Wall Street Breakfast: Equities Keep Following Oil's Moves

by: Wall Street Breakfast
Wall Street Breakfast
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World shares are dipping into the red again, as investors continue to use oil prices as a health gauge of the global economy. At an event in Houston on Tuesday, Saudi oil minister Ali al-Naimi ruled out production cuts anytime soon, sending crude sharply lower despite talk of a mid-March oil producer meeting. "His comments are hardly a surprise. Yet, the latest development seems to suggest that for oil producers to get more united they will have to feel more pain," said Ayako Sera, senior market economist at Sumitomo Mitsui. New API figures showing a further build in U.S. stockpiles are also weighing on the commodity. Crude futures -3% to $30.91/bbl.


It is "still early" to assess the implications of recent volatility in financial markets for the U.S. economy, Fed Vice Chairman Stanley Fischer said Tuesday evening. With regards to the FOMC's upcoming policy meeting in March, Fischer said he couldn't predict what officials are going to do "because, as I've emphasized in the past, we simply do not know." He further disclosed that the Fed was looking at negative rates but there are no current plans to use them.

Donald Trump won the Nevada caucuses Tuesday night, adding a third straight victory in his drive for the Republican presidential nomination. "Markets are in a state of suspended disbelief. I don't think they've seen anything like this. No one has seen anything like this," said Mike Thompson, Chairman at S&P's Investment Advisory Services. What's next? Another Republican debate is scheduled for tomorrow night and GOP contenders are set to vie for votes on Super Tuesday next week.

Officials in 13 U.S. states are getting tired of waiting for Congress to let them collect sales taxes from out-of-state Internet retailers, so they are moving to impose the duties themselves. The states want their moves to be questioned, and therefore lead to litigation, so they can ask the Supreme Court to overturn a 1992 ruling that forbids taxation of Internet sales by retailers that lack a physical location in a state.

How low could the pound go after a Brexit? A Bloomberg survey found that most economists estimate the currency could sink to $1.35 or below within a week of a vote to leave - levels last seen in 1985. Sterling is already at its lowest since March 2009, falling today as far as $1.3896. It's also approaching the 14-month low of 78.98 pence per euro reached on Feb. 11, and is at its weakest on a trade-weighted basis since March 2014.

Sugar futures on the Intercontinental Exchange staged their biggest daily gain in nearly 23 years, soaring 8.9% to settle at $0.139 a pound, after forecasts suggested weather-disrupted supply may fall short of demand. This year's supply loss will be the first deficit in five years as harvests are hit by the El Nino weather phenomenon and heavy rain in Brazil, the world's largest producer.

Fourteen more people have caught the Zika virus in the U.S. without traveling to affected zones - strong evidence that the disease is sexually transmitted fairly often. However, experts almost all agree that Zika is unlikely to spread much across the nation, since the Aedes aegypti mosquito that carries it isn't that common and because Americans live mostly indoors. Meanwhile, Brazil has announced plans to fight the virus by sterilizing millions of male mosquitoes with gamma rays, as it analyzes another experiment to use Intrexon's (NYSE:XON) genetically modified insects.


Brazilian police have charged the chief executive of Samarco - a joint venture between BHP Billiton (NYSE:BHP) and Vale (NYSE:VALE) - and six others with homicide following the collapse of the miner's dam last November that killed at least 17 people. Samarco said it considered the charges against its executives and the decision to detain the men to be "misguided," adding that it would wait for a decision from the courts before taking further measures. BHP -7.3% premarket.

New York state's comptroller and four Exxon Mobil (NYSE:XOM) shareholders have asked the SEC to force the company to include a climate change resolution in its annual shareholder proxy. The move, the first since the Paris climate accord, ratchets up the tension between the oil producer and investors concerned that climate change or legislation designed to curb it will harm the business's ability to operate profitably. It also comes as Exxon fights an inquiry by NY's attorney general into whether it misled the public and shareholders about climate change risks. XOM -0.8% premarket.

JPMorgan is adding another $500M to energy-related loan-loss reserves, following a $67M provision in the fourth quarter. In addition, the bank said it could need to add another $1.5B to reserves should oil hang around $25 per barrel over the next 18 months. For perspective, prior to Q4, JPMorgan (NYSE:JPM) hadn't had to add to reserves for six years - in fact reserve releases were a big boost to profits across the industry.

