Wall Street Breakfast: Oil Prices Slide Ahead Of Fed Meeting

by: Wall Street Breakfast
Wall Street Breakfast
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Oil prices are continuing their downward slide today, as markets brace for the outcome of the U.S. Federal Reserve meeting this afternoon. Analysts anticipate an upward revision to GDP growth forecasts in response to the slump in oil prices, and expect the Fed to signal that a rate hike is likely in mid-2015. Brent crude is still below the key $60 mark, down 0.7% at $59.62 a barrel. WTI is down 1.2% at $55.24.

The Commerce Department is hiking import duties on solar energy equipment from China and Taiwan, closing a loophole that had allowed Chinese manufacturers to avoid tariffs and sell at illegally low prices in the U.S. Steep anti-dumping duties will now be placed on imports of most solar panels made in China and solar cells from Taiwan, likely raising the cost of solar energy at a time of falling oil prices.

President Obama is expected to sign legislation by the end of the week implementing new sanctions on Russia over the Ukraine crisis. The additional sanctions will hit the Russian weapons and energy sector, hammering an economy that is already being battered by a fall in oil prices and a plunging currency. The ruble dropped to record lows yesterday, falling as much as 20% against the dollar despite the Russian central bank’s move to raise interest rates to 17%.

Newly leaked emails reveal that Lions Gate (LGF) execs tried to meet with Sony (NYSE:SNE) CEO Kazuo Hirai last summer to discuss a possible merger or acquisition. Hirai eventually declined a meeting although he expressed interest in possible cooperation on operational matters. Meanwhile, Sony is facing an ugly dilemma of whether to cave into the violent threats from hackers and pull The Interview from theaters, or to forge ahead, risking the possible violence. It has told theaters they can decide.

Frustrated by Takata's failure to explain why its air bags can explode, Honda (NYSE:HMC) has carried out tests of its own to determine the reason behind the defect. Honda insiders said the tests did not identify the cause of the flaw but led the company to believe that manufacturing quality issues, including errors in the amount of propellant included in the inflators, could have played a role. Honda has so far recalled about 14M cars due to Takata's (TKTDY) defect.

GE offered conservative guidance for its FY 2015 earnings in an investor presentation yesterday, predicting EPS of $1.70-$1.80 vs. analyst expectations of $1.79, and seeing industrial EPS growing by "double digits" to $1.10-$1.20 and $0.60 at GE Capital. GE (NYSE:GE) anticipates earnings from its aviation, power & water and other industrial units to rise next year, but expects revenue from its oil and gas business to fall, predicting operating profit there to come in flat to -5%.

Alstom has confirmed it is in talks to settle a bribery case with the U.S. Department of Justice, wrapping up a criminal investigation of its business in Indonesia and other countries before its sale to GE. Alstom's (OTCPK:ALSMY) $700M fine would be the largest criminal penalty paid to the DOJ under the Foreign Corrupt Practices Act.

After announcing buyback changes and postponing its Q4 dividend, SeaWorld (NYSE:SEAS) says it plans on cutting 300 jobs, a move aimed at saving it $50M a year. The theme-park operator has been under fire from animal-rights activists over its treatment of animals and has seen a 4.7% drop in attendance at SeaWorld locations during the first nine months of 2014. Shares closed at $15.43 on Tuesday, down 47% for the year.

Confirming a report from last week, Baidu (NASDAQ:BIDU) says it has bought a stake in Uber. The pair said they would collaborate to expand Uber's presence in China, where it lags far behind Kuaidi Dache and Didi Dache, two domestic car-hailing apps backed by Baidu's rivals Alibaba (NYSE:BABA) and Tencent (OTCPK:TCEHY). The companies didn't disclose how big a stake Baidu was taking, although China National Radio reported on Friday that it may be worth as much as $600M.

Pimco is facing mounting losses on its Russian bond holdings, following the ruble's single worst day since 1998. The $3.3B Pimco Emerging Markets Bond Fund (MUTF:PAEMX) had total exposure to Russia of 18.2% - mostly in corporate bonds - as of September 30, more than twice the 8.43% Russia weighting in the benchmark index. Up 5.65% year-to-date at the start of December, the fund is now lower by 3.4% for the year and has lost 9% of its value this month.

Following the drama over the summer, American Apparel (APP) has terminated founder Dov Charney's employment. Charney was ousted as CEO in June, but was allowed to return as a paid consultant in July. APP has named fashion industry vet Paula Schneider its new CEO, effective Jan. 5. She'll replace turnaround consultant Scott Brubaker, who has been serving as interim CEO. APP +20.7% premarket.

Expanding into the image-guided therapy market, Philips (NYSE:PHG) will acquire Volcano (NASDAQ:VOLC) for $18 per share, a 57% premium to Volcano's closing price on Tuesday. Philips' Chief Executive Frans van Houten said owning Volcano would give the company a more continous presence in hospitals and a closer relationship to customers. The $1.2B deal is expected to add to Philips' EPS by 2017. VOLC +54.8% premarket.

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Today's Markets:
In Asia, Japan +0.4% to 16820. Hong Kong -0.4% to 22586. China +1.3% to 3060. India -0.3% to 26710.
In Europe, at midday, London -0.7%. Paris -0.4%. Frankfurt -0.6%.
Futures at 6:20: Dow +0.5%. S&P +0.5%. Nasdaq +0.5%. Crude -1.2% to $55.24. Gold +0.3% to $1197.80.
Ten-year Treasury Yield +4 bps to 2.1%

Today's economic calendar:
7:00 MBA Mortgage Applications
8:30 Current Account
8:30 Consumer Price Index
10:30 EIA Petroleum Inventories
2:00 PM FOMC Announcement
2:00 PM FOMC Forecast
2:00 PM Chairman Press Conference

Notable earnings before today's open: EGRX, FDX, GIS, JOY

Notable earnings after today's close: APOG, JBL, MLHR, ORCL

See full real-time earnings coverage »

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