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Author: skywalker   |   Latest post: Mon, 16 Oct 2017, 08:07 AM

 

Wall Street Breakfast: Dollar Rallies Amid Catalonia Crisis, U.K. Political Woes

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European bourses are mostly lower in the early going as worries return over Catalonia’s push to break away from Spain and the dollar rallies to its highest level against the euro since mid-August. Uncertainty about whether Catalonia's parliament would meet on Monday in defiance of a ruling by Spain's constitutional court has sent Spanish stocks and bonds tumbling. Friday's other major focus for markets will be U.S. jobs data for September, which will show how hurricanes Harvey and Irma affected the labor market. U.K. stocks are higher, boosted by a weaker pound, amid growing speculation that the government will call a snap election. German industrial orders rose 3.6% in August, rising far more than expected on strong foreign demand and rebounding from a decline in July.

Economy

President Trump is expected to decline to certify the Iran nuclear agreement as early as next week and leave it to Congress to determine whether to reimpose punitive economic sanctions, according to multiple reports. Congress may not have the stomach for such a move, which could lead to the agreement’s collapse, so the ultimate result could be to accuse Iran of failing to comply with the deal, while leaving the deal itself in place. Trump’s expected move would allow him to tell supporters that he had disavowed the accord, fulfilling his campaign rhetoric, while bowing to the reality that the U.S. would isolate itself from its allies if it sabotaged a deal with which Iran is viewed as complying.

Japan's finance minister is heading to Washington, D.C., to launch a second round of economic talks. Taro Aso will meet with U.S. Vice President Mike Pence October 16, in a follow-up to meetings between the two countries in Tokyo in April. Since then, though, Japan raised tariffs on frozen beef imports from countries including the U.S. to 50% from 38.5%, and expectations are growing that the U.S. will use the new round to push for trade concessions. Asked about that prospect, Aso said it is better to improve management of an existing quota system for frozen beef rather than changing laws to establish new rules. The U.S. Treasury has expressed concern over the "persistence" of a trade imbalance; Japan had a $69 billion surplus with the U.S. last year.

President Trump will have broad leeway to impose a sweeping remedy after an ITC ruling found that surging imports of washing machines from the likes of LG (OTC:LGEAF) and Samsung (OTC:SSNLF) are hurting domestic makers such as Whirlpool (NYSE:WHR). Whirlpool's "global safeguard" tactic may prompt Trump to issue a sweeping tariff covering many countries, rather than the more focused barriers in typical trade cases. "This type of corrective action will create U.S. manufacturing jobs," says Whirlpool Chairman Jeff Fettig, while LG and Samsung say restrictions would hurt consumers via less innovation and higher prices. The ITC will hold a public hearing on possible remedies October 19, and will recommend those to President Trump by December 4.

Oil markets are wary as Tropical Storm Nate heads for the Gulf of Mexico ahead of a likely U.S. landfall as a hurricane this coming weekend. Nearly 15% of oil production and 6.5% of natural gas output in the U.S. Gulf had been shut as of late yesterday as operators evacuate offshore facilities in advance of the storm. While energy production may be hampered, most Gulf offshore rigs and platforms, and oil refining and gas processing on the coast, likely will be on the west side of the storm - typically the weaker side; the greater risk is to U.S. cotton-growing areas, particularly Alabama and Georgia.

Stocks

Netflix soared to the top of the S&P 500 in yesterday’s trade, advancing 5.4% to a new all-time high after announcing an upcoming price bump for its U.S. streaming services. Analysts say Netflix (NASDAQ:NFLX) subscribers are not likely to cancel in droves as they have in response to some previous price increases because the service now offers more content and is cheaper than many new rivals. Netflix’s "pricing power has increased materially over the past few years as their content slate and technology has improved,” said RBC analyst Mark Mahaney. The rub is that the company must keep producing more expensive hits like Stranger Things that attract viewers but also consume free cash flow and add to a growing debt load.

