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From Wall Street at breakfast

 

All Eyes On Yellen: Balancing Act

  • Futures Hold Steady Ahead of Fed Statement
  • London Stock Exchange and Deutsche Börse Agree on Merger
  • China Seeks to Avoid Mass Layoffs While Cutting Production

London Stock Exchange and Deutsche Boerse have agreed to an all-share merger, creating Europe’s largest securities-markets operator worth more than $30B. Under the deal, a new U.K. company will be formed – UK TopCo – of which 45.6% will be held by LSE (OTCPK:LDNXF) shareholders and Deutsche Boerse (OTCPK:DBOEY) investors owning the rest. LSE Chairman Donald Brydon will be appointed chairman of the combined group, while Deutsche boss Carsten Kengeter will become CEO.

Today’s Markets

In Asia, Japan -0.8% to 16974. Hong Kong -0.2% to 20258. China +0.2% to 2870. India +0.5% to 24682.
In Europe, at midday, London flat. Paris flat. Frankfurt +0.4%.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq +0.1%. Crude +2.2% to $37.12. Gold +0.2% to $1233.70.
Ten-year Treasury Yield flat at 1.96%

Economy

Global shares are holding steady as markets await the outcome of the U.S. Federal Reserve’s policy meeting. While no rate move is expected at the Fed’s gathering, it does include updates of members’ economic projections and a news conference with Chair Janet Yellen, events that have caused violent market reactions in the past. Analysts generally assume Fed projections for interest rates – widely known as the “dots” – will indicate only three hikes this year instead of four. Yet the market is pricing in just one move of 25 basis points for 2016.

The campaign trail to the White House got significantly shorter following yesterday’s “Mega Tuesday” primaries, with big wins for both front-runners Hillary Clinton and Donald Trump. The former Secretary of State swept Bernie Sanders across all five states, resulting in a virtually insurmountable delegate lead over her rival. Republican roundup: Trump took home four victories, but Kasich won Ohio, Cruz vowed to push forward, while Rubio dropped out of the race.

President Obama is likely to announce either Judge Sri Srinivasan or Judge Merrick Garland as his pick for U.S. Supreme Court nominee to replace long-serving conservative Justice Antonin Scalia, who died on Feb. 13. Republicans, who control the U.S. Senate, have vowed not to hold confirmation hearings or an up-or-down vote on any nominee picked by the president, as without Scalia, the bench is evenly split between four liberals and four conservatives.

China’s Premier Li Keqiang defended economic policies today at the end of the country’s annual legislative sessions, stating there was more opportunity than risk and it would be “impossible” for Beijing to fall short of its growth targets. “We are confident that as long as we continue to reform and open up, China’s economy will not suffer a hard landing,” he declared. Chinese shares have gained roughly 4% since the beginning of the National People’s Congress, and at times, analysts have said that state-backed funds may have been supporting them by buying blue-chip stocks.

Lula da Silva, the former Brazilian leader facing criminal charges in a sweeping corruption probe, has agreed in principle to join President Dilma Rousseff’s cabinet, according to Bloomberg. However, the strategy runs the risk of backfiring, as it ties her fate to that of her mentor’s, but would shield Lula from prosecution by certain courts. The news led the Bovespa index to close down 3.6% on Tuesday, following Lula’s detention by police earlier this month that ignited an 8.5% rally on the hope that Rousseff’s days in power were numbered.

Oil producers including Gulf OPEC members are backing an April 17 meeting in Qatar to discuss an output freeze deal even without the attendance of Iran. “It’s a setback but it will not necessarily change the positive atmosphere that has already started,” OPEC sources told Reuters. A preliminary deal to freeze production at January levels, reached last month by Russia, Saudi Arabia, Qatar and Venezuela, has already helped to support prices. Crude futures +2.2% to $37.12/bbl.

Stocks

Shares of the embattled Valeant Pharmaceuticals dropped more than 50% on Tuesday after the company issued weak earnings guidance and warned of a possible default on some of its debt. Just two weeks earlier, Valeant (NYSE:VRX) abruptly canceled its earnings release and its CEO J. Michael Pearson returned from a two-month medical leave. Some pretty bad medicine! Pershing Square’s Bill Ackman lost one billion dollars as a result of the drugmaker’s plunge.

Chipotle is considering stepping back from some of the food-safety changes it touted just a month ago in the wake of a series of disease outbreaks, WSJ reports. The company is now having its beef cooked before it arrives at some restaurants and is debating the elimination of pathogen testing on some ingredients. On Tuesday, Chipotle (NYSE:CMG) announced it would book its first quarterly loss as a public company and said existing restaurant sales dropped 26.1% in February. CMG -3.4% premarket.

Amazon is under investigation in Italy for alleged tax evasion, the company’s chief for Italy and Spain Francois Nyuts told Bloomberg. Google (GOOG, GOOGL) and Apple (NASDAQ:AAPL) have also faced tax allegations in the country. “Amazon pays all applicable taxes in every jurisdiction where we operate, including Italy. We are cooperating fully with the Italian authorities,” Amazon (NASDAQ:AMZN) spokesman Conor Sweeney said in an email.

