Wall Street Breakfast: Equities-Oil Relationship Gets Warmer

by: Wall Street Breakfast
Wall Street Breakfast
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The relationship between stocks and the price of oil has been the subject of much investor discussion recently, and there are many ideas why this correlation might exist. Despite ample supply and record-high U.S. crude inventories, wild swings in the crude market yesterday drove Brent and WTI back above $35 and $32 a barrel. Global stocks are taking to green again following the moves, while another influx of earnings reports gets ready to hit the markets.


The risk of acting too late on ultra-low inflation is greater than that of acting too early as a wait-and-see stance could lead to a lasting loss of confidence, ECB President Mario Draghi said at a Bundesbank event in Frankfurt. "And if that were to happen, we would need a much more accommodative monetary policy to reverse it," he added. "Seen from that perspective, the risks of acting too late outweigh the risks of acting too early." Euro +0.6% to $1.1171.

The Trans-Pacific Partnership has been signed in New Zealand by ministers from its 12 member nations, but the massive trade pact will still require years of tough negotiations before it becomes a reality. The deal will now undergo a two-year ratification period in which at least six countries - that account for 85% of the combined gross domestic production of TPP members - must approve the final text for the agreement to be implemented.

Florida Governor Rick Scott has declared a state of emergency in four counties where people have been diagnosed with the Zika virus. While nine cases of the mosquito-borne illness have been detected in the state, health officials believe all of the viruses were contracted while traveling to affected countries. The disease, for which there is no vaccine and no specific cure, has been linked to a recent surge of birth defects in Brazil.

Argentina's New York-law sovereign bonds outperformed on Wednesday thanks to growing belief that a settlement with the country's holdout creditors could be in the cards. "Some progress was made today. Discussions will continue tomorrow," said Daniel Pollack, the court appointed mediator. Thursday's talks between Argentine Finance Secretary Luis Caputo and various holdouts will mark the fourth straight day of meetings between the two sides in the dispute.

The United Nations has suspended Syria peace talks until later this month, after Syrian government forces (backed by Russian air strikes) sharply escalated an offensive by cutting off rebel supply lines between the northern city of Aleppo and Turkey. The civil war, which has killed 250K people over five years and forced millions of others to flee their homes, has confronted Europe with a growing migrant crisis and rising threat of terrorism.


Royal Dutch Shell has become the latest big energy company to file a damage report on the impact of depressed crude prices, saying that fourth-quarter profit fell 44% to $1.8B. "Shell will take further impactful decisions to manage through the oil price downturn, should conditions warrant that," Chief Executive Ben van Beurden said in a statement. The company also announced a Q4 dividend of $0.47 per ordinary share and $0.94 per ADS. RDS.A +4.6%; RDS.B +5% premarket.

More European earnings: Credit Suisse (NYSE:CS) reported its first annual loss since 2008 as it wrote off billions of dollars in goodwill, set aside litigation provisions and suffered a trading downturn. Statoil (NYSE:STO) slashed its capital spending budget but said it would keep its dividend steady after topping fourth quarter expectations. Driven by a robust performance in its retail and wholesale divisions, ING posted a better-than-expected Q4 and announced a full-year dividend of €0.65 per share. AstraZeneca (NYSE:AZN) expects low to mid-single digit percentage drops in earnings this year, in part due to a flood of generic cholesterol drugs. Vodafone (NASDAQ:VOD) met expectations with a 1.4% rise in revenue during FQ3, its sixth consecutive quarter of growth, as a recovery in Europe gained pace.

Weatherford has announced in its Q4 earnings report that it'll lay off another 6,000 employees and close nine manufacturing/service facilities in 2H16. The latest round of cuts brings to 20K the number of workers who have been or will be released by the world's fourth largest oilfield services supplier. Weatherford (NYSE:WFT) also set a capital expenditure target of $300M for this year, about 56% lower than its 2015 spending.

Sharp has decided to enter exclusive talks with Foxconn Technology (OTC:FXCOF) regarding a takeover, choosing the Taiwan firm's offer over a rescue plan from government-backed Innovation Network of Japan. The decision comes after months of uncertainty over the fate of the company, whose display business has continued to suffer massive losses despite two major bailouts. According to broadcaster NHK, Foxconn offered over ¥700B ($5.9B) for Sharp (OTCPK:SHCAY), more than double the amount of investment proposed by INCJ.

Toshiba expects to record the biggest annual loss in its 140-year-old history as the firm wrote down the book value of several units, including energy and infrastructure, while restructuring costs ballooned. For the full fiscal year ending in March, Toshiba (OTCPK:TOSYY) predicted it would record a net loss of ¥710B ($6b), larger than the previous ¥550B net-loss forecast in December. After a major accounting scandal last year, CEO Masashi Muromachi began to implement across-the-board shake-ups, including cutting thousands of jobs and spinning off non-core businesses.

Shortly after Yahoo confirmed it's exploring "additional strategic alternatives" while pushing ahead with the reverse spinoff of its core business, the FT reports Bain, TPG, and other P-E firms are weighing potential bids for core Yahoo (NASDAQ:YHOO). The paper adds AT&T (NYSE:T) and InterActiveCorp (NASDAQ:IAC) "are also believed to be examining the company." YHOO +1.1% premarket.

