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Wall Street at Breakfast

Following Fed, ECB Minutes Next

“There Is A Lot Of Fear In The Market” – Stocks, Futures Slide After Yen Soars

Two days after stocks slid in a coordinated risk-off session, and one day after a DOE estimate of US oil inventories sent US stocks surging while the failed Allergan-Pfizer deal unleashed torrential hopes of a biotech M&A spree leading to the single best day for the sector in 5 years, sentiment has again shifted, this time due to a violent surge in the Yen as the market keeps testing the resolve of the Japanese central bank to keep its currency weak, and so far finding it to be nonexistent.

As a result, the USDJPY plunged nearly 200 pips overnight, undoing all its gains since the expansion of Japan’s QQE on October 31 2014, and while equities did their best to ignore this move for as long as possible, ultimately they too succumbed.

as Bloomberg also reports, “the yen is being driven higher by risk aversion and by market participants testing the Bank of Japan’s tolerance toward a stronger currency,” said Thu Lan Nguyen, a foreign exchange strategist at Commerzbank AG in Frankfurt.

It’s not just the Yen. “There is a lot of fear in the market,” Herbert Perus, head of equities at Raiffeisen Capital Management in Vienna, told Bloomberg. “A lot of large investors do not believe in rising stock prices and were positioning themselves for a downturn.”

In other key overnight news, the Fed meeting minutes reaffirmed U.S. policy makers aren’t rushing to raise interest rates.

Still digesting details from the last Federal Reserve meeting, investors are looking ahead to the European Central Bank’s own set of minutes. The account, due at 8:30 a.m. ET, will shed some light on why the ECB chose to avert deflation through the monetary policy actions it implemented in March, while potentially revealing any measures that were discarded. Ahead of the big event, ECB officials Peter Praet and Benoit Coeure spoke on monetary policy in Frankfurt, outlining their readiness to ease further should fresh risks to the economic outlook arise.

Today’s Markets

In Asia, Japan +0.2% to 15750. Hong Kong +0.3% to 20266. China -1.4% to 3008. India -0.9% to 24685.
In Europe, at midday, London flat. Paris -0.1%. Frankfurt -0.1%.
Futures at 6:20, Dow -0.4%. S&P -0.5%. Nasdaq -0.5%. Crude -0.1% to $37.70. Gold +1.1% to $1236.80.
Ten-year Treasury Yield -2 bps to 1.73%

  • S&P 500 futures down 0.5% to 2050
  • Stoxx 600 down 0.3% to 329.77
  • MSCI Asia Pacific up 0.9% to 126
  • US 10-yr yield down 2bps to 1.74%
  • Dollar Index up 0.03% to 94.46
  • WTI Crude futures up 0.2% to $37.82
  • Brent Futures up 0.4% to $39.98
  • Gold spot up 1.3% to $1,239
  • Silver spot up 1.3% to $15.26


So what did the Fed’s minutes reveal? Policymakers debated whether an interest rate hike would be needed this month, though a consensus emerged that threats from a global economic slowdown warranted a cautious approach. “Raising the target range as soon as April would signal a sense of urgency they did not think appropriate,” read the FOMC statement. The dollar’s fall deepened overnight following the minutes, sending the yen on its longest rally since January and pushing the euro to a five-month high.

Fed, Fed, Fed, Fed… Janet Yellen and her three predecessors – Ben Bernanke, Alan Greenspan, and Paul Volcker – will appear together for a rare group interview this evening at the International House of New York. The topic? “How the chairs’ philosophies and personal beliefs impact decision making with international implications.” Kansas City Fed President Esther George could further give clues on rate path divisions when she speaks on the economy tonight in York, Nebraska.

More than 40% of the roughly 22M Americans who borrowed from the government’s main student-loan program aren’t making payments or are behind on more than $200B owed, according to a quarterly snapshot of the DOE’s $1.2T student-loan portfolio. The Obama administration maintains that the loan program, as a whole, will generate a profit over the long term, but the risk is rising that millions of students may never repay and revenue won’t meet projections.

