Wall Street Breakfast: Iran Strikes Back As OPEC Ups Pressure

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Includes: AAPL, ACDVF, AZN, BA, BDRAF, BDRBF, BHI, BRK.A, BRK.B, CHK, CRARY, CVX, DVN, ESRX, FDX, GLNCY, KMI, LL, NOC, NRG, ON, QQQ, RAX, SPY, TNTEY, UPS
by: Wall Street Breakfast
Wall Street Breakfast
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Iran appears to be taking a tough line in talks among oil producers on restraining production, despite countries including Saudi Arabia and Russia pledging on Tuesday to maintain their output at January levels. "Asking Iran to freeze its oil production level is illogical...when Iran was under sanctions, some countries raised their output and they caused the drop in oil price," Iran's OPEC envoy, Mehdi Asali, told the Shargh daily newspaper. "How can they expect Iran to cooperate now and pay the price?" The news comes as OPEC President Al-Sada, and Venezuelan and Iraqi officials meet in Tehran for talks aimed at forming the first global oil production deal in 15 years.

Economy

The FOMC is poised to issue the minutes from its meeting in January, where the Federal Reserve declared it still intended to raise interest rates gradually, but was "closely monitoring" market developments. While the transcript is likely to underscore reasons for confidence, that's not likely to change minds on Wall Street, where there is a growing conviction the Fed is once again overestimating the strength of the economy. What else is on tap for today? The producer price index, housing starts, industrial production data, and Fed President James Bullard will give a speech in St. Louis on the U.S. economy/monetary policy.

Former Goldmanite and TARP czar, and now Minneapolis Fed President, Neil Kashkari declared yesterday that the time is right for Congress to go further than Dodd-Frank "with bold, transformational solutions to solve [too big to fail] once and for all." Lawmakers, he said, should break up the largest banks into "smaller, less connected, less important entities." Other options would be turning the large lenders into public utilities by forcing them to hold so much capital that they can't fail, or taxing leverage throughout the financial system.

Puerto Rico's Senate has passed a bill aimed at overhauling the island's troubled power utility PREPA, pushing the agency a step closer to finalizing a deal with creditors to restructure more than $8B debt. The bill now heads to Governor Alejandro Garcia Padilla to be signed. Righting PREPA's ship is seen as a key step in fixing Puerto Rico, but the U.S. territory is still concerned about its ability "to continue" because its Government Development Bank is at risk of missing debt payments.

U.S. and Cuban officials have signed an agreement that provides for the reopening of scheduled air services between the two nations for the first time in more than 50 years. The move is expected to set off a scramble among American carriers to win route rights to serve Havana, which will be capped at 20 round trips a day from anywhere in the U.S. According to the Department of Transportation, airlines must make their applications by March 2, with final comments and answers due March 21.

China has deployed an advanced surface-to-air missile system to one of the disputed islands it controls in the South China Sea, through which more than $5T in global trade passes every year. News of the missile deployment came as President Obama and leaders of the Association of Southeast Asian Nations concluded a summit in California, where they agreed that any territorial disputes there should be resolved peacefully and through legal means.

Stocks

Warren Buffett has disclosed a new investment in pipeline operator Kinder Morgan (NYSE:KMI), boosting his bet on the oil industry as crude prices hover near 12-year lows. Berkshire Hathaway (BRK.A, BRK.B) opened a new 26.5M share stake in the energy infrastructure company during Q4, translating into stock worth roughly $395.9M at year end. The Oracle's blessing shot Kinder Morgan shares up 9.4% in after-hours trading on Tuesday.

George Soros also added a position in Kinder Morgan (KMI) during the fourth quarter. According to a 13-F filing, the activist investor purchased 50.7K shares of the company, bought 685K shares in Baker Hughes (NYSE:BHI), but exited stakes in several other energy-related companies, such as Chevron (NYSE:CVX), Chesapeake Energy (NYSE:CHK) and NRG Energy (NYSE:NRG). Kinder Morgan on fire? David Tepper's Appoloosa Management likewise purchased 9.4M shares of KMI during Q4.

Looking to reduce its $30B debt load, Glencore (OTCPK:GLNCY) has received $8.4B in commitments from its senior banks, and signed $7.7B in covenant-free commitments, to replace its $8.45B credit facility. The new facility has a 12-month extension option, out to May 2018. So far, Glencore has raised $8.7B by suspending dividend payments, cost cutting, asset sales, and a $2.5B share offering. Glencore +9% in London.

