BOJ:Markets React Downards By Not Expanding Stimulus
- Yen surges at the BoJ policy holding
Weak consumer spending, trade seen hurting U.S. first quarter growth
The Nikkei has slumped and the yen has jumped after the Bank of Japan surprisingly held off from increasing its already massive monetary stimulus as it looks to take more time to understand the effect of its negative interest rates. The BOJ also put back to 2017 its timeframe for achieving its target of 2% inflation, the fourth delay in about a year. The BOJ’s lack of action came despite the strengthening of the yen this year and inflation not picking up – data today showed that March CPI fell 0.1% on year vs +0.3% in February.
Banishing deflation, which has dogged Japan’s economy for the best part of two decades, is a key plank of the Abenomics growth programme of Shinzo Abe, the prime minister. But the central bank’s pursuit of a weak yen has been stymied in recent months, prompting expectations of more monetary easing at Thursday’s meeting.
Instead, the BoJ governor’s decision to stand pat shows he is betting that Japanese business confidence will hold up, stronger yen notwithstanding, and a recovering US economy will come to his rescue.
In Asia, Japan -3.6% to 16666. Hong Kong -0.1% to 21347. China -0.1% to 9595. India -1.4% to 25699.
In Europe, at midday, London -0.9%. Paris -1.3%. Frankfurt -1.2%.
Futures at 6:20, Dow -0.8%, S&P -0.8%, Nasdaq -0.4%. Crude +0.2% to $45.41. Gold +0.7% to $1258.85.
Ten-year Treasury Yield -3 bps to 1.83%
Wednesday’s Key Earnings
Ocwen Financial -19.6% (NYSE:OCN) after suffering big losses.
First Solar (NASDAQ:FSLR) -3.1% following mixed results, CEO appointment.
Infinera (NASDAQ:INFN) -12.65% after soft Q2 guidance, narrow Q1 sales miss.
PayPal (NASDAQ:PYPL) +2.1% as revenues +19%, beats expectations.
Texas Instruments (NASDAQ:TXN) +0.1% after Q1 beats on top, bottom lines.
SanDisk (NASDAQ:SNDK) +1.1%, beats on EPS and revenue.
Vertex (NASDAQ:VRTX) -1.75%, revenue +201%, non-GAAP EPS +115%.
Cheesecake Factory (NASDAQ:CAKE) +0.9% as net income improves.
C.R. Bard (NYSE:BCR) Q1 revenue +7%, EPS +11%.
America Movil (NYSE:AMX) misses again amid hot competition, regulations.
U.S. economic growth likely stalled in the first quarter as domestic demand cooled and a strong dollar continued to undercut exports, but a pick-up in activity is anticipated given a buoyant labor market(.The Commerce Department will publish its advance first-quarter GDP growth estimate on Thursday at 8:30 a.m.(1230 GMT).
Gross domestic product probably rose at a 0.7 percent annual rate after a 1.4 percent pace in the fourth quarter, according to a Reuters survey, also as businesses stepped up efforts to reduce unwanted merchandise clogging up their warehouses.
In addition to sending Japanese shares lower, the Bank of Japan’s lack of new action seems to have sent world stocks tumbling as well. Following a hawkish/dovish wash of an FOMC statement yesterday after the Fed held interest rates at 0.25-0.5%, markets are now eyeing U.S. Q1 GDP data, which is due out this morning. Economic growth is estimated to have slipped to 0.7% from 0.9% previously.
As expected, Germany’s unemployment rate has remained unchanged at an all-time low of 6.2% in April. The number of unemployed people declined for the seventh consecutive month with a drop of 16,000 on month, topping forecasts for a gain of 4,000.
Facebook shares jumped 9% premarket after its Q1 earnings easily topped expectations, with adjusted EPS $0.77 and sales soaring 52% to $5.38B, while net profit nearly tripled to $1.51B from $512M. Ad revenue leapt 57% to $5.2B, four-fifths of which was from the more lucrative mobile ads. Facebook also plans to create a new class of nonvoting shares that will further strengthen Mark Zuckerberg’s control of the company.
