Wall Street Breakfast: Markets Shaky After Deadly Attacks In Brussels

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by: Wall Street Breakfast
Wall Street Breakfast
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European shares fell into the red, while haven assets gained, after explosions in Brussels this morning raised fresh fears of terrorism. Blasts tore through the departure hall of the capital's airport, and a separate burst hit a metro station shortly afterwards, leaving at least 11 dead and 25 injured. Travel sector stocks including airlines and hotels fell the most, pulling the broader indices down from multi-week highs. Euro -0.4% to $1.1202.

Economy

Eurozone economic activity picked up in March, an indication that the modest recovery hasn't stalled in the face of weaker demand. According to the data released by Markit, the euro area saw a composite PMI reading of 53.7, a three-month high, and well above the 53 expected by economists. "The eurozone saw renewed signs of life at the start of spring....putting the region on course for a 0.3% expansion of GDP in the first quarter," said Chris Williamson, chief economist at Markit.

Just a few days after the FOMC slashed its forecast for the number of rate hikes this year, two Fed speakers suggested the central bank could move as soon as its next meeting. "There is sufficient momentum evidenced by the economic data to justify a further step...as early as the meeting scheduled for the end of April," said Atlanta Fed boss Dennis Lockhart. "April or June would definitely be potential times to have an increase in interest rates," added San Francisco Fed President John Williams.

Investors should pare their Treasury holdings because the U.S. will avoid a recession, BlackRock said in a research note, weighing in on the recent downturn talk currently being debated on the Street. "Economic indicators this week may show the U.S. economy experienced a mild slowdown but is not headed for a recession," according to the world's largest money manager. U.S. 10-year note yield -2 bps to 1.90%.

Puerto Rico will ask the U.S. Supreme Court today to validate a law that could let it cut billions of dollars from what it owes in debt at some public agencies, a key test in the island's efforts to weather a massive fiscal crisis. The U.S. territory, facing what its governor has called an unpayable $70B debt and a 45% poverty rate, hopes to get access to Chapter 9 of the bankruptcy code or something similar.

The U.N. Security Council has cleared a Chinese request to remove sanctions on four ships blacklisted for ties to Pyongyang's arms trade. The agreement came after Beijing secured assurances the vessels would not use North Korean crews. While Washington has been the driving force behind the toughening international sanctions regime, China conducts 90% of the trade with North Korea and is the key to enforcing them.

Iran may join other oil producers planning to freeze production to support prices at a later date, according to OPEC's secretary general Abdullah al-Badri, but the country will not join an OPEC/non-OPEC producer meeting in Qatar on April 17. "They have some conditions about their production," he said at a news conference in Vienna. "Maybe in the future they will join the group." OPEC still expects crude prices to rebound to a "moderate" level even if Iran doesn't join the deal to put a hold on output levels.

The national average for gasoline prices at the pump is poised to shoot past $2, as fuel demand hits levels never before seen at this time of year. The mean price for a gallon of regular gasoline now stands at $1.983, and has climbed for 25 out of the past 27 days, for a total of $0.28/gallon, according to AAA. Despite the rise in costs, pump prices are still about $0.45/gallon cheaper than a year ago, on average, and are at their lowest levels for late March since 2009.

Stocks

A federal judge has agreed to postpone today's court hearing with Apple (NASDAQ:AAPL) at the FBI's request, after the latter revealed that a third party had "demonstrated an alternate method" for unlocking the iPhone used by one of the San Bernardino shooters. Instead of the hearing, U.S. Magistrate Judge Sherri Pym ordered the government to file a status update by April 5. Besides privacy issues and the fight over encryption, the move would shatter the illusion that Apple can create unbreakable software and push off one of the most closely watched cases of the digital age.

Separately, Apple unveiled the iPhone SE at a media event on Monday. It offers a slight tweak to the exterior of the iPhone 5s - now in its third year of service - with significant improvements under the hood. Other announcements: Apple (AAPL) slashed the cost of the Apple Watch by $50 to $299, and a smaller iPad Pro was unveiled at a lower price point to "reach more customers."

Andy Grove, the Silicon Valley elder statesman who made Intel (NASDAQ:INTC) into the world's top chipmaker and spearheaded the semiconductor revolution, has died at the age of 79. Grove was Intel's first hire after it was founded in 1968 and became the practical-minded member of a triumvirate that eventually led "Intel Inside" processors to be used in more than 80% of the world's PCs. "I never stopped learning from him," said Microsoft (NASDAQ:MSFT) co-founder Bill Gates. "He was at the forefront of creating the personal computer industry."

