Wall Street Breakfast: Goldman's New Oil Forecast Drives Prices Higher

|
Includes: AAPL, AMZN, BBEPQ, BRK.A, BRK.B, CVX, DIDI, ETE, FB, FOX, FOXA, GOOG, GOOGL, GS, HMC, INTC, KNCRF, PHG, QQQ, RDS.A, RDS.B, SPY, TEX, TKTDY, UBER, VLKAY, VZ, WMB, XOM, ZLIOY
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.

Crude is trading higher on the back of a rare bullish call from Goldman Sachs, which until now had been a long-time bear on oil and even warned of another price crash due to overflowing storage. The investment bank says the market has moved from a state of oversupply to a deficit, and believes major supply disruptions in markets such as Nigeria, Venezuela and China will sharply lower production levels. Crude futures +2% to $47.14/bbl.

Economy

Saudi Arabia suffered another cut to its credit rating on Saturday as Moody's Investors Service downgraded the country along with Bahrain and Oman because of the past slump in oil prices. "A combination of lower growth, higher debt levels and smaller domestic and external buffers leave the Kingdom less well positioned to weather future shocks," the agency said. But "ambitious plans" announced by Riyadh to diversify its economy could offer a route back to a higher rating level over time.

"Absolutely not," responded Bank of England Governor Mark Carney when asked on BBC's Sunday morning show if his recent Brexit comments overstepped the mark. "We... have a responsibility to explain risks," said Carney, outlining that he would be failing the public if he didn't flag dangers in advance. Last week, the BoE stated that Britain risked slower growth, higher inflation and a recession if voters backed leaving the EU, prompting criticism that the central bank was biased and destabilizing markets.

Not everyone agrees with the assessment. Former London mayor Boris Johnson, a leading campaigner for Britain to leave the EU, told the Sunday Telegraph that the union lacked democracy, a unifying authority and was doomed to fail. "Napoleon, Hitler, various people tried this out, and it ends tragically," he said during the interview. GOP presidential candidate Donald Trump also weighed into the Brexit debate, stating the EU has been "very bureaucratic, difficult and a disaster."

Chinese data over the weekend managed to miss market expectations for every single release: credit growth, industrial production, retail sales and fixed-asset investment, raising fears that the bounce seen in March is fizzling. "The miss on the activity front wasn't a huge surprise given we already saw a leveling off in the PMIs, but the dramatic slowing in credit growth will be raising some red flags in the already-reversing commodities space," wrote Angus Nicholson, market analyst at IG in Melbourne.

A sudden plunge by Chinese stocks in Hong Kong overnight had traders scrambling to find a trigger for the slump that coincided with a surge in futures volumes. The Hang Seng China Enterprises Index tumbled from an advance of 1% to a loss of 1.5% in about two minutes, before rebounding to a gain. Bloomberg's Kana Nishizawa attributed the move to a possible "fat finger" or a big hedge fund closing out its position.

Meanwhile, China is asking Britain for advice to create a financial super-regulator, signaling Beijing's growing willingness to seek outside help for improving oversight of its financial infrastructure. Regulatory weaknesses were exposed last summer when China's stock markets lost a third of their value in a month, having soared 150% in the year before.

After returning to the global credit markets last month, Argentina is set to issue its first major corporate bonds. Banco Hipotecario (OTC:BHPTY) will issue as much as $200M of debt due 2020, said Manuel Herrera, the bank's assistant chief executive, outlining that the order book will open today or tomorrow. Other Argentine news: Former President Cristina Fernandez de Kirchner and other officials have been indicted on charges of manipulating the nation's central bank during the final months of her administration.

Stocks

Amazon is getting ready to roll out new lines of private-label brands, sources told WSJ, adding that the strategy is aimed at boosting margins as well as gaining insights into what goods consumers purchase. The new brands with names like Happy Belly, Wickedly Prime and Mama Bear will include items such as nuts, spices, tea, coffee, baby food, vitamins, diapers and laundry detergents. Amazon (NASDAQ:AMZN) will only offer these labels to its Prime subscribers, and the first of the brands could start appearing at the end of May or early June.

Facebook CEO Mark Zuckerberg will meet with prominent conservatives on Wednesday to discuss allegations the social network left conservative political stories out of its "trending" news list. The invitees include media personality Glenn Beck and Fox News (FOX, FOXA) host Dana Perino. According to a study last year by the Pew Research Center and the Knight Foundation, 63% of Facebook (NASDAQ:FB) users, or 41% of all U.S. adults, say they get news from the website.

European antitrust authorities will impose a record fine on Google (GOOG, GOOGL) in the coming weeks for abusing its dominance of the online search market in the region, according to the U.K.'s Telegraph newspaper. The European Commission is planning to fine the tech giant about €3B, surpassing the toughest antitrust punishment to date - a €1.1B fine levied on Intel (NASDAQ:INTC). Google will also be banned from continuing to manipulate search results to favor itself and harm rivals.

Following a meeting with the U.S. Labor Secretary Thomas Perez, Verizon (NYSE:VZ) management and the unions representing the company's 39K East Coast workers on strike have agreed to resume negotiations tomorrow. The employees walked out on April 13, after having failed to reach an agreement on a new labor contract over issues including healthcare, moving positions offshore and temporary job relocations.