Could a merger between United Technologies and Honeywell - two major industrial conglomerates that have flirted with combining in the past - ever happen? That answer seems to depend on whom you ask. "There is just no way to get it done," United Tech (NYSE:UTX) CEO Gregory Hayes said in a CNBC interview on Tuesday. Honeywell (NYSE:HON), however, sees the antitrust issue differently, calculating that less than 5% of the two companies' target sales overlap.

Airbus is getting ready for takeoff again, as it posted 2015 profits in line with expectations. The planemaker's closely watched operating earnings before one-off items rose 2% to €4.1B ($4.5B), while it lifted its 2015 dividend 8% to €1.30 per share. There are also clear skies ahead for output! Airbus (OTCPK:EADSY) said it would produce seven A330 aircraft a month from 2017 (instead of six), citing stronger-than-expected demand and a record order backlog.

German luxury automaker Audi has topped the annual ranking of new vehicles by Consumer Reports despite the brand's emissions-cheating scandal. In November, Audi (OTCPK:AUDVF) admitted using separate software that allowed its diesel U.S. SUVs and larger cars to emit excess emissions. Tesla's (NASDAQ:TSLA) Model S electric car was named Consumer Report's best overall car in 2014 and 2015, but this year the magazine opted not to name any best overall vehicle.

Cars, helicopters, and now motorbikes! Uber (Private:UBER) is breaking into motorcycle bookings, taking its battle to win over users in Southeast Asia to the traffic-clogged streets of Bangkok. Beginning today, users in select parts of the Thai capital will be able summon a motorbike driver via the firm's app, who will pick them up and ferry them to their destinations. According to an Uber spokesman, the company is considering expanding the service, dubbed UberMOTO, to other emerging markets.

After pursuing a number of recent acquisitions alongside its reorganization, Time (NYSE:TIME) has reportedly been talking to bankers about pursuing the core Internet business of Yahoo (NASDAQ:YHOO). Though bigger competitors are in the mix, Time could pursue a Reverse Morris Trust deal, a tax-free transaction where a company merges with the result of a spinoff. Yahoo has declined 29.1% over the past year.

Sharp's board has begun a two-day meeting to decide if it should accept a $5.9B takeover by Taiwan's Foxconn Technology (OTC:FXCOF), according to Reuters. That figure is more than double the ¥300B investment offered by the Innovation Network Corp of Japan, which was previously considered the more likely suitor for Sharp (OTCPK:SHCAY) due to its government backing.

More tech news: Heated debate between advertisers and consumers is underway at the Mobile World Congress, as the two sides wrangle over ad-blocking on wireless devices. BlackBerry (NASDAQ:BBRY) has acquired U.K.-based cyber security consultancy Encription, moving the company deeper into the services business as a software-focused entity. Western Digital (NYSE:WDC) said it cut the price of its planned acquisition of rival SanDisk (SNDK) by more than $3B after losing a big investment from China's Unisplendour.

Viacom has launched a process to explore a strategic minority investment in Paramount Pictures, after being ranked last among Hollywood "majors" at the box office for four straight years. "We have received indications of interest from potential partners seeking a strategic investment," said Viacom (VIA, VIAB) CEO Philippe Dauman. The news comes as the company faces stark pressure to consider spinning off assets from its core TV business.

Monday's Key Earnings

Avis Budget (NASDAQ:CAR) -13.3% AH stung by weak guidance.
DreamWorks Animation (NASDAQ:DWA) +9.7% AH after a 36% gain in Q4 revenues.
Etsy (NASDAQ:ETSY) +15.7% AH on strong revenue, user growth.
First Solar (NASDAQ:FSLR) +1.3% AH after beating estimates.
Home Depot (NYSE:HD) +1.4% following an increase in comp-store sales.
Macy's (NYSE:M) +3.1% as results came in above expectations.

Today's Markets

In Asia, Japan -0.9% to 15916. Hong Kong -1.2% to 19192. China +0.9% to 2929. India -1.4% to 23089.
In Europe, at midday, London -1.4%. Paris -2.2%. Frankfurt -2.4%.
Futures at 6:20, Dow -0.8%. S&P -0.7%. Nasdaq -0.9%. Crude -3% to $30.91. Gold +1.1% to $1236.40.
Ten-year Treasury Yield -5 bps to 1.69%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:00 Fed's Lacker: Monetary Policy
9:45 PMI Services Index Flash
10:00 New Home Sales
10:30 EIA Petroleum Inventories
11:30 Results of $13B, 2-Year FRN Auction
1:00 PM Results of $34B, 5-Year Note Auction
1:15 PM Fed's Kaplan: Monetary Policy
6:30 PM Fed's Bullard speech

Companies reporting earnings today