Wall Street Breakfast: Must-Know News

by: Wall Street Breakfast
Wall Street Breakfast
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

Top Stories
Eurozone business growth hits two-year highs. Eurozone flash manufacturing PMI has increased to a 26-month high of 51.3 in August from 50.3 in July and exceeded consensus of 50.8. Services also showed expansion, as did the composite figure. "The upturn is being led by Germany," Markit says, while "a long-awaited recovery seems to be taking shape in the periphery." However, a "big question mark" still hangs over France.

HSBC China PMI unexpectedly shows growth. HSBC's Chinese flash manufacturing PMI has surprisingly indicated expansion for the first time in four months in August, providing further evidence of stabilization in the economy. The figure increased to 50.1 from 47.7 in July and easily topped consensus of 48.3. Domestic demand has helped boost manufacturing activity following government measures to support growth, but export orders fell at a faster pace.

H-P shares crumple following earnings. H-P (NYSE:HPQ) swung to an FQ3 net profit of $1.39B from a loss of $8.9B a year ago, when it wrote down various assets, but shares sank 8% premarket after the company said it expects no revenue growth in FY 2014. Sales in FQ3 dropped 8% to $27.22B and missed forecasts, while EPS of $0.86 was in line. Revenue at almost all the company's divisions fell, with PC sales and Enterprise Hardware particularly hard hit. That's led to a shake-up at the latter business.

Top Stock News
PMI data gives equities a lift. U.S. stock futures and European shares (NYSEARCA:FEZ) were higher at the time of writing following the better-than-expected PMI figures out of China and the eurozone. Asian stocks were mixed, with the PMI readings offsetting concerns about when the Fed might start to taper. The FOMC minutes yesterday confirmed the bank's intention to start reducing its bond-buying, but provided little clarity about the timetable and scale while still leaving markets expecting that the tapering will begin next month.

Onyx passes Kyprolis trial data to suitors. Onyx Pharmaceuticals (NASDAQ:ONXX) has reportedly provided data from the Phase III trial of its blood-cancer drug Kyprolis to Amgen (NASDAQ:AMGN) and other potential acquirers, removing a stumbling block that had caused talks to stall. Amgen is in advanced negotiations to buy Onyx for $9.5B and had asked for the information to better assess the medicine, which is seen as a potential blockbuster. Onyx had been reluctant to provide the data, as the trial of Kyprolis is still ongoing.

Add Eli Lilly to list of China bribery suspects. Eli Lilly (NYSE:LLY) has become the latest multi-national pharmaceutical company to be accused of corruption in China, with a former senior manager reportedly saying that the firm spent over 30M yuan ($4.90M) from 2011-2012 in bribing doctors to prescribe its treatments. Illegal payments at Eli Lilly's Chinese business are widespread, the ex-manager said. The company joins GlaxoSmithKline (NYSE:GSK), Novartis (NYSE:NVS) and Sanofi (NYSE:SNY) in being accused of bribery.

U.S. expands Microsoft bribery investigation. U.S. authorities have widened a probe into possible bribery at Microsoft (NASDAQ:MSFT) and its resellers to include allegations of wrongdoing in Russia and Pakistan. In Russia, for example, resellers allegedly paid kickbacks to executives of a state-owned company to obtain a contract. The investigation initially focused on activities in China, Romania and Italy.

Wells Fargo to cut more mortgage jobs. Wells Fargo (NYSE:WFC) is slashing over 2,300 jobs at its mortgage unit, with the cuts the fourth and by far the largest round of layoffs since June. That the mortgage division is not doing great isn't new news - see Q2 earnings - but management insists that while some divisions within the bank struggle, others improve.

U.K. financial sector hit with £1.3B fine for more mis-selling. The U.K.'s Financial Conduct Authority has reached a settlement of up to £1.3B ($2.04B) with banks, credit-card issuers and insurer CPP to compensate customers for mis-sold credit-card insurance. The firms involved include Lloyds (NYSE:LYG), Barclays (NYSE:BCS), HSBC (HBC), Morgan Stanley (NYSE:MS), Santander (NYSE:SAN), Capital One (NYSE:COF) and RBS (NYSE:RBS). The agreement adds to the billions of pounds in fines that British banks have been paying for mis-selling other financial products.

