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Wall Street at Breakfast

Stocks Rebound After Latest BOJ Rumor Sends Yen Plunging

  • Earnings Season Kicks Into High Gear

After bank earnings last week and tech earnings this week, Q1 results from major industrial players are about to take center stage. General Electric (NYSE:GE), Caterpillar (NYSE:CAT) and Honeywell (NYSE:HON) will all release results this morning, and traders are on edge to see what the sector has in store. Will the rest of earnings season be able to move the U.S. market out of the sideways drift it has traveled for most of 2016?

Today’s Markets

In Asia, Japan +1.2% to 17572. Hong Kong -0.6% to 21484. China +0.2% to 2959. India -0.2% to 25838.
In Europe, at midday, London -0.8%. Paris -0.2%. Frankfurt -0.3%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq -0.1%. Crude +0.2% to $43.28. Gold -0.2% to $1247.80.
Ten-year Treasury Yield flat at 1.87%

Thursday’s Key Earnings

Alphabet (NASDAQ:GOOG) -5% after a big Q1 miss, ad price declines.
AMD (NASDAQ:AMD) +21.4% AH on a Chinese licensing deal/JV.
Blackstone (NYSE:BX) -4.1% following a tough quarter.
General Motors (NYSE:GM) +1.4% doubling its profits in Q1.
Microsoft (NASDAQ:MSFT) -4.7% AH weighed down by a weak PC market.
Schlumberger (NYSE:SLB) -4.5% AH warning of a worsening industry.
Southwest Airlines (NYSE:LUV) +1.5% on double-digit profit growth.
Starbucks (NASDAQ:SBUX) -2.7% AH on falling comparable store sales.
Under Armour (NYSE:UA) +6.8% expecting $5B in revenue this year.
Verizon (NYSE:VZ) -3.3% as seasonal weakness weighed on results.
Visa (NYSE:V) -3.8% AH after lowering its revenue forecast.

Economy

Eurozone business activity slowed in April, despite further price discounts, providing disappointing news for the ECB a day after it left monetary policy unchanged. Markit’s Composite Flash PMI dipped to 53.0 from last month’s 53.1, matching a 13-month low in February. Commenting on the survey, Markit’s Chief Economist Chris Williamson said that the euro area economy remains “stuck in a rut with the PMI once again signaling GDP growth of just 0.3% at the start of the second quarter.”

Although the ECB decided to hold rates yesterday, tensions between the central bank and Germany are starting to escalate. “Anytime the credibility of a central bank is perceived as being put into question, the result is a delay in the achievement of its objectives, and therefore the need of more policy expansion,” Mario Draghi declared. Angela Merkel justified the criticism, however, stating legitimate concerns over its rate policy should not be labeled interference. “It is indisputable that monetary policy cannot solve all matters. That’s why we as politicians have… to do our homework.”

It’s not just the doves crying. Almost four decades since the release of his first album, Prince has died at his home in Minnesota. The global music icon sold over 100M records during his career, and tributes continue to pour in from fans around the world that still want to party like it’s 1999.

President Obama has arrived in the U.K. to make an impassioned appeal for Britain to remain in the EU, stating the outcome of the decision is a matter of deep interest to the United States. “The European Union doesn’t moderate British influence – it magnifies it,” Obama declared in the Daily Telegraphnewspaper. His visit is a welcome one for Prime Minister David Cameron, who is leading the “In” campaign, but it has drawn scorn from those arguing that Britain should leave the bloc.

Eurozone finance ministers are in Amsterdam to discuss the Panama Papers, EU budget and Greek debt crisis, with the latter topic making significant headlines. “Don’t expect any deals today,” Eurogroup chairman Jeroen Dijsselbloem told reporters, noting however, that he was “hearing good news from Athens” regarding a reform package. The struggling country needs more bailout aid so it can pay back debt that matures in July.

The PBOC this week pumped the largest amount in almost three months into the financial system via open market operations, seeking to prevent tax payments and maturing medium-term loans from causing a cash squeeze. The central bank auctioned 240B yuan ($37B) of seven-day reverse repurchase agreements today, taking this week’s net additions to 680B yuan. That’s just shy of a record 690B yuan it injected in January, when demand for cash spiked before the Chinese Lunar New Year holidays.

Leaders from 130 nations are gathering in New York for the formal signing of the climate change accord reached in Paris four months ago, which aims to limit the overall world temperature rise to below 2 degrees Celsius. With each country’s signing of the pact, they must also submit an action proposal plan for the deal to be effective. The target date is 2020, but if enough countries ratify, officials say the agreement could enter into force much sooner.

