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Author: skywalker   |   Latest post: Mon, 20 Aug 2018, 11:31 AM

 

Wall Street Breakfast: U.S. Crude Tops $70 Level

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Crude prices rose above $70 a barrel overnight for the first time since November 2014 on growing concerns over the collapse of Venezuela's oil industry and possible new sanctions against Iran. President Trump this week will decide whether to pull out of the 2015 nuclear agreement, while ConocoPhillips (NYSE:COP) has moved to take key Caribbean assets of Venezuela's state-run PDVSA to enforce a $2B arbitration award.

Economy

Qatar has weathered the trade and travel embargo launched by its four neighbors almost a year ago, and is accelerating economic reforms to boost investment, according to Finance Minister Ali Shareef al-Emadi. Meanwhile, preliminary results show that Lebanon's first national election in nine years could produce a stronger Hezbollah following a weekend vote that was seen as a proxy contest between regional rivals Saudi Arabia and Iran.

China's foreign exchange reserves fell nearly $18B to $3.125T in April - the lowest level since November 2017. Valuation effects due to the greenback's rise and market pricing of reserve assets led to the drop, the State Administration of Foreign Exchange said in a statement. The dollar index rose 2% last month against other major currencies.

Eurozone investor confidence weakened for the fourth straight month in May following a series of soft economic data covering the bloc. The index compiled by Sentix fell to 19.2, from 19.6 in April, and has dropped dramatically from 32.9 at the start of the year. Tensions over trade - like whether the U.S. will slap the eurozone with tariffs - have weighed on sentiment.

California's gross domestic product grew 3.4% in 2017, surpassing $2.7T, boosted by a thriving Silicon Valley, Hollywood and the nation's "salad bowl" in the Central Valley agricultural heartland. The Golden State's big leap would oust the U.K. as the world's fifth largest economy, which had a GDP of $2.625T, according to data published by the IMF.

Negotiations to update NAFTA are entering a make-or-break week as regional trade ministers seek to resolve an impasse before elections in Mexico and the U.S. complicate the process. Discussions in Washington will center on rules of origin, the dispute-resolution mechanism and U.S. demands for a sunset clause that could automatically kill the trade agreement after five years.

Stocks

Highlight from Warren Buffett's Capitalist Woodstock: The Oracle of Omaha shunned cryptos and said he "made the wrong decision on Google (GOOG, GOOGL) and Amazon (NASDAQ:AMZN)," but defended doing business with gun manufacturers and felt "index funds are the best form of equity investing." On succession: "We may find the right Berkshire (BRK.A, BRK.B) CEO in a month or it may take six months. But it's important to have the right person."

Forming a global coffee alliance, Nestle (OTCPK:NSRGY) is shelling out $7.15B for the right to market Starbucks' (NASDAQ:SBUX) coffee products outside its shops, as well as taking on about 500 of the latter's employees. Starbucks will use proceeds to speed-up share buybacks (about $20B in cash through fiscal year 2020) and expects the deal to add to EPS by 2021. Nestle sees the tie-up adding to earnings by 2019. SBUX +3% premarket.

More food partnerships? Amazon (AMZN) made an unsuccessful informal attempt to buy Britain's Waitrose late last year, according to the Sunday Times, but the supermarket chain has denied reports of the takeover approach. The U.K. retail sector was also rocked last week when it emerged that Sainsbury's (OTCQX:JSAIY) was seeking to take control of Walmart's (NYSE:WMT) Asda unit for around £7.3B, a move that would create Britain's biggest supermarket.

Gun stocks will be on watch this morning after President Trump's weekend speech at the NRA's annual convention. "Your Second Amendment rights are under siege, but they will never, ever be under siege as long as I am president," he told the crowd in Dallas. American Outdoor (NASDAQ:AOBC) and Sturm Ruger (NYSE:RGR) have particularly been under pressure over the past year amid a period of lackluster gun sales.

Three-quarters of Facebook's (NASDAQ:FB) U.S. users have been as active or more since revelations of the Cambridge Analytica scandal, according to a Reuters/Ipsos poll released on Sunday. "I have yet to read an article that says a single person has been harmed by the breach," said analyst Michael Pachter of Wedbush Securities. "Nobody’s outraged on a visceral level." FB +0.6% premarket.

After breaking opening weekend records, Disney's (NYSE:DIS) Avengers: Infinity War continued to dominate in its second weekend in theaters. The movie drummed up $1B faster than any other film on the books, hitting the milestone just 11 days after its release. It also helped Disney cross $3B in ticket sales at the 2018 global box office, the quickest any studio has reached the threshold in a given year.

China's ZTE has submitted an application to the U.S. Commerce Department for the suspension of a seven-year business ban after it was found to have violated sanctions on Iran. U.S. officials told Chinese negotiators last week that the action against ZTE (OTC:ZTCOY) was not related to trade policy, but the move is seen by many in China as part of a broader trade spat playing out between the world's two biggest economies.

Volkswagen's supervisory board is considering whether to seek damages from former CEO Martin Winterkorn, who was last week charged by the U.S. over the company's dieselgate scandal. It's also pursuing possible clawbacks from other current and former VW (OTCPK:VLKAY) executives. According to German law, managers are materially liable for any failure of internal control mechanisms - a concept known as "negligent breach of duty."

An Atlas 5 rocket soared into space early on Saturday, carrying NASA's first robotic lander designed for exploring the crust on Mars. The two-year project will examine what makes the Red Planet like Earth and comes ahead of proposed human missions. All three parts of the Insight spacecraft - cruise stage, heat-absorbing shell and lander - were built by Lockheed Martin (NYSE:LMT).

Air France-KLM shares are down 13% in Paris after the resignation of CEO Jean-Marc Janaillac threw Europe's biggest airline into disarray. It follows the rejection of a pay deal by airline staff amid strikes that have cost the company more than €300M. French Finance Minister Bruno Le Maire said the government would not rescue the carrier but warned that "the survival of Air France is at stake."

Conquering the rain and the mud, Justify won the Kentucky Derby by 2 1/2 lengths on Saturday, becoming the first colt in 136 years to wear the roses after not racing as a 2-year-old. Investors may also walk away from the Derby victorious. Shares of racetrack owner Churchill Downs (NASDAQ:CHDN) have surged by 63% in the last year thanks to new ventures and digital growth.

Weakness in the Siemens' power generation market is forcing the company to temporarily shut down its Power & Gas sites around the world amid a global shift toward renewable energy. In Siemens' (OTCPK:SIEGY) fiscal first quarter through end-December, the division's profit nearly halved and its profit margin shrank from 12% to 7.6%, well below the unit's target range of 11%-15%.

Glencore and Qatar have scrapped plans to sell a roughly $9B stake in Russia's Rosneft (OTCPK:RNFTF) to CEFC China Energy, which has been struggling with debt and is embroiled in local investigations. Glencore's (OTCPK:GLNCY) deal was intended to provide the once-high-flying Chinese firm with just over 14% of Rosneft and would have strengthened energy ties between Moscow and Beijing.

Pharmaceutical and healthcare companies are preparing for a string of new regulations designed to lower drug prices in the U.S., with President Trump expected to give a speech this week outlining his new policies. "We'll be building on the proposals in the president's budget, but he wants to go further," Secretary of Health and Human Services Alex Azar declared. "The entire system is under review." Related tickers: CVS, RAD, WBA, ESRX, UNH, ABC, MCK, CAH, OMI

Today's Markets

In Asia, Japan flat. Hong Kong +0.2%. China +1.5%. India +0.8%.
In Europe, at midday, London closed. Paris +0.1%. Frankfurt +0.4%.
Futures at 6:20, Dow +0.2%. S&P +0.3%. Nasdaq +0.5%. Crude +1% to $70.41. Gold flat at $1314.50. Bitcoin -3.3% to $9303.
Ten-year Treasury Yield +1 bps to 2.95%

Today's Economic Calendar

12:30 PM TD Ameritrade IMX
3:00 PM Consumer Credit
3:30 PM Fed's Evans: "Machines Learning Finance. Will they Change the Game?"

 

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