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Author: skywalker   |   Latest post: Thu, 17 Jan 2019, 07:28 AM

 

Wall Street Breakfast: Apple Warning Rattles Wall Street

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The volatility continues... After closing the first trading session of the year in the green, U.S. stock futures plunged overnight as Apple (NASDAQ:AAPL) cut its quarterly revenue forecast for the first time since 2007. The unprecedented move in the Tim Cook era was prompted by a downturn in iPhone sales in China, which represents nearly 20% of Apple's revenue. It was also the latest sign of broader economic malaise in the world's second largest economy, fueled by trade tensions with the U.S.

Economy

Traders across Asia are still trying to piece together a "flash crash" that rippled across the region overnight, with the Australian dollar sinking 8% and Turkish lira tanking 10% against the Japanese yen. While some pointed to risk aversion triggered by Apple's (AAPL) outlook cut, others said Japanese retail investors were bailing out of loss-making positions. Moves were exacerbated by thin liquidity and algorithmic trading.

U.S. workers in 19 states and 21 cities and counties are set to see a higher check on their next payday. New York City will even have a minimum wage more than double the federal level starting this year, rising to $15 an hour for all businesses with more than 10 employees. The move by the country's largest city could potentially inspire similar increases elsewhere.

Theresa May will launch another round of EU diplomacy today as she seeks legally binding assurances that a so-called backstop plan - intended to avoid a hard Irish border and based on a provisional U.K.-EU customs union - will be time-limited. While Brussels has agreed that a backstop will be "temporary," May has been looking for declarations that have legal force.

Turkish inflation decelerated for a second month in December, rising by 20.3% vs. 21.6 in November, as the impact of higher borrowing costs and government tax breaks became more visible across the economy. Turkey has long struggled with high inflation, with prices soaring to more than 25% in the aftermath of a currency crisis that struck the country in August.

The first hearing in the trial of those accused of killing Saudi journalist Jamal Khashoggi was held today in Riyadh. The public prosecution is seeking punishment for 11 suspects in the case, including the death penalty for five of them. While the Trump administration has imposed penalties on individuals over their alleged roles in the murder, no sanctions have yet been leveled against the Saudi government of Crown Prince Mohammad Bin Salman.

Stocks

It's a rough day for Apple (AAPL) suppliers after the tech giant cut its Q1 revenue guidance to $84B (from a previous range of $89B-$93B). Following losses in Asia's tech sector, European semiconductor shares are on the descent, with AMS (OTCPK:AMSSY) nosediving 19% at the open in Frankfurt and STMicroelectronics (NYSE:STM) dropping around 7%. Shares of Dialog Semiconductor (OTCPK:DLGNF) also plunged 7% (Apple agreed to buy a portion of Dialog's business for $600M in October).

A top Nordstrom executive and heir to the department store dynasty has died. Blake Nordstrom, who had been diagnosed with lymphoma, was co-president of the chain and great-grandson of the company's founder. Executive leadership will continue with Blake's brothers, under co-presidents Pete and Erik Nordstrom. As of March 2018, Nordstrom (NYSE:JWN) operated 363 stores across 40 U.S. states.

China has successfully landed its Chang’e 4 spacecraft on the far side of the moon, becoming the first in history to touch the lunar surface unseen by those on Earth. China's next plan is to put astronauts on a lunar base in the 2020s and send several probes to Mars. The space race is heating up on multiple fronts, with President Trump seeking to create a "Space Force" and numerous companies aiming to commercialize space travel, like SpaceX (SPACE).

Lion Air has officially ended its search for the second black box voice recorder from Flight 610 that crashed into the Java Sea on Oct. 29 killing 198 people. The crash was the world's first for a Boeing (NYSE:BA) 737 MAX jet and the deadliest of 2018. Lion Air is currently reviewing plane purchases from Boeing and has not ruled out cancelling orders as relations between the two worsen over responsibility for the crash.

Johnson & Johnson slipped 1% AH after it disclosed sales in India that dipped 3% in the year to March 2018. Revenue was hit following the federal government's move to cap prices of devices such as orthopedic knee implants to help poorer patients. J&J (NYSE:JNJ) is also currently mired in a controversy surrounding the safety of its baby talcum powder, prompting safety inspections across India.

Teva Pharmaceutical will pay an undisclosed amount to settle an ongoing dispute with Amgen (NASDAQ:AMGN) over its generic Cinacalcet HCl product. The drugmaker also agreed to stop selling the tablets until its license date in mid-year 2021, or earlier under certain circumstances. TEVA had recently received approval for the generic and launched it in the U.S.

Tesla shares are down another 2.5% premarket, after falling almost 7% on Wednesday, on worries over future profitability. The EV maker cut U.S. prices for all its vehicles to offset lower green tax credits, and fell short on quarterly deliveries of its mass-market Model 3 sedan. Tesla (NASDAQ:TSLA) remained unprofitable for the first nine months of 2018, and cash flow remains a concern for investors.

Sears' biggest advocate, Chairman Eddie Lampert, has outlined his $4.4B bid to buy 425 of the bankrupt stores to keep the 125-year-old retailer alive. He also offered a backup bid to buy at least 250 stores in a partial liquidation, if company advisors do not deem his bid viable. The $4.4B offer is funded in part with $1.8B in credit, a move Sears' (OTCPK:SHLDQ) unsecured creditors have protested.

Today's Markets

In Asia, Japan closed. Hong Kong -0.3%. China flat. India -1.1%.
In Europe, at midday, London -0.6%. Paris -1.4%. Frankfurt -1.5%.
Futures at 6:20, Dow -1.6%. S&P -1.7%. Nasdaq -2.7%. Crude -0.7% to $46.20. Gold +0.5% to $1290.10. Bitcoin +0.5% to $3826.
Ten-year Treasury Yield -2 bps to 2.64%

Today's Economic Calendar

Auto Sales
7:00 MBA Mortgage Applications
7:30 Challenger Job-Cut Report
8:15 ADP Jobs Report
8:30 Initial Jobless Claims
10:00 ISM Manufacturing Index
10:00 Construction Spending
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

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