Wall Street Breakfast: ABB Deal, Market Direction, Goldman Trouble

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Includes: ABB, AET, AMZN, ANTM, BA, BORGN, CI, CNC, CYH, DB, E, GE, GOOG, GOOGL, GS, GTS, HCA, HCP, HQY, HTHIY, HUM, JNJ, LPNT, MOH, NSANY, PCG, QHC, QQQ, RNLSY, SEM, SPACE, SPY, THC, UHS, UNH, WCG, WYNN
by: Wall Street Breakfast
Wall Street Breakfast
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ABB has reached a deal to offload 80.1% of its $11B power grid business to Hitachi (OTCPK:HTHIY), making the Japanese conglomerate the world No. 2 in heavy electrical equipment behind GE. The sale of its least profitable division would shrink ABB's revenue by about a quarter, but leave it more focused on robotics and automation. The Swiss engineering giant, which has pledged share buybacks following the transaction, also has an option to sell its remaining 19.9% power stake three years after the acquisition is completed. ABB +2% premarket.

Economy

U.S. stock index futures are pointing to a slightly higher open following the worst start to a December since 1980. Major indexes fell more than 5% last week and Friday marked the first time since March 2016 that all major indexes closed in correction territory. "People are trying to put a price on stocks but there's lack of clarity out there about pretty much everything - the Fed, trade, China's economy, Brexit," said Thomas Hainlin, global investment strategist at U.S. Bank Wealth Management.

With seven spending bills set to expire at the weekend, Republicans and White House officials are reportedly discussing a two-week spending measure that would push the fight into next year. It's not clear whether they will pursue that route, however, given that Democrats will gain more leverage when they take control of the House in January. President Trump has previously threatened to trigger a shutdown if Congress refuses to pass a budget that allocates $5B for border wall funding.

As pressure builds for a new vote, Theresa May will condemn the prospect of a second Brexit referendum in an address to the U.K. parliament today. Another ballot "would do irreparable damage to the integrity of our politics, because it would say to millions who trusted in democracy, that our democracy does not deliver," the prime minister will say, according to prepared remarks.

Germany is tightening rules to make it harder for non-European companies to buy stakes in local firms without its approval. The country is set to lower to 10% (from 25%) the threshold at which it can launch national security probes of foreign stake purchases involved in defense, tech or media deals. It also signals growing concern in Berlin about China's push to acquire valuable know-how and key technology.

About 66,000 "Gilets Jaunes" protesters turned out across France for a fifth successive weekend, less than half the number counted a week earlier, following tax relief and minimum wage concessions from Emmanuel Macron. Many retailers remained open, as well as attractions including the Eiffel Tower and the Louvre museum. It still remains unclear, however, whether such measures will succeed in putting a definitive end to the demonstrations.

The European Commission is expected to officially give Switzerland a six-month reprieve that will allow its stock exchanges to maintain access to EU clients until June 2019. It had previously warned that the exchanges faced suspension in a row over a new treaty governing ties between Switzerland and the EU, which faces domestic criticism that it impinges too much on Swiss sovereignty.

Mexico aims to lift oil and gas production by almost 50% in the next six years and in January will award infrastructure and drilling contracts to develop 20 fields. "It's a new Pemex rescue," declared President Andres Manuel Lopez Obrador, who took office on Dec. 1. Under the plan, Mexican crude output is due to climb to some 2.624M barrels per day by the end of 2024, while gas production will also rise by about 50%.

After two weeks of bruising negotiations, officials from almost 200 countries agreed Saturday on a rulebook to curb global warming, seeking to bolster the 2015 Paris climate accord. Issues discussed included transparency, financing and reporting for emissions, but participants postponed efforts to create a carbon credit market, which proved to be a sticking point. The U.S. - which President Trump has said will exit the Paris accord - can't formally pull out of the deal until 2020.

Stocks

Malaysia has filed criminal charges against units of Goldman Sachs (NYSE:GS) involving what it said were false statements made in relation to the 1MDB scandal. The government will seek fines well in excess of both the $2.7B of allegedly misappropriated funds and the $600M in fees received by Goldman for the 1MDB bond sales. The bank will "vigorously defend" against the charges, Goldman spokesman Edward Naylor said in an email. GS -1% premarket.

