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Wall Street at Breakfast

  • Global Stocks Slide As Dollar Continues Rising
  • BHP, Vale Face $44B Lawsuit Over Dam Disaster
  • World stocks in retreat for second day on growth worries

World stocks fell for the second straight day on Wednesday and metals prices declined, pressured by signs of a renewed and prolonged global growth downturn.

A deluge of lackluster manufacturing data from across the world set off this week’s selling spree, notably Chinese factory activity shrinking for the 14th straight month, British output at three-year lows, Tuesday’s surprise interest rate cut in Australia and the European Commission downgrading growth and inflation forecasts.

Brazilian prosecutors have filed a civil claim against iron miner Samarco and its owners BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE), demanding damages over the deadly collapse of a dam last November. The $44B lawsuit is the result of a six-month investigation into the catastrophe, which led to the pollution of a major river and killed 19 people. Investors appear to have been caught off guard, as the mining companies agreed to a much cheaper settlement deal with the Brazilian government in early March. BHP -7.7%; VALE -7.5% premarket.

Today’s Markets

In Asia, Japan closed. Hong Kong -0.7% to 20524. China -0.1% to 2991. India -0.5% to 25102.
In Europe, at midday, London -1.2%. Paris -0.7%. Frankfurt -0.8%.
Futures at 6:20, Dow -0.6%. S&P -0.7%. Nasdaq -0.7%. Crude +0.1% to $43.71. Gold -1.1% to $1277.60.
Ten-year Treasury Yield flat at 1.79%

Tuesday’s Key Earnings

CBS (NYSE:CBS) +2.4% AH boosted by ad growth and Super Bowl 50.
CVS Health (NYSE:CVS) +2.4% on climbing prescription volumes.
Devon Energy (NYSE:DVN) +2.3% AH following deep cost cuts.
Duke Energy (NYSE:DUK) -0.1% as profit fell on mild winter weather.
Etsy (NASDAQ:ETSY) +12.9% AH crafting its first quarterly profit since its IPO.
Halliburton (NYSE:HAL) -3.8% on a big drop in revenues.
Illumina (NASDAQ:ILMN) -3.9% AH missing estimates amid climbing expenses.
Pfizer (PFE) +2.8% after topping expectations.
Sprint (NYSE:S) +5% as cost cuts showed effects.
Valero (NYSE:VLO) -3.6% with earnings cut nearly in half.
Zillow (NASDAQ:Z) +11.5% AH issuing strong sales guidance.


Texas Senator Ted Cruz has cleared the path for Donald Trump to claim the Republican presidential nomination by suspending his campaign following a crushing defeat in the Indiana primary. “From the beginning I’ve said that I would continue on as long as there was a viable path to victory,” Cruz declared. “Tonight I’m sorry to say it appears that path has been foreclosed.” On the Democratic side, Bernie Sanders was declared the Indiana winner, further frustrating rival Hillary Clinton who had hoped to wrap up the nomination at this point.

  • U.S. stock index futures are sinking into the red, ahead of a bevy of big-name earnings.
  • Time Warner (NYSE:TWX) and Delphi Automotive (NYSE:DLPH) will report first quarter results early in the day, with numbers due from Kraft Heinz (NASDAQ:KHC), Tesla Motors (NASDAQ:TSLA) and 21st Century Fox (FOX, FOXA) after the market close.
  • The session will also be a busy one for economic data, with the ADP employment report for April, factory orders, productivity and the ISM services index all on tap. The U.S. dollar index is up slightly, as the greenback recovers from a 16-month low.

The rout in crude prices is snowballing into one of the biggest avalanches in the history of corporate America, with 59 oil and gas companies now bankrupt following this week’s Chapter 11 filings by Midstates Petroleum (NYSE:MPO) and Ultra Petroleum (NYSE:UPL). According to Reuters data, the number of U.S. energy bankruptcies is closing in on the staggering 68 filings seen during the depths of the telecom bust of 2002 and 2003. “I think we’ll see more filings in the second quarter than in the first quarter,” said Charles Gibbs, a restructuring partner at Akin Gump in Texas.