Penalized by its emissions scandal, Volkswagen (OTCPK:VLKAY) continues to miss out on the booming European car market. Sales across the continent accelerated by 14.3% in February, although VW brand deliveries nudged up just 4.4%, according to the European carmakers’ association. VW group sales, boosted by Audi and Skoda, grew by 8%, but market share eroded to 23.9%. That compares with double-digit expansion by mass-market and premium competitors alike, with Fiat Chrysler (NYSE:FCAU) showing the strongest growth at 23%.

Boeing is consolidating its 747 and 767 commercial jet programs as part of a broader attempt to cut overhead costs. The new lineup “will give airplane programs a more direct link to the leadership team and strengthen ties between the manufacturing and operations parts of the business,” said Ray Conner, head of Boeing’s (NYSE:BA) commercial unit. Elizabeth Lund, general manager of the 777 program, will oversee the combined operation for both aircraft.

Speaking at Lockheed Martin’s annual media day, CEO Marillyn Hewson discussed several new technological breakthroughs, including progress on hypersonic aircraft and laser weapons that could be used on the battlefield. Lockheed (NYSE:LMT) hopes to produce a jet that could reach Mach 6, while carrying conventional or nuclear warheads (the project would continue throughout the 2020s, with aircraft potentially entering service in the 2030s). Hewson also showed a slide of an experiment involving a 30 KW laser weapon that can bore a hole through a two inch piece of steel in seconds, disabling an incoming rocket or the engine of a pickup truck.

FCC Chairman Tom Wheeler is set to circulate a draft order to approve Charter Communications’ (NASDAQ:CHTR) $55B agreement to acquire Time Warner Cable (NYSE:TWC) as soon as this week, sources told WSJ. Unsurprisingly, the approval is set to come with key conditions, notably supporting Wheeler’s hot-button issue of supporting web video. It might bar the combined company from entering contracts with content producers that restrict them from offering programming online.

The U.S. founding fathers “would be appalled” by a Department of Justice request to unlock an encrypted iPhone, Apple (AAPL) said in its final brief before a court showdown next week. The tech giant is fighting a court order that requires it to write new software disabling passcode protection and allowing access to the phone used by one of the San Bernardino shooters. In response, the Justice Department said it looked forward to replying to Apple’s arguments in court.

China’s ZTE Corp. is likely to appeal tough U.S. export restrictions for alleged Iran sanctions violations, after the telecom equipment maker’s costly lobbying effort failed to allay concerns about its business. The Commerce Department last week banned U.S. manufacturers from selling components to the company, a move that could disrupt its global supply chain and create substantial parts shortages. Trading in ZTE (OTCPK:ZTCOY) shares has been halted since March 7 in Hong Kong and Shenzhen.

Giving competitors somewhat of a head start, Sony (NYSE:SNE) is delaying the release of its PlayStation VR headset (once known as the Morpheus) by several months. The device, which will cost $399 in the U.S., will go on sale globally in October, although it was initially slated to become available by June. Sony said it pushed back the launch to ensure it ships enough units and has a wide variety of software available.

Harrison Ford and director Steven Spielberg are teaming up to make a fifth Indiana Jones action-adventure movie, due for release in July 2019. It comes despite mixed reviews for the fourth entry in the series, Indiana Jones and the Kingdom of the Crystal Skull, which nonetheless grossed $317M domestically and $787M worldwide. It’s also the first film to be made by Disney (NYSE:DIS), which bought the distribution rights from Paramount (VIA,VIAB) in 2013.

Caesars Entertainment and its private equity backers could be on the hook for up to $5.1B in potential damages over a series of corporate deals that that a court-ordered examiner said led to the $18B bankruptcy protection filing by the casino company’s operating unit. Richard Davis and a team of lawyers have spent a year probing whether Caesars, under the control of Apollo Global Management (NYSE:APO) and TPG Capital, stripped away prime properties and left the company unable to pay a mountain of debt. CZR -2.8% premarket.

China’s Anbang Insurance Group, which is looking to acquire hotel operator Starwood (NYSE:HOT), has won U.S. national security approval to buy Fidelity & Guaranty Life (NYSE:FGL). Anbang said in November that it would purchase the annuities and life insurer for about $1.57B as Chinese insurers seek to expand into the U.S. The deal would make Anbang one of the largest insurers by market share in American fixed-index annuity products.

The New York Stock Exchange has completed an overhaul of its regulatory functions, naming Anthony Albanese, the former acting New York state financial industry regulator, as its chief regulatory officer. Rapidly evolving electronic trading, spurred by new regulations a decade ago, has created a dizzying array of markets and alternative trading sites, and major exchanges themselves have combined to form huge market conglomerates. NYSE owner Intercontinental Exchange (NYSE:ICE) is also weighing a competing bid to buy the London Stock Exchange.

Tuesday’s Key Earnings
Oracle (NYSE:ORCL) +5.1% AH on strong cloud growth, new buyback.
Valeant (VRX) -51.4% warning on guidance and a possible default.

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