Stocks

Volkswagen has struck an agreement with the Justice Department to either repair or repurchase approximately 500K cars in the U.S., as part of the reparations for its emissions-cheating scandal. According to Reuters, the automaker is also hiking its provisions to pay for its emissions scandal from €6.7B to between €16-17B ($18.1-19.2B). Lawyers in the case are still negotiating the fine amounts, as well as the compensation owners will receive, and Judge Charles Breyer has set June 21 deadline for VW (OTCPK:VLKAY) to settle those questions.

The fuel economy scandal at Mitsubishi Motors (OTC:MMTOY) is broadening following reports that the company submitted misleading data on at least one more model than previously disclosed. Are there more on the way? Japan’s sixth-largest automaker admitted this week it had overstated the fuel efficiency of 625K cars, wiping off around 40% of its market value, or $3.2B over three days, and prompting a raid by Japanese authorities on one of its facilities.

More emissions trouble… Daimler (OTCPK:DDAIF) shares are down 6% in Frankfurt after Q1 results were overshadowed by news that the German automaker was reviewing its emissions certification process. CFO Bodo Uebber said the company was cooperating with a DOJ request, but declined to comment further. Daimler’s net profit fell 32% to €1.4B in the three months to end-March as currency headwinds overpowered strong Mercedes sales in China.

SunEdison is vowing to to press ahead with plans to build solar projects across India, despite filing for Chapter 11 on Thursday after a $3.1B acquisition binge left it swimming in debt. The bankruptcy excluded India – the clean-power giant’s largest market outside the U.S. “Nothing really has changed other than that we will look for equity partners,” said Pashupathy Gopalan, president of SunEdison (NYSE:SUNE) Asia Pacific. While two of its best known companies, TerraForm Power (NASDAQ:TERP) and TerraForm Global (NASDAQ:GLBL), are not part of the bankruptcy, SunEdison acknowledged responsibility for some of their debt in court papers.

Valeant Pharmaceuticals is finalizing a contract to name Perrigo (NYSE:PRGO) Chief Executive Joseph Papa as its next CEO, hoping a fresh face and an experienced pharmaceutical industry boss will calm nervous investors. If it goes through, the appointment of Papa would mark a new chapter for the drug company, which has lost some $80B in market value since last summer on a storm of political scrutiny and the disclosure of errors in its financial reporting. VRX +6.8% premarket.

Looking to return to profitability, Sears Holdings (NASDAQ:SHLD) is closing 68 Kmart stores and 10 Sears stores in late July. The company says that, together with $1.2B in debt financing raised earlier this month – to provide capital to execute its transformation and meet its financial obligations – it believes it has taken important steps toward its 2016 objectives. Liquidation sales are expected to start in the coming days. SHLD +6.3%premarket.

Aeropostale is preparing to file for bankruptcy as soon as this month, Bloomberg reported on Thursday, triggering a 27.7% fall in share prices, before the NYSE halted trade on the news. The struggling teen apparel retailer said in March it was exploring strategic alternatives, including a sale, citing a dispute with MGF Sourcing U.S. MGF had thrown a $150M lifeline to Aeropostale (NYSE:ARO) in 2014 and previously owned an 8% stake in the company.

Just six months after the services entered the country, Apple (NASDAQ:AAPL) is suspending its iBooks Store and iTunes Movies as it seeks a way to comply with Beijing’s stringent content regulations, WSJ reports. China issued broad new rules in February that banned companies with any foreign ownership from engaging in online publishing, though foreign-invested businesses are allowed to cooperate with domestic firms on individual projects with permission from authorities.

How much did the FBI pay to hack the San Bernardino shooter’s iPhone (AAPL)? Speaking at the Aspen Security Forum in London, Bureau Director James Comey didn’t cite a precise figure for the solution, but said it was more than his wages for the seven-plus years remaining in his term at the FBI. His annual salary is about $180K a year, so that comes to $1.3M or more. “[We] paid a lot” for the hacking tool, Comey said. “But it was worth it.”

Uber Technologies has warded off a serious legal threat to its on-demand business model with a settlement that may end the debate over whether its drivers should be counted as independent contractors or employees. Under the terms of the deal, Uber (Private:UBER) agreed to pay up to $100M to 385K drivers in California and Massachusetts, and revised its practice of deactivating drivers from its popular app without much warning or recourse.

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