Wall Street Breakfast: Futures Flat As Stocks Remain Range Bound

by: Wall Street Breakfast
Wall Street Breakfast
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Bulls were out in full force yesterday with the S&P hitting an all-time intraday high and oil gaining 3%, but the bears have been growling more loudly recently too. It's already been about two-and-a-half weeks that U.S. stocks have traded within a 2% range. Bullish side of the equation: improving earnings momentum, junk bonds holding up and central bank policies. Bearish sentiment: lowest volatility in the past year, slower global growth and U.S. election uncertainty.


British 10-year government yields have slid below 0.6% for the first time on record, while the pound dropped against the dollar, despite signs of post-referendum resilience in U.K. retail sales. Writing in an Op-Ed for The Times, Bank of England rate-setter Ian McCafferty said the central bank would cut rates further and boost bond purchases if the economic downturn in the U.K. deepens. Sterling -0.5% to $1.2986.

The European Commission has agreed to cancel budget fines for Spain and Portugal and set new deadlines for the countries to rein in their excess deficits despite them breaching EU limits in 2015. Spain will now have two more years to bring its deficit below 3%, while Portugal will have until the end of the year to reduce its shortfall to 2.5%.

Consumer inflation in China grew less rapidly in July as increases in food costs abated, giving authorities more room to ease monetary policy in the world's second-largest economy. China's Consumer Price Index slowed to an annual rate of 1.8%, putting it further below the government's 3% ceiling and marking the third consecutive month the key inflation measure lost speed. Producer prices, meanwhile, extended their decline, falling 1.7% from a year ago.

In its last meeting under the helm of Governor Raghuram Rajan, the Reserve Bank of India left monetary policy steady, keeping the repo rate and reverse repo rate unchanged at 6.5% and 6%, respectively. Rajan became a popular figure in a country where central bankers typically stay outside the limelight, winning plaudits in some quarters for nudging banks to do more about their bad debts but was criticized by some for not cutting rates aggressively enough.

Brazil's Senate will vote today on starting the impeachment trial against President Dilma Rousseff, which could begin as soon as August 25. Financial markets have rallied since her vice president, Michel Temer, took over in May with proposals to adopt more market-friendly policies and rein in a near-record budget deficit.

The EU's demand that Turkey must overhaul its terror laws in return for visa-free travel is "impossible" in the aftermath of last month's attempted coup, the country's EU minister Omer Celik told the FT. "We have the PKK, Daesh [ISIS] and other groups launching attacks." Turkey's warning comes as it emerged that several parts of its controversial EU refugee deal had broken down following the failed putsch on July 15.

Donald Trump blasted Hillary Clinton in an economic-policy speech in Detroit on Monday, while the Democratic presidential nominee dismissed her rival's strategies as a repackaging of old Republican ideas. His plans called for excluding all child-care expenses from taxation, reducing the seven income-tax brackets to three, cutting corporate taxes to 15%, eliminating estate taxes, renegotiating trade pacts and proposed a moratorium on federal economic regulations.


Dutch human resources provider Randstad Holding (OTCPK:RANJY) has agreed to buy Monster Worldwide (NYSE:MWW) for about $429M and intends to finance the acquisition through existing credit facilities. The $3.40 per share in cash offer, representing a 22.7% premium to Monster's closing stock price on Monday, will see Monster continue operating as a separate and independent entity under its current name.

Honeywell is in talks to acquire JDA Software Group, in a deal that could value the U.S. supply chain management software company at around $3B, including debt, sources told Reuters. The acquisition would illustrate how Honeywell (NYSE:HON) is keen to boost its automation portfolio after it agreed last month to buy Intelligrated, a U.S. distribution systems and logistics company, for $1.5B.

