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From Wall Street at breakfast

Dollar collapses as Fed scales down rate hike forecasts

Reuters: The dollar tumbled on Thursday, lifting world shares to their highest level of the year, after the Federal Reserve scaled down its own expectations of the number of U.S. rate hikes likely over the next nine months.

The Fed, via its ‘dot plot’ system, which charts what rate moves policymakers expect, effectively chopped those forecasts in half, from four hikes to two for the year.

It was a signal that triggered a slump in the dollar and a surge in risk appetite that rolled from Wall Street to Asia and then into Europe, where London .FTSE, Frankfurt .GDAXI and Paris first surged then turned downwards.

The Stoxx Europe 600 Index lost 1.5 percent, wiping out an advance of as much as 0.4 percent as the euro rose against the dollar.

Central Banks from US to Norway indicated a willingness to keep monetary policy accommodative.

U.S. futures are indicating a lower open on Wall Street, despite a dovish statement from the Federal Reserve Wednesday afternoon that boosted stocks and sent the S&P 500 to its highest level of the year. The Fed held rates between 0.25%-0.50% and cut its projection for the number of rate hikes this year from four to two, pointing to “global economic and financial developments” that will keep inflation low for the remainder of 2016. The announcement sent the dollar plummeting, and the currency continued to drop sharply overnight to an almost three-week low against the yen.

Today’s Markets

In Asia, Japan -0.2% to 16936. Hong Kong +1.2% to 20504. China +1.2% to 2904. India flat at 24677.
In Europe, at midday, London -0.6%. Paris -1.9%. Frankfurt -2%.
Futures at 6:20, Dow -0.5%. S&P -0.5%. Nasdaq -0.6%. Crude +1.6% to $40.63. Gold +3.3% to $1270.90.
Ten-year Treasury Yield -8 bps to 1.85%

Main happenings:

  • The Swiss National Bank has kept its deposit rate unchanged at 0.75%, while lowering its inflation outlook for this year to -0.8%.
  • Norway’s central bank cut its key policy rate by 0.25 percentage points to an all-time low of 0.5%, and raised the prospect of a move into negative territory.
  • An interest rate decision from the Bank of England will be released at noon local time (8:00 a.m. ET) alongside the minutes from its latest gathering.

Japan’s exports fell for the fifth month in a row in February, suggesting the world’s third-largest economy could dip into its fourth annual recession in the past five years. Exports last month fell 4% Y/Y, but less than January’s 12.9% slump, due to the bounce in sales to China as factories resumed operations after the Lunar New Year. Japanese imports further decreased 14.2%, bringing the country’s trade balance to a ¥242.8B surplus.

Protests swept across Brazil late Wednesday after explosive phone recordings fueled accusations that President Dilma Rousseff had appointed her predecessor Lula da Silva as a minister to grant him immunity. With Lula back, many are asking: Who is really in charge of Brazil?

The European Union has linked advancing Turkey’s membership bid to a settlement of the decades-old Cyprus dispute, further complicating efforts to win Ankara’s help in resolving the continent’s migration crisis. Following a preliminary EU-Turkish migration deal last week, Cypriot President Nicos Anastasiades threatened to veto Turkey’s accession talks unless Ankara meets its obligation to open its ports and airports to Cypriot traffic, effectively recognizing his state.

Stocks

Chipotle could give away roughly 9M burritos as it fights to win back customers following several food safety mishaps that have dented its sales. Executives speaking at an investment forum on Wednesday said the company has recovered about one-third of sales lost to a string of food safety lapses last year, and more free offers may be forthcoming as part of its turnaround strategy. “So free burritos, it turns out, works,” Chipotle (NYSE:CMG) CFO Jack Hartung said at a Bank of America Merrill Lynch investor conference. “It brings people into the restaurant.”

Top five U.S. bank CEO pay packages in 2015: JPMorgan (NYSE:JPM) Chief Executive Jamie Dimon +35% to $27M; Bank of America (NYSE:BAC) CEO Brian Moynihan +23% to $16M; Wells Fargo (NYSE:WFC) boss John Stumpf unchanged at $19.3M; Citigroup (NYSE:C) CEO Michael Corbat +27% to $16.5M; U.S. Bancorp (NYSE:USB) head Richard Davis +20% to $21.7M.

Meanwhile, shareholders of JPMorgan (JPM) and Citigroup (C) will get to vote later this year on one of the most popular questions on the campaign trail: Should big banks break up into smaller pieces? While the question will be included in the companies’ proxy filings, analysts have said it is highly unlikely that shareholders will support the bid. A similar proposal at Bank of America (BAC) last year only gained about 4% of the votes.

Royal Dutch Shell and Saudi Aramco are ending their 50-50 refining joint venture, agreeing to split the assets of the Motiva refineries. Saudi Aramco will retain the Motiva name, the refinery at Port Arthur, Tex., and 26 distribution terminals, as well as an exclusive license to use Shell’s (RDS.A, RDS.B) brand for gasoline and diesel sales in much of the U.S. Shell will retain the refineries at Norco and Convent, La., nine distribution terminals and the Shell brand in Florida, Louisiana and the Northeast.