Apple's chief executive has arrived in Beijing after making a very public investment in the future of China, betting $1B on ride-sharing service Didi Chuxing (Private:DIDI). The charm offensive will see Tim Cook meet with some of the nation's hottest app developers, although it is not yet known if he'll meet any high-level officials to discuss regulatory issues during the trip. Apple (NASDAQ:AAPL) just suffered one of its worst quarters ever in China, with sales plunging 26% during the first three months of 2016.

Whether it's next year or 2018, several news sources are suggesting that Didi Chuxing (DIDI) is working towards an IPO in the U.S. that would be the highest-profile listing by a Chinese company since Alibaba (NYSE:BABA) two years ago. Such a move may put the Chinese app ahead of Uber (Private:UBER) in going public, with its American rival having said it wants to hold off as long as possible. Didi is currently in the process of raising about $3B in its latest round of funding, swelling the company's valuation to about $26B.

Yahoo appears to be making progress in efforts to sell itself, despite some initial skepticism. The latest piece of evidence: Among those vying for the company is the unusual combination of Warren Buffett and Quicken Loans founder Dan Gilbert. Note: Former Yahoo president and CFO Susan Decker is now a director at Berkshire Hathaway (BRK.A, BRK.B). Last month, she said Yahoo's next owner should "create a distinction in consumers' minds about why they still love Yahoo," and that doing so would be better if the firm is "private or part of a much larger corporation."

Royal Dutch Shell is eyeing a possible $40B spinoff of non-core assets around the globe as it grapples with a $70B debt pile following its takeover of BG Group earlier this year. Chief Financial Officer Simon Henry told analysts an IPO of Shell's non-core assets is "very much on the agenda," according to the Sunday Telegraph, while The Observer reported that Shell (RDS.A, RDS.B) is establishing a separate division, New Energies, to invest in renewable and low-carbon power.

Energy bankruptcies continue to pile up... Breitburn Energy Partners (BBEP) and some of its units have filed for restructuring under Chapter 11. The oil & gas MLP said it secured a $75M debtor-in-possession financing, in addition to cash from its operations and cash on hand, to fund its operations during the bankruptcy process. The company also listed both assets and liabilities in the range of $1-10B.

Goldman Sachs has quietly overtaken Chevron (NYSE:CVX) and Exxon Mobil (NYSE:XOM) to become one of the biggest natural gas merchants in North America, expanding in physical commodities trading even as other banks pull back, FT reports. The Wall Street institution last year bought and sold 1.2T cubic feet of physical gas in the U.S. - equal to a quarter of the country's residential consumption and more than twice its volumes in 2013. According to Natural Gas Intelligence, Goldman (NYSE:GS) is now the seventh-largest gas marketer in North America.

Energy Transfer Equity says the recent litigation announced by Williams Cos. (NYSE:WMB) to prevent the two from ending their merger deal will result in a delay in the buyout. Williams filed another lawsuit against Energy Transfer (NYSE:ETE) in a Delaware court on Saturday, this time to prevent the latter from terminating its agreement or avoiding its obligations in the event it fails to obtain a key tax opinion.

Philips is seeking to raise as much as €970M ($1.1B) from the initial public offering of its lighting unit as it pushes ahead with a plan to list on Amsterdam's stock exchange after a private sale didn't result in a buyer. In a statement, Philips (NYSE:PHG) said it would sell 37.5M shares valued at €18.50-22.50 a piece, implying a market capitalization for the division of €2.78-3.38B. Final pricing is set for May 26, with the listing commencing the following day.

Konecranes has agreed to acquire Terex's (NYSE:TEX) lifting-gear business for approximately $1.3B, abandoning a full merger and paving the way for Chinese suitor Zoomlion (OTCPK:ZLIOY) to buy the rest of the company. Under the new deal, Terex will receive $820M in cash become a 25% shareholder in Konecranes (OTC:KNCRF). The Finnish corporation will aim for synergies of about €140M annually - from buying the MHPS unit - within three years.

Hawaii has become the first state in the nation to sue Takata (OTCPK:TKTDY) over its air bags, seeking $10K per violation for more than 70K cars sold across its islands. According to Stephen Levins, executive director of the Hawaii Office of Consumer Protection, Takata switched to ammonium nitrate - a cheaper inflator component - despite the fact that it was widely known to be an unstable and dangerous chemical. The lawsuit also names Honda (NYSE:HMC), the automaker most affected by the continuing mass recalls of Takata airbags.

The world's largest sovereign wealth fund is planning to take Volkswagen (OTCPK:VLKAY) to court after the automaker's emissions crisis contributed to a loss of 4.9B Norwegian crowns in the second quarter, FT reports. "We have been advised by our lawyers that the company's conduct gives rise to legal claims under German law. As an investor, it is our responsibility to safeguard the fund's holding in Volkswagen," said Marthe Skaar, the $850B oil fund's spokeswoman. VW shares are down over 23% since the scandal erupted in October 2015.

Today's Markets

In Asia, Japan +0.3% to 16466. Hong Kong +0.8% to 19883. China +0.8% to 2851. India +0.6% to 25653.
In Europe, at midday, London -0.5%. Paris -1.1%. Frankfurt closed.
Futures at 6:20, Dow flat. S&P flat. Nasdaq flat. Crude +2% to $47.14. Gold +0.9% to $1283.60.
Ten-year Treasury Yield flat at 1.71%

Today's Economic Calendar

8:30 Empire State Mfg Survey
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital

Companies reporting earnings today