UPS to end health benefits for staff spouses, blames Obamacare. UPS (NYSE:UPS) plans to cut healthcare benefits for around 15,000 working spouses of employees starting in 2014, a move that the company said is prompted in part by higher costs related to Obamacare. UPS expects an 11.25% increase in health-coverage costs in 2014 vs regular annual rises of 6-7%. The move could be a harbinger of things to come, says a director of the Employee Benefit Research Institute.

Top Economic & Other News
Resigned to taper, Fed's Rosengren wants to keep it small. With the FOMC minutes confirming the Fed's intention to taper, Boston Fed chief and dovish voting policy maker Eric Rosengren wants the Fed to keep the winding down of its QE program limited. "If you're very uncertain about how strong the improvement in the economy is, and how self-sustaining, then you should move in fairly small increments," Rosengren told the WSJ.

Emerging-market currencies continue to suffer. Emerging-market currencies have again fallen following the release of the latest FOMC minutes yesterday. The recent spike in U.S. debt yields has caused borrowing costs to increase globally, which, along with the rising dollar, has not been healthy for emerging markets with large current account deficits, such as India. The country's rupee, along with Turkey's lira, hit new record lows, while the currencies of Indonesia, Malaysia and Thailand dropped to multi-year troughs.

Incomes still worse than they were four years ago. Median household income was $52,100 in June, 6.1% below the level in December 2007, when the economic slump began, a report from two former Census Bureau officials shows. The figure is also 4.4% below the amount in June 2009, when the recession ended. "Groups with low incomes tended to have steeper declines in income," said Gordon Green, one of the authors of the report.

Iran willing to start oil price war to win back market share. Iran wants to boost oil production by 70% in an effort to retake its place as OPEC's second-largest producer and is willing to start a price war to win back market share lost through sanctions. Iran's state-run oil company is bullish about its ability to increase output, but it would probably need the return of western oil majors such as Statoil (NYSE:STO), Total (NYSE:TOT) or Eni (NYSE:E), which quit when sanctions on Iran hit.

Alpha-Rich Stock Movers and Great Calls
1) Yesterday, GFP Investments made the bull case for DGSE Companies (NYSEMKT:DGSE), stating that the stock was poised to shoot higher as business returned to historic levels. The company closed the day +22.7%. Read article »
2) On July 5, Richard Zeits warned that SandRidge Mississippian Trust 1 faced the risk of downward re-pricing due to poor well performance. The shares are -12% since. Read article »

Alpha-Rich Stocks To Watch
1) Analyst earnings estimates greatly underestimate the effect of Legg Mason's (NYSE:LM) massive buyback program. The shares have 65% upside before factoring in a potential AUM rise. Read article »
2) The potential for improving margins compounded with leverage to a housing recovery makes Techtronic (OTCPK:TTNDY) an interesting opportunity despite the shares' strong run. The stock has 25-45% potential upside. Read article »

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Today's Markets:
In Asia, Japan -0.4% to 13365. Hong Kong +0.4% to 21895. China -0.3% to 2067. India +2.3% to 18313.
In Europe, at midday, London +0.8%. Paris +1%. Frankfurt +1.1%.
Futures at 6:20: Dow +0.3%. S&P +0.4%. Nasdaq +0.55%. Crude +0.4% to $104.29. Gold -0.3% to $1366.20.

Today's economic calendar:
8:30 Initial Jobless Claims
9:00 PMI Manufacturing Index Flash
9:00 FHFA House Price Index
9:45 Bloomberg Consumer Comfort Index
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Notable earnings before today's open: AERL, ANF, BKE, BONT, CYBX, DLTR, GME, HRL, NM, PDCO

Notable earnings after today's close: ADSK, ARO, ARUN, GPS, MCRS, MENT, MRVL, P

See full real-time earnings coverage »

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