Eurozone retail sales fell for the first month in five during March, an indication that the currency area’s economic recovery remains vulnerable to setbacks. According to Eurostat, sales volumes, a proxy for household spending, decreased 0.5% M/M. For much of the last 18 months, the eurozone’s modest recovery has been driven by higher consumer spending, as disposable incomes were boosted by lower energy prices, and more people have been working.

Brazil’s top prosecutor has asked the Supreme Court to permit an investigation of former President Lula da Silva and dozens of other politicians as part of a massive corruption probe centered on oil company Petrobras (NYSE:PBR). The requests are based on information revealed in a plea-bargain agreement with Senator Delcidio do Amaral, an ally of da Silva and President Dilma Rousseff, who was arrested late last year for trying to obstruct the investigation.

Worldwide merger deals have declined sharply from the intense pace that pushed them to record levels in 2015, a sign that could reflect broader weakness in the American economy and vulnerability for U.S. stocks. So far in 2016, the dollar value of completed deals is 22% below the same period last year, while the number of transactions is down 13%, as expectations of higher interest rates and more government regulation is making mergers seem more expensive and risky.


Following years of developing and testing self-driving cars, Google-parent Alphabet (GOOG, GOOGL) has signed its first deal with an established automaker to build autonomous vehicles. The tech giant is forming a partnership with Fiat Chrysler (NYSE:FCAU) that will initially focus on making 100 minivan prototypes. The partnership also catapults Fiat to the front of the self-driving pack, after being viewed as lagging in rapidly advancing driverless technology.

Elon Musk may not mention Tesla’s (TSLA) stock price when his electric car company gives its latest financial update today, but it will be front and center for investors divided over its seemingly rich valuation. After a rally that ended in April, the company’s market cap is currently about $31B – equivalent to $620K for every car it delivered last year, or $63K for every car it hopes to produce in 2020. Musk has previously promised to turn Tesla’s first net profit by the fourth quarter, and will likely provide an update on Model 3 reservation numbers after the closing bell.

Takata is preparing to call back at least another 35M air bag inflators, further escalating a crisis at the Japanese supplier linked to numerous deaths and injuries. The expanded recall will be phased in over several years and more than double what is already the largest and most complex auto safety recall in U.S. history. Earlier this week, Takata (OTCPK:TKTDY) disclosed $189M in additional financial losses for the year ended in March because of recall costs and legal claims.

European earnings roundup:

  • Royal Dutch Shell’s (RDS.A, RDS.B) CCS (Current Cost of Supplies) earnings per share, excluding identified items, decreased 63% to $1.6B, as the tumble in oil prices continued to take its toll. Unfavorable currency effects and a weak Brazil market weighed on AB InBev’s (NYSE:BUD) net profit, but the brewer said it expects to close its SABMiller (OTCPK:SBMRY) deal in the second half of 2016.
  • Siemens (OTCPK:SIEGY) powered ahead with better than expected second-quarter profits, boosted by earnings growth at its power, gas and energy-management divisions.

Target is cracking down on suppliers as part of a multi-billion dollar overhaul to speed up its supply chain and better compete with rivals. The retailer plans to tighten deadlines for deliveries to its warehouses, hike fines for late shipments, and could institute penalties of up to $10K for inaccuracies in product information. The moves, effective May 30, are the first major steps Target (NYSE:TGT) has taken to fix supply problems that emerged after it expanded offerings, including fresh food, several years ago.

After years of slumping sales, Adidas (OTCQX:ADDYY) is actively seeking a buyer for parts of its golf unit, including the TaylorMade, Adams and Ashworth brands. “The planned divestiture will allow us to reduce complexity and focus our efforts on those areas of our business that offer the highest return,” said CEO Herbert Hainer, who is cleaning up Adidas’ operations before Kasper Rorsted takes the company reins in October.

