Wall Street Breakfast: Big Bank Earnings On Tap

by: Wall Street Breakfast
Wall Street Breakfast
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With financials priding itself as the only positive sector so far this month, will upcoming bank earnings hurt or help? Wells Fargo (NYSE:WFC), Citigroup (NYSE:C) and JPMorgan (NYSE:JPM) all report results ahead of the opening bell and are viewed as an important read on the economy and harbingers for earnings season. Expectations for the third quarter are low, however, as slowing loan growth and subdued interest rates put pressure on profits.


It's the end of industrial deflation in China, as producer prices rose for the first time in nearly five years, edging up 0.1%, while consumer inflation also beat expectations. Rising prices were something the PBOC has been trying to trigger for a while, but combined with yesterday's weak trade data, it paints a cloudy picture for the world's second-largest economy.

Thailand's King Bhumibol Adulyadej has died after more than 70 years on the throne, creating a royal succession at a time of political uncertainty under military rule. A government holiday was declared today for national mourning, but the country's stock exchange and other financial institutions were operating as normal. The Thai SET Index rose 4.6%, rebounding from losses this week leading up to the king's death.

The U.S. Treasury has issued final inversion amendment rules in its effort to tackle "earnings stripping" - a common tax-reduction technique employed by multinationals. "In the absence of congressional action... it is Treasury's responsibility to use our authority to protect the tax base," Treasury Secretary Jack Lew told reporters. The new rules also provide some exemptions for short-term loans and cash pools, and signal further business tax reforms are to come.

U.S. Senator Elizabeth Warren has sent a letter to President Obama, urging him to designate a new commissioner as chair of the Securities and Exchange Commission. In her request, Warren revived her call for the SEC to develop a political spending disclosure rule, something she said current Chair Mary Jo White has refused to do despite overwhelming support from shareholders, experts and the public.

Saudi Arabia is forecast to raise over $10B through its first international bond market issuance as it continues its roadshow in London, Los Angeles, New York and Boston. In a rare financial insight, the government issued a bond prospectus, projecting a 2016 budget deficit of 13.5% of GDP. Its estimated oil reserves equate to around a fifth of the global supply, and are projected to last another 70 years.

Colombia President Juan Manuel Santos has extended a cease-fire with the Marxist FARC rebel group until Dec. 31 while his team works with the opposition to save a peace accord that voters had rejected. "Let this be clear: This is not an ultimatum nor a deadline, but I hope that the entire process of obtaining a new agreement will be complete well before then."


Samsung Electronics expects about $3B in operating profits to evaporate over the next two quarters because of its decision to ditch the troubled Galaxy Note 7. The outlook brings to about $5.3B the total losses Samsung (OTC:SSNLF) has forecast as a result of the overheating issues, after the global smartphone leader said on Wednesday it would suffer a $2.3B hit to third-quarter profit.

Tech giants including AMD, Dell/EMC, Google (GOOG, GOOGL), HPE, IBM, Mellanox (NASDAQ:MLNX), Micron (NASDAQ:MU), Nvidia (NASDAQ:NVDA) and Xilinx (NASDAQ:XLNX) have linked up to give Intel (NASDAQ:INTC) a good kick in the datacenters. The group has come up with an open specification, dubbed OpenCAPI, that can boost server performance by up to 10x. Effectively, they are moving away from PCIe - the current industry standard - to something that is both more open and vastly more powerful.

It looks like Mark Zuckerberg has a gotten a voice for his AI robot butler after asking for suggestions on Facebook (NASDAQ:FB). "I'll do in a heartbeat if [Paul] Bettany [who voiced Jarvis in the Iron Man movies] gets paid and donates it to a cause of Cumberbatch's choosing... that's the right kind of STRANGE!" Robert Downey Jr. replied. Zuckerberg's response: "This just got real."

HP -1.7% premarket after announcing weak guidance and plans to further reduce the company's head count. "Our core markets are challenged and macro economic conditions are in flux right now," CEO Dion Weisler said. HP (NYSE:HPQ) anticipates adjusted profit for fiscal 2017 to be $1.55-$1.65 per share and expects to cut about 3,000-4,000 jobs over the next three years.

Deere has rebutted the Justice Department challenge to its planned purchase of Monsanto's (NYSE:MON) Precision Planting business, stating the government is unfairly accusing it of trying to monopolize a market that doesn't exist. The DOJ initially cleared Deere's (NYSE:DE) acquisition in October 2015, but recently filed a lawsuit to block the deal, stating the proposed transaction would mean higher prices for high-speed precision planting equipment.

