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Author: skywalker   |   Latest post: Mon, 22 Oct 2018, 09:09 AM

 

Wall Street Breakfast: Tensions Ease Ahead Of U.S.-China Trade Week

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U.S. stock index futures are starting the week in the green amid hopes of a potential breakthrough in trade tensions between the world's two largest economies (see stories on ZTE and Qualcomm below). A top-level Chinese delegation is set to arrive in Washington for a second round of trade talks that begins tomorrow, while companies like Best Buy (NYSE:BBY), HP (NYSE:HPQ) and U.S. Steel (NYSE:X) get ready to testify in hearings that will air their views on U.S. tariffs of Chinese goods. Lobbying groups seeking to take part include the National Retail Federation and National Association of Manufacturers.

Economy

The Fed should continue its gradual approach to raising interest rates given that inflation has not yet reached the U.S. central bank's 2% in a sustained way, according to Cleveland Fed President Loretta Mester. The U.S. should also keep its debt-to-GDP in mind before things "get out of hand," she added. Current debt-to-GDP is 75%, but is expected to double by 2047.

Italy's anti-establishment Five Star Movement and the far-right League are set to pick a prime minister to lead their populist coalition after reaching a tentative agreement on a common platform to govern the eurozone's third-largest economy. While both parties are hostile to the European Union, M5S won't hold a referendum on membership of the bloc, but will seek a "revision" of existing EU treaties.

"Europeans are going to face the effective U.S. sanctions" over the Iran deal, White House national security adviser John Bolton told ABC's This Week. Secretary of State Mike Pompeo remained more hopeful that Washington and its allies could strike a new nuclear accord with Tehran, stating he would approach European diplomats in the next several days.

"North Korea has announced that they will dismantle Nuclear Test Site this month, ahead of the big Summit Meeting on June 12th. Thank you, a very smart and gracious gesture!" President Trump wrote on Twitter. Pyongyang plans to destroy all of the tunnels at the country’s northeastern testing ground with an explosion and remove observation facilities, research posts and ground-based guard units.

Malaysia's shock election result - which upended more than six decades of rule by the UMNO party - sent local shares on a ride overnight as the country's bourse opened for the first time since the vote. The FTSE Bursa Malaysia KLCI Index erased a plunge of as much as 2.7% to rise 0.2%, reflecting the tug of war between bulls and bears over pledges by new Prime Minister Mahathir Mohamad.

Iraqi voters appeared to deal a blow to Prime Minister Haider al-Abadi over the weekend, granting strong support to an unlikely coalition of communists and followers of populist cleric Moqtada al-Sadr. In other news in the region, the U.S. is scheduled to open its new embassy in Jerusalem, as American officials said they would press on with their still-secret plan for Middle East peace.

OPEC has an adequate "buffer" of potential output to cushion oil markets if the U.S. re-imposes sanctions on Iran, according to UAE Energy Minister Suhail bin Mohammed al-Mazroui. "Don't worry about supply," he told reporters when asked about the impacts on crude supplies, adding that this was not the first time an OPEC member had been in such a situation.

Stocks

"President Xi of China, and I, are working together to give massive Chinese phone company, ZTE, a way to get back into business, fast. Too many jobs in China lost," President Trump tweeted ahead of high-stakes trade talks between Beijing and Washington. ZTE (OTC:ZTCOY), which is struggling for its survival, maintains that the sector-crippling ban on buying from U.S. firms resulted from faults in internal controls and not from a plan of systematic deception.

Meanwhile, Chinese regulators have restarted their review of Qualcomm's (NASDAQ:QCOM) application to acquire NXP Semiconductors (NASDAQ:NXPI) after shelving the work in reaction to the growing U.S. trade tensions, Bloomberg reports. Chinese companies have previously expressed concern that the combined entity would extend Qualcomm's patent licensing business into areas like mobile payments and autonomous driving.

