Copper Slides To Three Month Low Despite Flat Futures,
Dollar Rise Continues
- Fed Phobia Runs High Ahead Of Minutes
Both Treasury yields and the dollar have ticked up as traders position themselves ahead of this afternoon’s closely watched FOMC minutes. Fed officials have been talking up a storm ahead of the release, conveying hawkish tones that are also keeping stocks under pressure. During a joint speech in Washington on Tuesday, Atlanta’s Dennis Lockhart and San Francisco’s John Williams agreed that up to three rate hikes this year “seemed reasonable,” while Dallas President Robert Kaplan said he would call for a rate rise in June or July.
Home Depot (NYSE:HD) -2.5% despite beating expectations.
TJX Companies (NYSE:TJX) +0.5% after defying a retail slump.
In Asia, Japan -0.1% to 16645. Hong Kong -1.5% to 19826. China -1.3% to 2807. India -0.3% to 25704.
In Europe, at midday, London -0.5%. Paris -0.3%. Frankfurt -0.3%.
Futures at 6:20, Dow flat. S&P flat. Nasdaq flat. Crude flat at $48.32. Gold-0.3% to $1273.50.
Ten-year Treasury Yield +2 bps to 1.78%
Today’s Economic Calendar
7:00 MBA Mortgage Applications
10:00 Atlanta Fed’s Business Inflation Expectations
11:00 EIA Petroleum Inventories
2:00 PM FOMC minutes
Democrat candidates Hillary Clinton and Bernie Sanders each picked up primary wins on Tuesday, extending the race to win the nomination for November’s general election. Clinton’s sizeable delegate lead means she will likely be her party’s nominee, although she still remains more than 100 delegates short of sealing the deal. Meanwhile, presumptive GOP nominee Donald Trump has struck a joint fundraising agreement with the RNC, a move that could help him consolidate the party under his leadership.
Japan’s economy dodged a recession last quarter as gains in government and consumer spending compensated for a slide in business investment. Gross domestic product expanded by an annualized 1.7%, exceeding all forecasts and recording the nation’s fastest pace of growth in a year. What’s next for Japanese monetary policy? Prime Minister Shinzo Abe is widely expected to announce new fiscal stimulus during the G7 Summit this month as part of his “Abenomics 2.0” program.
“Competing interests” are holding up a peace settlement in Syria, Secretary of State John Kerry stated during negotiations in Vienna, as Russia argued that President Bashar al-Assad is a “lesser evil” than the chaos that could be sparked by his ouster. As of 2015, Syria’s economy “contracted by more than 50% in real terms” since the beginning of its civil war, which has led to the death of at least a quarter-million of its citizens.
Iran’s oil exports are set to surge in May, climbing nearly 60% from a year ago, with European shipments recovering to about half of pre-sanction levels, according to Reuters. This shows that Tehran is regaining market share at a faster pace than analysts had projected as it battles with Saudi Arabia for customers by lowering its prices. April loadings at 2.3M barrels per day were around 15% higher than the International Energy Agency estimated earlier this month.
Goldman Sachs has downgraded its outlook on equities to “neutral” over the next 12 months, saying there’s no particular reason to own them. “Until we see sustained signals of growth recovery, we do not feel comfortable taking equity risk, particularly as valuations are near peak levels,” the firm said in a research note. Goldman (NYSE:GS) also upgraded commodities to “neutral” on a three-month basis, stayed “overweight” on credit over both 3- and 12-month horizons, and remained “underweight” on bonds.
Google will introduce its much-anticipated entry into the voice-activated home device market today at its annual developers’ conference in Silicon Valley. Named Google Home (GOOG, GOOGL), the device is a virtual agent that answers simple questions and carries out basic tasks, and will come to market in the fall. The gadget is also set to ratchet up competition with Amazon’s Echo (NASDAQ:AMZN), which was introduced less than two years ago and has already sold an estimated 3M units.
While Verizon and representatives from two striking unions continue their contract discussions this week with help from the Department of Labor, the groups will not make any public statements, nor will there be comments from federal officials. “I’m encouraged by the parties’ continued commitment to remain at the bargaining table,” Labor Secretary Thomas Perez said. “We will continue to facilitate conversations to help the unions and Verizon (NYSE:VZ) reach an agreement.”
Trouble brewing for SABMiller? The brewer is warning it will continue to face foreign exchange volatility, after posting an 8% fall in full year revenue. However, the maker of Miller Lite and Castle Lager saw beer volumes rise 2%, thanks to strong sales in Africa and Latin America. Separately, Asahi (OTC:ASBRY) has also ruled out bidding for certain SABMiller (OTCPK:SBMRY) assets amid its mega merger with AB Inbev (NYSE:BUD).
