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Author: skywalker   |   Latest post: Fri, 19 Oct 2018, 11:29 AM


Wall Street Breakfast: The Stock Rally Keeps Going

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The global rally in equities is showing no signs of letting up, as investors drive stocks to all-time highs. Japan's Nikkei hit its best level since 1992 overnight, Germany's DAX scored a record high and all three of Wall Street's major indexes just closed at fresh peaks. "You've had almost a perfect backdrop for equities," said Pictet Asset Management's Luca Paolini. "You have acceleration in nominal growth, earnings are between 10%-15% globally and whatever you look at is pretty much in double digits."


Following the corruption crackdown in Saudi Arabia, oil investors are starting to entertain a prospect that seemed unthinkable even a few weeks ago: crude trading above $70/bbl before the end of 2017. Markets seem to be reading the shakeup in two ways. Some are glad to see the Crown Prince continuing to push his reform agenda, as well as support for OPEC-backed cuts, while others see it as a roundup of rivals and consolidation of power.

Egyptian President Abdel Fattah al-Sisi will not seek a third term, and won't interfere with the country's constitution which permits its leaders to serve only two four-year terms. He also called on Middle Eastern nations to maintain stability amid spiking tensions between Saudi Arabia and Lebanon, whose prime minister announced his resignation over the weekend and shocked the political establishment in Beirut.

"North Korea is a worldwide threat that requires worldwide action," President Trump said at a news conference following meetings with South Korea President Moon Jae In. "Ultimately, it will all work out; it always works out; it has to work out." The two also agreed to renegotiate the free trade agreement between their countires in order to make it "free, fair, and reciprocal."

Disagreements over key pieces of a tax bill that would reduce taxes by $1.4T over 10 years are proving difficult as the House Ways and Means Committee begins considering the bill. Senate Republicans disagree on child tax credits and whether to accept significantly bigger budget deficits, while House GOP leaders are at odds over plans to eliminate deductions for state and local taxes.

Besides acceptance remarks from outgoing Fed Chair Janet Yellen this afternoon, investors will be watching Fed Vice Chair for Supervision Randal Quarles discuss financial regulation before the Clearing House Annual Conference. It will be his first extensive public comments since taking up the job and many will be listening for hints about deregulation desired by Wall Street.


"We have not seen much in the way of dealmaking this year. So this might jump-start some of the dealmaking ahead of the tax policy changes," said Paul Nolte, portfolio manager at Kingsview Asset Management. Qualcomm (NASDAQ:QCOM) rose 1.2% on Monday after Broadcom (NASDAQ:AVGO) offered to buy the chip supplier for $103B, while Twenty-First Century Fox (FOX, FOXA) surged 9.9% on reports that it held talks to sell most of the company to Disney (NYSE:DIS).

Salesforce is partnering with Google (GOOG, GOOGL) in one of cloud computing's highest profile alliances. The partnership will combine Salesforce's (NYSE:CRM) customer relations management technology with Google's G Suite, which competes against Microsoft Office 365 (NASDAQ:MSFT), as well as connecting Salesforce with Google Analytics.

How far will studios go? Sony Pictures (NYSE:SNE) has withdrawn All the Money in the World, a movie starring Kevin Spacey, from the American Film Institute's annual festival following sexual misconduct allegations against the actor. "It would be inappropriate to celebrate at a gala at this difficult time," the studio declared, but said it would go ahead with a planned U.S. movie theater release in December.

Is bitcoin going to $8,000? Analysts at Goldman Sachs (NYSE:GS) think so. "Next in focus $7,941. This is the minimum target for a 3rd of 5-waves up. Might consolidate there before continuing higher," they wrote in a research note. The cryptocurrency hit a record high of $7,601.53 over the weekend, but then slumped below $7,000. It currently trades at $7,165, according to CoinDesk.

Bitcoin is also likely to become a new asset class in its own right, such as gold or stocks, which can be traded by major investors and regulated, not simply a cryptocurrency. That's according to Leo Melamed, Chairman Emeritus of CME Group (NASDAQ:CME), which plans to launch bitcoin futures by the end of the year.

