Wall Street Breakfast: Stocks Waver As Oil Link Grows Stronger

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by: Wall Street Breakfast
Wall Street Breakfast
Seeking Alpha's flagship daily business news summary, gives you a rapid overview of the day's key financial news. It is published before 7:00 AM ET every market day and delivered to over 900,000 email subscribers.

The latest stock market rally is losing momentum as the correlation between crude and equity benchmarks grows stronger than ever. Oil prices jumped over 6% on Monday as the IEA reported that U.S. shale production was expected to decline, but retreated overnight on concerns that any cuts would be countered by rising output from Iran. Adding to the worries, OPEC Secretary General Abdalla Salem El-Badri stated that oil producers have adopted a "wait and see" attitude and are still "feeling the water" regarding a production freeze deal. West Texas Intermediate, which just saw its March contract expire, is off 2.3% at $32.62/bbl.

Economy

German business sentiment fell in February, according to the closely-watched survey by the Ifo Institute, spurring worries that Europe's economic motor is slowing down. The Ifo business climate index showed that morale slid to 105.7 from 107.3 in January, marking the third consecutive month the number has dropped. Germany also confirmed today that its economy expanded 0.3% in the fourth quarter, a rate that could prompt more concerns amid fears about slowing growth.

The pound is steadying after sinking 2% on Monday as the launch of Britain's debate on leaving the EU drove the currency's biggest one-day fall in PM David Cameron's six-year premiership. "Where sterling goes from here is the $64K question," said Tobias Davis, head of corporate treasury sales at Western Union in London. Meanwhile, more than a third of Britain's largest companies have signed a letter backing Cameron's call to stay in the 28-member bloc, echoing a similar move by big business in the run up to the 2014 Scottish independence referendum. Sterling flat at $1.4130.

Puerto Rico's much-delayed audited financial statements for 2014 are expected to be finished and issued by April, Governor Alejandro Garcia Padilla said in a letter to House Speaker Paul Ryan, attributing the tardy submission to "complexities posed by our current financial crisis." The statement follows criticism from Republicans in Congress over the delay and a perceived lack of overall financial transparency from the U.S. commonwealth.

The United States will call on G20 countries later this week to use fiscal policy in order to boost global demand, a senior Treasury official told Reuters ahead of the weekend G20 meeting in Shanghai. "That would lead to strengthened confidence and I would expect reduced volatility," he added. While there, American officials will also urge all members to refrain from manipulating exchange rates for competitive purposes, in line with existing G20 commitments.

Stocks

BHP Billiton has slashed its interim dividend by 75%, cutting it for the first time since 1988 following a collapse in prices for oil, iron ore, coal and other raw materials. The cut marks an end to BHP's commitment to its progressive payout strategy, in which it had pledged to keep its dividend steady or rising at each half-year result, and follows Rio Tinto's (NYSE:RIO) decision earlier this month to abandon a similar policy.

Chesapeake Energy jumped 20% on Monday, recording its biggest percentage gain since 2008, which Bloomberg credited in part to Giovanni DiMauro's Seeking Alpha article that called the company a "prime takeout candidate." Speculation that the heavily-indebted firm may be headed for bankruptcy is unwarranted, a $500M note coming due in March likely will be repaid on time, and "could be swallowed up on the cheap by a player with deep pockets," wrote DiMauro. Chesapeake (NYSE:CHK) is scheduled to post Q4 financial results tomorrow.

Devastation in the oil patch has caused large losses for investors in MLPs, and in some cases increased their tax burden, NYT's Gretchen Morgenson explained in a new analysis. Some upstream energy MLPs are being forced to restructure their debts to stave off bankruptcy, and when they do, MLP owners must pay income taxes on their share of debt forgiven by creditors. Linn Energy (LINE) was discussed in the article as a case in point: As part of its November restructuring, creditors forgave $1B in debt, which will trigger taxes to its investors, and more restructuring is likely on the way.

Debt is also a complicating factor in the oil bust. The massive amount of dollars owed and the terms they come with could force more oil and gas drillers to restructure their businesses in bankruptcy court instead of pursuing cost-saving combinations with competitors, Occidental Petroleum (NYSE:OXY) CEO Stephen Chazen told the IHS CERAWeek conference. Companies typically can combine to reduce costs in times of struggle, but many oil and gas companies already have made deep cuts to overhead, and a number of loans come with terms that could make mergers difficult.

European earnings roundup: Standard Chartered (OTCPK:SCBFF) shares plunged after full-year underlying operating income fell 15% to $15.4B. Swiss Re (OTCPK:SSREY) posted a 31% rise in 2015 net income, announced the retirement of CEO Michel Lies, and declared a dividend hike and €1B buyback. Danone (OTCQX:DANOY) reported a rise in sales for the fourth quarter, boosted by a resurgent performance in its fresh dairy unit in the U.S.

At JPMorgan's annual investor conference today, one big question will be at the top of attendees' minds: How can the bank keep a tight lid on costs without squeezing its top line? This year is expected to be the first in several in which JPMorgan (NYSE:JPM) will not be announcing new cost-cutting targets as it's only halfway through an earlier plan to shave $4.8B in expenses. Most peers, on the other hand, have been talking about expanded cost-reducing measures.