French pharmaceuticals group Sanofi has offered to acquire U.S. biotech company Medivation (NASDAQ:MDVN) in an all-cash deal valued at $9.3B. Sanofi (NYSE:SNY) has bid $52.50 a share vs Medivation’s close of $52.05 yesterday for a market cap of $8.5B. “Last November, Sanofi outlined our mid-term strategy, which includes rebuilding our position in oncology,” Sanofi CEO Olivier Brandicourt says. “With Medivation’s best-in-class offerings in prostate cancer, we believe a combination would benefit patients and…generate value for shareholders of both companies.”
Valeant’s board is shaking, with five directors stepping down and four new directors coming in this week, The Wall Street Journal reports. The article comes after outgoing Valeant (NYSE:VRX) CEO Michael Pearson testified yesterday that the company was too aggressive with dramatic price hikes and that it learned “painful lessons” over the past year. Ex-Perrigo chief and new Valeant CEO Joseph Papa is set to start work on Monday.
Amazon’s Q1 earnings are due out after the bell, with analysts expecting that the company swung to a profit of $0.58 a share from a loss of $0.12 a year ago as revenue jumped 23% to $28B. Wedbush’s Michael Pachter says investors will “have a problem” if the retail business isn’t growing in the high teens, which is “table stakes.” Pachter sees Amazon Web Services (NASDAQ:AMZN) expanding around 50% this quarter, a sustainable rate for the future.
Samsung Electronics’ Q1 operating profit grew 12% to 6.68T Korean won ($5.84B) and its revenue 5.6% to 49.8T won as the company benefited from the early release of its flagship Galaxy S7 smartphones. Operating profit at Samsung’s (OTC:SSNLF) mobile unit grew to 3.89T won from 2.74T won a year earlier, and the company expects the unit to continue growing this year, along with its home-appliance and TV businesses. However, amid fears that the smartphone market has run out of steam (see below), Fitch says that the recovery in Samsung’s handset division is likely to be short-lived.
Global smartphone shipments fell for the first time on a year-on-year basis in Q1, contracting 3% to 334.6M units. Samsung’s volumes dropped 4.5% to 79M as its market share slipped to 23.6% from 24%, although the South Korean company retained its crown as market leader. Apple (NASDAQ:AAPL) remained in second place but shipments slumped 16% to 51.2M and its market share deteriorated to 15.3% from 17.7%. The data adds to concerns that the smartphone market has matured to the point that sales growth will be increasingly hard to come by.
Sony swung to an FY net profit of ¥147.8B ($1.36B) from a loss of ¥126B a year earlier, above estimates of ¥147B. Operating profit rose to ¥294.2B from ¥68.5B, although revenue slipped to ¥8.1T from ¥8.2T, as analysts expected. Still, the results signal that Sony (NYSE:SNE) could finally have turned the corner after years of losses as it sacrificed profitability in an attempt to boost sales in the face of cheap competition.
Deutsche Bank’s Q1 net profit dropped 58% to €236M ($267M) but beat forecasts for a loss, while revenue fell 22% to €8.1B. Factors affecting Deutsche Bank’s (NYSE:DB) earnings include difficult market conditions, the decision to exit certain businesses as part of a restructuring and lower legal costs. Investment-banking revenues plunged 23%, while its wealth-management performance was weak. Still, shares were +3.7% in Frankfurt at the time of writing.
Lloyds’ Q1 underlying pretax profit dropped 6.05% to £2.05B ($3.05B) but came in at around consensus of £1.99B. Net interest and other income slipped 1% to £4.42B. Despite the fall in earnings, CEO Antonio Horta-Osorio said Lloyds (NYSE:LYG) delivered a “robust financial performance,” adding that the bank “continued to support and benefit from a resilient UK economy.” Investors don’t seem to be buying the line, though, with shares -4.4%premarket.