Wall Street Breakfast: Tech Trade Agreement, Afghani Elections, Chinese Investment

by: Wall Street Breakfast
Wall Street Breakfast
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The U.S. has warned China that treaties and other global negotiations could be in danger if negotiations fail regarding their high-tech product international trade agreement. China has recently excluded approximately 60 new product categories, including medical devices and next-generation silicon chips, from the deal. The agreement supports an annual $2T in trade, and eliminates tariffs and other trade barriers on IT products.

France's finance minister Michel Sapin has stated that he is not worried about additional American probes on other French banks, following last week's guilty plea by BNP Paribas for violating U.S. sanctions. According to sources, French banks Societe Generale (OTCPK:SCGLF) and Credit Agricole (OTCPK:CRARY) and Germany's Deutsche Bank (NYSE:DB) are also being investigated for having potentially violated U.S. sanctions.

Afghanistan’s election for a new leader to replace President Hamid Karzai, is spiraling out of control after candidate Abdullah Abdullah accused rival Ashraf Ghani Ahmadzai of ballot-rigging. Abdullah warns he will reject the results, if he thinks they are plagued by fraud. Western officials are desperate for the success of an election whose $129M cost they mostly funded, in an attempt to leave Afghanistan with a democratically elected government.

Separatist leaders are now saying the evacuation from Slovyansk, one of the largest rebel strongholds in eastern Ukraine, was strategic. Following their retreat, pro-Russian rebels are gathering for a final showdown in Donetsk, the last major city they control. Russia has still not openly intervened on behalf of the separatists, after the West called upon new sanctions against the country should it involve itself in the conflict.

Italian Economy Minister Pier Carlo Padoan has announced that the state will not make its €75B ($102B) debt repayment to private sector suppliers until the end of the year. This marks the third time the payment was postponed in 2014. The delays have caused numerous layoffs, factory closures and bankruptcies, and have prompted the European Commission to open a formal infringement procedure against Italy for failing to abide by its Late Payments Directive.

American Apparel has passed its deadline to repay its $10M loan to Lion Capital, and is now in talks with Standard General to secure funding and replace most of its board. Standard General is now a major player in American Apparel (APP), after acquiring 43% of the company's stock last week. If cleared of charges, ex-CEO Dov Charney may stay with the company, just not likely as CEO.

Samsung is facing a tough time on all fronts, as competition from cheaper models and the anticipated launch of the iPhone 6 will likely cause profit to decline again this quarter. Chairman of the group, Lee Kun-hee, suffered a heart attack in May, leaving the company without a leader and unclear succession. As a result of this year's 5% stock drop and negative Q2 results, Samsung (OTC:SSNLF) says it will compensate investors by boosting dividends.

Expedia has agreed to buy Wotif.com, an Australian online travel group, for $660M. Expedia (NASDAQ:EXPE) is expecting the deal to expand its customer base in the Asia-Pacific region. Wotif's directors and co-founder plan to vote in favor of the deal, and put the company back on its feet after facing declining hotel bookings and profits.

In another move to enlarge its TV business, Telefonica (NYSE:TEF) has agreed to buy 11.1% of Italian broadcaster Mediaset's pay-TV business "Mediaset Premium" for $136M. Telefonica is looking to expand its TV business to counteract its contracting phone industry.

Lufthansa and Air China are considering a commercial joint venture on routes between China and Europe to offset shrinking European business. Joint ventures allow airlines to closely coordinate operations and ticket pricing. On certain routes, the airlines can even operate like a single carrier without violating antitrust rules. Lufthansa (OTCQX:DLAKY) already has revenue-sharing joint ventures with United Continental (NYSE:UAL), Air Canada (AIDIF) and ANA Holdings (OTCPK:ALNPF).

Daimler is expecting its Mercedes-Benz brand to outperform rivals Audi (OTCPK:VLKAY) and BMW (BAMXY) by number of cars sold in China this year. Luxury car demand in China is predicted to exceed the U.S. by 2020, and Daimler (OTCPK:DDAIF) is determined to secure its market share. The company presented a strategy last August that included plans to launch around 20 new or upgraded Mercedes-Benz models in China over two years.

To maintain its hold on the Chinese market, Volkswagen (OTCPK:VLKAY) has announced its plan to build two new manufacturing facilities in China. VW will partner with the state-run FAW Group to spend a combined $2.7B on constructing the plants. Volkswagen reported an 18% increase in Chinese car sales between January and May, totaling 1.5M vehicle sales. The company intends to increase its annual production capacity in China to more than 4M cars by 2018.

Archer Daniels Midland says it will buy Wild Flavors for €2.2B ($3B) in cash, and assume €100M of net debt. Wild Flavors manufactures flavors and colors for the food industry with a particular focus on healthy products. Archer Daniels Midland (NYSE:ADM) expects to complete the deal by the end of the year, and will launch a new unit called Wild Flavors and Specialty Ingredients.

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Today's Markets:
In Asia, Japan -0.4% to 15379. Hong Kong flat at 23541. China flat at 2060. India flat at 25962.
In Europe, at midday, London -0.2%. Paris -0.3%. Frankfurt -0.1%.
Futures at 6:20: Dow -0.1%. S&P -0.2%. Nasdaq -0.1%. Crude -0.2% to $103.89. Gold -0.5% to $1313.60.
Ten-year Treasury Yield flat at 2.65%

Today's economic calendar:
8:30 Gallup US ECI
12:30 PM TD Ameritrade IMX

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