Wall Street Breakfast: BOJ Goes Sub-Zero In The Heart Of Winter

by: Wall Street Breakfast
Wall Street Breakfast
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The Bank of Japan shocked financial markets overnight by adopting negative interest rates for the first time ever, in a desperate attempt to kick start the world's number three economy. A rate of -0.1% will now apply to excess reserves parked at the central bank, which will extend the policy "as long as it is necessary." The decision saw global shares jump, the yen fall and sovereign bonds rally, and comes a day after the surprise resignation of Economy Minister Akira Amari.


U.S. economic growth likely braked sharply in Q4 as businesses doubled down on efforts to reduce an inventory glut and unseasonably mild weather cut into consumer spending. The consensus calls for an 0.8% rise (from a 2% advance last quarter), but some forecasters think the number could come in well below that, or even show a contraction for the period. If that happens, it would lower the average rate of growth for all of last year to well under 2%. The Commerce Department will release the GDP figure at 8:30 a.m. ET.

Puerto Rico plans to propose a debt exchange to investors today, offering to swap existing bonds for two new types of securities to help the U.S. commonwealth alleviate its debt burden. Both classes of debt would delay payments, giving the island time to make fiscal adjustments and spur economic growth. One would eventually pay interest at 5%, while the other would carry a value determined by Puerto Rico's fiscal health.

The World Health Organization is ringing a global alarm over the Zika virus, saying that the disease is "spreading explosively" in the Americas, and will convene a special meeting on Monday about whether to declare a public health emergency. While there is no approved vaccine, U.S. health officials and drugmakers could start working on an experimental one soon. Both GlaxoSmithKline (NYSE:GSK) and Sanofi (NYSE:SNY) are considering developing a treatment.

France emerged from three years of stagnation in 2015, helped by cheap energy prices and low interest rates, but the growth was still not enough to curb rising unemployment. The eurozone's second-largest economy grew 1.1% last year, despite consumers tightening their purse strings during Q4 in the aftermath of the Paris attacks. Separate data showed that the Spanish economy grew 3.2% in 2015, one of the fastest rates of expansion in the eurozone and a clear sign that the country's economic recovery remains on track.

Euro-area inflation accelerated in January, providing a reprieve for European Central Bank officials that may prove temporary as commodity prices continue their descent and emerging markets slow. According to the EU's statistics office, consumer prices rose an annual 0.4%, after a 0.2% gain last month. Economists are still expecting the ECB to press the button on further stimulus as soon as March following a dovish meeting of the central bank last week.


IBM Chief Executive Virginia Rometty is getting a $4.5M performance bonus for 2015, despite 15 straight quarters of plummeting revenues and other ongoing financial struggles. Rometty's total earnings for the year won't be clear until IBM discloses the value of certain equity grants, but her bonus was $900K more than the $3.6M she earned last year. Her base pay for 2016 remains unchanged at $1.6M, with $13.3M in long-term incentive stock awards.

Sony's fiscal third-quarter net profit jumped 33.5% to ¥120.1B from a year earlier, heavily beating analyst expectations. Strong sales of PlayStation videogame titles - in addition to movies - compensated for weakness at its struggling smartphone business. However, Sony's (NYSE:SNE) device unit (which includes image sensors), recorded an operating loss of ¥11.7B, with sales hurt by flagging global demand for mobile devices and the unit's R&D efforts.

Apple is working with partners in the U.S. and Asia to develop new wireless charging technology that could be deployed on its mobile devices as soon as next year, sources told Bloomberg. Will it be enough of a holy grail to change the industry dynamic? Most current technology requires devices to be laid on mats or close to docks while charging, but the company is seeking a method that allows gadgets to be wirelessly charged further away. AAPL +0.6% premarket.

Xerox plans to split into two companies and give activist investor Carl Icahn three board seats, according to WSJ. One of the companies will house Xerox's (NYSE:XRX) hardware operations and the other its services business. Icahn disclosed a 7.1% stake in the printer and copier maker in November, calling its shares "undervalued".

In the wake of a critical regulatory inspection report, Walgreens (NASDAQ:WBA) is suspending some ties with Theranos, temporarily closing its Wellness Center in Palo Alto, California. Is the drugstore tie-up on the rocks? Walgreens in October suspended plans to open more Theranos Wellness Centers on reports that its proprietary lab instrument handled just a fraction of tests, and that the company had stopped collecting finger prick blood samples for all but one of its more than 240 checks.

Viacom Executive Chairman Sumner Redstone is about to undergo an examination by a doctor hired by an ex-girlfriend in a lawsuit that challenges his mental competency, Reuters reports. Investors are closely following the lawsuit by Manuela Herzer, who alleges that Redstone was mentally incompetent when he removed her as his designated healthcare agent last October in favor of Viacom (VIA, VIAB) CEO Philippe Dauman. Redstone's primary physician, Dr. Richard Gold, previously stated he was fully aware of what he was doing at the time.

