Wall Street Breakfast: Q3 Earnings Season Kicks Off

by: Wall Street Breakfast
Wall Street Breakfast
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Equity markets are looking to shift their focus back to corporate results, with Alcoa (NYSE:AA) kicking off the third-quarter earnings season before today's opening bell. Earnings could move the bar for stocks more than anything else, especially because of their higher-than-average valuations, but investors appear to have less insight than usual, as companies have been particularly tight-lipped ahead of the customary reporting period.


British cabinet ministers are being warned that the Treasury could lose up to £66B a year in tax revenues under a "hard Brexit," according to leaked government papers seen by The Times. The document also cautions that leaving the single market and switching to WTO rules could cause GDP to fall between 5.4%-9.5%. Sterling is once again below $1.23, trading down 0.6%.

Despite giving Greece a positive review of its reforms, eurozone finance ministers have divided up their latest tranche of aid to Athens, only disbursing €1.1B. The release of the remaining €1.7B - expected later this month - will depend on arrears payments for September that Greek authorities are in the process of collecting. Eurozone countries have so far disbursed €33.5B under Greece's third bailout program.

German investor confidence improved more than anticipated in October in a sign that growth remains robust even as concerns about German banks weigh on the outlook. The ZEW Indicator of Economic Sentiment for Germany rose to 6.2 from last month's reading of 0.5, bolstering optimism over the motor of the eurozone economy.

Brazil's lower house of Congress has approved a landmark proposal to cap public spending, a major victory for President Temer's efforts to regain market confidence and pull the economy out of its worst recession ever. Separately, corruption charges against former President Lula da Silva are piling up as prosecutors accused him of an alleged bribery scheme related to contracts in Angola. If found guilty, he could face up to 35 years in prison.

South African prosecutors issued Finance Minister Pravin Gordhan a formal summons on fraud charges today, sending the rand down as much as 3.2% immediately following the news. Government bonds are also taking a battering. Yields on South Africa's 10-year debt are up 0.25 percentage points on the day to 8.925%, their highest level since the beginning of September.

OPEC's oil production rose to record highs in September, rising by 160K barrels to 33.6M bpd, underscoring the challenges the group faces as it seeks to curtail output. "At this stage, it is difficult to assess how the OPEC supply cut, if enforced, will affect market balances," the IEA said in its latest monthly report. Yesterday, WTI pushed above $51/bbl after Vladimir Putin said Russia was ready to join an output freeze, but not one world producer has willingly taken one solitary barrel off the table this fall.

Saudi Aramco is targeting 2018 for what could be the world's largest public listing as it expects oil prices and market conditions to improve in the coming years. CEO Amin Nasser said that all markets were still being considered for the IPO of up to 5% of Aramco, though the exact size of the offering will be determined by the Saudi Supreme Council.


That's all, folks: After asking carriers to stop sales amid several reports of replacement Note 7 devices bursting into flames, Samsung (OTC:SSNLF) is now halting production of the phone altogether. That could translate into lost sales of up to 19M devices, or nearly $17B, according to analysts including those at Credit Suisse. The news slammed Samsung's share price, which closed down 7.5% in South Korea.

Verizon CEO Lowell McAdam is "not that shocked" about Yahoo's (YHOO) massive data breach and said the company is 50%-60% done with its investigation. Will Verizon (NYSE:VZ) demand a price negotiation on their $4.8B deal? "That is just total speculation - we still see a real value to the asset there," he said. "But in fairness, we're still understanding what is going on, to define whether it's a material impact to the business or not."

Although Salesforce was thought to be out of the mix as of this weekend, a new report suggests the company is still evaluating the benefits of a Twitter (NYSE:TWTR) deal and what an appropriate valuation might be. Meanwhile, in an internal memo reportedly sent to Twitter employees last week, CEO Jack Dorsey made no mention of any deals, instead highlighting initiatives revolving around the company's live strategy and other merits. CRM -0.4% premarket.

Hundreds of millions of dollars are at stake... The U.S. Supreme Court will hear its first case involving design patents in more than a century today, as Samsung Electronics (OTC:SSNLF) and Apple (NASDAQ:AAPL) look to settle their fight over iPhone copying. America's highest judges will determine whether Samsung owes Apple all the profits it made from its infringing phones or just those attributable to the disputed features.

Royal Bank of Scotland has denied trying to profit from deliberately causing the failure of SME businesses during and after the financial crisis. Shares in the U.K. government owned lender fell sharply yesterday on the whistleblower allegations revealed by the BBC and Buzzfeed. RBS said it should have done better for SME customers in certain areas but any issues that existed have now been resolved.

The television audience for the second presidential debate fell 20% from the first record-breaking event, with some 66.5M Americans tuning into the program across 11 television channels, according to Nielsen. Why the drop-off? The Sunday Night Football game was definitely a factor. There is also speculation that the ugly, bitter nature of the presidential campaign had something to do with it. Related tickers: NBC (NASDAQ:CMCSA), ABC (NYSE:DIS), CNN (NYSE:TWX), CBS and FOX.

Fiat Chrysler has reached a tentative deal with unionized workers in Canada by agreeing to make more than C$400M ($301M) in investments for local operations. The pact was announced just minutes ahead of a midnight strike deadline that could have sent more than 9,000 Fiat (NYSE:FCAU) workers off the job. Union members will vote on the accord at ratification meetings on October 16.

Shares of Takata fell 8% overnight after the WSJ reported late last week that the troubled Japanese air bag maker was weighing a U.S. bankruptcy filing as one option for clearing a path for an outside investor. But Takata (TKTDY) issued a statement today saying the reported plan was not something it had announced. Markets were closed in Japan on Monday for a public holiday.

Airbus plans to slow the assembly rate of its A380 to one aircraft per month from 2018, the head of the program told Le Figaro, as the European planemaker struggles to revive sales of the world's largest passenger jet. "This decision allows us to smooth our deliveries pending new orders," Alain Flourens declared. Airbus' (OTCPK:EADSY) assembly rate for the superjumbo currently stands at 2.5 aircraft per month.

Theranos has been sued by one of the blood testing start-up's biggest backers, Partner Fund Management, for attracting $96.1M in investment "through a series of lies, material misstatements, and omissions," WSJ reports. The suit accuses Elizabeth Holmes of deceiving the hedge fund by claiming Theranos (THER) had developed "proprietary technologies that worked" and was close to getting regulatory approvals.

Today's Markets

In Asia, Japan +1% to 17024. Hong Kong -1.3% to 23549. China +0.6% to 3065. India closed.
In Europe, at midday, London +0.1%. Paris +0.3%. Frankfurt +0.2%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.2%. Crude -0.8% to $50.94. Gold -0.3% to $1256.80.
Ten-year Treasury Yield +3 bps to 1.76%

Today's Economic Calendar

6:00 NFIB Small Business Optimism Index
8:55 Redbook Chain Store Sales
10:00 Labor market condition index

Companies reporting earnings today »