Wall Street Breakfast: Sterling Dives On Brexit Jitters

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Includes: F, FB, FNMA, GM, GOOG, GOOGL, HSBC, INTC, LGEAF, LL, LNG, ORAN, QQQ, SPY, SSNLF, T, TKTDY, TM, TSLA, V, VLKAY, WTW
by: Wall Street Breakfast
Wall Street Breakfast
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The pound has taken a plunge amid a split in the U.K.'s ruling political party over whether Britain should leave the European Union. Over the weekend, British PM David Cameron announced a historic referendum (set for June 23) to decide whether the U.K. should remain in the bloc, after finalizing a deal with EU leaders to reset Britain's relationship. Almost half of the bosses of the FTSE 100 agree with Cameron's 'stay' campaign, but he lost the backing of London Mayor Boris Johnson, who just became the most high profile supporter of a British exit. Sterling -2% to $1.4121.

Economy

Business activity in the euro area hit a 13-month low in February, according to the latest figures from Markit. The eurozone composite PMI index, which measures activity in the manufacturing and services sector, fell to 52.7 in February from a revised figure of 53.5 in January, heavily missing analysts' estimates. The disappointing data "greatly increase the odds of more aggressive stimulus from the ECB in March," said Chris Williamson, chief economist at Markit.

Argentina has won a big victory in its decade-long battle with U.S. holdout funds after U.S. Judge Thomas Griesa said he would remove a financial blockade preventing the country's access to the international markets under certain conditions. "President Macri's election changed everything," Griesa declared. "The Republic has shown a good-faith willingness to negotiate." Argentina must now repeal the laws that stop it from paying the holdouts, and reimburse the ones that reached an agreement with Buenos Aires before the end of February.

Hopes are running high for Chinese markets in the wake of news that authorities are replacing the country's beleaguered top securities chief. Xiao Gang assembled quite a resume over the last year, including a $5T stock-market rout, the failure of a "circuit breaker" mechanism, an unprecedented government rescue, and a renewed crisis in January as the plunge in Chinese equities continued. He will be replaced by Liu Shiyu, chairman of the Agricultural Bank of China. Shanghai +2.4%.

A limited cease-fire in Syria may be reached soon after Russia and the U.S. agreed provisionally on its terms, U.S. Secretary of State John Kerry said, as the two powers backing opposing sides of the conflict pressed efforts to halt five years of bloodshed. Suicide bombers killed at least 140 people on Sunday in the Homs province and a southern Damascus suburb. Islamic State claimed responsibility for both attacks.

Oil prices are moving higher following steep losses in the previous session, with U.S. crude moving back above $30 a barrel. Pick a reason: A fall in U.S. rig count, reports of upcoming shale bankruptcies, challenges of Iran returning to the global markets, more support for an oil freeze accord, etc. WTI futures +3.5% to $30.67/bbl.

Consultations on a preliminary deal between leading oil producers to freeze output should be concluded by March 1, Russia's energy minister Alexander Novak declared on Sunday, after a group led by Russia and Saudi Arabia reached a common position last week in Doha. Novak also announced that talks between Venezuela and Iran were still ongoing, and "discussed with colleagues" that an oil price of $50 per barrel would suit consumers and exporters in the long term, but did not elaborate.

With this week's calendar full of economic data releases and speeches by policymakers, investors are poised to watch the Fed for clues about its next move, while an unexpectedly hot reading on inflation will likely further sharpen that focus. Data on Friday showed the U.S. core consumer price index in January rising by the most in nearly 4.5 years to a 2.2% annualized rate. How will the uptick in price pressures affect the Fed's upcoming decisions?

Stocks

Citing a slowdown in Asia for creating headwinds, HSBC swung to a $1.3B loss during its fiscal fourth-quarter from a year-earlier profit of $511M, as Europe's largest bank caught China's cold. Despite the negative results, the lender said it would maintain its dividend. HSBC further disclosed that it's cooperating with an SEC probe for allegedly hiring individuals with ties to government officials in Asia. Other banks are also being investigated. HSBC -3.8% premarket.

Fannie Mae is at risk of needing a government bailout that could shake up confidence in the housing finance market, FT reports. Because the government does not let Fannie Mae (OTCQB:FNMA) retain profits, its capital buffer (which has dwindled from $30B before the financial crisis to $1.2B today) is on track to disappear by January 2018. At that point it would be unable to weather quarterly losses and would need to draw on Treasury funds to avoid being placed into receivership.

The academic study that helped propel shares of Weight Watchers (NYSE:WTW) to an 18% gain on Friday was funded by the company, observes the New York Post after scanning the fine print. Harvard Medical School professor David Ludwig notes the practice isn't uncommon, but doesn't quite qualify as good scientific practice. Investors in general have been quick to act on any Weight Watchers news. Last month, a single Oprah tweet sent shares skyrocketing.

