Wall Street Breakfast: Saudi Arabia Plans Sweeping Economic Changes To Cut Oil Reliance

|
Includes: AAPL, BCS, BLL, CMG, F, FB, GOOG, GOOGL, HMC, PHG, QQQ, REXFF, SPY, TM
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.

Saudi Arabia is today due to unveil "Saudi Vision 2030," a plan to overhaul the kingdom's economy in order to reduce its massive reliance on oil revenues, which account for 80% of its income but are taking a battering amidst the plunge in crude prices. Prince Mohammed bin Salman, who at 31 has amassed much power in his young hands, intends to create the world's largest sovereign-wealth fund with over $2T in diversified assets and to sell under 5% in state oil monopoly Saudi Aramco in an IPO.

Economy

The German Ifo institute's business-climate index has slipped to 106.6 in April from 106.7 in March and missed consensus of 107. The current-situation reading also fell and undershot forecasts, and while the expectations print edged up it missed estimates as well. The data comes after the Bundesbank last week forecast slowing momentum in the economy in Q2 following a strong Q1.

China's total debt grew to a record 237% of GDP in Q1, the FT calculates, or 163T yuan ($25T). The surge in borrowing comes as the Chinese government yet again turns on the spigots in order to boost stuttering growth. What worries economists is not the size of the debt, which is comparable to the U.S. and the eurozone, but the speed with which it has accumulated. The Chinese figure was 148% at the end of 2007.

Ted Cruz and John Kasich have finally joined together in what Donald Trump labelled a desperate attempt to stop him from winning the Republican nomination for president outright before the party's national convention in July. Cruz will focus on Indiana and leave Kasich to fight Trump in Oregon and New Mexico, while Kasich will pull resources out of Indiana. The shenanigans come as business leaders become increasingly unhappy about the populist and antibusiness tone of the GOP and Democratic primaries.

Stocks

Global equity and oil charts are a sea of red following a strong few sessions in Europe last week and a fall in German business sentiment this morning, while Chinese shares dropped amid fears about potential corporate defaults. Investors are also staying cautious ahead of policy meetings this week at the FOMC and the Bank of Japan. Markets expect the Fed to keep rates unchanged at 0.25-0.5% but the BOJ to further increase stimulus.

Along with hawking their wares at the Beijing Motor Show major car manufacturers have given mixed signals about their prospects in China amid the country's cooling economy. Toyota (NYSE:TM) is not certain it will reach its goal of selling 2M cars by 2025, while Ford (NYSE:F) CEO Mark Field said there is "nothing that we're ready to talk about" in terms of further expansion. Still, Honda (NYSE:HMC) is looking for sales to increase to 1.07M vehicles in 2016 from the 1.01M that the company and its joint-venture partners sold in 2015.

Despite mixed perceptions about Apple's (NASDAQ:AAPL) Watch - high-profile VC Fred Wilson has called it a "flop" - analysts reckon the company has sold 12-13M in the year since its launch, or double the 6M iPhones that were sold in its first 12 months of sales. With an average estimated price of $500 for the Watch, that's a $6B business - not too shabby at all. Still, critics complain about the product's slowness, under-powered processor, limited functionality and lack of a defining purpose.

Philips is leaning towards holding an IPO of its lighting unit - its original line of business - rather than selling the operations, the company said as it disclosed a better-than-expected rise in overall Q1 profits. Philips' (NYSE:PHG) adjusted earnings before interest, taxes and amortization climbed 14% to €374M ($420M), topping consensus of €362M. Comparable sales grew 5% to €5.51B. The divestment of the lighting operations, which could be worth €5B, will leave the company to focus on healthcare technology.

Carlyle has joined up with former Barclays (NYSE:BCS) CEO Bob Diamond to bid for the U.K. bank's 62% holding in its African operations, reports say. Barclays Africa Group is listed in Johannesburg with a market capitalization of 122B rand ($8.5B), putting the value of the stake at $5.27B. Barclays is selling the unit due to increasing regulatory pressures.

Beverage-can maker Ball and U.K. peer Rexam (OTCPK:REXFF) have agreed to sell a number of assets to Luxembourg-based Ardagh Group for $3.42B in order to meet competition requirements ahead of their $6.6B merger, Ball (NYSE:BLL) said today. Ardagh will buy drink-can assets, support locations and functions in Europe, Brazil and the U.S.

Google is building a startup incubator called Area 120 in which teams of employees will be able to submit business plans to join the initiative, the Information reports. Those accepted will work on their projects full-time for a few months, after which they'll be able to pitch Google (GOOG, GOOGL) on creating a new company that the parent firm would take a stake in. Area 120 is an attempt to prevent entrepreneurial employees from leaving Google entirely to found their own businesses.

With Facebook CEO Mark Zuckerberg aiming to triple the company's mere 1.6B members, the social network is looking to ensure that building telecom networks and using the Internet becomes cheaper as the vast majority of potential users live in developing countries. As such, Facebook (NASDAQ:FB) has embraced open-source technology and the company does its own work on planning the computer hardware and software it uses. "Our rule is 10 times faster or 10 times cheaper or both," says Facebook VP of Engineering Jay Parikh.

It looks like Chipotle's free burrito strategy might be working: a survey shows that 41% of respondents who received a free burrito coupon visited Chipotle (NYSE:CMG) 3.8x over the prior 30 days vs 1.4x for the 59% who didn't receive a coupon. Brand perception was also higher in the couponed group. Meanwhile, analysts at Credit Suisse found that Google searches for food-safety issues related to Chipotle have dropped sharply since the beginning of the year.

Today's Markets

In Asia, Japan -0.8% to 17,439. Hong Kong -0.8% to 21,304. China -0.4% to 9,617. India -0.6% to 25,679.
In Europe, at midday, London -0.3%. Paris -0.4%. Frankfurt -0.7%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq -0.8%. Crude -1.2% to $43.19. Gold +0.3% to $1234.
Ten-year Treasury Yield - 1 bps to 1.875%

Today's Economic Calendar

10:00 New Home Sales
10:30 Dallas Fed Manufacturing Survey
1:00 PM Results of $26B, 2-Year Note Auction

Companies reporting earnings today