European earnings roundup:

  • Cement giant LafargeHolcim (OTCPK:HCMLY) posted a surprise loss of 2.86B Swiss francs ($2.9B) on the back of impairment charges, but maintained its dividend and said it’s on track to hit 2018 targets.
  • Lufthansa (OTCQX:DLAKY) reported a sharp rise in full-year earnings aided by lower fuel costs, while signaling the pace of improving financial results would slow in 2016. U.K. Construction group Kier (OTC:KIERY) hiked its interim dividend by 12%, after posting a big rise in underlying operating profit.

Rio Tinto’s head of copper and coal Jean-Sebastien Jacques has been anointed as the next chief executive of the company, and will fully take the reins from incumbent Sam Walsh (who has been CEO since 2013) this July. “To ensure a smooth transition, Jean-Sebastien, will join the board and become deputy chief executive with immediate effect,” the company said in a statement. RIO +2.5% premarket.

GlaxoSmithKline CEO Andrew Witty plans to step down in 2017 after almost a decade at the helm that brought both transformation and discontent. He has faced criticism for Glaxo’s lagging share performance, sluggish U.S. sales, and a bribery scandal in China that led to a $489M fine. However, Witty also oversaw the biggest reorganization since the merger that created Glaxo (NYSE:GSK) 15 years ago. Last year, he swapped the company’s cancer drugs division for Novartis’ (NYSE:NVS) vaccines business and cash. The companies also formed a joint venture to sell consumer health products.

Creditors of Valeant Pharmaceuticals, which warned about a possible default on Tuesday, are beginning to demand new terms that could further pressure the drugmaker’s business model, Reuters reports. They see an opportunity to renegotiate core elements of their loan agreements, potentially saddling the company with higher costs of debt and more restrictions on how it deploys capital. Valeant (NYSE:VRX) has until the end of the month to file audited financial statements, but if it fails to do so, it only has 30 days before lenders can demand accelerated repayments.

So what’s Bill Ackman doing after his disastrous bet on Valeant (VRX) tore a hole in his portfolio? The activist investor said Pershing Square Capital Management sold 20M shares in Mondelez (NASDAQ:MDLZ) after the market closed on Wednesday, which would yield $834M at current prices. “As a result of the sale, we now own a 5.6% stake in the company, are the third largest owner, and have substantial uninvested cash,” Ackman disclosed in a short email to shareholders. MDLZ -2.2% premarket.

Rofin-Sinar Technologies, a laser-products company contending with a harsh proxy fight, has struck a $942M deal for a sale to Coherent (NASDAQ:COHR). The $32.50/share deal provides a 42% premium to Rofin-Sinar’s (NASDAQ:RSTI) Wednesday closing price of $22.91. Coherent anticipates the deal to clear within six to nine months, and expects it to add to earnings per share in the first full year after closing. RSTI +38.5%; COHR+1.1% premarket.

In a move that will help Chief Executive Kevin Plank maintain control of his company going forward, Under Armour (NYSE:UA) plans to issue one share of non-voting Class C stock for each Class A and B share that currently exists. The shares will be distributed “on or about” April 7, with a record date of March 28. Class C shares will trade under the symbol UA.C; Class A shares will continue trading under UA.

Apple has begun using Google’s (GOOG, GOOGL) cloud infrastructure (IaaS) platform, and has “significantly reduced its reliance” on market leader Amazon Web Services (NASDAQ:AMZN), which it has used to help run iCloud and other products. The tech giant is spending between $400M-$600M on the services, CRN reports, adding that it’s unclear if the range was for an annual rate or a set amount of capacity. Last month, Morgan Stanley estimated that Apple (NASDAQ:AAPL), which has been investing heavily in its own data center infrastructure, spends about $1B/year on AWS.

While Amazon scrambles to figure out how to use drones to deliver packages over land, another giant in the shipping business is trying to do the same thing at sea. A.P. Moller Maersk (OTCPK:AMKBY), the world’s largest container-ship operator by capacity, is studying deploying drones aboard its giant vessels and at port operations, in a move that could save up to $9K per ship in annual operating costs. What would the drones do? Shuttle small deliveries like mail and spare parts, perform hull inspections, and many other “kinds of possibilities.”

More autonomous car technology talk…Baidu (NASDAQ:BIDU) will soon start testing self-driving vehicles in the U.S., part of the Chinese tech giant’s effort to introduce a commercially viable model by 2018. In separate news, automatic emergency brakes are set to become standard on most U.S. cars within six years. Automakers representing 99% of U.S. light-vehicle sales will pledge today to auto-safety regulators and the nonprofit Insurance Institute for Highway Safety that the technology will be on nearly all their cars and trucks by September 2022.

Wednesday’s Key Earnings
FedEx (NYSE:FDX) +5.4% AH helped by holiday season, e-commerce growth.
Silver Wheaton (NYSE:SLW) +0.3% AH after topping expectations.

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