Highlights from the Mobile World Congress: Samsung Electronics (OTC:SSNLF) and LG Electronics (OTC:LGEAF) unveiled their latest flagship devices, seeking to revive sales momentum and buck slowing industry growth. The new Galaxy S7 comes with an improved camera, memory storage, water resistance and a longer battery life, while the LG G5 showed off a similar range of new features. The biggest news, however, was the firms' big jumps into virtual reality. Samsung is teaming up with Facebook (NASDAQ:FB) to push VR elements into phones and social networking, and the two companies unveiled 360 degree recorders, cameras and viewers.

The trade show in Barcelona also saw Sony (NYSE:SNE) introduce a host of interactive "smart" products including a wearable camera, a personal assistant, and an adaptive projector, seeking revenues from different types of devices to counter slowing smartphone growth. Separately, Orange (NYSE:ORAN) released a $40 smartphone (called Rise 31) to boost its presence in the Middle East and Africa, and struck a partnership with Google (GOOG, GOOGL) to bring local internet services to its customers.

Payment card operators are also taking part in Mobile World Congress. MasterCard (NYSE:MA) is bringing facial recognition services dubbed "selfie pay" to the U.K. to improve identity verification for mobile phone payments. British users will be able to scan fingerprints or snap selfies to validate their identities for completing online purchases. Meanwhile, Visa (NYSE:V) wants to turn your car into a mobile payments platform, showing off a concept app that will let drivers pay for fuel and parking without leaving their vehicles.

Though Tesla Motors has relied on strong buzz, referral programs, and some cult of personality to replace traditional advertising in the past, there's some debate on if that approach will be enough for the mass-market Model 3. Investment firms have been all over the map when trying to project advertising costs for the Model 3 in their 2018-2020 earnings models and CEO Elon Musk hasn't tipped his hand when asked about the issue on recent conference calls. Does Tesla (NASDAQ:TSLA) go light, or top a billion like GM, Ford (NYSE:F), and Toyota (NYSE:TM) do without blinking?

U.S. auto safety regulators are examining whether an additional 70M-90M Takata (OTCPK:TKTDY) airbag inflators should be recalled because they may endanger drivers, according to Reuters. That would nearly quadruple the 29M inflators that have been called back so far. A torrent of new recalls would translate into billions of dollars in additional costs for the company and also add years to the replacement process.

U.S. authorities have asked Volkswagen to produce electric vehicles in the U.S. as a way of making up for its rigging of emission tests, Germany's Welt am Sonntag reports. The plan would see VW (OTCPK:VLKAY) manufacture electric cars at its plant in Tennessee, and help build a network of charging stations for electric vehicles. "Talks with the EPA are ongoing and we are not commenting on the contents and state of the negotiations," a VW spokesman said. The EPA also declined to comment.

Lumber Liquidators' laminate flooring has been found to have a 3x higher risk of causing cancer than previously stated, according to the U.S. Centers for Disease Control and Prevention, reversing their own findings from earlier this month. A report released Feb. 10 used incorrect ceiling heights, lowering the airborne concentration of formaldehyde that should have been examined, the agency said in a statement. The estimated risk of tumors is six cases to 30 cases per 100K people, above the two to nine cases in the earlier report. LL -19.5% premarket.

More energy exports are leaving the U.S....Swiss commodities trader Trafigura is shipping one of the first crude oil cargos of benchmark WTI in the coming weeks to Israel, following the lifting of the decades old American crude oil export ban. A liquefied natural gas tanker also docked on Sunday at the Sabine Pass terminal in Louisiana, with only days to go before the U.S ships its first export cargo of seaborne gas from the lower 48 states. Cheniere Energy (NYSEMKT:LNG) expects the first load to leave the facility by early March.

AT&T is investing about $10B in its global business solutions division, as it seeks to boost the unit that offers services such as wireless connectivity, cloud storage and security to companies. Roughly half of the money will be spent on a range of enterprise-related projects, including a fiber network in Mexico and projects involving the so-called "Internet of Things." According to the Progressive Policy Institute, AT&T (NYSE:T) is the biggest capital spender in the United States.

AT&T is also partnering with Intel (NASDAQ:INTC) to test and optimize how drones perform on LTE connections beyond line of sight, at higher altitudes, or when faced with external interference. The collaboration is designed to show how a network that has primarily been designed to connect devices (such as smartphones) on the ground can be reappropriated for unmanned aerial vehicles. T +0.9% premarket.

Today's Markets

In Asia, Japan +0.9% to 16111. Hong Kong +0.9% to 19464. China +2.4% to 2927. India +0.3% to 23789.
In Europe, at midday, London +1.3%. Paris +1.7%. Frankfurt +2%.
Futures at 6:20, Dow +1.2%. S&P +1.2%. Nasdaq +1.3%. Crude +3.5% to $30.67. Gold -2.2% to $1204.20.
Ten-year Treasury Yield +3 bps to 1.78%

Today's Economic Calendar

8:30 Chicago Fed National Activity Index
9:45 PMI Manufacturing Index Flash

Companies reporting earnings today