Wall Street Breakfast: More Doom And Gloom For World Markets

by: Wall Street Breakfast
Wall Street Breakfast
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Almost $3.2T has been wiped off global stocks since the start of 2016, driven by renewed jitters over China's economy and a slump in energy prices, pushing all major U.S. indexes into correction or bear market territory. Asian markets (except for China) and European bourses are keeping up the trend today after a bruising session on Wall Street that saw the S&P 500 drop 2.5% and the Nasdaq tank 3.4%. Despite looking for a comeback earlier, U.S. futures have also dipped into the sea of red.


Militants launched a gun and bomb assault killing seven people and wounding 39 in Jakarta today, in an attack that Indonesian police say has links to Islamic State. Investigators suspect a suicide bomber and up to 14 gunmen to be behind the incident. Meanwhile, the blasts and melee sent Indonesian markets tumbling. The Jakarta Composite sank as much as 1.7% and the rupiah fell 0.8% to 13,940 per dollar.

Japan's core machinery orders fell the most in 18 months in November after solid gains in prior months, as domestic demand stayed subdued and China's slowdown dimmed global growth prospects. The 14.4% fall in core orders could lead Japanese firms to further delay implementing their spending plans, diminishing policymakers' hopes of generating a growth cycle of higher incomes and investment by the private sector.

The Hong Kong dollar sank by the most in more than a decade overnight and speculation mounted in the options market that the city's 32-year-old currency peg will soon come to an end, as investors lost confidence in Chinese assets. The local dollar dropped as much as 0.21% - its biggest intraday loss since October 2003 - to a four-year low of HK$7.7761. Other currencies also took a hit. The loonie fell to its lowest level since April 2003, fueling speculation the Bank of Canada could cut interest rates as early as next week.

Brent oil prices dipped below $30/bbl during Asian trading hours, hitting a new 12-year low and putting the benchmark at a discount to U.S. crude. "I think most of the bearishness is coming from worries over Iranian sanctions being lifted. It seems to be causing panic selling in Brent," said Daniel Ang, an analyst with Phillip Futures. Prices have already tanked 20% this year and analysts vary greatly over the level and when the commodity will hit a bottom.

Lots of big news is about to fly out of Europe: The Bank of England is set to announce whether it will increase the key lending rate for the first time in more than eight years at 12:30 GMT. Since early 2009, the rate has been at a record low of 0.5%. The European Central Bank will also release minutes of its Dec. 4 meeting, at which the bank's Governing Council surprised many investors and outside experts by taking only incremental measures to further stimulate the eurozone.

Argentina's Finance Ministry will make an offer to U.S. hedge funds later this month to end a legal standoff that has locked the country out of global credit markets for more than a decade. The parties last negotiated in July 2014, when then-president Cristina Kirchner refused to comply with an order to pay holdout creditors in full. After those talks broke down, Argentina defaulted on its debt for the second time since 2002, wreaking havoc on the country's economy.


Here it comes! JPMorgan (NYSE:JPM) is set to kick off the start of bank earnings season with fourth-quarter results this morning. Wells Fargo (NYSE:WFC) and Citigroup (NYSE:C) report on Friday. While it may be too early to see the impact of higher short-term interest rates on the banks' bottom lines, investors are eagerly awaiting guidance from management about when the rate increase will start having an effect.

Following the collapse of the Third Avenue Focused Credit Fund (MUTF:TFCVX) last month, the SEC has launched a review of the entire junk-bond fund complex, Reuters reports. The agency "sent detailed requests" to mutual fund and ETF managers following the Third Avenue liquidation plan in which investors could wait a year or more to get their money. Regulators are "seeking information about how they price less liquid securities, and whether certain parties have ever challenged those prices," among other things.

Anheuser-Busch InBev has completed a $46B, seven-part bond deal to help finance its acquisition of SABMiller (OTCPK:SBMRY), in the second-largest corporate debt offering ever in the United States. As demand for the deal swelled, investors put in orders for $117B - the biggest backlog of orders ever. AB Inbev (NYSE:BUD) had initially backed the SABMiller bid acquisition with a record $75B syndicated loan.

