Wall Street Breakfast: Welcome To The Zero Lower Bund

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Includes: BABA, BHP, BIDU, BRK.A, BRK.B, BTCS, CBS, COIN, DRAFT, DUEL, EEM, ERIC, LNKD, MSFT, NFLX, NXPI, QQQ, SNE, SPY, VALE, VIA, VIAB
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 rally for sovereign debt has passed an important milestone, with the yield on Germany's benchmark 10-year bonds hitting zero for the first time and briefly entering negative territory. The strong demand is standing out in cautious trade ahead of a series of policy meetings at major central banks and rising uncertainty over whether the U.K. will stay in the EU.

Economy

Gilts are joining the record-breaking party as investors look for fixed income yields in any place they can find it. The 10-year paper hit yet another weak level today, sinking under 1.18% for the first time. Meanwhile, sterling slumped 1% to a three-year low against the safe haven yen, as The Sun, the U.K.'s biggest-selling newspaper, urged readers to quit the bloc.

The Federal Open Market Committee is set to begin a two-day meeting on interest rate policy. Traders will eye a fresh batch of economic projections and remain focused on when the Fed will next raise rates, although they are discounting any chance the central bank will act at the gathering. Expectations fell significantly after June's dismal employment report, which set off fresh concerns about the strength of the economy.

China's near-term growth outlook has turned more buoyant "due to recent policy support," according to the IMF's David Lipton, but the medium-term prospects are more uncertain because of "rapidly rising credit, excess capacity and financial sector risks." The economy faces growing vulnerabilities and there are fewer buffers to deal with any shocks, he added. On the nation's currency, Lipton said it was "broadly in line with fundamentals" and encouraged Beijing to achieve an "effective float" within the next few years.

Policy makers in China are also hoping their languid stock markets will get a vote of confidence later today at 5 p.m. ET. The MSCI Emerging Markets Index (ETF: EEM), a benchmark tracked by hundreds of billions of dollars in investment funds around the world, is set to announce whether it will add Chinese mainland-listed "A Shares" for the first time. If it includes them, U.S. investors could potentially be snapping them up as early as next year.

France is bracing itself for the largest strike to hit the country over government labor legislation despite hosting the Euro 2016 championship, said Michel Wieviorka, president of the Fondation Maison des Sciences de l'Homme. Separately, a suspected Islamist attacker stabbed a French police commander to death outside his Paris suburb home overnight and later killed his partner in another assault claimed by IS.

Global oil markets are moving close to balance in the second half of this year on significantly stronger oil demand and unexpected supply disruptions, the IEA disclosed in its closely watched monthly report. The oversupply in the first half of this year is likely to stand around 800K barrels a day, down from the 1.5M barrels initially anticipated, according to the agency, which cautioned that an "enormous inventory overhang" will still keep a cap on further price increases.

Stocks

Moody's has placed Microsoft's 'AAA' credit rating under review for downgrade following the software giant's deal to buy LinkedIn (NYSE:LNKD) for $26.2B, citing concerns that it would be funded through new debt. Why is Microsoft (NASDAQ:MSFT) taking out such a big loan if it has enough cash to buy LinkedIn 4x over? Bloomberg's David Kocieniewski says it could lower the tech giant's tax bill (it will avoid paying a 35% tax rate to repatriate cash from overseas and could also deduct interest payments).

Alibaba expects to log 6T yuan ($912B) in gross merchandise volume in fiscal 2020, nearly double the 3.09T yuan recorded in fiscal 2016. That won't deter the company from cracking down on phony items, Alibaba's (NYSE:BABA) Jack Ma said at an investor conference in Hangzhou. "I promise you guys that counterfeits, fake products, and intellectual property theft - we are more and more confident than ever that we can solve the problem."

A Brazilian judge has dismissed a 20B reais ($5.7B) civil lawsuit against Vale (NYSE:VALE) seeking environmental and property damages for last year's Samarco disaster which killed 19 people. The mine's partners, Vale and BHP Billiton (NYSE:BHP), already had reached a settlement with federal and state governments to pay 20B reais over 15 years to cover and repair damages, which was approved by a court last month. BHP -2.9% premarket.