A federal judge's ruling that the Affordable Care Act is unconstitutional was a Friday-evening bombshell, but it will still need to survive review by higher courts. If the law were thrown out, it would likely harm hospitals, some insurers and healthcare providers who’ve gained millions of paying customers thanks to the billions of dollars worth of subsidized health insurance coverage provided by Obamacare. Related: UNH, AET, ANTM, CI, HUM, WCG, CNC, MOH, GTS, HQY, QHC, HCA, THC, UHS, LPNT, CYH, HCP, SEM

Johnson & Johnson -1% premarket after a Reuters reports suggested the company knew for decades that its iconic baby powder sometimes contained asbestos and failed to alert authorities. It follows Friday's 10% decline, the biggest in 15 years. The combined moves would take the stock to the lowest level since late July. J&J (NYSE:JNJ) said the story was "one-sided, false and inflammatory" and labelled it "an absurd conspiracy theory."

The troubles are piling up for Pacific Gas and Electric Company (NYSE:PCG) as the California Public Utilities Commission ordered immediate action against the utility for falsifying safety documents for natural gas pipelines. The state regulator found PG&E lacked sufficient staffing to locate and mark natural gas pipelines in compliance with law, leading employees to falsify data from 2012 to 2017.

Freeing it from potential legal risks, Qatar Petroleum is looking to invest at least $20B in the U.S. over the coming few years, after the Gulf Arab state unexpectedly quit OPEC this month. The state-owned oil firm also signed an agreement with Italy's ENI (NYSE:E) to buy a stake in three offshore oilfields in Mexico. More investments? Qatar is considering increasing its stake in Deutsche Bank (NYSE:DB), according to Handelsblatt.

A top executive at Wynn Resorts (NASDAQ:WYNN), who had been accused of enabling alleged sexual misconduct by former CEO Steve Wynn, is leaving the company. The exit of Maurice Wooden, who is also president of Wynn Las Vegas, follows a board overhaul and other executive departures. Earlier this year, Kim Sinatra, the company's general counsel who knew for years about Mr. Wynn's $7.5M settlement, stepped down from Wynn Resorts.

Google is investing over $1B to establish a new campus in New York City, as it expands its presence in the city's technology corridor along the Hudson River. The new leased campus, which is over 1.7M square feet, will be the primary location for Google's (GOOG, GOOGL) global business organization. The news comes on the heels of Amazon (NASDAQ:AMZN) picking New York as its second headquarters.

Jaguar Land Rover will announce plans early next year to slash up to 5,000 jobs as part of a turnaround strategy, sources told the FT. It's part of a £2.5B savings plan to ward off the threat from Brexit, falling sales in China and a drop in demand for diesel cars. The plans come after the automaker, which is owned by the Indian conglomerate Tata (NYSE:TTM), posted a £90M loss in the three months to September.

The French government is considering backing Michelin CEO Jean-Dominique Senard for the chairmanship of Renault (OTCPK:RNLSY), replacing embattled CEO Carlos Ghosn, sources told Le Figaro. The government is the carmaker’s biggest shareholder, with a 15% stake and two board seats. Meanwhile, Renault has reportedly sent a letter to Nissan (OTCPK:NSANY) urging a shareholder meeting, citing Ghosn's arrest as a "significant risk" to the carmakers' partnership.

High stakes? Boeing (NYSE:BA) has delivered the first 737s built at its new Zhoushan facility to Air China as the U.S.-China trade battle plays out. The facility, located about 180 miles from Shanghai, is tagged with a production target of 100 planes a year. "We have to keep our eye on the long game in China. Long term, I’m optimistic we will work our way through this," said Boeing China president John Bruns.

Rocket Lab launched its third Electron rocket this year early Sunday morning, in the company's first mission for NASA that sent 13 spacecraft to orbit. The firm is the first to fly under NASA's Venture Class Launch Services program, which the U.S. government hopes to push the boundaries of cheap, reliable launches with the budding market of new small rocket services. Related: SPACE, BORGN

Today's Markets

In Asia, Japan +0.6%. Hong Kong flat. China +0.2%. India +0.9%.
In Europe, at midday, London -0.4%. Paris -0.5%. Frankfurt -0.4%.
Futures at 6:20, Dow flat. S&P +0.1%. Nasdaq +0.1%. Crude +1.4% to $51.90. Gold +0.2% to $1243.70. Bitcoin +0.3% to $3236.
Ten-year Treasury Yield flat at 2.88%

Today's Economic Calendar

8:30 Empire State Mfg Survey
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital

Companies reporting earnings today »