James Murdoch is returning as the chairman of Sky, four years after a phone-hacking scandal forced him out, cementing his status as heir apparent at his father's media empire. Murdoch's return to a senior role in Britain could fuel speculation that Twenty-First Century Fox (NASDAQ:FOXA), the global media group he runs from New York, may seek to buy all of Sky instead of just the 39% it currently holds.

Brookfield Asset Management - through a number of entities - already owns about 34% of General Growth Properties (NYSE:GGP), and is in talks with a number of potential partners about taking the $24B mall operator private, according to Reuters. Brookfield (NYSE:BAM) also recently made a $17 per share offer for Rouse Properties (NYSE:RSE) which was spun off from General Growth in 2012. GGP +1.7% premarket.

PetroChina, China's largest oil company, has warned its net profit for 2015 could be as much as 70% lower than the previous year, in the latest sign of how the sharp slide in oil prices is hitting the industry's profitability. PetroChina (NYSE:PTR) is far from alone. Royal Dutch Shell (RDS.A, RDS.B) said earlier this month that it expects fourth quarter profits to slide by at least 40% because of the crude price slump.

DuPont will face 40 trials a year beginning in April 2017 involving plaintiffs who say they developed cancer from a toxic chemical that leaked from one of the company's plants in West Virginia. The schedule, determined during a hearing on Wednesday, is aimed at pushing the parties closer to resolving more than 3,550 lawsuits. The outcome could also have a material impact on Chemours (NYSE:CC), since liability connected to C-8 (perfluorooctanoic acid) was passed on to the firm after it was spun off by DuPont (NYSE:DD) last year.

Accelerating its self-driving efforts, General Motors (NYSE:GM) is creating a new team to focus on autonomous vehicles and put the technology on the road. The unit is being formed under Doug Parks, who will shift from VP of global product programs to VP of autonomous technology and vehicle execution on Feb. 1. Earlier this month, GM said it was investing $500M in ride-hailing company Lyft (Private:LYFT), and unveiled a new car-sharing service called Maven.

Toyota has confirmed it will buy out the rest of Daihatsu (OTCPK:DHTMY) - a move that will help it better leverage the lower-cost brand - by swapping 0.26 of its own shares for each share of the minivehicle maker. Toyota (NYSE:TM) currently owns 51.2% of Daihatsu, which had the weakest sales performance across its entire group last year, lagging behind its flagship brand, Lexus and truck maker Hino Motors (OTCPK:HINOY).

Takata's top executive has no intention to resign yet, after much speculation that Chairman and CEO Shigehisa Takada was willing to step down and take responsibility for a massive safety recall. Pressure has been building on Takata (OTCPK:TKTDY) for almost two years over defective air bags that can explode with excessive force and shoot shrapnel inside the car - a problem that has ballooned into a crisis affecting nearly 50M vehicles.

Volkswagen may have to buy back some American diesel cars if it can't make them compliant with air quality rules fast enough, company lawyer Robert Giuffra said during a hearing in San Francisco. In Europe, where most of the affected 11M vehicles are, VW (OTCPK:VLKAY) is planning to update the engine software and in some cases add a part intended to reduce emissions by improving air flow into the engine. That solution won't work in the U.S. because of stricter limits on nitrogen oxide.

Thursday's Key Earnings

Abbott (NYSE:ABT) -9.3% on a shrinking top line.
Alibaba (NYSE:BABA) -3.9% upon feeling a China slowdown.
Altria (NYSE:MO) +1.1% after gaining cigarette market share.
Amazon (NASDAQ:AMZN) -10.6% AH as record profit still missed estimates.
Amgen (NASDAQ:AMGN) hardly moved after raising guidance.
Caterpillar (NYSE:CAT) +4.7% on a strong profit forecast.
Celgene (NASDAQ:CELG) -5% following an earnings miss.
Enterprise Products (NYSE:EPD) +7.6% on higher distributable cash flow.
Ford (NYSE:F) -1.2% following a margin warning.
Microsoft (NASDAQ:MSFT) +3.7% AH beating estimates, slowing a Windows decline.
Skyworks Solutions (NASDAQ:SWKS) +3.7% AH after topping expectations.
Under Armour (NYSE:UA) +22.5% as footwear sales doubled.
Visa (NYSE:V) +2.7% AH on higher payments volume.

Today's Markets

In Asia, Japan +2.8% to 17518. Hong Kong +2.5% to 19683. China +3.1% to 2738. India +1.6% to 24871.
In Europe, at midday, London +0.9%. Paris +0.6%. Frankfurt +0.4%.
Futures at 6:20, Dow +0.7%. S&P +0.7%. Nasdaq +0.6%. Crude +0.2% to $33.29. Gold -0.4% to $1112.20.
Ten-year Treasury Yield -6 bps to 1.92%

Today's Economic Calendar

8:30 GDP Q4
8:30 International trade in goods
8:30 Employment Cost Index
9:45 Chicago PMI
10:00 Reuters/UofM Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
3:00 PM Farm Prices

Companies reporting earnings today