The U.S. Treasury Department intends to issue a long-delayed rule forcing banks to seek the identities of people behind shell-company accounts, in the wake of the “Panama Papers” scandal which exposed global wealth hidden from tax authorities via offshore vehicles. A department spokesman said the law would “soon” be turned over to the White House for review and issuance, but did not confirm a timetable for the initiative.

Puerto Rico Governor Alejandro Garcia Padilla has signed an emergency bill allowing the government to halt debt payments until January 2017, throwing into doubt broader restructuring plans to stave off a financial collapse of the U.S. territory. Creditors say the moratorium violates prior agreements and the island’s constitution, but the action buys the Padilla administration time and increases pressure on Congress to help it find a way out of its crushing $72B in debt.

Brazil’s Congress has moved closer to impeaching President Dilma Rousseff, with the release of a report recommending that lawmakers vote in favor of her trial before the Senate. The proceedings against Rousseff, who could lose power as soon as May if she does not gain more support in Congress, have gained momentum in recent weeks. Millions of Brazilians last month took part in street demonstrations calling for her ouster.

Global markets have overstated the risks posed by China and underestimated the country’s ability to continue reforming its economy, according to HSBC CEO Stuart Gulliver. He argued that China does not suffer from the same limits common in other emerging markets, but did say that the nation’s banks would need a combination of measures to resolve the ongoing challenge of mounting bad loans. Earlier this week, Tidjane Thiam, chief executive of Credit Suisse (NYSE:CS), said he also did not understand the “obsession” with China’s slowing growth.


Alibaba says that it became “the largest retail economy in the world” at the end of its fiscal year on March 31, “as measured by gross merchandise volume on its China retail marketplaces.” The company has yet to declare its fourth quarter and full year financial results, but the announcement makes it clear that Alibaba (NYSE:BABA) surpassed the $482.1B figure reported by Wal-Mart (NYSE:WMT) for its fiscal year ended Jan. 31.

Samsung Electronics performed better than expected at the beginning of what it has said will be a tough year, pointing to strong sales of its new Galaxy S7 smartphones and operating income that likely increased 10.4% to 6.6T won ($5.7B). While it will disclose full earnings details later this month, Samsung’s (OTC:SSNLF) outlook raises hopes its struggling mobile business is on track to post its first annual profit gain in three years.

According to some pages from the “book” that Yahoo (NASDAQ:YHOO) bankers have given out to prospective buyers, the financial situation at the Internet company is becoming “increasingly dire,” writes Re/code’s Kara Swisher. In one slide showing expected results for 2016, Yahoo estimates that revenue will drop roughly 15% and earnings by greater than 20%. Meanwhile, EBITDA has moved from $1.4B in 2014, and just below $1B in 2015, to $750M in 2016. Initial bids for Yahoo are due Monday.

Barclays has agreed to sell its wealth and investment management business in Singapore and Hong Kong to Oversea-Chinese Banking Corp for $320M, in the U.K. bank’s latest move to pare back its presence in the region. The sale of the division, which had $18.3B in assets under management at the end of 2015, came after Barclays (NYSE:BCS) said in late January that it would axe its cash equities business and 1,000 jobs in Asia. BCS -1.4%premarket.

Inside Jamie Dimon’s annual letter to shareholders: “Last year – in fact, the last decade – was an extraordinary time for our company. We managed through the financial crisis and its turbulent aftermath…We are not proud of the fact that our stock performance has only equaled the S&P 500 since the JPMorgan Chase (NYSE:JPM) merger with Bank One on July 1, 2004 and essentially over the last five to 10 years…The Federal Reserve’s stress test is a tough measure of our survival capability – though our ability to survive is stronger than that test implies.”

ZTE Corp. plunged 10% in Hong Kong overnight, as shares in the telecom equipment maker resumed trading following a month-long suspension. The company has been rattled by U.S. investigations into its possible violation of export controls, and has called the outcomes of the probes “highly uncertain.” Earlier this week, ZTE (OTCPK:ZTCOY) named a new management team in an apparent effort to turn the page on the affair.