San Francisco is set to become the first U.S. city to require health warnings on advertisements for soda and other sugar-added drinks after the beverage industry failed to get a court order to stop it. The law goes into effect July 25 and will require that billboards and other public advertisements include the language, “WARNING: Drinking beverages with added sugar(s) contributes to obesity, diabetes, and tooth decay.” Related stocks: KO, PEP, DPS, MNST, FIZZ
GrubHub closed down 7.8% on Tuesday, hitting its lowest point in nearly two months, after Amazon (AMZN) announced it would expand restaurant delivery service into New York and Dallas. The offering is free with Prime membership and promises no markups from online menus. Where’s the profit? According to the NY Post, Amazon is reportedly charging restaurants 27.5% of each delivery order, compared to the 12-24% charged by GrubHub (NYSE:GRUB) and Seamless, which merged together in 2013.
More than three months after President Obama asked for $1.8B in emergency funds to combat the Zika virus, the Senate took its first step to approve the request by passing a compromise $1.1B measure. At the same time, the White House issued a veto threat against a House Republicans’ bill that would provide only $622M, a figure the White House called “woefully inadequate” to fight the rapidly spreading disease. Related tickers: SNY, INO,AEMD, XON, CEMI, BCRX, TMO, OTCQB:GOVX
Under new leadership, Valeant (NYSE:VRX) is looking at selling some dermatology and cancer drugs it acquired in recent years, as it scrambles to raise cash and reduce debt. The drugmaker is looking at selling Provenge, its treatment for advanced prostate cancer, and Obagi Medical Products, the dermatology company. Also on the block might be products it acquired from Marathon Pharmaceuticals last year, including Isuprel and Nitropress. VRX-71% YTD.
Fedex has declared its recommended all-cash public offer for TNT Express (OTCPK:TNTEY) unconditional, with all requirements having been satisfied or waived. In connection with Fedex’s (NYSE:FDX) offer, 88.4% of the aggregate issued and outstanding ordinary share capital of TNT Express have been tendered during the acceptance period that expired last Friday. Settlement will take place on May 25.
Major U.S. banks are scrutinizing security of the world’s largest funds transfer system following cyber attacks in Bangladesh and Vietnam involving fraudulent transfer requests. They also want SWIFT to boost security in the wake of the attacks. JPMorgan (NYSE:JPM) has already limited SWIFT access to some employees amid questions about the breaches and to keep tighter control on its links to the service.
The United States has ramped up import duties on Chinese steel makers by 522%, accusing Beijing of anti-competitive behavior by selling steel below cost. Last year, U.S. Steel (NYSE:X), AK Steel (NYSE:AKS), ArcelorMittal (NYSE:MT), Nucor (NYSE:NUE) and Steel Dynamics (NASDAQ:STLD), all filed a complaint to the International Trade Commission, alleging foreign companies were selling steel at unfairly low prices. The industry claims it has had to lay off 12K workers as a result of the unfair competition.
In a closely watched return to the global debt markets, Petrobras (NYSE:PBR) has raised $6.75B from a sale of 5- and 10-year dollar-denominated bonds after the suspension of Brazilian President Dilma Rousseff. Petrobras (PBR) also plans to appoint former presidential chief of staff Pedro Parente as CEO, as interim Brazilian President Michel Temer seeks to shore up the debt-laden oil producer.
Peabody Energy has won final bankruptcy-court approval for an $800M financing package after lenders made concessions to appease creditors. Peabody (OTCPK:BTUUQ) said final approval on the Chapter 11 financial arrangements ensures the company can continue operating as usual while it works through a load of debt that it can’t support given the declines in coal demand and prices.
U.S. auto safety regulators will monitor General Motors’ (NYSE:GM) decision-making about potential vehicle safety issues for another year, until May 2017, declared a letter made public by the NHTSA. GM’s costs related to ignition switch defects have topped $2B – counting a $900M settlement with the DOJ in September 2015 – which included a separate three-year consent decree and oversight by an outside independent monitor.
The mileage cheating scandal in Japan has spread to Suzuki Motor (OTCPK:SZKMY), sending its shares down as much as 15% to their lowest level since November 2013. Although the fuel-economy testing methods were not compliant with regulations on about 2.3M vehicles sold locally, the automaker won’t need to revise the ratings since the results can fall within an acceptable range of deviation. In similar news, Mitsubishi Motors (OTC:MMTOY) President Tetsuro Aikawa said he will step down in June due to the company’s recent fuel efficiency scandal.