Wall Street Breakfast: Crude Back Below $50

by: Wall Street Breakfast
Wall Street Breakfast
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Oil prices have retreated to below $50 a barrel as a stronger dollar pulls crude off the 2016 highs hit this week despite a major attack by the Niger Delta Avengers. Militants blew up an Eni (NYSE:E) pipeline in Nigeria run by the company's Agip subsidiary, marking yet another strike aimed at the country's oil infrastructure. NNPC said Nigerian output stood at around 1.8M bpd in March, its weakest level in a year, and that figure is likely now significantly lower.


Following months of internal wrangling, the U.S. House of Representatives has passed legislation creating a federal control board to manage a restructuring of Puerto Rico's $70B debt and oversee the island's finances. The bill, which passed by a vote of 297-127, now requires passage by the Senate, which plans to take it up in the next several weeks.

We might be at the very end of this economic cycle, and the remarks by legendary investors Carl Icahn and George Soros signal it, said BlackRock's (NYSE:BLK) Jeff Rosenberg. "You're seeing [this sign] in the fixed income markets, you're seeing it in the credit markets, you see it in profits, in the equity markets." Adding to the predictions, Bill Gross warned yesterday that the world's negative yield bond pile is a "supernova that will explode one day," as 10-year government bonds in the U.K., Germany and Japan hit record lows.

A lot of talk out of Germany. Finance Minister Wolfgang Schaeuble said the global economy doesn't need further stimulus from fiscal policy, but countries should focus on reducing debt levels instead. He added that if Brits vote for Brexit, that could lead to referendums in other European Union countries. Chancellor Angela Merkel separately announced that in the long term, the EU should aim for a common economic zone with Moscow that would extend from Russia's Pacific port of Vladivostok to Lisbon.

Brazil is considering an emergency loan to the cash-strapped states of Rio de Janeiro, Minas Gerais and Rio Grande do Sul, as it prepares to host the Olympic Games in less than two months. The three states would then transfer their stakes in public sector-led companies to the federal government, which could in turn sell them to private investors as it did during the last states' debt restructuring in the late 1990s.

Former World Bank economist Pedro Pablo Kuczynski has won the majority of votes in Peru's closest presidential contest in half a century. Four days after voting, electoral officials said that all ballots had been processed and Kuczynski had won 50.12% compared to the 49.88% of Keiko Fujimori, the daughter of imprisoned ex-President Alberto Fujimori.


Brazil's police have accused mining firm Samarco, a joint venture between Vale (NYSE:VALE) and BHP Billiton (NYSE:BHP), of willful misconduct in relation to its dam burst last November that killed 19 people and polluted hundreds of miles of rivers. "Don't call it an accident," they said, requesting formal charges against eight company officials. Federal prosecutors are also carrying out a separate investigation into the human toll after police recommended charges of "qualified homicide." BHP -2.5% premarket.

Suspense is building up over PepsiCo's (NYSE:PEP) next move to address plunging Diet Pepsi sales after it canceled a presentation that promised to discuss an action plan with bottling partners. The company changed the cola's recipe last August, replacing aspartame with sucralose, and many longtime drinkers don't like how the new version tastes. According to Wells Fargo, U.S. sales of Diet Pepsi fell 12% in the 12 weeks ended May 21 from a year ago, compared with 6.7% for diet sodas industrywide.

Merck has agreed to purchase Afferent Pharmaceuticals, a California-based biotech company that focuses on creating treatments for "neurogenic conditions." The deal will include an upfront payment of $500M from Merck (NYSE:MRK) and milestones of up to $750M. Afferent's medicine furthest along in development, known as AF-219, is in mid-stage human testing for treating coughs lasting more than eight weeks that don't respond to existing treatments.

Looking to accelerate its debt reduction plan, Valeant Pharmaceuticals (NYSE:VRX) is considering the sale of Egyptian drugmaker Amoun Pharmaceutical, which it acquired for $800M in July 2015. Goldman Sachs is advising. Valeant also disclosed that it will pay $54M to settle civil charges that its Salix unit paid illegal kickbacks to induce doctors to prescribe seven of its products.

The merger of pipeline companies Energy Transfer Equity (NYSE:ETE) and Williams Cos. (NYSE:WMB) has been approved with conditions. According to the FTC, the firms must agree to sell WMB's 50% stake in the Gulfstream Natural Gas System, an interstate pipeline that serves Florida. The proposed acquisition has been in doubt for months, with Williams accusing Energy Transfer of actively trying to break the $20B deal, and both companies suing each other.