New tech acquisitions: Microsoft (NASDAQ:MSFT) is buying iOS/Android keyboard developer SwiftKey for a reported $250M. The company's keyboard apps have over 300M users and are declared to have "saved nearly 10T keystrokes, across 100 languages" with the help of A.I. that learns a user's typing tendencies to predict his/her next word. Meanwhile, Cisco (NASDAQ:CSCO) is purchasing "Internet of Things" service provider Jasper for $1.4B in cash, plus assumed equity awards and retention-based incentives.

Chinese hackers attempted to access over 20M active accounts on Alibaba's (NYSE:BABA) Taobao e-commerce website, according to The Paper, using the company's own cloud computing service. Analysts said the report led to the price of Alibaba's U.S.-listed shares falling as much as 3.7% in late Wednesday trade. Chinese companies are grappling a sharp rise in the number of cyber attacks, and security experts say firms have a long way to go before defenses catch up to U.S. counterparts.

Honda is adding 2.23M vehicles to its recall in North America of late-models equipped with potentially defective Takata (OTCPK:TKTDY) air bags. Since 2008, the automaker has called back more than 6M U.S. cars to replace Takata inflators that could rupture. Of the nine American deaths linked to the devices, eight have come in Honda (NYSE:HMC) vehicles.

Toyota is winding down its Scion brand in the U.S., ending a 12-year effort to create a separate identity for small cars aimed at younger buyers. The carmaker will start rebadging three 2017 model Scion cars as Toyotas (NYSE:TM) starting in August, while the tC small coupe will go out of production. Scion sales peaked at 173,034 vehicles in 2006, but have trended down since.

As previously expected, Poland has decided to scrap a $3B deal for 50 Airbus (OTCPK:EADSY) utility helicopters and will buy only a few aircraft from the European company, Rzeczpospolita reports. The move, coming months before a NATO summit in which Poland is expected to seek more allied presence on its territory, could strain Warsaw's ties with France and delay a military program.

Executive moves: Amit Singhal, head of Google's (GOOG, GOOGL) Internet search business, is retiring, and will be replaced by artificial intelligence chief John Giannandrea. Media mogul Sumner Redstone has resigned as chairman of CBS, and will be succeeded by CEO Leslie Moonves. Richard Anderson, Delta's (NYSE:DAL) chief executive since 2007, is retiring on May 2 (he'll remain with the company as executive chairman of the board).

Nestle has agreed to buy out Osem Investments (OTC:OSEMF), Israel's largest publicly-traded foodmaker, for about 3.3B shekels ($840M), returning to acquisitions in the industry after a series of divestments. Nestle (OTCPK:NSRGY) will pay Osem investors 82.50 shekels a share to buy the 36.3% stake it doesn't already own, the Swiss company said in a statement. According to Bloomberg, the purchase is Nestle's biggest food acquisition since 2012.

DraftKings is planning to launch in the U.K. as it searches for international revenues to "mitigate the risk" of being regulated out of its home market. Millions of British users play fantasy sports, where prizes are typically handed out at the end of a season. But DraftKings (Private:DRAFT) and its main rival Fanduel (Private:DUEL) have pioneered daily contests, played over the course of a single round of matches.

Several big hearings are also on the calendar for today. A House committee will listen to testimony from Valeant's (NYSE:VRX) interim CEO Howard Schiller over the rapid increase in drug costs. Martin Shkreli, who has likewise been criticized for big price hikes, will also attend the hearing, but is expected to exercise his Fifth Amendment rights and not answer questions. Separately, British futures trader Navinder Singh Sarao will head to court to determine whether he will be extradited to the U.S. for causing the 2010 Wall Street "flash crash."

Wednesday's Key Earnings

Buffalo Wild Wings (NASDAQ:BWLD) -1.7% AH on light revenue.
Comcast (NASDAQ:CMCSA) +6% after a big boost in video customers.
General Motors (NYSE:GM) -2.4% on fears auto sales will peak in 2016.
GoPro (NASDAQ:GPRO) -9% AH following weak guidance, CFO change.
Merck (NYSE:MRK) -0.7% on mixed results.
Metlife (NYSE:MET) -2.2% AH stung by poor investment performance.
Mondelez (NASDAQ:MDLZ) -6.5% following a soft outlook.
Yum Brands (NYSE:YUM) -1.5% AH as revenues fell short.

Today's Markets

In Asia, Japan -0.9% to 17045. Hong Kong +1% to 19183. China +1.5% to 2781. India +0.5% to 24338.
In Europe, at midday, London +1.4%. Paris +0.5%. Frankfurt +0.6%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude +0.8% to $32.55. Gold +0.5% to $1147.10.
Ten-year Treasury Yield +2 bps to 1.9%

Today's Economic Calendar

Chain Store Sales
7:30 Challenger Job-Cut Report
8:30 Initial Jobless Claims
8:30 Productivity and Costs
8:30 Gallup Good Jobs Rate
9:45 Bloomberg Consumer Comfort Index
10:00 Factory Orders
10:30 EIA Natural Gas Inventory
4:30 Money Supply
4:30 Fed Balance Sheet

Companies reporting earnings today