Three weeks after setting records with its opening in the U.S., Avengers: Infinity War opened to blockbuster returns in China. It recorded the second biggest weekend opening ever in the country, taking in an estimated $200M when measured in local currency. That brings the Disney (NYSE:DIS) film's global haul to $1.61B, making it the fifth-highest-grossing movie of all time.

Flipkart might go for an IPO in as early as four years if minority investors holding 60% of its shares wish to do so, Walmart (NYSE:WMT) said in a filing to the SEC. The U.S. retail giant agreed to pay $16B last week for a roughly 77% stake in Flipkart (FPKT), valuing the Indian e-commerce player at a little less than $21B.

The deadly hemorrhagic disease Ebola has resurfaced again, with the WHO revealing 32 potential cases of the disease (including 18 deaths) in the Democratic Republic of the Congo. Experimental Ebola vaccines are under development, such as leading candidate - Merck's (NYSE:MRK) rVSV-ZEBOV - but they have not been fully tested for safety or effectiveness.

Appointing Mark Leung as the CEO of its China business, JPMorgan (NYSE:JPM) is planning to take a majority stake in its Chinese asset and wealth management joint venture China International Fund Management. UBS and Nomura (NYSE:NMR) filed similar applications after China issued rules in late April that allowed foreign banks to apply to increase their stakes to 51% in local securities companies.

Going mainstream? HSBC has performed the world's first trade finance transaction using blockchain technology, partnering with ING to handle a letter of credit for Cargill. The document backed a shipment of soybeans transported last week from Argentina to Malaysia. While the standard processing time for these transactions is five to 10 days, the technology reduced it to 24 hours.

The drama may finally be over at Xerox (NYSE:XRX) with the company reaching a settlement with major shareholders Carl Icahn and Darwin Deason that will end its $6.1B merger deal with Fujifilm (OTCPK:FUJIY). Jeff Jacobson has resigned and John Visentin, a former tech executive who had been working with the activists, will become new CEO. A board shakeup will also see the majority of directors now backed by Icahn and Deason.

After receiving court approval, ConocoPhillips (NYSE:COP) has seized products belonging to Venezuela's state oil company PDVSA from the Isla refinery it runs on Curacao. The move, likely to wreak havoc on PDVSA’s export chain, is part of efforts to collect on a $2B arbitral award linked to the 2007 nationalization of Conoco assets under late leader Hugo Chavez.

"Next year will be the right time to move on," Airbus (OTCPK:EADSY) CFO Harald Wilhelm declared, after almost three decades with the group. His announcement comes alongside the retirement of CEO Tom Enders next year, as well as the upcoming departures of John Leahy, the dealmaking American head of sales, the chief operating officer for commercial aircraft Tom Williams and engineer Didier Evrard.

More departures? Tesla executive Matthew Schwall, who had been the director of field performance engineering, has reportedly left the company for Waymo (GOOG, GOOGL), as the NTSB investigates multiple crashes involving Tesla (NASDAQ:TSLA) vehicles. His exit coincides with the automaker's announcement on Friday that its engineering chief, Doug Field - responsible for development of the Model 3 - was taking a leave of absence.

Expanding its presence across the globe, Chinese ride-hailing firm Didi Chuxing (DIDI) has been granted a permit to test self-driving cars in California. It follows several high-profile crashes involving the vehicles and one that forced UBER to suspend its autonomous driving tests nationwide. Didi bought out Uber's Chinese unit in 2016.

Today's Markets

In Asia, Japan +0.5%. Hong Kong +1.4%. China +0.4%. India flat.
In Europe, at midday, London -0.2%. Paris -0.3%. Frankfurt -0.4%.
Futures at 6:20, Dow +0.4%. S&P +0.2%. Nasdaq +0.3%. Crude -0.2% to $70.54. Gold -0.1% to $1319.80. Bitcoin -3.5% to $8383.
Ten-year Treasury Yield +1 bps to 2.98%

Today's Economic Calendar

2:45 Fed's Mester Speech
9:40 Fed's Bullard Speech

 

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