Struggling teen apparel retailer Aeropostale has filed for Chapter 11, marking the latest high-profile bankruptcy that follows meltdowns at American Apparel, Quiksilver and Sports Authority. According to a court filing, the company listed assets and liabilities in the range of $100M-$500M, and plans to emerge from the Chapter 11 process within the next six months as a standalone enterprise with a smaller store base. The NYSE suspended trading and delisted Aeropostale (NYSE:ARO) shares on April 21.

Europe’s highest court has upheld a tough EU law mandating bigger warning labels and standardizing cigarette packaging, paving the way for its adoption later this month. The 2014 tobacco directive also bans menthol cigarettes, and for the first time, sets limits on electronic cigarettes, including how much nicotine they can contain. The court rejected a legal challenge brought by Philip Morris (NYSE:PM) and British American Tobacco (NYSEMKT:BTI), with Japan Tobacco (OTCPK:JAPAF) and Imperial Brands (OTCQX:ITYBF) acting as interested parties.

Prosecutors are weighing additional charges against Martin Shkreli and expect to decide within a month whether to expand the fraud case against the flamboyant pharmaceutical industry entrepreneur. A superseding securities fraud indictment would broaden allegations that Shkreli illegally took stock from Retrophin – a New York-based biotech company he launched and once headed – to pay unrelated business debts.

A bidding war over Medivation? Pfizer (NYSE:PFE) has approached the U.S. cancer drug maker to express interest in an acquisition, raising the possibility of a bid rivaling the $9.3B offer by Sanofi (NYSE:SNY), Reuters reports. Medivation (NASDAQ:MDVN) has not yet decided whether it should engage in negotiations and is in discussions with its financial and legal advisers. Novartis (NYSE:NVS) and AstraZeneca (NYSE:AZN) have also been speculated as potential suitors. MDVN +3.4% premarket.

Seven of the world’s largest banks have agreed to pay $324M to settle a U.S. lawsuit accusing them of rigging the “ISDAfix” benchmark for their own gain from 2009 to 2012. The illegal deals included the execution of rapid trades just before the rate was set each day, called “banging the close,” to delay transactions and post rates that did not reflect market activity. The settlement resolves claims against BofA (NYSE:BAC), Barclays (NYSE:BCS), Citigroup (NYSE:C), Credit Suisse (NYSE:CS), Deutsche Bank (NYSE:DB), JPMorgan (NYSE:JPM) and the Royal Bank of Scotland (NYSE:RBS).

Credit Suisse has agreed to sell a big chunk of distressed assets, helping to speed the Swiss bank’s retreat from risky trading businesses. TSSP, an investing affiliate of private-equity firm TPG, will pay about $1.27B for a stake in the portfolio that includes 270 bonds, loans and other instruments. As part of the deal, Credit Suisse (CS) plans to take a charge of about $100M, most of which will be reflected in its first-quarter results.

Syngenta, the Swiss agrochemical maker that agreed to be acquired by state-owned ChemChina, said Erik Fyrwald will take over from John Ramsay (who has been interim CEO since November 2015) as chief executive from June 1. Fyrwald spent 27 years at DuPont (NYSE:DD). In 2008, he was named head of Nalco, and then became CEO of Univar (NYSE:UNVR) in May 2012. Syngenta (NYSE:SYT) shares flat premarket.

Mark Zuckerberg is calling on Brazilians to demand his company’s WhatsApp messaging service never be blocked again after an appeals court overturned the application’s second suspension in five months. A regional judge on Monday ordered all telephone operators in Brazil to block WhatsApp for failing to turn over data as part of an ongoing drug trafficking investigation. In an online post, the Facebook (NASDAQ:FB) founder urged Brazilians to gather for a rally this afternoon outside Congress in the capital Brasilia.


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