a WSJ analysis. “You want to know why most of the industry outspent cash flow last year trying to grow production? That’s the way they’re paid,” EOG Resources (NYSE:EOG) CEO William Thomas said. Lately, though, some shareholders are asking companies to reduce connections between pay and production, saying such incentives don’t make sense since abundant supplies have caused commodity prices to crash.

Energy Transfer Equity has held talks to sell gas station and convenience store operator Sunoco (NYSE:SUN), in a deal that could fetch more than $2B. A 36.4% stake of the limited partnership in Sunoco owned by Energy Transfer Partners (NYSE:ETP) would also have been divested. While the discussions were preliminary, they show ETE‘s efforts to improve its balance sheet after the plunge in oil made its pending acquisition of Williams Cos. (NYSE:WMB) more financially burdensome than it had expected.

AlphaGo, Google’s Go-playing computer, took a 3-0 lead on Saturday against one of the world’s top players, clinching the closely watched best-of-five game series. “I am very sorry for the powerless display,” Lee Sedol told reporters in Seoul. “I have never felt before such severe pressure as I do now, and I suppose my abilities were a bit lacking to overcome that.” Lee struck back to win game four against AlphaGo (GOOG, GOOGL) on Sunday. The fifth match will take place tomorrow.

The annual Game Developers Conference kicks off today in San Francisco, where more than 26K people from around the globe will congregate for a five-day gathering focused on augmented- and virtual-reality. According to Digi-Capital, investors in 2016 have already have pumped $1.1B into the technologies, more than the total for any prior year. Researchers at Gartner estimate nearly 40M headsets will be sold world-wide by 2020. The developer conference comes weeks before consumers get their hands on the first high-end systems: the $599 Oculus Rift from Facebook (NASDAQ:FB) and the $799 Vive from HTC Corp. (OTC:HTCXF).

At least three major U.S. companies are seeking to complete deals in Cuba as President Obama prepares an historic trip to Havana on March 20-22. Obama is likely to unveil further measures to chip away at decades-old restrictions on trade and travel, but the longstanding U.S. economic embargo still strictly limits efforts by American companies to do business with the communist-ruled state. AT&T (NYSE:T) is looking to complete a mobile communications agreement with local telecoms monopoly Etecsa, while Starwood (NYSE:HOT) and Marriott (NASDAQ:MAR) are seeking authorization to operate hotels on the island.

The two hedge funds that launched a boardroom fight with United Continental (NYSE:UAL) last week oppose the airline’s plans to give CEO Oscar Munoz the additional role of chairman and have concerns about his compensation. They are also expected to lay out more specific claims about the company to address what they believe are the causes of the No. 3 U.S. airline’s low customer satisfaction scores and its sagging stock price (-14% in the past 12 months). Munoz returns to the company today following a heart transplant in early January that kept him mostly on the sidelines.

Nearly one year after a mentally unbalanced co-pilot intentionally brought down a Germanwings jetliner, regulators and pilot unions are continuing to spar over potential measures to prevent another such tragedy, although until now practically nothing has changed.

Plaintiffs suing General Motors over a faulty ignition switch will get two chances in a Manhattan court this week to argue that the U.S. automaker should be held accountable for injuries, deaths and lost vehicle value.

AstraZeneca is looking at ways to link pay for Chief Executive Pascal Soriot and other top managers more directly to the drugmaker’s target of achieving revenue of $45B by 2023. Soriot successfully fought off a $118B takeover attempt by Pfizer (NYSE:PFE) in 2014, in part by promising a more than 70% jump in AstraZeneca’s (NYSE:AZN) sales within a decade. But many analysts remain uncertain about that target and the U.K. firm’s shares are languishing well below Pfizer’s offer price.

Meanwhile, shares in the Indian unit of U.S.-based drugmaker Pfizer (PFE)fell over 7% today after authorities imposed a ban on its popular cough syrup. Corex is a combination of chlopheniramine maleate and codeine syrup – one of 344 drug combinations India barred over the weekend due to the lack of “therapeutic justification.” The decision is likely to hit Pfizer’s revenue and profit. The brand brought in sales of about 1.76B rupees ($26.3M) in the nine months ended December 2015.

Chipotle executives now have an even more direct personal stake in the burrito maker’s recovery: their pay. According to a new securities filing, the company will grant future stock awards, if its share price rises back to $700 for 30 consecutive days, which is nearly a 38% jump from its current stock price of $507. Chipotle (NYSE:CMG) also shaved the 2015 compensation for both its co-CEOs. Total pay for Monty Moran and Steve Ells last year fell by more than 50% each to $13.3M and $13.6M, respectively, and they didn’t receive any bonuses.

Private equity firm Apollo Global Management (NYSE:APO) is nearing a deal to acquire The Fresh Market (NASDAQ:TFM) for $28.50 per share in cash, or more than $1.3B, in a move that could derail bids from Kroger (NYSE:KR),KKR, and TPG Capital. Sources told Reuters that an agreement could be announced as early as today, but cautioned that a deal had not yet been finalized and was still possible to be amended or fall apart at the last minute.

China’s Anbang Insurance Group has agreed to acquire Strategic Hotels & Resorts for around $6.5B, as the owner of New York’s iconic Waldorf Astoria further expands its U.S. hotel portfolio, Reuters reports. The deal comes just three months after Strategic Hotels’ current owner, private equity firm Blackstone Group (NYSE:BX), took the U.S. luxury-resort company private for around $6B. Strategic Hotels’ properties include the Four Seasons Washington, D.C., the Westin St. Francis in San Francisco and the beach-front Ritz-Carlton Laguna Niguel in Orange County, California.

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