The connection between Quicken Loans founder Dan Gilbert and Warren Buffett became evident last month with news of their surprise bid for Yahoo (NASDAQ:YHOO), but the two men have another business connection that hasn't been previously reported. Berkshire (BRK.A, BRK.B) owns a company called Vanderbilt Mortgage and Finance, which buys mortgages for traditional houses exclusively from Quicken. "There could well be more business relationships in the future," Buffett told Reuters.

Ericsson plans to lay off between 3,000 and 4,000 staff this summer and is considering large, additional cost cuts (and further layoffs) due to slowing markets, Svenska Dagbladet reports. With most of the latest generation of networks already built, especially in developed regions, Ericsson (NASDAQ:ERIC) has been struggling to find growth for that part of its business.

In a banner year for deal activity by Chinese buyers, NXP Semiconductors (NASDAQ:NXPI) has struck another asset-sale pact with Jianguang Asset Management. The chip company has agreed to sell its Standard Products unit to state-owned Jianguang and Wise Road Capital for $2.75B. Just over six months ago, NXP sold its RF Power unit to Jianguang for $1.8B, a deal that helped clear the way for its purchase of Freescale Semiconductor. NXPI +1.3% premarket.

Blaming ongoing regulatory probes and fewer sponsored links, Baidu (NASDAQ:BIDU) has slashed revenue projections for its fiscal second quarter. The Chinese search giant now expects revenue of between $2.81-$2.83B, compared to its previously stated range of between $3.12-3.19B. Baidu added that the regulatory probes are "being rolled out with varied timing with different levels of implementation and interpretation across geographies." BIDU -5.2% premarket.

The Electronic Entertainment Expo, or E3, is a little less deafening this year with the absence of Activision (NASDAQ:ATVI) and Electronic Arts (NASDAQ:EA), while Nintendo (OTCPK:NTDOY) told fans not to expect to see its next-generation game console, code-named NX. Still, Sony (NYSE:SNE) and Microsoft (MSFT) got attendees buzzing on Monday with plenty of game announcements, and the unveiling of PlayStation VR (which will be released Oct. 13) and Xbox One S.

Prompting a call for the company to implement the reform, Netflix (NASDAQ:NFLX) shareholders have approved a proposal for the second year in a row to grant investors so-called "proxy access." The video provider has so far held out against the change, which would make it easier for groups of investors owning as little as 3% of NFLX shares over three years to run their own candidates for board seats.

The former girlfriend and confidante of Sumner Redstone is seeking a new trial to argue he's mentally incapacitated after a Los Angeles judge dismissed her lawsuit last month. Manuela Herzer claims she has new evidence that Redstone's daughter, Shari, has been scheming for two years to have her evicted from the business mogul's mansion and to take control of her father's life and businesses, including Viacom (VIA, VIAB) and CBS.

Bitcoin prices hit a two-year high on Monday, trading above $700 for the first time since 2014, after jumping 21% over the weekend. The surge came days before an unusual event called the "halving," an adjustment to Bitcoin's (COIN, OTCQB:BTCS) protocol designed to control the creation of new coins. Other factors that could have led to the surge: Brexit fears, blockchain rising, inflow/demand and China worries.

The two largest daily fantasy sports companies, FanDuel (Private:DUEL) and DraftKings (Private:DRAFT), are in early-stage talks to merge, as the industry faces a crackdown by U.S. states over whether it runs illegal gambling. The firms' valuations each topped $1B last year when they were raising money amid a frantic effort to gain market share through giant advertising buys and billions in prize money.

Today's Markets

In Asia, Japan -1% to 15859. Hong Kong -0.6% to 20387. China +0.3% to 2842. India flat at 26,395.
In Europe, at midday, London -1.2%. Paris -1.3%. Frankfurt -0.7%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.3%. Crude -1.3% to $48.27. Gold -0.3% to $1282.90.
Ten-year Treasury Yield -3 bps to 1.58%

Today's Economic Calendar

FOMC meeting begins
6:00 NFIB Small Business Optimism Index
8:30 Retail Sales
8:30 Import/Export Prices
8:55 Redbook Chain Store Sales
10:00 Business Inventories

Companies reporting earnings today »