Keeping up with an industry-wide trend to get a jump-start on seasonal deals, J.C. Penney (NYSE:JCP) is opening its doors on Thanksgiving an hour earlier at 2 p.m. Kohl's (NYSE:KSS) is also shifting things ahead, bumping up its opening to 5 p.m., the same time Macy's (NYSE:M) will unlock its doors. Meanwhile, Target (NYSE:TGT) is planning its Turkey Day open at 6 p.m., while Wal-Mart (NYSE:WMT) has yet to announce its holiday schedule.

It's the latest in a string of management departures. Tesla's (NASDAQ:TSLA) director of battery engineering, Jon Wagner, has left the company as it continues to deal with Gigafactory bottlenecks, which has been the "primary constraint" on Model 3 production. Next move? He's launching a battery and powertrain startup in Redwood, CA.

General Electric is considering options for its aircraft leasing unit, including the sale of all or part of the business, as CEO John Flannery searches for new divestitures, Reuters reports. With a fleet of 1,339 planes worth an estimated $25B, GE Capital Aviation Services ranks only behind AerCap (NYSE:AER) as the globe's largest lessor.

Under a $26.3M contract from the Air Force Research Lab, Lockheed Martin (NYSE:LMT) will develop and produce high-energy fiber laser weapons for tactical fighter aircraft, with plans to test the technology by 2021. The move comes after a series of successful tests with similar systems in ground-based platforms, but experts say developing a laser for an airborne design will be a challenge.

An audit of Saudi Aramco's oil reserves is unlikely to be completed before the initial "end of 2017" time frame because of the huge scale of the task, Reuters reports. The Aramco (Private:ARMCO) audit, which is about two-thirds complete, is an important part of the state oil company's preparatory work for its planned IPO next year.

Seeking to find new sources of revenue, Starbucks (NASDAQ:SBUX) is making its next move into the high-end food and beverage market. The chain is opening its first Italian Princi bakery and cafe today at its Starbucks Reserve Roastery in Seattle. Next, it will bring the concept to Shanghai, followed by Milan, New York, Tokyo and Chicago.

Kentucky is the latest state to sue Endo International (OTCPK:ENDO) for contributing to the opioid epidemic by deceptively marketing long-term use of its painkiller Opana ER as part of an effort to boost corporate profits. According to the CDC, opioids were involved in over 33,000 deaths in 2015, the latest year for which data is available.

Amid a U.S. Air Force database error allowing gunman Devin Kelley to buy a rifle, President Trump was asked about extreme vetting for people trying to buy guns. "It would have made no difference three days ago and you might not have that extremely brave person who neutralized him... If he didn't have a gun, instead of having 26 dead, you would have hundreds more dead." Related tickers: AOBC, RGR, CAB, SPWH, VSTO, SSTI, OLN

Monday's Key Earnings

CVS Health (NYSE:CVS) -3.5% selling RXCrossroads to McKesson.
Michael Kors (NYSE:KORS) +14.7% raising its outlook for 2017.
Mylan (NASDAQ:MYL) -1% missing expectations for Q3.
Priceline (NASDAQ:PCLN) -10.9% AH disclosing a disappointing outlook.
Skyworks Solutions (NASDAQ:SWKS) -4.6% AH despite in-line guidance.
TripAdvisor (NASDAQ:TRIP) -9.4% AH fighting bookings competition.

Today's Markets

In Asia, Japan +1.7%. Hong Kong +1.4%. China +0.8%. India -1.1%.
In Europe, at midday, London -0.3%. Paris flat. Frankfurt +0.2%.
Futures at 6:20, Dow +0.1%. S&P flat. Nasdaq flat. Crude flat at $57.35. Gold -0.3% to $1277.20.
Ten-year Treasury Yield +1 bps to 2.33%

Today's Economic Calendar

6:00 NFIB Small Business Optimism Index
8:30 Gallup US ECI
8:55 Redbook Chain Store Sales
10:00 Job Openings and Labor Turnover Survey
1:00 PM Results of $24B, 3-Year Note Auction
3:00 PM Consumer Credit
3:00 PM Janet Yellen speech


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