Carnival has won Cuban government approval to begin sailing to the Caribbean island nation, allowing its Fathom division to become the first U.S. cruise line to dock there in more than 50 years. The agreement, which will grant Carnival (NYSE:CCL) access to three Cuban ports - Havana, Santiago de Cuba and Cienfuegos - beginning in May, coincides with President Obama's visit to the island, the first by a U.S. president in 88 years.

Moody's has placed Deutsche Bank's ratings on review for possible downgrade, citing rising execution hurdles as the bank tries to stabilize profits over the next three years. The move comes days after the German lender warned that volatile financial markets in the first quarter, normally a strong season for banks, posed a challenge for the entire sector. Deutsche Bank (NYSE:DB) also scrapped board bonuses this year after posting a record loss for 2015. DB -3.1% premarket.

American Express cut CEO Kenneth Chenault's pay 26% to the lowest level since 2008 after the credit-card lender's stock and profit slumped last year. The board awarded him $18.5M vs. a $25.1M pay package in 2014. "While compensation did come down quite a bit, it's still high relative to the company’s subpar performance," said William Ryan, an analyst at Portales Partners. "Investors have lost a lot of confidence in the leadership at American Express." AmEx (NYSE:AXP) shares -12% YTD.

IHS has now become the latest entity to give up U.S. citizenship for lower taxes. The U.S. information and analytics provider and U.K.-based market-data company Markit (MRKT) are combining to create a $13B company based in London. The new business, to be called IHS Markit, is expecting a corporate-tax rate in the low- to mid-20% range, compared with the 35% U.S. firms pay.

Global IPO activity volume fell nearly 40% to just over $12B in the first quarter, marking its weakest start to the year since the financial crisis. Lower oil and commodity prices, the strength of the U.S. dollar and economic volatility have led investors to adopt a "wait and see" approach or seek alternatives such as M&A, according to EY's latest Global IPO Trends report. Executive Director Martin Steinbach adds that the slowdown is evident in all regions across the world, but that it's important to note that there is still, on average, one IPO each day.

Embattled Valeant Pharmaceuticals is restating its earnings, forcing its chief financial officer to resign over "improper conduct" and pushing its chief executive, J. Michael Pearson, to step down. Surprise! Billionaire investor Bill Ackman is joining the company's board to try to save the business. Valeant (NYSE:VRX) has lost nearly 90% of its value since coming under public scrutiny for its pricing and distribution practices, including investigations by Congress and various government agencies.

In its biggest online retail partnership yet, Comcast (NASDAQ:CMCSA) has begun selling its triple-play of Xfinity services through a new Amazon (NASDAQ:AMZN) "Cable Store." The deal also includes dedicated customer service for AMZN customers - which could prove a notable draw for a cableco that has faced down a rough reputation for service. The tie-up came about when Comcast executives took a trip to Silicon Valley about a year ago.

Spotlight Capital Management wants SeaWorld Entertainment (NYSE:SEAS) to appoint new board members to give the company a fresh vision. The activist investor approves of many recent changes at the company, including the appointment of CEO Joel Manby, but thinks the board itself is outdated. SeaWorld shares are up roughly 16% since announcing it would stop breeding orcas, although the stock still trades at a lower forward earnings multiple than Cedar Fair (NYSE:FUN) or Six Flags (NYSE:SIX).

Top daily fantasy sports companies FanDuel (Private:DUEL) and DraftKings (Private:DRAFT) have agreed to halt their business in New York, betting on a legislative path to make the games legal after a four-month fight with the state's attorney general. The settlement means the firms would not have to pay any fines or other penalties related to the gambling charges, even if they are found to have been operating illegally. New York is one of the largest markets for daily fantasy sports in the U.S.

Monday's Key Earnings

Petrobras (NYSE:PBR) -6.7% AH after reporting its worst-ever quarterly loss.

Today's Markets

In Asia, Japan +1.9% to 17049. Hong Kong -0.1% to 20667. China -0.6% to 2999. India +0.2% to 25330.
In Europe, at midday, London -0.7%. Paris -0.9%. Frankfurt -0.8%.
Futures at 6:20, Dow -0.3%. S&P -0.4%. Nasdaq -0.5%. Crude -0.1% to $41.47. Gold +0.6% to $1251.50.
Ten-year Treasury Yield -2 bps to 1.90%

Today's Economic Calendar

8:55 Redbook Chain Store Sales
9:00 FHFA House Price Index
9:45 PMI Manufacturing Index Flash
10:00 Richmond Fed Mfg.
12:30 PM Fed's Evans speech
6:30 PM Fed's Harker speech

Companies reporting earnings today

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