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Author: skywalker   |   Latest post: Wed, 16 Aug 2017, 09:47 AM

 

Wall Street Breakfast: Geopolitical Concerns Weigh On Markets

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Asian stock markets ended mixed, with the dollar sinking against the yen, although markets in Australia, New Zealand and Hong Kong, as well as most European exchanges, are closed for Easter Monday. Trading was light as tensions eased a bit on the Korean peninsula following North Korea's ballistic missile test that "blew up almost immediately" after it was fired, a day after Kim Jong Il's regime paraded a series of new missiles in a defiant show of force. Chinese shares finished lower even as the country’s GDP strengthened, as China's top securities regulator urged stock exchanges to crack down on stock manipulation; the Shanghai Composite closed down 0.7%. Japan's Nikkei edged higher by 0.1% amid speculation that recent selling was overdone.

Economy

China's economy grew by 6.9% in Q1, the fastest rate in six quarters, as higher government infrastructure spending and a frenzied property boom helped raise industrial output by the most in over two years. The Q1 result came in slightly higher than forecast, but analysts widely expect the economy to lose steam later this year as the impact of earlier stimulus measures starts to fade and as local authorities continue to try to rein in housing prices. Production of crude steel rose 1.8% Y/Y to 72M metric tons, implying a record average daily run-rate of 2.323M tons.

Turkish President Erdogan narrowly won a crucial referendum yesterday that will greatly expand the powers of his office and cement his hold on power. Voters approved a set of constitutional amendments that give Erdogan greater sway over policy, including the authority to appoint ministers and top judges at his discretion. The Turkish lira is up by 2%, as traders see the vote removing a major source of uncertainty following last summer's failed coup attempt, credit rating downgrades and the slumping lira.

The Trump administration said Friday it will nominate an outspoken critic of the Export-Import Bank to head the agency, just days after Pres. Trump appeared to reverse his position on the bank that the likes of GE and Boeing (NYSE:BA) say is vital to their success. Former Rep. Scott Garrett, who called the Ex-Im Bank a "fund for corporate welfare" and voted twice against reauthorizing the bank while in Congress, will be nominated as the bank’s president. Conservative Republicans have forced the Ex-Im Bank to remain mostly dormant for nearly two years through a lack of leadership, yet the appointment of Garnett and another former congressman to the bank's board could allow lending to resume in earnest.

Stocks

Ant Financial raised its offer for MoneyGram International (NYSE:MGI) to ~$1.2B, winning the backing of MGI's board as it beat out a rival offer from Euronet Worldwide (NASDAQ:EEFT). Ant, the finance affiliate of Alibaba (NYSE:BABA), increased its bid to $18/share in cash from $13.25, and agreed to assume or refinance MGI's debt; EEFT last month offered $15.20/share for MGI. Ant could still face potential political obstacles, with U.S. lawmakers urging the Committee on Foreign Investment in the U.S. to conduct a full review of the deal.

In a first for the company, Apple (NASDAQ:AAPL) has secured a permit for autonomous vehicle testing in California, joining a number of rivals, including Google (GOOG, GOOGL). Tesla (NASDAQ:TSLA), Uber (Private:UBER) and General Motors (NYSE:GM). The move shows Apple progressing beyond testing on private tracks and simulators, and it will open the firm's heavily secretive self-driving car effort (named Project Titan) up to more public scrutiny, as reports will now need to be filed with the state. For Google's part, its Waymo operation has driven more than 2.5M miles on public roads, including about 636K miles in California. It is also testing autonomous cars in Washington, Arizona and Texas.

An out of control well in Alaska's Prudhoe Bay has stopped leaking oil but continues to spray natural gas, operator BP and state authorities say. Crews have been unable to fully shut down the well on Alaska’s North Slope, which was discovered on Friday; the amount of oil that had been released reportedly is "minor" compared with the volume of natural gas leaking from the well. BP's Prudhoe Bay operations account for ~55% of Alaska’s oil and gas production. The Trans-Alaska pipeline system, which runs from Prudhoe Bay south to Valdez, is not affected by the incident and is operating normally.

United Airlines is changing its policy on booking its own flight crews onto its planes following the recent fiasco in which a man was forcibly dragged off an overbooked flight to clear a seat for an airline employee. UAL says it will ensure that crews riding on its aircraft as passengers are booked at least 60 minutes before departure, avoiding the removal of passengers from their seats after already boarding the plane. Competing airlines are following with their own changes; Delta (NYSE:DAL) customer service agents are now authorized to dole out as much as $2,000 to a passenger who gives up a seat, while a high-level supervisor can pay out as much as $9,950 in some cases. Meanwhile, a couple on the way to their wedding this weekend claims they were kicked off their United flight.

Expect drug price growth to slow, Barron's cover story says, noting that investors should be wary of "serial price-hikers" who could find it tough to keep up with Wall Street forecasts as a result. Since 2008, prices for the most commonly used branded prescription drugs have soared 208%, compared with a 14% rise in consumer prices. Until recently, investors have fared well with shares of AbbVie (NYSE:ABBV), Amgen (NASDAQ:AMGN) and Biogen (NASDAQ:BIIB), but now they should consider companies like Regeneron Pharmaceuticals (NASDAQ:REGN) and Vertex Pharmaceuticals (NASDAQ:VRTX) that are increasing revenue by launching new drugs and growing patient populations, Barron's says.

BJ's Wholesale Club is putting itself up for sale, and Amazon (NASDAQ:AMZN) has expressed "modest internal interest," according to the NY Post. BJ's recently scrapped ambitions for an IPO because of Wall Street's growing worries over the retail sector, so CVC Capital Partners and Leonard Green & Partners, the buyout firms that took BJ’s private six years ago, are pressing ahead for an outright sale that could fetch more than $4B, according to the report. Buyout firms are expected to take a look, while AMZN is said to have also recently discussed evaluating BJ’s as an acquisition target, but the report says it is not known if the company actually would bid on the chain if it goes on the block.

A weekend NY Times article describes Vanguard's exceptional growth. In the last three calendar years, investors sank $823B into Vanguard funds, in a scale that becomes clear when it is compared with the rest of the mutual fund industry - more than 4,000 firms in total. All of them combined took in just a net $97B during that period, Morningstar data shows. Vanguard, in other words, scooped up about 8.5x as much money as all of its competitors. Vanguard’s assets under management have skyrocketed to $4.2T from $1T seven years ago, according to the company, with ~$3T invested in passive index-based strategies and the rest in funds that rely on an active approach to picking stocks and bonds.

Today's Markets

In Asia, Japan +0.1%. Hong Kong -0.2%. China +0.1%. India -0.1%.
In Europe, at midday, London closed for holiday. Paris closed for holiday. Frankfurt closed for holiday.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.1%. Crude -0.8% to $52.76. Gold +0.2% to $1291.50.
Ten-year Treasury Yield Flat at 2.21%.

Today's Economic Calendar

8:30 Empire State Mfg Survey
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital
5:00 PM Stanley Fischer speech

 

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