Boeing was busy yesterday preparing for a possible future that includes flying taxis and hybrid-powered aircraft. Boeing (NYSE:BA) agreed to purchase Aurora Flight Sciences, a maker of aerial drones and pilotless flying systems that could pave the way for fleets of flying taxis. Aurora has been working with Uber (Private:UBER) on a new vehicle that would take off and land like a helicopter. Meanwhile, a Boeing-backed start-up unveiled plans for an electric-hybrid passenger jet that could dramatically reduce the travel time and cost of trips under 1,000 miles. The planes are expected eventually to fly solely on battery power and are being designed to fly with one pilot and ultimately remotely piloted.

China has given its approval to HP's (NYSE:HPQ) long-running $1.1 billion deal to buy Samsung's (OTC:SSNLF) printer business, with a few restrictions. The Ministry of Commerce says HP needs to be "fair and reasonable" in selling its A4 format laser printers, and that the company must report data including prices to the ministry every six months. HP also is not allowed to buy stakes in other A4 printer manufacturers in China, even as minority investments, and must keep its printers interoperable. The company had reached the deal in September 2016 and hoped to close within 12 months; it now expects to close by December 31.

The termination of two major energy projects - the Energy East and Eastern Mainline pipelines - is a major blow for Canadian producers clamoring to get their landlocked oil and gas to markets in Europe and Asia and reduce dependence on the U.S. The cancellation should be viewed in the context of other major Canadian energy projects that have been nixed - the Pacific Northwest LNG project, the Northern Gateway pipeline, the Aurora LNG project - says an energy trade association leader, adding that "we are deluding ourselves if we think Canada is a place with a stable, predictable investment climate." Canadian oil producers now are more dependent than ever on TransCanada’s (NYSE:TRP) Keystone XL and Kinder Morgan's (NYSE:KMI) Trans Mountain proposals, two projects facing ardent opposition in their own right.

YouTube has rolled out a search result change that favors authoritative sources for breaking news stories, making the move after videos with disproven information appeared near the top of search results for the Las Vegas shooter and for the NFL anthem protests. YouTube says the undisclosed search changes were in the works already but accelerated due to recent events. The platform had altered its search results earlier this year due to advertiser concerns about the types of content carrying the ads. Google (GOOG, GOOGL) faces criticism for allowing false information from a message board to appear in its “top news” section for the Las Vegas shooting.

In this year's second-largest technology initial public offering, data center operator Switch (Pending:SWCH) raised just over $531 million. The company priced a 31 million share IPO at $17, above the top end of its $14-16 range. The pricing values the company as high as $4.2 billion. The company has a special share class providing 10 votes per share, which will give CEO Rob Roy 68% of the post-IPO voting power. Earlier this year, Snap (NYSE:SNAP) went public selling some shares that lacked any voting rights; S&P Dow Jones was not amused and instituted new rules barring companies that put too much voting power in the inner circle.

Thursday's Key Earnings

Costco (NASDAQ:COST) -2.5% AH on Q4 earnings.
Yum China (NYSE:YUMC) +3.1% AH on Q3 revenue growth, declaring first dividend.
Helen of Troy Limited (NASDAQ:HELE) -2.4% AH despite Q2 earnings beat.

Today's Markets

In Asia, Japan +0.30%. Hong Kong +0.28%. China closed. India +0.70%.
In Europe, at midday, London +0.24%. Paris -0.12%. Frankfurt +0.10%.
Futures at 6:20, Dow -0.06%. S&P -0.04%. Nasdaq +0.06%. Crude -0.77% to $50.40. Gold -0.17% to $1,270.90.
Ten-year Treasury Yield +18 bps to 2.367%.

Today's Economic Calendar

Friday's economic calendar:
8:30 Non-farm payrolls
9:15 Fed's Bostic Speech
10:00 Wholesale Trade
12:15 PM Fed's Dudley: Monetary Policy
12:45 PM Fed's Kaplan speech
1:00 PM Baker-Hughes Rig Count
1:50 PM Fed's Bullard: "Standard of Living Across U.S. Metropolitan Statistical Areas"
3:00 PM Consumer Credit

 

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