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Wall Street Breakfast: Must-Know News

Mar 17 2011, 07:15 by: SA Editor Yigal Grayeff  |  includes: AMZN, EBAY, FDX, FISV, GES, GLD, KO, MS, PEP, PFE, QQQ, SPY, TGT, TXN, USO, V, WMT

  • Japan battles to prevent nuclear meltdown. Hundreds of workers and army personnel are racing to prevent a meltdown at the stricken Fukushima Daiichi power station, with military helicopters dumping water on the reactors in an attempt to cool exposed fuel rods that may be spewing radiation. The Tokyo Electric Power Company, the operator of the facility, plans to connect a power line to start damaged cooling systems and to spray water from a cannon used by the police for riot control. The number of dead and missing following Japan's earthquake and resulting tsunami is officially over 14,000, although it is likely to be much higher, while the number of those staying in shelters is 380,000.
  • Fear of nuclear disaster causes market turmoil. The yen surged to a record high against the dollar and Japanese shares fell today after a respite yesterday as worries about a nuclear catastrophe gripped markets. The yen spiked 4% and reached 76.25 to the dollar, initially on speculation that Japanese insurers would repatriate funds to pay for massive claims following the earthquake, although it then fell back and was at ¥78.71 in midday trading in Europe. The Nikkei 225 closed -1.4% at 8,962.67 while the broader Topix index reversed an earlier 4.3% drop to reach +0.3%. The falls in Japan followed a tumultuous trading day on Wall Street yesterday which saw the S&P 500 and Nasdaq enter negative territory for the year, although U.S. stock market futures rose overnight (see details below). The Bank of Japan injected another ¥6T ($76.7B) into short-term credit markets, adding to the ¥40T it has pumped in this week. Finance ministers and central bankers from G7 countries are expected to discuss the impact of Japan's deepening crisis in a conference call later this evening.
  • Gaddafi bombs rebel capital. Libyan airforce planes have bombed the airport in Benghazi, the rebel capital, as Muammar Gaddafi edges closer to putting down the month-old uprising in the country. Even as the international community debated a no-fly zone and the U.S. called for air strikes on Gaddafi's forces, his son, Saif al-Islam, predicted the conflict would be over within 48 hours. Elsewhere, authorities in Bahrain and Yemen put down protests. The unrest in the Middle East and the events in Japan are pulling crude oil prices in different directions. Oil futures rose for a second day in New York yesterday, and are now +1.6% to $99.52 (7:00 ET).
  • FDIC losses on failed banks nears $9B. The FDIC had spent $8.89B as of the end of January under loss-sharing agreements signed during the financial crisis. The tab covers losses on loans and other assets at 165 failed banks that were bought by stronger competitors, though the FDIC has actually signed loss-sharing agreements covering 236 financial institutions and putting the FDIC on the line to potentially assume most future losses on $160B of assets. The FDIC expects to make an additional $21.5B in payments from 2011 to 2014, with more than half of that total predicted for this year.
  • Pfizer recalls newly-acquired drug. Pfizer (PFE) issued a recall for an opioid painkiller it acquired just weeks ago when it completed its $3.6B purchase of King Pharmaceuticals. The drug, called Embeda, may be unavailable for many months because of formulation problems. Though Embeda was a relatively small sales engine with annual sales of less than $70M, it's an embarrassing development for Pfizer, and the fourth recall of the drug for formulation problems.
  • Congress to extend budget negotiations. The Senate is poised to pass a sixth stop-gap bill to keep the government running, buying Congress until April 8 to work out a budget deal that should have been in place months ago. The House approved the extension on Tuesday. Despite continued negotiations, there's still a difference of $50B between Democrats' and Republicans' spending plans.
  • Major retailers pushing to end Amazon's sales tax break. Wal-Mart (WMT), Target (TGT) and other leading retailers are ratcheting up a campaign to force Amazon (AMZN) to collect sales taxes. The chains are backing a coalition called the Alliance for Main Street Fairness, which is leading efforts to change sales tax laws in more than a dozen states, including Texas and California. The retailers could have a good chance of succeeding, due to budgetary problems at states across America and their need for increased revenues. Amazon argues that under a 1992 Supreme Court ruling, only merchants with a physical presence in a state, such as stores, have to collect sales taxes.
  • Zynga raises $500M as interest in online start-ups soar. Social-game maker Zynga has reportedly closed a massive $500M investment round, including from Morgan Stanley (MS) and Fidelity Investments. The news comes as institutional investors compete to buy shares in Facebook from employees - with the company being valued at $60B-$75B in talks - and LivingSocial closes in on a $400M-$500M round. Over the past few months, interest in these companies has soared, bringing in Wall Street money and spurring talk of a bubble. However, unlike the dot-coms of ten years ago, the new crop of Web firms have attracted a large user base and are generating revenue.
  • Nuclear crisis delaying IPOs. The global market volatility caused by the nuclear crisis in Japan is causing companies around the world to delay or reduce IPOs. Lagardere (LGDDF.PK), France's largest publisher, yesterday postponed the €1B-€1.8B flotation of its 20% stake in broadcaster Canal Plus France, while Denmark's ISS, the world’s largest cleaning-service provider, cut the top end of its IPO price range by about 19%. The $10B listing of commodities trader Glencore is also threatened and Apollo Global Management has reportedly postponed releasing the terms of a $500M share sale. A Renaissance Capital analyst predicts the effects of Japan will probably be temporary, although the founder of IPOX Capital Management says deals could get cancelled if the crisis is prolonged.
  • Visa to let people use credit cards to pay each other. Visa (V) is creating a service that will allow consumers to pay each other with their debit, credit and pre-paid Visa cards. Visa is partnering with technology providers Fiserv (FISV) and CashEdge to offer the service, which will also enable people to send money via a recipient's mobile phone number or e-mail address. With 1.85B Visa cards in circulation, the service could pose a substantial threat to PayPal (EBAY) and the handful of other companies that operate in the increasingly competitive field of person-to-person payments.
  • Diet Coke fizzes past Pepsi. U.S. sales of Diet Coke (KO) overtook those of Pepsi-Cola (PEP) for the first time in 2010, making Diet Coke the country's No. 2 carbonated soft drink behind Coca-Cola. Industry figures are expected to confirm the rankings today, which would mark a major coup for The Coca-Cola Company in its long-running rivalry with PepsiCo.
  • February CPI seen unchanged at +0.4%. February CPI and industrial production figures are due out today, with economists surveyed by Bloomberg expecting inflation to have risen 0.4% for the third consecutive month. Core prices, which exclude food and fuel - and for which the New York Fed's William Dudley got into trouble last week - are projected to have risen 0.1% last month after a 0.2% gain in January. The median estimate for industrial production is +0.6% after a 0.1% decrease in January, as rising orders at companies such as Texas Instruments (TXN) show factories are bolstering a recovery that the Fed this week said was on a 'firmer footing.'

Earnings: Wednesday After Close

  • Guess? (GES): FQ2 EPS of $1.11 beats by $0.05. Revenue of $757M (+18% Y/Y) beats by $32M. Shares -5.5% AH. (PR)

Today's Markets

  • In Asia, Japan -1.4% to 8963. Hong Kong -1.8% to 22284. China -1.1% to 2897. India -1.1% to 18150.
  • In Europe, at midday, London +0.5%. Paris +1.0%. Frankfurt +0.5%.
  • Futures at 7:00: Dow +0.45%. S&P +0.7%. Nasdaq +0.55%. Crude +1.6% to $99.52. Gold +0.5% to $1403.40.

Thursday's Economic Calendar

The SA Currents team contributed to this post.


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Yigal Grayeff submits: