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Author: skywalker   |   Latest post: Tue, 25 Apr 2017, 07:07 AM

 

Wall Street Breakfast: Fed In Focus After Trump Reshapes Markets

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U.S. stock index futures are pointing to a higher open on Wall Street as the FOMC begins its two-day meeting on interest rate policy. It's near certain the Fed will inaugurate the Trump era with a rate hike and its economic forecast will provide a first glimpse into whether the U.S. election has reshaped the central bank's growth and inflation outlook. Will the recent stock rally and jump in bond yields increase the projected pace of rate increases for 2017 and beyond?

Economy

President-elect Donald Trump has chosen Rex Tillerson as his pick for secretary of state, saying "he will be a forceful and clear-eyed advocate for America's vital national interests." The veteran chief executive has spent his entire career at Exxon Mobil (NYSE:XOM), where he has had many overseas business dealings, but his relationships with foreign leaders could complicate his confirmation prospects. XOM +1% premarket.

More Trump picks: The President-elect has chosen former Texas Gov. Rick Perry to be Secretary of Energy, according to NBC News. Some irony? In a presidential debate in 2011, Perry forgot that he'd named the Energy Department as one of three Cabinet branches he'd eliminate, in a gaffe known as his "oops" moment. Trump has also tapped a third Goldman (NYSE:GS) veteran to join his administration, picking COO Gary Cohn to head the White House National Economic Council.

Hillary Clinton's campaign has backed a request from a group of Electoral College electors to have national intelligence director, James Clapper, release findings related to Russia's role in the U.S. election before they vote on Dec. 19. "Electors have a solemn responsibility under the Constitution and we support their efforts to have their questions addressed," campaign chairman John Podesta said in a statement.

China and Mexico have pledged to deepen ties at a meeting between their top diplomats as they prepare for Donald Trump to be sworn in as the next U.S. President. According to a statement on the Chinese foreign ministry website, China's comprehensive partnership with Mexico is "flourishing" day by day and the nation wishes to widen cooperation on trade, investment, resources, infrastructure and financial services.

Lots of Chinese economic data also came out overnight, released by the National Bureau of Statistics. Retail sales surprised to the upside, jumping nearly 11% in November, while industrial output grew 6.2% from a year earlier, slightly better than analysts' estimates and October's reading. Meanwhile, fixed-asset investment was in line with forecasts, rising 8.3%, adding to growing signs of stabilization in the world's second-biggest economy.

Italy's new Premier Paolo Gentiloni has unveiled his team of ministers, forming a new caretaker government that closely resembles the outgoing one and that must navigate choppy political waters in the coming months. Economy Minister Pier Carlo Padoan was also reconfirmed as he grapples with the looming crisis at Monte dei Paschi (OTCPK:BMDPY) and Italy's banking sector.

Senior IMF officials have rejected claims that the organization is seeking to impose more austerity on Greece, in a sign of tension over whether the fund will join the eurozone's €86B bailout of the country. Poul Thomsen, director of the IMF's European department, and Maurice Obstfeld, the fund's chief economist, said their main worries are that Athens is pursuing policies that are "unfriendly to growth" and the nation's debt is "highly unsustainable."

U.K. inflation rose to 1.2% in November, beating analyst expectations for a 1.1% increase and marking the highest rate since October 2014. Meanwhile, U.K. Chancellor Philip Hammond has backed a longer period to manage a "soft Brexit," suggesting for the first time that Britain may need until beyond 2019 to break away from Brussels, which would help reduce the risk of financial disruption. Sterling +0.2% to $1.2708.

Brazilian President Michel Temer, fighting for survival over corruption allegations, is planning new measures to jump start a stalled economy, including steps to relieve indebted consumers and forcing credit card companies to pay businesses faster. Brazil's Senate is also expected to give final approval today on a proposed constitutional amendment tying public-spending growth to previous-year inflation.

"The next few weeks will be crucial in determining if the production cuts [by OPEC and non-OPEC] are being implemented and whether the recent increase in oil prices will last," according to a new report by the IEA. "For contractual and logistical reasons, we might initially see that the output cuts do not fall neatly into place... The deal is for six months and we should allow time for it to be implemented before re-assessing our market outlook."

Stocks

Japan's Asahi Group has agreed to buy five eastern European beer brands from AB InBev (NYSE:BUD) for about ¥900B ($7.8B), as the Budweiser maker looks to offload former SABMiller (OTCPK:SBMRY) businesses to win approval for their MegaBrew merger. The deal will give bigger international heft to Asahi (OTC:ASBRY), which is one of the top beer makers in its home market but only a small player globally. BUD +1.2% premarket.

Italy's largest bank by assets is planning to cut 14,000 jobs over the next three years and raise €13B to strengthen its balance sheet. The latest reshaping of UniCredit (OTCPK:UNCFF) will be closely watched for what it says about the willingness of investors to help troubled banks in Italy, where lenders are saddled with an estimated €360B in sour loans.

The state of California has ordered an investigation into allegations Wells Fargo (NYSE:WFC) retail bankers signed up customers for life insurance policies from Prudential Financial (NYSE:PRU) without their permission. Prudential Financial said yesterday it had suspended the distribution of a low-cost life insurance policy through Wells, pending a review of how the product was sold by the bank.

U.S. banks can apply to take five more years to comply with the Volcker Rule, a reform emerging from the financial crisis that has received some of the harshest criticism from Wall Street. But the Federal Reserve Board said it would be the final grace period following three one-year extensions. Institutions can qualify as long as they demonstrate meaningful progress in divesting illiquid funds and have a sufficient compliance program. Related tickers: GS, MS, JPM, BAC, C

Airbus and Iran Air will finalize a deal to buy aircraft in two weeks, according to the head of Iran's flag carrier, adding that Airbus (OTCPK:EADSY) has agreed to provide financing for 17 planes. Uncertainty over financing and political opposition in the U.S. has slowed down Tehran's efforts to import aircraft following the lifting of sanctions in January.

A flight headed to Germany from Texas was diverted to JFK Airport on Monday night after authorities received a "credible threat" of a bomb on board. According to the Port Authority, warnings about Lufthansa (OTCQX:DLAKY) Flight 441 were received by telephone. All 530 passengers were evacuated safely and nothing suspicious was found aboard the plane.

Boeing rose 1.5% in after-hours trading after the aircraft maker raised its dividend by 30% to $1.42 a share and renewed its share repurchase authorization. Boeing (NYSE:BA) also said it would cut its 777 production rate to five per month (from seven) beginning in August. The decision was made after signs of near-term purchase hesitation in some regions.

In the wake of its September rocket explosion, SpaceX (Private:SPACE) has officially delayed the first crewed flight of its Crew Dragon vehicle - the capsule it's building to take NASA astronauts to and from the International Space Station. Originally planned for late 2017, the first flight is now slated to take place in May of 2018, as the company increases efforts to develop new launchpad fueling procedures.

Shari Redstone has walked away from an attempt to merge Viacom (VIA, VIAB) and CBS, two companies that have been split for over a decade. The Redstone family's National Amusements controls over 80% of voting rights in both firms, but stated that now was not the right time for a tie-up. According to WSJ sources, one of the reasons for the reversal in plans was faith in the strategy of new Viacom CEO Bob Bakish.

With the aim of providing quicker access to certain Google services, Alphabet (GOOG, GOOGL) has completed a deal with Cuba to place computer servers on the island, eliminating the need for data to travel from Venezuela (where the nearest Google servers are located). The move is the latest to improve internet access for the country of 11.2M people, which has long been one of the world’s most isolated nations.

Popular online communication services such as WhatsApp (NASDAQ:FB) and Skype (NASDAQ:MSFT) face stricter rules on handling user data under new security laws slated to be proposed by the EU, according to a draft document seen by Reuters. Authorities want to extend some restrictions, which at present apply to telecom operators, to include internet firms offering online messages and call services, called OTT (Over-The-Top) services.

AirPods aren't the only product Apple (NASDAQ:AAPL) is having trouble getting out the door. The Beats X earbuds, first announced at September's iPhone event, are unlikely to ship until early next year according to an email from reseller B&H Photo. Apple originally aimed to ship them in "Fall 2016," but it looks like the $149 earphones and the company's AirPods won't be shipping before the holidays.

Today's Markets

In Asia, Japan +0.5%. Hong Kong +0.1%. China +0.1%. India +0.7%.
In Europe, at midday, London +0.4%. Paris +0.6%. Frankfurt +0.6%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude +0.8% to $53.24. Gold -0.5% to $1159.90.
Ten-year Treasury Yield -2 to 2.47%.

Today's Economic Calendar

FOMC meeting begins
6:00 NFIB Small Business Optimism Index
8:30 Import/Export Prices
8:55 Redbook Chain Store Sales
1:00 PM Results of $12B, 30-Year Note Auction

 

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