Wall Street Breakfast: Is Crude Under $40 The New Normal?

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Includes: AAL, AET, AFLYY, AGN, AIG, BA, BIIB, BTCS, COIN, CRARY, CVS, DAL, DLAKY, EA, EXPE, FCAU, FIT, HSBC, ICAGY, MCD, MRK, NTDOY, PCLN, PFE, PG, QQQ, RIO, SCGLY, SODA, SPY, TM, TRIP, UAL, V, VIA, VIAB
by: Wall Street Breakfast
Wall Street Breakfast
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The reversal in oil prices to $40 a barrel is rippling through equity and bond markets, reigniting concerns about deeply indebted companies and countries reliant on commodities. "Should oil slice through $40 towards $35, macroeconomic fears will pick up," said Michael Hartnett, chief investment strategist at Merrill Lynch. Before the sharp drop in crude this week, investment in some of the riskiest areas of financial markets had been gathering pace, as central bank stimulus programs pushed equities to record highs and yields in safer areas of the market to new lows.

Economy

Atlanta Fed President Dennis Lockhart is not ruling out a rate increase at the U.S. central bank's next meeting in September, saying "at this point... we just have to wait and see how the data comes in." He also expressed concern about what he called lofty asset valuations in the financial markets. "At the moment I would say they particularly deserve watching because they are relatively buoyant or relatively high."

Despite Japan's massive stimulus program, the Nikkei fell close to 2% today, on lingering disappointment that it did not include more direct government spending which could give an immediate boost to economic growth. Meanwhile, minutes from the BOJ's June meeting showed uncertainty over the actions being pursued by the central bank, highlighting doubts about the sustainability of its policies.

President Obama still plans to move ahead with the Trans-Pacific Partnership while he's in office despite diminished support on Capitol Hill and outright opposition from both of his potential successors - Hillary Clinton and Donald Trump. "Right now I'm president, and I'm for it," he said at a press conference. "I've made this argument before. I'll make it again. We are part of a global economy. We're not reversing that."

"I'm calling on the United States: what kind of strategic partners are we, that you can still host someone whose extradition I have asked for?" Turkish President Tayyip Erdogan said regarding cleric Fethullah Gulen, whom he claims masterminded last month's bloody putsch. "This coup attempt has actors inside Turkey, but its script was written outside. Unfortunately the West is supporting terrorism and stands by coup plotters."

The U.S. airlifted $400M of cash to Iran, with the payment coinciding with the January release of four Americans held in Tehran, the WSJ reported, citing officials briefed on the covert operation. The money has been portrayed as ransom payment by the Iranian press, although senior U.S. authorities noted the cash was the first installment of a $1.7B decades-old failed arms settlement and didn't represent any quid pro quo.

A North Korean ballistic missile has fallen for the first time into Japan's exclusive economic zone, drawing strong condemnation from the government in Tokyo. "This is a serious threat to our country's security," Prime Minister Shinzo Abe told reporters. "We have made a strong protest to North Korea." The missile, believed to be an intermediate-range Rodong type, landed in waters about 150 miles from Japan's coastline.

India's parliament will vote today on a much-awaited Goods and Services Tax bill, which seeks to streamline the country's fragmented tax system with one levy. Businesses have been lobbying for a single tax rate as it would reduce costs, particularly for shipping goods across state borders, and analysts say the move could boost India's economic growth by up to 2 percentage points.

Stocks

European bank earnings roundup: HSBC cast doubt over reaching its profitability targets after first half earnings tumbled 29% on year - just shy of expectations - due to a slowdown in its key markets of Britain and Hong Kong. Societe Generale (OTCPK:SCGLY) and Credit Agricole (OTCPK:CRARY) beat estimates, reporting a jump in Q2 net profit helped by a gain from their stake sales in Visa Europe (NYSE:V).

Bitcoin prices fell sharply overnight, sliding as much as 22% to $480, after Hong Kong-based digital currency exchange Bitfinex said hackers stole 119,756 Bitcoins (COIN, OTCQB:BTCS), or about $65M at current prices. The attack was reminiscent of a similar breach at Mt. Gox, a Tokyo-based Bitcoin exchange forced to file for bankruptcy in early 2014 after hackers stole an estimated $650M worth of the digital currency.

Rio Tinto reported its weakest first-half earnings in 12 years, down 47% as iron ore and copper prices fell, but the results beat analyst forecasts. Underlying earnings for the six months to June fell to $1.56B from $2.92B a year earlier, when write-downs and exchange-rate and derivative losses hurt its bottom line. Rio (NYSE:RIO) also cut its interim dividend by 58% to $0.45 a share.

