Wall Street Breakfast: More Policy Signals From ECB's Draghi

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by: Wall Street Breakfast
Wall Street Breakfast
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The European Central Bank is expected to leave interest rates and other stimulus tools unchanged at its meeting today while it ponders the effects of policy measures it took last month. That bazooka of stimulus included increasing monthly asset purchases to €80B, cutting rates, unveiling four new TLTRO operations, and introducing corporate bond buying into its QE program. Will it really help get medium-term inflation to just under 2%? Mario Draghi will likely address that issue and other questions at his news conference scheduled for 8:30 a.m. ET.

Economy

Crude prices are steadying following a major jump on Wednesday as government data showed that U.S. crude stocks rose slightly less than expected last week, while the U.S. dollar advanced against the euro ahead of today's ECB meeting. The lack of movement comes despite the IEA predicting 2016 would see the biggest fall in non-OPEC production in the last 25 years (almost 700K bpd), helping rebalance a market that has been dogged by oversupply. "At the same time, global demand growth is in a hectic pace, led by India, China and other emerging countries," IEA chief Fatih Birol told reporters in Tokyo. Crude futures flat at $44.18/bbl.

Sweden's central bank is buying more bonds to drive down longer yields as policy makers try to fight currency gains that threaten to undermine their efforts to rekindle inflation. The Riksbank left its benchmark repo rate at -0.5%, but added 45B kronor ($5.6B) to its quantitative easing program, including inflation linked bonds, to be purchased during the second half of the year. Sweden's currency is gaining against the dollar in the wake of the announcement.

George Soros is upping his predictions of a "hard landing" in China, saying the country's credit-growth figures should be viewed as a warning sign. What's happening in China "eerily resembles what happened during the financial crisis in the U.S. in 2007-08...most of money that banks are supplying is needed to keep bad debts and loss-making enterprises alive," the billionaire investor said. The broadest measure of new credit in the world's second-largest economy was 2.34T yuan ($362B) last month, far exceeding the median forecast of 1.4T yuan.

Looking to rally international support against her potential ouster, Brazil's President Dilma Rousseff is heading tomorrow to the United Nations in New York. "The focus now is on framing the impeachment as a coup," said Paulo Carlos Calmon, a political scientist at University of Brasilia. "They will tap any source of pressure they can, including foreign governments." Four of Brazil's eight presidents since 1950 have failed to serve out their terms, with one impeachment, one resignation, one suicide and one military overthrow.

Puerto Rico's Government Development Bank, operating under a state of emergency, has filed with regulators to sell debt as officials negotiate with creditors about a $422M payment due on May 1. According to the Municipal Securities Rulemaking Board's website, the taxable securities would mature in May 2017. The U.S. Congress is also working on legislation aimed at resolving the crisis, but that process is hitting roadblocks.

Stocks

Volkswagen and U.S. officials have reached a framework deal under which the automaker would set aside $10B to resolve civil claims and lawsuits linked to its diesel emissions scandal. As part of the deal, VW (OTCPK:VLKAY) would likely offer to buy back almost 500K diesel vehicles fitted with defeat devices and provide compensation to owners. The German carmaker is expected to make the announcement later today in San Francisco, avoiding a trial that was set to start in the summer. VW shares +6% in Frankfurt.

Japanese officials have raided an office of Mitsubishi Motors (OTC:MMTOY) after the carmaker admitted to falsifying its fuel economy data on about 625K vehicles. A government spokesman said they were treating it as an "extremely serious case" and it had ordered the company to submit a full report. Shares of Mitsubishi Motors remained untraded today as there were about 10x as many sell orders as there were bids.

Tesla has hit another order milestone for its latest car - the Model 3 sedan. "We are now almost at 400,000 orders," Elon Musk told a conference held in Oslo, adding that interest in the new vehicle had "surprised even us." On April 7, Tesla (NASDAQ:TSLA) said it had received over 325,000 reservations for the Model 3.

Establishing itself as a player in education, Amazon (NASDAQ:AMZN) has won a deal worth about $30M to provide e-books to New York City, the nation's largest school district. The city's Panel for Educational Policy voted in favor of the three-year contract for the Department of Education, which will take effect in the coming school year. For New York, there may be savings in buying more digital books, as well as the prospect of saving storage space for printed texts.