Boeing is evaluating all legal options after losing a challenge to the U.S. Air Force's decision to award a new $80B-plus bomber contract to Northrop Grumman (NYSE:NOC). The company is likely to decide within days or weeks at the latest on its next steps, Reuters reports. Separately, China-based Okay Airlines has put in an order for up to 20 Boeing (NYSE:BA) planes at this week's Singapore Air Show in a deal valued at $1.3B at list prices.

Big news from Bombardier...The planemaker plans to cut about 7K jobs from its workforce of about 64K, as it reported fourth-quarter profit that fell short of analysts' estimates, while signing a letter of intent for Air Canada (OTCQX:ACDVF) to buy at least 45 of its C Series jets. Bombardier (OTCQX:BDRAF, OTCQX:BDRBF) layoffs will occur during the next two years and result in restructuring charges of as much as $300M. The Air Canada deal, while not a firm order, represents a list value of about $3.8B.

UPS is likely to file an appeal against Brazilian regulator CADE's decision to clear FedEx's (NYSE:FDX) takeover of TNT Express (OTCPK:TNTEY), sources told CTFN, saying the move could come as soon as today. According to CADE's agenda, lawyers from the delivery company met up with three Tribunal commissioners last week. UPS, which tried to acquire TNT in 2012, is the only competitor eligible for an appeal, since it's classified as the only "third party" interested in the case.

After posting fourth-quarter earnings that beat estimates, Credit Agricole (OTCPK:CRARY) said it would sell back stakes in more than three-dozen regional banks to "simplify its structure" and provide more "financial flexibility." The €18B ($20B) transaction will increase Credit Agricole's common equity tier 1 ratio to 11%, and will ensure the lender can offer an all-cash dividend. The restructuring also highlights the burden on European banks to fortify their balance sheets amid volatile markets and continuing pressure from regulators. Credit Agricole +12% in France.

AstraZeneca has received fast-track U.S. regulatory designation for a particular application of its most promising cancer drug - durvalumab. The Breakthrough Therapy designation by the FDA is a win for the innovative immuno-oncology treatment that helps empower a patient's immune system to attack bladder cancer. Across all applications, current consensus forecasts point to durvalumab generating revenues of over $1.5B for AstraZeneca (NYSE:AZN) by 2020.

Lumber Liquidators CEO John Presley says he has leukemia, and will begin a 30-day hospital treatment program, though he'll remain involved in the company’s day-to-day operations. "The good news is that it is a very treatable form of the disease with standard protocols for treatment, and we have caught it very early," Presley said in a statement. The news follows an already-tumultuous year for Lumber Liquidators (NYSE:LL), which was the subject of a 60 Minutes investigation last March.

Fairchild Semiconductor has rejected a takeover offer worth about $2.5B led by Chinese state-backed buyers in favor of a bid from a U.S. rival because of concerns about regulatory approval. Fairchild (FCS) had said in early January that it expected the Chinese bid to be a "superior proposal” - it amounted to $21.70 a share in cash, compared with the $20 a share that ON Semiconductor (NASDAQ:ON) was offering. The latter closed up 6% on Tuesday following the announcement.

Apple news roundup: The tech giant is launching the second largest bond sale of the year as it looks to raise $12B to fund its share buyback plan. Carl Icahn has reduced his stake in the company by 7M shares (to 45.8M shares), according to new SEC filings, while David Einhorn similarly trimmed his holdings in Q4 amid a decline in the value of shares. Meanwhile Apple (NASDAQ:AAPL) CEO Tim Cook is calling a U.S. government order to aid the FBI in breaking into an iPhone (recovered from one of the San Bernardino shooters) as "dangerous, unprecedented and chilling," adding that the Feds wants to create a "backdoor" around iPhone encryption.

Tuesday's Key Earnings

Devon Energy (NYSE:DVN) -6.6% AH on slashing 20% of staff, cutting dividend.
Express Scripts (NASDAQ:ESRX) unmoved AH after meeting profit estimates.
Rackspace (NYSE:RAX) -6.6% AH following soft Q1/2016 sales guidance.

Today's Markets

In Asia, Japan -1.4% to 15836. Hong Kong -1% to 18925. China +1.1% to 2867. India +0.8% to 23382.
In Europe, at midday, London +1.5%. Paris +1.9%. Frankfurt +1.7%.
Futures at 6:20, Dow +0.6%. S&P +0.6%. Nasdaq +0.7%. Crude +2% to $29.63. Gold -0.4% to $1203.90.
Ten-year Treasury Yield flat at 1.78%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 Producer Price Index
8:30 Housing Starts
8:55 Redbook Chain Store Sales
9:15 Industrial Production
10:00 Atlanta Fed's Business Inflation Expectations
10:00 E-Commerce Retail Sales
2:00 PM FOMC minutes

Companies reporting earnings today