Pokemon GO creator Niantic is exploring more sponsorships by companies that want to attract players to their businesses, similar to the recent deal that turned nearly 3,000 McDonald's (NYSE:MCD) restaurants in Japan into "gyms." Major stakeholder Nintendo (OTCPK:NTDOY) also continues to benefit from the Pokemon GO Halo, with game shipments of Pokemon Omega Ruby and Alpha Sapphire doubling in Japan since the app debuted in early July.

Top Viacom executives recently held discussions with National Amusements to settle litigation surrounding the media empire of Sumner Redstone, but the talks fell through last week. A deal would have included the rapid departure of Viacom (VIA, VIAB) chief Philippe Dauman (with COO Tom Dooley taking over in the interim), followed later by various board members, WSJ reports. Investors will also be watching news today from Viacom's regular board meeting, which will force an awkward dialogue between the warring parties.

The parents of Star Trek actor Anton Yelchin are suing the makers of the Jeep Grand Cherokee, an SUV that was under recall when it rolled over him in his driveway. Victor and Irina Yelchin filed the wrongful-death and product-liability lawsuit against Fiat Chrysler (NYSE:FCAU) in Los Angeles Superior Court, contending that the gear selector in the actor's Jeep was defective and poorly designed.

Without giving a reason for the delay, Toyota (NYSE:TM) has postponed the global launch of its plug-in Prius gasoline hybrid model to winter. It had planned to start selling the car in Japan, North America and Europe around autumn. A spokesman also said it would reduce initial production of the model, although output would eventually pick up according to demand.

Biogen has drawn takeover interest from drug companies including Merck & Co (NYSE:MRK) and Allergan (NYSE:AGN), sources told WSJ, sending the stock up 9.4% on Tuesday. However, a report from CNBC's Meg Tirrell after the bell stated Allergan (AGN) is unlikely to pursue such a deal, pushing Biogen (NASDAQ:BIIB) shares down 2.5% in extended trading. The news comes two weeks after Biogen reported strong Q2 earnings but said CEO George Scangos would step down in the coming months.

Aetna has become the last of the five major national health insurers to project a loss on Affordable Care Act plans for 2016, underscoring concerns about the stability of insurance marketplaces at the heart of the Obama administration's signature health law. Aetna (NYSE:AET) also said it would re-evaluate its participation in the 15 state exchanges where it currently sells plans and cancel a planned expansion into more.

An Emirates Airline flight coming from India has crash-landed at the Dubai International Airport, with Flightradar24 adding that the plane involved was a Boeing 777 (NYSE:BA). While pictures showed a thick black plume of smoke rising from the top of a burning plane, all 275 passengers and crew have evacuated safely and no injuries have been reported so far.

Rio 2016 ticket sales are lagging behind those of recent Olympics and demand for hotels and flights is showing some softness too, as the host city grapples with recession, a Zika epidemic and worries about security days before the opening ceremonies. According to local organizers, about 79% of the 6.1M tickets had been sold as of Aug. 1. That's well behind the final figures for the last two Summer Games in London and Beijing, both of which sold more than 95% of their seats. Related tickers: EXPE, PCLN, TRIP, AAL, UAL, DAL, OTCPK:ICAGY, OTCQX:DLAKY, OTCPK:AFLYY

Tuesday's Key Earnings

AIG (NYSE:AIG) +2.1% AH boosting its buyback.
CVS Health (NYSE:CVS) +4.9% beating earnings estimates.
Electronic Arts (NASDAQ:EA) -2.5% AH giving a light forecast.
Fitbit (NYSE:FIT) +7.2% AH on new product sales.
Pfizer (NYSE:PFE) -2.5% despite topping expectations.
Procter & Gamble (NYSE:PG) +0.4% on productivity savings.
Sodastream (NASDAQ:SODA) +16.4% posting strong sales growth.

Today's Markets

In Asia, Japan -1.9% to 16083. Hong Kong -1.8% to 21739. China +0.2% to 2978. India -1% to 27697.
In Europe, at midday, London -0.2%. Paris -0.5%. Frankfurt -0.1%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.2%. Crude +1% to $39.88. Gold -0.2% to $1370.60.
Ten-year Treasury Yield flat at 1.54%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:15 ADP Jobs Report
8:30 Gallup U.S. Job Creation Index
8:30 Treasury Refunding Quarterly Announcement
9:45 PMI Services Index
10:00 ISM Non-Manufacturing Index
10:30 EIA Petroleum Inventories

Companies reporting earnings today »