Wal-Mart is shrinking its board by three members to 12, a change that will take place after its annual shareholders meeting on June 3. The U.S. retailer, which posted a double-digit profit decline last year as the dollar appreciated and costs rose as it hiked entry-level wages, said a smaller board would lead to better and faster decision-making. Wal-Mart (NYSE:WMT) also disclosed that CEO Doug McMillon's total compensation, including cash and stock, was valued at $19.8M in the year ending Jan. 31, up from $19.4M in 2014.

European earnings roundup: Ericsson (NASDAQ:ERIC) -10.7% premarket after announcing a major management shakeup and missing expectations in the first quarter, citing weakness in Europe and some emerging markets. A struggling eyecare business and lackluster heart medicine sales led Novartis' (NYSE:NVS) core net income to fall 13% to $2.79B, but the drugmaker confirmed its outlook for 2016. SABMiller (OTCPK:SBMRY) reported a gain in Q4 beer shipments, led by growth in Africa and Latin America, in spite of economic volatility and the potential distraction of AB InBev's (NYSE:BUD) takeover offer.

Sony cut its profit estimate by 9.4% for the financial year that ended in March, as slowing global smartphone sales dented demand for its camera modules. As a result, the company booked an impairment loss of ¥59.6B on its camera business to match a weaker revenue prospect. Full year operating income is now seen at ¥290B ($2.6B), down from a previously estimated ¥320B. SNE -2% premarket.

Apple is delaying its earnings results in order to accommodate a memorial for Silicon Valley's Bill Campbell, who passed away earlier this week after years of battling cancer. "Campbell was a coach and mentor to many of us at Apple (NASDAQ:AAPL), and a member of our family for decades as an executive, advisor, and ultimately a member of our board," the company said on its website. The tech giant is now scheduled to release its results after the closing bell on Tuesday, April 26.

Despite several days of tough talk from Viacom (VIA, VIAB) and Dish Network (NASDAQ:DISH) over carriage renewal, a midnight deadline for the two to reach an agreement has passed without a blackout. Though neither company has commented, it appears that talks remain ongoing. Meanwhile, a California judge has rejected a bid by Sumner Redstone's granddaughter to join the media mogul's ex-girlfriend in a lawsuit that challenges the 92-year-old billionaire's mental competency.

The Federal Aviation Administration has issued the first approval for flights of small commercial drones at night, in the latest sign of how quickly U.S. regulators are moving to authorize expanded uses of unmanned aircraft. The clearance comes weeks before the FAA is expected to issue long-awaited rules for widespread commercial operations of small drones. So far, such unmanned vehicles have been conducting commercial flights based on thousands of individual exemptions previously permitted by the agency. Related stocks: AMBA, AVAV, OTCQB:DRNE, GPRO, INVN, IXYS, TRMB

Wednesday's Key Earnings

Abbott (NYSE:ABT) +0.3% after topping expectations.
American Express (NYSE:AXP) +4.1% AH on Q1 beat, reaffirming guidance.
Coca-Cola (NYSE:KO) -4.8% on weaker soda volumes.
EMC Corp. (EMC) +3% thanks to VMware tracking stock.
Kinder Morgan (NYSE:KMI) -3% AH as it cut 2016 spending.
Las Vegas Sands (NYSE:LVS) -6% AH after missing estimates.
Mattel (NASDAQ:MAT) -8.8% AH as weak Barbie and forex impacts hit results.
Newmont Mining (NYSE:NEM) +2.8% AH topping the consensus outlook.
Qualcomm (NASDAQ:QCOM) -3.2% AH offering weak guidance.
United Continental (NYSE:UAL) unmoved after a set of mixed results.
U.S. Bancorp (NYSE:USB) +2% posting in-line earnings.
Yum! Brands (NYSE:YUM) +3.9% following a strong quarter.

Today's Markets

In Asia, Japan +2.7% to 17364. Hong Kong +1.8% to 21622. China -0.7% to 2953. India +0.1% to 25880.
In Europe, at midday, London -0.6%. Paris -0.6%. Frankfurt -0.4%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq flat. Crude flat $44.18. Gold +0.5% to $1261.20.
Ten-year Treasury Yield flat at 1.86%

Today's Economic Calendar

8:30 Initial Jobless Claims
8:30 Philly Fed Business Outlook
8:30 Chicago Fed National Activity Index
9:00 FHFA House Price Index
9:45 Bloomberg Consumer Comfort Index
10:00 Leading Indicators
10:30 EIA Natural Gas Inventory
4:30 Money Supply
4:30 Fed Balance Sheet

Companies reporting earnings today