Fox wants to push the cost of advertising in the next Super Bowl to more than $5M per 30-second spot, according to Variety, a new record for the nation's most-watched annual TV event. Fox Sports (FOX, FOXA) isn't alone. In 2014, NBC (NASDAQ:CMCSA) sought to sell Super Bowl commercials for $4.5M, and CBS last year looked to extend prices to $4.7M. A decade ago, the cost of a 30-second spot was a mere $2.5M.

National Amusements, the holding company through which Sumner Redstone controls Viacom (VIA, VIAB), has started the process of recruiting potential board members for the entertainment giant, WSJ reports. Among the names under consideration are former Time Warner (NYSE:TWX) executive Kenneth Lerer, ex-Sony Entertainment (NYSE:SNE) President Nicole Seligman, former Discovery Communications (NASDAQ:DISCA) CEO Judith McHale and Eversource Energy (NYSE:ES) chairman Thomas May.

Surprise departure at Lufthansa? CFO Simone Menne has handed in her resignation, opening an unwelcome hole in the airline's top management at a time when its strategy is in a state of flux. Conflicts with labor unions over cost-cutting efforts remain unresolved, and the ramp-up of the Eurowings low-cost arm has been sluggish. Lufthansa (OTCQX:DLAKY) shares -5.3% in Frankfurt.

Airbus has agreed to sell its remaining stake in Dassault Aviation (OTC:DUAVF), raising about €2.3B and concluding a long-term arrangement to hold the aircraft maker's shares on behalf of the French government. Airbus (OTCPK:EADSY) will dispose of a 9.05% holding via an accelerated book building process, sell a 5.5% stake directly to Dassault and exit the rest through a €1B bond placement.

The Tesla rumors keep coming... A report yesterday suggested the NHTSA was examining potential suspension problems with the Model S, sending the carmaker's stock down 2.6%. Responding to the rumor in a blog post, Tesla (NASDAQ:TSLA) said that not only is there no safety defect, but the auto agency hasn't even opened a "preliminary evaluation" on the matter. "It's worth noting that the blogger who fabricated this issue... is Edward Niedermeyer. This is the same gentle soul who previously wrote a blog counting the days until Tesla's death."

Less than a month after Lyft (Private:LYFT) launched scheduled trips, Uber (Private:UBER) is doing the same thing with the rollout of Scheduled Rides. Users can now arrange rides up to 30 days in advance, and as short as 30 minutes ahead of time - currently only available for uberX. The initiative will first launch in Seattle followed by other "top business travel cities."

Software maker Mobileye will supply parts for self-driving cars to Volkswagen (OTCPK:VLKAY), General Motors (NYSE:GM) and others as soon as 2019, and expects the first full autonomous driving on the road by 2121. "In 20 years driving is going to be illegal so no fun anymore," CEO Ziv Aviram declared. "I believe the wave created around autonomous driving is so big that it's already a fact." Mobileye (NYSE:MBLY) already supplies parts for Tesla's (TSLA) semi-autonomous Autopilot system.

Forget about self-driving vehicles, Google (GOOG, GOOGL) co-founder Larry Page is privately funding two flying car companies called Zee.Aero and Kitty Hawk. The small, automated aircraft are being designed to take off and land vertically and may someday carry people short distances as part of an on-demand transportation service. Page already poured more than $100M in Zee.Aero, which employs 150 people and recently expanded operations to an airport hangar in Hollister, CA.

Thursday's Key Earnings

H&R Block (NYSE:HRB) +6% AH on FQ4 beat, dividend increase.
J.M. Smucker (NYSE:SJM) +7.9% after topping expectations.

Today's Markets

In Asia, Japan -0.4% to 16601. Hong Kong -1.2% to 21042. China closed. India -0.5% to 26636.
In Europe, at midday, London -1.6%. Paris -1.9%. Frankfurt -2.1%.
Futures at 6:20, Dow -0.5%. S&P -0.6%. Nasdaq -0.7%. Crude -1.6% to $49.74. Gold flat at $1272.30.
Ten-year Treasury Yield -2 bps to 1.65%

Today's Economic Calendar

10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count 2:00 PM Treasury Budget

Companies reporting earnings today »