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Author: skywalker   |   Latest post: Thu, 18 Jan 2018, 09:11 AM

 

Wall Street Breakfast: Get Ready For Earnings Season

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Watching Wall Street boast its best start to a year in over a decade, investors are turning their focus to the fourth quarter earnings season, with results beginning to trickle in this week. Traders will be most afraid of the recent U.S. tax overhaul, as a one-time tax on repatriated foreign earnings and requisite revaluations of deferred taxes mean potential charges and writedowns. "The numbers are going to be staggering," said Bob Willens, a New York-based accounting analyst, but "I don't think it will affect stock prices much."

Economy

China and Europe should work together on Beijing's "Belt and Road" initiative, according to French President Emmanuel Macron. "The ancient Silk Roads were never only Chinese... If they are roads, they cannot be one-way." Unveiled in 2013, the "Belt and Road" project is aimed at connecting China by land and sea to Southeast Asia, Pakistan and Central Asia, and beyond to the Middle East, Europe and Africa.

Factory orders in Europe's biggest economy slipped by 0.4% in November after three months of gains, but Germany's Economy Ministry said the dip was largely due to fluctuations in bulk orders and the overall trend remains positive. Following months of political uncertainty, Chancellor Angela Merkel has also begun last-ditch efforts to form a government, turning to her former governing partner, the Social Democrats.

China's forex reserves posted an eleventh straight monthly increase in December, capping a year of recovery amid tighter capital controls, a stronger yuan and resilient economic growth. The reserves climbed $20.7B to $3.14T, according to the PBOC, bringing the full-year increase of the world's largest foreign-currency stockpile to $129B.

Before the holiday season even started, U.S. credit card debt stood at $808B on Sept. 30, or the end of Q3, according to figures from the Federal Reserve Bank of New York. That's $280B more than the previous peak hit in 2008, at the height of the financial crisis that led to the Great Recession. "The scary number - $1 trillion - we'll definitely hit in 2018," said Jill Gonzalez, an analyst with WalletHub.

The Trump administration is preparing to unveil an aggressive trade crackdown that's likely to include new tariffs aimed at countering China's and other economic competitors’ alleged unfair trade practices, according to Politico. President Trump is tentatively scheduled to meet this week with Cabinet secretaries and senior advisers to begin finalizing the decisions, which may be unveiled later this month during his State of the Union address.

The Federal Reserve should raise interest rates three times this year given the already strong economy will get a boost from tax cuts, San Francisco Fed President John Williams told an American Economic Association conference. "If the data changes we can respond to that," he declared, painting a benign picture of the world's largest economy. Williams has a vote on monetary policy this year under a rotation.

Stocks

Celgene has agreed to acquire privately-held Impact Biomedicines for as much as $7B. It's interested in a kinase inhibitor called fedratinib that has shown promise as a potential treatment for blood cancer myelofibrosis. The deal is structured in parts, with Celgene (NASDAQ:CELG) paying $1.1B in cash upfront, while the rest will be subject to certain sales and regulatory milestones.

Pfizer is giving up on discovering new drugs for Alzheimer's and Parkinson's diseases, abandoning costly efforts to find effective treatments for the disorders. The cutback will result in 300 layoffs over the next several months. "This was an exercise to reallocate [spending] across our portfolio, to focus on those areas where our pipeline, and our scientific expertise, is strongest," Pfizer (NYSE:PFE) said in a statement.

Aligning its strategy with peers Exxon Mobil (NYSE:XOM) and Chevron (NYSE:CVX), CEO Ben van Beurden told the FT that growth of Shell's (RDS.A, RDS.B) oil and gas operations in the next decade will depend on shale production. Shell has suffered prolonged difficulties with "unconventional" resources in the past, but the oil major now sees U.S. shale reserves as a principal source of new production.

Saudi Aramco and some of the kingdom's biggest companies said they'll pay Saudi staff more money, matching a royal order that extended handouts to government workers amid rising prices. Investors will be watching the decision as Saudi Arabia seeks to sell as much as 5% of Aramco (Private:ARMCO), part of Crown Prince Mohammed bin Salman's plan to reduce the economy's reliance on hydrocarbons.

The SEC has received a request to allow five bitcoin-related ETFs to be listed on Arca, a secondary marketplace on the NYSE (NYSE:ICE). The instruments, created by Direxion Asset Management, are not tied to the price of the cryptocurrency itself, but would track bitcoin futures. They include: Bitcoin 1.25X Bull Fund, 1.5X Bull Fund and 2X Bull Fund, as well as inverse ETFs Bitcoin 1X Bear Shares and 2X Bear Shares.