As China looks to slash the number of state-owned companies to create larger industry players, Sinochem and ChemChina have begun discussions about a possible merger to create a chemicals, fertilizer and oil giant with almost $100B annual revenue. While still at an early stage, the talks come as ChemChina finalizes a $43B takeover of Syngenta (NYSE:SYT), which would be China's largest-ever foreign investment.

Hershey CEO John Bilbrey is preparing to step down by next summer, Reuters reports, and the chocolate maker's board has formed a committee to find a successor. The move comes less than three months after the charitable trust that controls Hershey (NYSE:HSY) reached a major reform agreement with its overseer, the Pennsylvania attorney general's office, raising questions about its future plans for the company.

"Marmitegate" is over... Tesco (OTCPK:TSCDY) and Unilever (NYSE:UL) have buried the hatchet over a dispute which saw the British grocer pull a range of products from the consumer goods group off of its website. They had clashed over Unilever's decision to raise prices in a bid to offset the sterling slump that followed the Brexit vote, but stated they were "pleased the situation had been resolved."

PepsiCo is nearing a deal to acquire sparkling probiotic U.S. drinks company KeVita, in the latest push by the carbonated beverage giant to diversify its soft drinks business. PepsiCo's (NYSE:PEP) acquisition could be finalized as early as this month, according to Reuters, and will likely value the privately held company at less than $500M.

Shares of SoftBank climbed over 3% in Tokyo after it announced a tie-up with Saudi Arabia to create a tech fund that could eventually raise up to $100B. According to SoftBank (OTCPK:SFTBY), it will invest $25B, while Saudi's Public Investment Fund will almost double that, with up to $45B. It's one part of the Kingdom's major economic overhaul to deal with the slump in oil.

It will take more than the retirement of Wells Fargo (WFC) CEO John Stumpf to make California State Treasurer John Chiang change his mind about doing business with the bank again. "We are beyond the point of tweaking. We want to see fundamental reform of Wells Fargo before we make a decision," he said. In September, the state suspended its relationship with the lender after it was accused of defrauding customers.

Verizon has a "reasonable basis" to believe Yahoo's (YHOO) massive data breach represents a material impact that could allow it to withdraw from its $4.83B deal to buy the tech company. "If they believe that it's not then they'll need to show us that," Verizon's (NYSE:VZ) general counsel Craig Silliman told reporters, declining to comment on whether talks are under way to renegotiate the purchase price.

Targeting Japan and other parts of Asia, Sony's (NYSE:SNE) PlayStation unit plans to release five or six smartphone games in the year ending March 2018, its latest attempt to lure more casual gamers to its high-end gaming platform. Sony isn't alone. The wildly successful Pokemon Go debuted in July, and Nintendo (OTCPK:NTDOY) plans to launch Super Mario Run by the end of the year.

Florida officials have announced a new area of Zika transmission in Miami, which has already infected five individuals, and called on the federal government for funding to help fight the virus. It's the third established outbreak in the city, a hot zone for Zika because it has both the Aedes mosquitoes that transmit the disease and an influx of travelers from other areas where the virus is spreading. Related tickers: SNY, ABT, INO, AEMD, XON, CEMI, BCRX, TMO, OSUR, OTCQB:GOVX

Thursday's Key Earnings

Delta (NYSE:DAL) +0.4% AH with plans to curb flight capacity.

Today's Markets

In Asia, Japan +0.5% to 16856. Hong Kong +0.9% to 23233. China +0.1% to 3063. India +0.1% to 27673.
In Europe, at midday, London +0.9%. Paris +2%. Frankfurt +1.8%.
Futures at 6:20, Dow +0.5%. S&P +0.5%. Nasdaq +0.4%. Crude +1.2% to $51.03. Gold -0.3% to $1254.
Ten-year Treasury Yield +3 bps to 1.77%

Today's Economic Calendar

8:30 Producer Price Index
8:30 Retail Sales
8:30 Fed's Rosengren: "The Elusive Recovery"
10:00 Business Inventories
10:00 Consumer Sentiment
12:30 PM Janet Yellen speech
1:00 PM Baker-Hughes Rig Count
2:00 PM Treasury Budget

Companies reporting earnings today »