Wall Street Breakfast: Bond-Buying Failure At Bank Of England

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Includes: CMG, DAL, DIS, HSY, INTC, LNG, MDLZ, QQQ, SCTY, SNE, SPWR, SPY, TSLA, VIA, VIAB, VLKAY, VRX, YELP
by: Wall Street Breakfast
Wall Street Breakfast
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The Bank of England's new bond-buying program ran into trouble on its second day of operations, as yield-hungry pension funds and insurers refused offers to sell gilts to the central bank. The BoE said it would make up for the £52M it didn't buy in the second half of its six-month purchase program, but others feel the auction shortfall underscores problems the bank may hit going forward.

Economy

British businesses expect the vote for Brexit to lead to weaker investment, hiring and turnover over the coming year, according to the BoE's agents' survey of business conditions. The monthly health check found that turnover expectations were most negative in the business services and construction sectors, but easier trading conditions were envisaged in manufacturing, where exports will be made cheaper by the fall in the pound.

Purchasing in China's onshore bond markets drove the yield on 10-year government bonds to historic lows overnight, falling below 2.7%. While that may come nowhere close to the negative yields of say, Japanese bonds, further easing now looks to be on the cards. More records are also being set with dropping U.K. gilt yields and eurozone bond benchmarks, as the race to zero expands across the globe.

In his last speech as chief, Reserve Bank of Australia Governor Glenn Stevens returned to a favorite theme of the over-reliance on monetary policy around the world and the need for governments to step up with more investment spending. In particular, Stevens downplayed concerns the RBA might take excessive policy to "dial up" economic growth or push inflation higher "in short order."

The notoriously bearish Marc Faber is forecasting a 50% crash in the S&P that would reverse all gains from the past five years. He's unconvinced by the recent run-up in equities and warned central bank actions would increase volatility despite U.S. stock markets reaching fresh intraday highs and the Nasdaq just posting a new record close.

House Speaker Paul Ryan handily won a Republican primary election for his congressional seat on Tuesday, a few days after getting a belated endorsement from the party's presidential nominee, Donald Trump. At a news conference, Ryan thanked voters while acknowledging "a lot of real frustration in this country" and "a lot of anger that Washington just isn't working."

Brazil's real closed at more than a one-year high after the country's Senate voted 59 to 21 to put suspended President Dilma Rousseff on an impeachment trial for illegally financing government spending. The decision could seal her downfall and cement the power of her successor, Michel Temer, as early as this month.

Oil prices are trading lower on bearish news from the American Petroleum Institute, which reported a large surprise build of 2M barrels in crude stocks. Analysts are also voicing skepticism about a meeting of oil producers, saying it's unlikely to result in a significant market tightening. On tap: OPEC's August Oil Markets Report is due out at 7:40 a.m. ET.

Stocks

Fueled by movie studio hits, Walt Disney's (NYSE:DIS) quarterly profit and revenue beat analysts' estimates, amid major announcements including an over-the-top streaming service for DirecTV. The media company said it would also take a 33% stake in BAMTech, which will be separated from MLB's digital arm as part of the deal. Disney will pay $1B in two installments for the video-streaming firm and has an option to acquire majority ownership in the future.

Moody's has revised Viacom's (VIA, VIAB) rating outlook to negative from stable following the company's recent weaker than expected earnings announcement and ongoing operational challenges. The ratings agency expects adjusted debt-to-EBITDA to remain elevated and above its sustained leverage downgrade threshold over the near term unless more aggressive financial management occurs.

Delta Air Lines expects to return to normal operations today after a power outage hit its computer systems, causing the cancellation of more than 1,600 flights over two days. According to Georgia Power, Delta's (NYSE:DAL) problems arose after a switchgear, which helps control and switch power flows like a circuit breaker in a home, malfunctioned for reasons that were not immediately clear.

Another Tesla vehicle has crashed while in 'autopilot' mode, this time in Beijing, where the driver contended sales staff sold the function as a "self-driving" car. "As clearly communicated... autosteer is an assist feature that requires the driver to keep his hands on the wheel at all times," a Tesla (NASDAQ:TSLA) spokeswoman said in a statement. The accident comes months after a fatal "autopilot" crash in Florida, which turned up pressure on regulators to tighten automated driving rules.

Tesla has also opened its largest North American sales, service and delivery center in San Francisco, a key market from which the electric-car maker will introduce its all-important Model 3 late next year. Tesla (TSLA) currently operates about 260 stores worldwide and plans to have 300 open by the end of this year, as it targets production of 500K vehicles by 2018, roughly a 10-fold increase from last year.

Electric vehicle charging companies are calling for independent oversight of the $2B Volkswagen (OTCPK:VLKAY) is required to invest in clean car infrastructure, saying VW should not have the power to shape the nascent electric car charging space. While the companies called the money a potential "game changer," they worry that if it is misspent, it could hurt competition. VW will invest $1.2B nationally and $800M in California.

As technology companies hurriedly snap up startups in the field of artificial intelligence, Intel (NASDAQ:INTC) is the latest to join a buying spree with the purchase of Nervana Systems. The chipmaker plans to pay a reported $408M for the 48-employee company, which is working on semiconductors, software and services to exploit a popular AI technique called deep learning.

With rumors about a slightly altered PlayStation console rampant, Sony (NYSE:SNE) has set an event called the "PlayStation Meeting" for Sept. 7. The company has been said for months to be planning a "PlayStation 4.5" or "PlayStation Neo," which would be a ramped-up device with power to handle 4K content and perhaps virtual reality. That means if Sony does unveil the PS4 Neo, it could be ready for the holiday shopping season.

The board of the $12B charitable trust that controls Hershey (NYSE:HSY) will meet this week to discuss appointing new members, as it embarks on its biggest overhaul in more than a decade. It recently agreed with the Pennsylvania AG's office to recruit members with experience in financial investments, education and social care - a requirement that could influence its stance on any renewed bid by Mondelez (NASDAQ:MDLZ) for Hershey.

Chipotle may be seeing a boost in foot traffic from its Chiptopia loyalty program, but it doesn't seem to be enough for the burrito chain. The company is adding half-price and 2-for-1 alcoholic drink specials to menus at several of its locations through September to further drive sales. A series of foodborne illness outbreaks at its restaurants have pushed CMG shares down 47% over the past year.

Tuesday's Key Earnings

Cheniere Energy (NYSEMKT:LNG) -1.8% as a natural gas glut depressed prices.
Disney (DIS) -1.2% AH despite topping estimates.
SolarCity (NASDAQ:SCTY) -1.4% AH issuing weak guidance.
SunPower (NASDAQ:SPWR) -22.3% AH cutting its revenue forecast, workforce.
Valeant (NYSE:VRX) +25.4% receiving offers for its core assets.
Yelp (NYSE:YELP) +11.4% AH after beating expectations.

Today's Markets

In Asia, Japan -0.2% to 16735. Hong Kong +0.1% to 22492. China -0.2% to 3019. India -1.1% to 27774.
In Europe, at midday, London -0.2%. Paris -0.3%. Frankfurt -0.5%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude -1.4% to $42.19. Gold +0.9% to $1358.90.
Ten-year Treasury Yield flat at 1.53%

Today's Economic Calendar

7:00 MBA Mortgage Applications
10:00 Job Openings and Labor Turnover Survey
10:30 EIA Petroleum Inventories
1:00 PM Results of $23B, 10-Year Note Auction
2:00 PM Treasury Budget

Companies reporting earnings today »