Chipotle closed up 6% on Wednesday after executives voiced confidence that the company can rebound from its recent foodborne-disease outbreaks and announced a marketing campaign aimed at winning back customers. Several investment firms weighed in positively after the talk. Morgan Stanley said the long-term thesis is still solid, while William Blair expects the CDC investigation to close soon. Citi was also impressed, but warned Chipotle's (NYSE:CMG) earnings visibility will be tough this year.

In a move declared to be a "steeper-than-usual pruning of the firm's least-productive employees," the WSJ reports Goldman Sachs (NYSE:GS) is planning to cut up to 10% of its fixed-income traders and salespeople. Goldman typically lays off about 5% of its workforce in March, but bigger cuts are planned this year amid new regulations on risk-taking and capital. In December, Morgan Stanley (NYSE:MS) moved to cut 1,200 jobs, including 470 fixed-income and commodities traders and salespeople.

Statoil has increased its exposure to its home market by buying a big stake in Lundin Petroleum (OTCPK:LNDNY), boosting its presence in the Johan Sverdrup field, Norway's biggest offshore project in decades. The Norwegian state-controlled oil major bought 11.9% in the Swedish company for SEK4.6B ($539M) making the acquisition Statoil's (NYSE:STO) first big deal since oil prices started collapsing 18 months ago.

Volkswagen and EPA officials remain at an impasse following yesterday's talks between VW (OTCPK:VLKAY) CEO Matthias Müller and EPA chief Gina McCarthy, casting doubt over a quick resolution of the automaker's emissions cheating scandal. While the two sides gave no indication of any progress during an hourlong meeting at EPA offices in Washington, D.C., analysts say technical negotiations are continuing and there could still be a deal.

It looks like GoPro is having a tough time "being a hero." The wearable camera maker tumbled 26% in after-hours trading yesterday after trimming its guidance and announcing it would cut its workforce by about 7%. "Fourth-quarter revenue reflects lower-than-anticipated sales of its capture devices due to slower-than-expected sell-through at retailers," GoPro (NASDAQ:GPRO) said in a statement. The company now expects Q4 and FY2015 sales of $435M and $1.6B, respectively.

Samsung Electronics has started production of Qualcomm's (NASDAQ:QCOM) new smartphone processor - the Snapdragon 820 - using an upgraded, lower power version of its 14-nanometer FinFET technology. The contract will help Samsung's (OTC:SSNLF) chip foundry weather an anticipated loss of business from Apple (NASDAQ:AAPL), which is expected to shift to Taiwan Semiconductor (NYSE:TSM) for this year's model iPhone. For Qualcomm, the new processor presents a chance for the group to revive its fortunes following disappointing sales of its previous flagship Snapdragon 810 due to concerns about overheating.

WebMD, the U.S. online health information publisher, is exploring the possible sale of all or part of its business, FT reports. The company is said to be in talks with Walgreens Boots Alliance (NASDAQ:WBA) and UnitedHealth (NYSE:UNH), among other potential buyers. Since the start of the year WebMD (NASDAQ:WBMD) shares have risen 10%, giving the company a market value of close to $2B.

Ending a big battle to lure the industrial giant, Boston will be the new headquarters of General Electric (NYSE:GE), cementing the region's reputation as a magnet for innovation. GE first publicly threatened to move in July after a Connecticut budget added to what management said was an already inhospitable business climate there. It makes for a good excuse, but the company had also outgrown its campus in staid Fairfield, and Boston will no doubt be an easier spot from which to lure talent.

Today's Markets

In Asia, Japan -2.7% to 17241. Hong Kong -0.6% to 19817. China +2% to 3008. India -0.3% to 24773.
In Europe, at midday, London -2%. Paris -3%. Frankfurt -3%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.4%. Crude +1% to $30.77. Gold +0.5% to $1092.30.
Ten-year Treasury Yield flat at 2.06%

Today's Economic Calendar

8:15 Fed's Bullard:U.S. Economy and Monetary Policy
8:30 Initial Jobless Claims
8:30 Import/Export Prices
9:45 Bloomberg Consumer Comfort Index
10:30 EIA Natural Gas Inventory
1:00 PM Results of $13B, 30-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Companies reporting earnings today