Boeing has won an order from United Continental (NYSE:UAL) for 25 current-generation 737 aircraft in a transaction that could be worth over $2B at list prices. The follow-on deal comes just weeks after United agreed to buy 40 737-700 jets. Other big news in the board room: Boeing (NYSE:BA) has elected CEO Dennis Muilenburg as its next chairman, replacing Jim McNerney.

Two of America's biggest industrial companies have explored combining their businesses, but the talks have stalled amid disputes over who would run the conglomerate and whether regulators would allow the deal. The discussions occurred within the past two weeks and were focused on a deal in which Honeywell (NYSE:HON) offered a premium, largely in stock with some cash, for United Technologies (NYSE:UTX). The companies are each worth more than $70B and together employ more than 300K people.

Embattled pharmaceutical company Valeant plunged yesterday after reports it would likely restate its earnings. The WSJ disclosed that the restatement would likely surround distributor Philidor, which had come under scrutiny as Congress probed high drug costs over the past few months. Valeant (NYSE:VRX) shares, which closed down nearly 11% in regular trading, extended losses by as much as 9% in after-hours trading.

Thermo Fisher Scientific has announced the availability of a blood test that detects antibodies to the Zika virus. The assay, manufactured by Luebeck, Germany-based EUROIMMUN AG, can differentiate between Zika, dengue and chikungunya viruses. Thermo (NYSE:TMO) is the exclusive distributor of the check in the U.S.

The deaths of six people in Kalamazoo, Michigan, whom authorities say were shot by an Uber (Private:UBER) driver between shifts, have revived scrutiny over how the ride service vets its employees. "None of the things that we did do in this case, if we made them somehow better, would have made any difference," said Joe Sullivan, Uber's chief security officer. Company officials also stated that they had no plans to add fingerprint requirements for would-be drivers, saying their criminal background checks were rigorous enough to uncover past law-breaking.

Facebook's efforts to boost global Internet connectivity will continue despite a recent setback in India (which banned its service this month), CEO Mark Zuckerberg said at the Mobile World Congress in Barcelona. He then outlined the progress of the Internet.org initiative, through which he hopes to expand Internet to billions of people who lack access. Free Basics, a package that offers only select services including Facebook (NASDAQ:FB), operates in 38 countries and has brought access to about 19M people worldwide.

So far 368,472 drones have been filed with the FAA, after a Feb. 19 deadline for registration passed, exceeding the number of airplanes that are on record with the federal government. The FAA is imposing a $5 fee for registrations, over the objections of drone advocates, but the agency provided refunds to people who filed within the first 30 days of the new requirement. What's the penalty for failing to register? The FAA may assess civil penalties of up to $27,500, and criminal sanctions including fines of up to $250K and/or imprisonment for up to three years.

Never shy about sounding off on hot-button issues, Donald Trump has called for a boycott of Apple (NASDAQ:AAPL) products until the company gives in to a government request to help unlock an iPhone 5C used by one of the San Bernardino shooters. Trump's remarks come after the DOJ filed a motion to compel Apple to comply with a court order to help the FBI crack the shooter's iPhone. CEO Tim Cook has argued that creating a backdoor for law enforcement agencies would ultimately put the security and privacy of iPhone users at risk, given its potential to be obtained by those with ulterior motives.

Alphabet is shuttering Google Compare, its U.S. comparison-shopping site for auto insurance, credit cards and mortgages after one year, WSJ reports. The quick reversal is a setback to the company's efforts to provide consumers with niche shopping and financial-services tools, and follows the demise of a similar website called Google Advisor that was shuttered in 2011. Other sites that let consumers compare rates on financial services have seen a recent surge in investor interest. Shares of LendingTree (NASDAQ:TREE) are up 55% over the past year, while Bankrate (NYSE:RATE), up 2% in the past year, could also benefit from Google's (GOOG, GOOGL) move.

Monday's Key Earnings

Allergan (NYSE:AGN) +3.5% after topping expectations.
Fitbit (NYSE:FIT) -17.7% AH on dim first-quarter guidance.
Motorola (NYSE:MSI) +1.9% AH as cost savings drove a profit beat.

Today's Markets

In Asia, Japan -0.4% to 16052. Hong Kong -0.3% to 19415. China -0.8% to 2903. India -1.6% to 23410.
In Europe, at midday, London -0.5%. Paris -0.4%. Frankfurt -0.7%.
Futures at 6:20, Dow -0.4%. S&P -0.4%. Nasdaq -0.5%. Crude -2.3% to $32.62. Gold +0.7% to $1219.
Ten-year Treasury Yield flat at 1.76%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
10:00 Consumer Confidence
10:00 State Street Investor Confidence Index
10:00 Richmond Fed Mfg.
10:00 Existing Home Sales
1:00 PM Results of $26B, 2-Year Note Auction
8:30 PM Stanley Fischer

Companies reporting earnings today