Wall Street Breakfast: Iraq Crisis, Bond Yields, GE Bid

by: Wall Street Breakfast
Wall Street Breakfast
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Euro zone bond yields returned to historic lows, after the Fed displayed a dovish outlook on its monetary policy yesterday. Earlier this week, longer-dated euro zone bonds sold off as higher-than-expected U.S. consumer price inflation put forward the possibility the Fed may raise rates. Italian and Spanish 10-year yields fell 7 basis points to 2.78% and 2.69% respectively. Yields on top-rated euro zone bonds were 3-4 bps lower.

Crude futures in Asia climbed higher today, after data was revealed showing a 579k barrel decrease in U.S. weekly oil stockpiles, and a growing crisis in Iraq. Still, U.S. domestic crude production is currently its highest in 28 years. The Obama administration is also signaling that Iraqi Prime Minister Nouri al-Maliki should step down, stating he is unable to stabilize the region.

With the escalating violence in Iraq and uncertainty of future crude oil prices, TransCanada’s (NYSE:TRP) Keystone XL pipeline is once again the center topic of discussion. Supporters of the project are pointing to the tensions in Iraq as a reason to push forward with the $5.3B pipeline, which has faced numerous delays in the last six years. Yesterday, the Senate Energy and Natural Resources committee voted 12-10 to advance the bill toward a construction approval.

As part of tougher increasing changes in Swiss banking rules, the Swiss National Bank has praised UBS (NYSE:UBS) and Credit Suisse (NYSE:CS) for increasing their capital, but urged the two to improve their leverage ratios. UBS has already shifted from large parts of riskier debt-trading activities towards private banking. Credit Suisse also said last month that it will start paying out approximately half its profits to shareholders once it hits its 10% key capital ratio.

Rolls-Royce has announced it will repurchase $1.7B shares, due to no major acquisitions being seen in the near future. "As no material acquisitions are planned, and reflecting the strength of our balance sheet, we will return the proceeds of the Energy sale to our shareholders," says CEO John Rishton. In May, Rolls-Royce (OTCPK:RYCEY) sold its industrial gas turbine business to Siemens (OTCPK:SIEGY) for £785M. The transaction should be completed this year.

Russia says it will now lower the deposit requirements for Visa (NYSE:V), MasterCard (NYSE:MA), and other foreign card companies, after increasing their security deposits to 25% of their average daily turnover in May. The increase last month came after Russia faced sanctions over Ukraine, which required payment operators to pay a large security deposit to the central bank.

An investor group led by Pimco and BlackRock (NYSE:BLK) has filed a lawsuit against the trustee units of Detusche Bank (NYSE:DB), U.S. Bancorp (NYSE:USB), Wells Fargo (NYSE:WFC), HSBC, and Bank of New York Mellon (NYSE:BK) over their role in enforcing terms on more than 2K mortgage-backed bonds between 2004 and 2008. The group is seeking damages for losses on paper that have surpassed $250B, and is claiming the banks breached their duty to the bondholders.

T-Mobile is launching two new services, including free data for streaming music, and a free loaner iPhone to test its network for a week. Subscribers will now be able to listen to music from websites such as Spotify and Pandora without it counting towards their data use. After T-Mobile's (NASDAQ:TMUS) stock dropped by -3.26% last month, the company is looking for ways to differentiate its service packages from competitors.

L'Oreal has signed an agreement to purchase NYX Cosmetics, a Los Angeles-based company. The former has been looking to increase its U.S. brands, and NYX Cosmetics fit the bill. NYX Cosmetics has $93M in sales from the beginning of the year till the end of May, up 57% for the same period in 2013. L'Oreal (OTCPK:LRLCF) is on course to spend more than $5B on acquisitions in the first half of 2014.

General Electric will update its bid today for Alstom (OTCPK:ALSMY), after the French government called on the U.S. conglomerate to improve its offer. It is suspected that GE (NYSE:GE) will offer to sell its rail signaling business which brings in a revenue of €600, in exchange for most of the Alstom's energy business. Under the new deal, the latter will probably remain a partial shareholder.

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Today's Markets:
In Asia, Japan +1.6% to 15361. Hong Kong -0.1% to 23168. China -1.6% to 2024. India -0.2% to 25202.
In Europe, at midday, London +0.8%. Paris +0.9%. Frankfurt +0.8%.
Futures at 6:20: Dow flat. S&P flat. Nasdaq +0.1%. Crude +0.3% to $106.24. Gold +0.7% to $1281.90.
Ten-year Treasury Yield -1 bps to 2.58%

Today's economic calendar:
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:00 Philly Fed Business Outlook
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Notable earnings before today's open: BBRY, IHS, KR, PIR, RAD

Notable earnings after today's close: ORCL, SWHC, TIBX

See full real-time earnings coverage »

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