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Daily from Wall Street, March 2

 

 

 

  • S&P Futures Drop As Global Market Rally Pauses
  • Dollar Rises On Rate Hike Concerns

 

U.S. equities surged to all-time highs on Wednesday, with major indexes posting their best day of the year, on the backdrop of US President Trump speech, even though yesterday it was less clear how the markets would take a less detailed economic agenda,investors are upbeat:

“The less bombastic Trump is, the more you have to believe he can pull off what he is trying to achieve,” said Christopher Stanton, portfolio manager at Sunrise Capital Partners LLC, told to the WSJ today

Gains were powered in part by signals that Fed may raise short-term interest rates again as soon as the middle of this month

“We are closing in on full employment, inflation is moving gradually toward our target, foreign growth is on more solid footing and risks to the outlook are as close to balanced as they have been in some time,” Fed governor Lael Brainard said Wednesday in a speech at Harvard University. “Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path.”

In reviving the so-called reflation trade, which reflects expectations that global growth will pick up again this year after several years of subpar expansion, investors are renewing a trend that many spotted in the middle of last year. Since then, signs of expansion around the world have encouraged investors about the prospects for higher inflation, sparking selling in government bonds and records in many global stock indexes,Says the WSJ

Inflation is on the rise after a long period of deflationary forces and over capacity in factories and – still in some countries very high- labor markets.   On Wednesday, German annual inflation was reported at 2.2% in February, its highest level in 4½ years.Annual inflation across the 19-nation eurozone rose above 2% as February data   reported today by Eurostat.

In Japan, data due Friday are expected to show the primary inflation gauge—consumer prices except fresh food—rose in January from a year ago, turning positive for the first time in 13 months.

Today’s Markets

In Asia, Japan +0.9%. Hong Kong -0.2%. China -0.5%. India -0.5%.
In Europe, at midday, London flat. Paris +0.2%. Frankfurt +0.1%.
Futures at 6:20, Dow flat. S&P -0.1%. Nasdaq flat. Crude -0.8% to $53.41. Gold -0.6% to $1242.60.
Ten-year Treasury Yield flat at 2.47%

Wednesday’s Key Earnings

Best Buy (NYSE:BBY) -4.5% lagging sales, weak outlook.
Broadcom (NASDAQ:AVGO) +4.4% AH topping expectations.
Lowe’s (NYSE:LOW) +9.5% following strong housing demand.
Monster Beverage (NASDAQ:MNST) +13.9% AH with a new buyback.
Shake Shack (NYSE:SHAK) -4% AH on same-store sales miss.

Economy

“Assuming continued progress, it will likely be appropriate soon to remove additional accommodation, continuing on a gradual path,” Fed Governor Lael Brainard said in a speech at Harvard. Brainard has played the role of lead dove at the Fed for months, arguing to keep rates lower for longer, but her statement could mean policy tightening at the FOMC’s next meeting in mid-March.

The Washington Post is leading the charge against AG Jeff Sessions, stating the then-senator spoke twice last year with Russia’s ambassador to the U.S., but failed to disclose those meetings during his confirmation hearings. Sessions met “with the ambassador in an official capacity as a member of the Senate Armed Services Committee, which is entirely consistent with his testimony,” according to the Trump administration, but Nancy Pelosi and other Democrats are calling on him to resign.

Driven higher by another rise in energy prices, the eurozone’s inflation rate soared above 2% in February, jumping above the ECB’s target for the first time in four years. Will the shift prompt a change in monetary policy? In recent weeks, ECB decision makers have stressed that they have yet to be convinced that the current rate will be sustained when the rise in energy prices comes to a halt.

Swiss economic momentum fell short of expectations in the final three months of 2016 as investment declined and exports recorded their weakest quarterly result in nearly two years. Gross domestic product expanded 0.1%, matching the pace of the third quarter. The nation faces headwinds due to the strength of the franc, which central bank policymakers have repeatedly called “significantly overvalued.”

Downing Street is insisting the timetable for Brexit “remains unchanged” after the House of Lords backed an amendment guaranteeing the rights of EU citizens to remain in the U.K. The matter now goes back to the House of Commons, where the Prime Minister is confident it will be rejected. Theresa May wants a “clean bill” and intends to trigger Article 50 in mid-March.

Venezuela only has $10.5B in foreign reserves left, according to its most recent central bank data, and still needs to make $7.2B in debt payments for the rest of 2017. The thinning reserves paint a scary financial picture as the country faces a humanitarian crisis sparked by an economic meltdown. Inflation is expected to rise 1,660% this year and 2,880% in 2018.