A U.S. federal court has thrown out a class action lawsuit against Starbucks (NASDAQ:SBUX) that alleged the company was cheating customers by under-filling drinks and overloading them with foam. It's not the first court to strike down a motion against Starbucks' portions. In 2016, a California court dismissed a lawsuit charging the chain with fraud and false advertising over the sizes of its iced beverages.

A sweet (tooth) deal... Hershey (NYSE:HSY) and Nutella-maker Ferrero have submitted final bids for Nestle's (OTCPK:NSRGY) U.S. confectionery unit, which is valued at $2B-$2.5B. The business includes Butterfinger, Baby Ruth, Sno-Caps and Laffy Taffy. Sources told CNBC that Ferrero appears to be the front-runner because it is more willing than Hershey to be aggressive on price.

The Force appears weak in China. Besides losing its top spot in the North American box office, Star Wars: The Last Jedi opened this weekend to a soft $28.7M in China, less than the prior two installments in the series. The movie has still grossed over $1.2B worldwide, making it the 13th highest grossing film of all time and another massive success for Disney (NYSE:DIS).

Takata is recalling an additional 3.3M faulty air bag inflators as it expands the largest automotive recall in U.S. history. The supplier identified at least 15 carmakers that purchased the devices, including Toyota (NYSE:TM), Honda (NYSE:HMC), Fiat Chrysler (NYSE:FCAU), Ford (NYSE:F), General Motors (NYSE:GM) and Tesla (NASDAQ:TSLA). At least 20 people have been killed worldwide and more than 180 injured from Takata's (OTCPK:TKTDQ) inflators.

Making further gains in the autonomous vehicle industry, Nvidia (NASDAQ:NVDA) is partnering with UBER and Volkswagen (OTCPK:VLKAY) on AI platforms. So far, 320 companies involved in self-driving cars - whether software developers, automakers, or sensor and mapping companies - are using Nvidia Drive, formerly branded as the Drive PX2. Nvidia also said its first Xavier processors would be delivered to customers this quarter.

Ford plans this spring to offer a diesel version of its best-selling F-150, which will likely achieve 30 mpg highway fuel efficiency, a level comparable to some midsize cars. Depending on the specific model, executives say the pickup will cost between $2,400 and $4,000 more than a comparable gasoline truck. Ford (F) sold 896,764 F-series trucks in 2017, more than in any year since 2005.

Citing in-house Volkswagen (OTCPK:VLKAY) estimates, Bild am Sonntag reports that VW group sales probably rose to around 10.7M cars last year, keeping the German behemoth ahead of Toyota (TM) as the world's largest automaker. The report came as Ron Stach, SVP of sales at Volkswagen of America, left the company. U.S. sales rose 5.2% to 339,676 brand models last year but plunged 19% in December.

With the aircraft's future in doubt, Airbus (OTCPK:EADSY) is offering an industrial partnership with China on the A380 if local airlines place orders for the world's largest passenger jet. Airbus COO Fabrice Bregier will hold early stage discussions on the matter today as part of a trade mission accompanying French President Emmanuel Macron on his first state visit to the country.

A federal judge has approved a $15M settlement between Southwest Airlines (NYSE:LUV) and members of a class-action lawsuit who allege that the company conspired to limit the number of seats to keep ticket prices high. While Southwest said the settlement "does not constitute any admission of wrongdoing," three other airlines named in the suit, American (NASDAQ:AAL), Delta (NYSE:DAL) and United (NYSE:UAL), continue to fight the allegations.

First mission of 2018: SpaceX successfully launched a secret U.S. government payload called Zuma on Sunday and landed its rocket back on Earth. The Falcon 9 powered a spacecraft made by Northrop Grumman (NYSE:NOC), which was sent into low-Earth orbit. SpaceX is now looking towards its next challenge, launching the Falcon Heavy - its largest rocket to date - at the end of January.

Today's Markets

In Asia, Japan +0.9%. Hong Kong +0.3%. China +0.5%. India +0.6%.
In Europe, at midday, London flat. Paris +0.3%. Frankfurt +0.3%.
Futures at 6:20, Dow +0.2%. S&P flat. Nasdaq flat. Crude +0.8% to $61.93. Gold -0.1% to $1321.10. Bitcoin -4.4% to $15471.
Ten-year Treasury Yield flat at 2.47%

Today's Economic Calendar

Fed's Rosengren speech
12:30 PM TD Ameritrade IMX
12:40 PM Fed's Bostic Speech
1:35 PM Fed's Williams:Economic Outlook and Monetary Policy
3:00 PM Consumer Credit

 

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