Under another unusual financial arrangement, Sprint (NYSE:S) has agreed to sell $3B of network gear to specially created entities, which will pay it $2.2B for the equipment and immediately lease the gear back to the carrier. “This transaction is an important first step in addressing upcoming debt maturities and allows us to stay focused on our corporate transformation,” CFO Tarek Robbiati declared. Sprint’s controlling shareholder, SoftBank (OTCPK:SFTBY), is among the companies providing funds for the transaction.

Dow Chemical has agreed to pay $400M to settle claims from some big customers that it colluded to set prices for polyurethane. The latest settlement stems from various complaints filed by clients who withdrew from a larger class-action lawsuit. The so-called opt-out cases were substantively identical to the class action but expanded the time frame of Dow’s (NYSE:DOW) alleged price fixing.

BP faces a rebellion from several top fund managers next week over CEO Bob Dudley’s £14.1M pay deal in a year when the company saw its profits wiped out by the slump in oil prices, Sky News reports. A number of large institutional investors have confirmed that they likely would vote against the compensation package, but they declined to be named publicly ahead of the April 14 annual meeting. BP -1.2% premarket.

Pacific Sunwear of California has filed for bankruptcy protection, the latest youth-oriented clothing chain to falter in an increasingly cut-throat retail environment. Golden Gate Capital, a private equity firm that loaned $60M to the retailer in 2011, is said to have worked out a deal that will help PacSun (NASDAQ:PSUN) avoid liquidation and get financing to continue operating during the restructuring process. The prearranged bankruptcy agreement involves swapping debt for equity after the company emerges from Chapter 11.

McDonald’s chairman Andrew McKenna has decided not to stand for re-election at the company’s annual gathering on May 25. The board will name him Chairman Emeritus following his retirement and elect a new chairman following the meeting. McKenna had been a director at McDonald’s (NYSE:MCD) since 1991 and chairman since 2004.

Valeant Pharmaceuticals climbed 3.7% in extended trading on Wednesday after securing a commitment from loan holders to amend terms of its debt. The move will buy the drugmaker time as it attempts to resuscitate itself, and rein in its $32B debt load. In regular trading, Valeant (NYSE:VRX) shares enjoyed their best two-day gain in 20 years, following bullish comments from Bill Ackman at Pershing Square’s quarterly conference call. The stock has a “remarkably low valuation for a business of this quality,” he said.

The German Federal Motor Transport Authority has completed its tests on diesel-engine vehicles and concluded that only Volkswagen (OTCPK:VLKAY) had used so-called defeat devices to cheat emissions tests, sources told Germany’s Handelsblatt. Other cars showed irregularities during on-road testing of emissions levels, but these were within legal limits. The full report by the KBA, part of the German transport ministry, will be released in late April.

A 17-year-old driver in Texas was killed on March 31 after a Takata (OTCPK:TKTDY) airbag ruptured, marking the tenth U.S. death linked to a defect that has led to the recall of tens of millions of vehicles worldwide. The fatality occurred in a called back 2002 Honda Civic (NYSE:HMC). The automaker said the owner had been mailed multiple recall notices about the five-year-old recall effort, but repairs were never made.

The White House is declining to offer public support for draft legislation that would empower judges to require technology companies to help law enforcement crack encrypted data, Reuters reports. The decision all but assures that the years-long political impasse over encryption will continue even in the wake of the high-profile effort by the DOJ to force Apple (NASDAQ:AAPL) to break into an iPhone used by one of the San Bernardino shooters.

As part of the largest technology takeover ever, EMC Corp. (NYSE:EMC) is seeking to sell its Documentum business ahead of its merger with Dell, while the latter is looking to offload its software assets Sonicwall and Quest. Sources told Bloomberg that the divestitures could fetch $6B and $4B, respectively, with private equity firms and strategic suitors expressing interest in the units. The moves are aimed at reducing the debt burden the companies will assume if their $67B merger is completed later this year.



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