Marking its first major deal since Energy Transfer (NYSE:ETE) walked away from its $20B takeover in June, Williams Cos. (NYSE:WMB) and its master limited partnership have agreed to sell their Canadian businesses to Inter Pipeline (OTCPK:IPPLF) for approximately $1B. Williams Partners (NYSE:WPZ) will get a net consideration of about $817M, while Williams Cos. will get about $209M after a waiver of $150M of incentive distribution rights in the quarter.

BP is seeking buyers for its 50% stake in petrochemicals joint venture SECCO, its single largest investment in China, in a deal that would fetch $2B-$3B, Reuters reports. The sale is part of a drive to cash out of businesses where it lacks control and would mark BP's first significant exit from a business in China. BP +1.1% premarket.

Environmental groups in Colorado say they have collected enough signatures to add proposed anti-fracking initiatives to the November election ballot, pending final validation by the Secretary of State's office. One of the initiatives would strengthen setback rules, requiring new oil and gas development facilities to be located at least 2,500 ft. from occupied structures. The second proposal would transfer oil and gas regulatory control to local governments. Related tickers: APC, NBL, WLL, SYRG, PDCE, BCEI, BBG, CRZO

In an interview with Bloomberg, Credit Suisse (NYSE:CS) CEO Tidjane Thiam discussed the bank's strategy, progress, and many challenges. Thiam also outlined that the lender doesn't need to raise capital "in most foreseeable scenarios," would not need to buy another bank and was "working hard to correct" its share price level.

Atlante, the fund set up to rescue Italian banks, has already raised more than the €1.6B it has pledged to buy part of the bad loan portfolio of Banca Monte dei Paschi di Siena (OTCPK:BMDPY). The troubled lender poses a danger to the wider Italian banking system and the hope is a solution to its problems could mark a turning point in a crisis that has threatened to trigger contagion across Europe.

Gap investors may need to wait a bit longer for the company's turnaround. After reporting its first comparable-sales increase in more than a year in June, that key metric once again turned negative in July, falling 4%, and 2% during the second quarter. Revenue was weighed down by a 14% drop for the Banana Republic brand, a 4% decline at Gap and flat sales at Old Navy. GPS -5.1% premarket.

Alibaba and HTC are joining hands to advance virtual reality development with cloud computing solutions. The companies will focus on tackling bandwidth allocation, data transmission and data processing, building a VR cloud ecosystem and extending 'Viveport', HTC's (OTC:HTCXF) VR app store to the Alibaba (NYSE:BABA) Cloud platform.

Delta Air Lines CEO Ed Bastian apologized for a power failure that halted flights for over six hours on Monday. About 250 flights are expected to be canceled this morning as the carrier works to reset its operation and get crews, aircraft and other elements in place. "This will obviously mean a financial burden on Delta (NYSE:DAL)," said Mark Martin, founder of Martin Consulting. 250 flights Tuesday morning

Monday's Key Earnings

Allergan (NYSE:AGN) -1.9% following disappointing revenues.
Hertz (NYSE:HTZ) -1.7% AH due to car rental weakness.
LendingClub (NYSE:LC) -2.3% AH on widening losses, CFO exodus.
Rackspace (NYSE:RAX) -1.7% AH after no word on takeover rumors.
Sotheby's (NYSE:BID) +13% improving its auction margin rate.

Today's Markets

In Asia, Japan +0.7% to 16765. Hong Kong -0.1% to 22466. China +0.7% to 3026. India -0.4% to 28085.
In Europe, at midday, London +0.3%. Paris +0.5%. Frankfurt +0.6%.
Futures at 6:20, Dow flat. S&P flat. Nasdaq flat. Crude +0.3% to $43.13. Gold -0.1% to $1339.40.
Ten-year Treasury Yield flat at 1.57%

Today's Economic Calendar

6:00 NFIB Small Business Optimism Index
8:30 Productivity and Costs
8:55 Redbook Chain Store Sales
10:00 Wholesale Trade
1:00 PM Results of $24B, 3-Year Note Auction

Companies reporting earnings today »