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Wall Street at Breakfast

  • Markets eyes Key Jobs Report

Top up the week will later on when May’s nonfarm payrolls are released by the Labor Department. U.S. job gains likely remained moderate at 158,000 due to a strike at Verizon (NYSE:VZ), but an anticipated drop in the unemployment rate to 4.9% should indicate underlying labor strength is still intact. A strong figure will further heighten expectations for a June rate hike, which Janet Yellen said last week would be appropriate in the “coming months” if economic conditions were met.

Today’s Markets

In Asia, Japan +0.5% to 16642. Hong Kong +0.4% to 20947. China +0.5%to 2939. India flat at 26,843 .
In Europe, at midday, London +1%. Paris +0.5%. Frankfurt +0.6%.
Futures at 6:20, Dow flat. S&P flat. Nasdaq -0.1%. Crude flat at $49.17. Gold +0.1% to $1213.70.
Ten-year Treasury Yield -1 bps to 1.80%

Thursday’s Key Earnings

Ambarella (NASDAQ:AMBA) +9.5% AH beating estimates, unveiling buyback.
Broadcom (NASDAQ:AVGO) +7.2% AH lifted by margin strength, cost controls.
Joy Global (NYSE:JOY) +22% following a big earnings surprise.

Today’s Economic Calendar

3:45 Fed’s Evans: U.S. Economic and Monetary Policy
8:30 Non-farm payrolls
8:30 International Trade
9:45 PMI Services Index
10:00 Factory Orders
10:00 ISM Non-Manufacturing Index
12:30 PM Fed’s Bralnard: U.S. Economic and Monetary Policy
1:00 PM Baker-Hughes Rig Count

 

Economy

“Two rate hikes in 2016, that’s my own call for that, if the data continues to be in line with my outlook,” Chicago Fed President Charles Evans told CNBC. “Timing’s not really that critical for my viewpoint, as long as by the end of this year we’re at just a little under 1%.” Evans also said that a “reasonable case” can be made for deferring rate hikes until the Fed reaches its goal for core inflation.

The war of words is heating up between the two likely presidential contenders. Hillary Clinton gave a speech yesterday painting Donald Trump as “dangerously incoherent” and called him “unfit” to be president, while the presumptive GOP nominee dubbed her candidacy a “disgrace to our nation” and said she should be in jail for the use of a private e-mail server. Thursday’s biggest news, however, was House Speaker Paul Ryan’s quiet endorsement of Trump, another step toward unifying the Republican party.

A new audit report suggests Puerto Rico may be able to void some its borrowing because it may have been issued illegally – that is lawmakers exceeded constitutional debt limits. The scope of the audit covers the two most recent full-faith-and-credit debt issues of the commonwealth: Puerto Rico’s 2014 $3.5B general obligation bond offering and a $900M issuance in 2015 of Tax Refund Anticipation Notes.

Greece’s parliament has approved a new batch of tweaks to its creditor-mandated austerity program, required to secure a tranche of €7.5B. Alexis Tsipras said he now expects the ECB to reopen access to cheap funding for Greek banks after the official bailout review ends, despite the central bank failing to reinstate the waiver at yesterday’s meeting.

The Swiss will go to the polls this weekend to vote in a potentially historic referendum to provide everyone in the country with a no-strings-attached monthly payment of 2,500 francs regardless of whether they’re employed or not. Switzerland is not alone. The city of Utrecht in the Netherlands is conducting a pilot program, and trials of the idea are planned in Finland and the Canadian province of Ontario.

China’s all-important service economy, heralded as the country’s key growth engine, decelerated to a three-month low in May on slow business orders, marginal job creation and lower production. Caixin’s services PMI fell to 51.2, from 51.8 in April. The report echoes similar declines to the government’s official services gauge released earlier this week, which showed the index dropping to 53.1 from the previous month’s 53.5 reading.

Brent oil prices are holding at $50 a barrel, with WTI skirting around $49, following an OPEC gathering that failed to agree on output targets, but which saw some support from Saudi Arabia. “We will be very gentle in our approach and make sure we don’t shock the market in any way,” Saudi Energy Minister Khalid al-Falih told reporters. A drop in U.S. crude inventories also offset the non-eventful meeting, with supplies decreasing by 1.4M barrels last week.

Stocks

Facebook isn’t expecting Mark Zuckerberg to leave anytime soon, but if he ever does, the company wants to make sure the next CEO it hires would neither be bound to the website co-founder nor his family. As a result, the board has proposed removing Zuckerberg’s majority control by converting his equity into a new class of non-voting shares, along with a “sunset” provision affecting the stock. The changes will be voted on at Facebook’s (NASDAQ:FB) annual general meeting on June 20.