Stocks

Snap has priced its public offering at $17, above its $14-$16 marketed range, and will begin trading today on the New York Stock Exchange under ticker symbol “SNAP.” At 200M shares, Snap will have raised $3.4B and will be valued at nearly $24B. At that level, it’s going public with a valuation at least twice as expensive as Facebook (NASDAQ:FB), and four times more costly than Twitter (NYSE:TWTR).

In a bid to expand the system’s base of users, Facebook’s (FB) Oculus has cut the price on its flagship hardware set. $100 will be shaven off the $599 Rift headset, as well as the $199 Touch motion controllers. “This price drop was as inevitable as it is beneficial. This is how the technology business works,” said Jason Rubin, Oculus’s VP of Content.

Yahoo’s board has decided not to give CEO Marissa Mayer her cash bonus for 2016, and it’s accepted her offer to forgo her equity award for 2017, in the wake of an investigation into data breaches at the company. Yahoo (NASDAQ:YHOO) General Counsel Ronald Bell also stepped down yesterday, and no payments will be made to him in connection with his resignation.

Banks globally have paid $321B in fines since 2008 for an abundance of regulatory failings from money laundering to market manipulation and terrorist financing, according to data compiled by Boston Consulting Group. That tally is set to increase in the coming years as European and Asian regulators catch up with their more aggressive U.S. peers, who have levied the majority of charges to date.

Fighting to protect its high-end market, American Express (NYSE:AXP) will begin to offer new perks and benefits on its Platinum charge cards, while upping its annual fee by $100 to $550. Both JPMorgan (NYSE:JPM) and Citigroup (NYSE:C), which has a $450-per-year Prestige card with its own mix of spending credits and perks, are using cards to try to eat away at AmEx profit margins, which have long been higher than their own.

More Wells Fargo customers may have been impacted by a sales scandal than previously believed, but the U.S. lender doesn’t expect a significant financial impact from the revision. It previously estimated that up to 2M customers could have had accounts opened in their names without authorization. In a 10-K filing, Wells (NYSE:WFC) also said it’s reasonable that legal fees for 2016 totaled $1.8B.

SolarCity, which was acquired by Tesla (NASDAQ:TSLA) at the end of last year, slashed nearly 20% of its staff in 2016 to 12,243 employees, as it sought to preserve cash amid slowing growth in the rooftop solar industry. The cuts affected workers in operations, installations, manufacturing and marketing, while the number of people in general and administrative jobs also declined.

Losing its fizz to Philly’s soda tax, PepsiCo (NYSE:PEP) is laying off almost a quarter of its 423 workers at three distribution plants that serve the city. The tax of 1.5 cent per ounce on sugary and diet drinks is aimed at combating obesity and diabetes, but it has led PepsiCo’s beverage sales in Philadelphia to slump 40%, according to spokesman Dave DeCecco.

AB InBev has raised its forecast for savings and benefits from its SABMiller takeover to $2.8B from $2.45B after reporting weaker than expected earnings due to a beer sales slump in Brazil. Net profit was $400M for the three months to Dec. 31, down from $2.29B a year earlier, while revenue per hectoliter rose 3.9% and total beer volumes fell 3.3%. BUD -3.2% premarket.

Henkel has made a binding offer to buy Darex Packaging Technologies from GCP Applied Technologies (NYSE:GCP) for $1.05B. If it goes ahead, the deal would add the world’s leading maker of sealants for beverage, food and aerosol cans to Henkel’s (OTCPK:HENKY) adhesives division, which accounts for about half of group revenues.

Facing a big traffic problem, McDonald’s (NYSE:MCD) is planning to launch its own delivery service this year and will roll out mobile ordering in roughly two thirds of its restaurants. The fast food giant said it’s focused on opportunity for delivery in the U.S., U.K., France, Germany, and Canada. There’s a McDonald’s within three to five miles of 75% of the population in each country.

Hulu will provide 24/7 customer help ahead of the upcoming launch of its live TV streaming service, and plans to open a service center by the fall that will hire 100 representatives, bringing its total to 300. The company will also double investment in customer service over the next year so it can cope better with any glitches that arise. Hulu owners: CMCSA, DIS, FOX/FOXA, TWX.

Twenty-First Century Fox is expected to notify European authorities of its £11.7B bid for pay-TV firm Sky (OTCQX:SKYAY) later this week. Under EU rules, the Commission then has 25 days to decide whether the deal would “significantly reduce competition.” Fox (FOX, FOXA) currently owns around 39.1% of Sky’s shares, and it announced its intention to acquire the remainder in December 2016.

A series of recent missteps by UBER is prompting LYFT to seize the moment. The company is said to be in talks with investors to raise at least $500M at a valuation between $6B-$7B, WSJ reports. As of Feb. 13, Lyft accounted for 20.8% of all U.S. spending on ride-hailing services, and it counts Alibaba (NYSE:BABA) and General Motors (NYSE:GM) among its list of backers.

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