Wal-Mart will soon begin testing a grocery delivery service using Uber (Private:UBER) and Lyft (Private:LYFT) drivers as it looks to better compete with rivals like Amazon (NASDAQ:AMZN). According to a company blog post, Wal-Mart (NYSE:WMT) is expected to launch the effort in the next two weeks in Denver and another market, charging customers a $7-10 charge for the service. The retail giant said it also anticipates using drones for different business functions – such as inventory management – in another six to nine months.

Add Twitter to the flock of bidders that have circled Yahoo (NASDAQ:YHOO). The struggling social network got together with Marissa Mayer and crew several weeks ago to discuss a possible merger of the companies, the New York Post reports. Nevertheless, Twitter (NYSE:TWTR) appeared mainly interested in sucking information out of Yahoo, as it bowed out of the bidding process soon thereafter. A source said Jack Dorsey didn’t even bother to show up for the meeting.

More Twitter woes… Roughly 150M people use Snapchat (Private:CHAT) each day, according to a Bloomberg report, making the messaging app more popular than the microblogging service. Twitter (TWTR), which is estimated to have less than 140M active daily users, was once the largest social network after Facebook (FB), but has since fell behind the company’s other apps, including Instagram, Messenger and WhatsApp.

“The world doesn’t need an almost-as-good Amazon (AMZN), it needs a better eBay (NASDAQ:EBAY),” CEO Devin Wenig said at the Code Conference in California, taking pains to distinguish the company from its bigger rival. “I’d rather have a billion unique items that arrive in three days than a billion commodity items that arrive in an hour.” Wenig also added that eBay is looking at opportunities to bring together e-commerce and artificial intelligence.

Warner Bros. has created a new unit focused on online video entertainment, marking the latest push by parent Time Warner (NYSE:TWX) to appeal to consumers who don’t pay for cable. Warner Bros. Digital Networks will develop new web video channels, expand the studio’s current online services and seek strategic alliances. It will also work with Time Warner’s other divisions, Turner and HBO, to reach more cord cutters.

Bayer has secured about $63B in financing from five banks for its proposed acquisition of Monsanto (NYSE:MON), sources told Bloomberg. The German company made the unsolicited takeover offer in May, aiming to create the world’s biggest agricultural supplier. Monsanto turned down Bayer’s (OTCPK:BAYRY) bid as “incomplete and financially inadequate,” but said it was open to further negotiations.

The country’s biggest beer and coffee makers are coming together for a tea. AB InBev (NYSE:BUD) and Starbucks (NASDAQ:SBUX) have announced an agreement for the brewer to produce, bottle and distribute a ready-to-drink line of Starbucks’ Teavana brand tea in the U.S. that will launch in 2017. The initiative will help Starbucks broaden its reach beyond coffee, and help AB InBev fill capacity at breweries while its U.S. beer volumes remain under pressure.

BP has reached a tentative $175M settlement to resolve claims by U.S. investors that its managers lied about the size of the 2010 Gulf of Mexico oil spill to prop up its stock price. The settlement averts a trial that was set for July in Houston federal court; the investors had sought as much as $2.5B. BPsays the proposed settlement, which is subject to court approval, does not resolve other securities-related complaints.

Exxon Mobil may invest billions in Argentina’s Vaca Muerta shale formation in the next decades. The oil giant has so far invested $200M in the world’s second largest shale gas deposit, and received approval to put in $250M more for a pilot project in the coming months. If the endeavor is successful, Exxon (NYSE:XOM) will start full development during a period of 20-30 years that could involve investment “well in excess of $10B.”

Avianca Holdings flew up 33% in extended trading on news that all or part of the airline will be sold. United Continental (NYSE:UAL) and Delta Air Lines (NYSE:DAL) have been named as possible suitors for the company, WSJreports. Avianca (NYSE:AVH) is one of Latin America’s biggest carriers, and was established as a strategic alliance between Aerovias del Continente Americano and Grupo TACA Holdings Limited.

Michigan-based airbag maker Key Safety Systems and its new Chinese parent Ningbo Joyson Electronic Corp. are discussing a potential investment in Takata (OTCPK:TKTDY) with financial advisory Lazard (NYSE:LAZ). The news comes as automakers wrangle with regulators over the more than 100M vehicles worldwide that have been called back over Takata’s deadly inflators. General Motors (NYSE:GM) is the latest to resist some recalls, citing no cases of an airbag rupturing among deployments in its large pickup trucks and SUVs.

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