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

 

Wall Street Breakfast: Risk Sentiment Sours Before G7 Summit

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Risk aversion has returned to the markets, with equities across the globe sinking overnight ahead of a contentious G7 summit in Canada. In response to the combative comments issued by both countries, President Trump took to Twitter late Thursday to blame France and Canada of imposing massive tariffs on U.S. goods and accuse Justin Trudeau of "being so indignant." At worst, the main outcome could generate an escalation of a trade conflict that has already seen a rapid proliferation of retaliatory tariffs.

Economy

China's trade surplus with the U.S. jumped in May, rising 11.7% to $24.6B, worsening the imbalance at the center of tensions between the world's largest economies. It also means for the first five months of the year, China’s surplus with the U.S. crossed the $100B mark. The figures may reinforce Washington's determination to move forward with new duties against Chinese imports.

Confirmed: Japan's economy contracted 0.6% on an annualized basis in the first quarter, as a weaker reading of private consumption offset a stronger one for capital investment. The figure comes after President Trump and Shinzo Abe met at the White House, where the two countries agreed to hold their first bilateral trade talks under a new framework in July.

Despite retaliatory tariff measures taken this week, American producers will be able to sell pork legs and shoulders to Mexico via an import quota of 350K tons, according to the country's economy ministry. Over the past 10 years, U.S. pork made up 89% of Mexico’s imports of the meat, accounting for about a third of local consumption.

Swiss voters are going to the polls Sunday to decide whether the country should switch to a so-called sovereign money system known as "Vollgeld," which supporters say would make for less dangerous credit risks. The change means commercial banks would have a harder time extending credit, effectively creating cash, allowing only the Swiss National Bank to become the monopoly provider of Swiss francs.

NATO allies raised their defense spending by 3.82% over the past year, but despite the increase, only eight out of the military alliance's 29 members will meet the target of spending 2% of GDP on defense. Still, all NATO countries have started increasing their defense spending and many have put forward plans on reaching 2% by 2024, said Secretary General Jens Stoltenberg.

Latin American woes? Argentina and the IMF have reached a deal for a three-year, $50B standby arrangement, after its peso weakened sharply in an investor exodus from the emerging markets. The meltdown in Brazil is also continuing as the central bank stepped in on Thursday to stem the slide of the real, which plummeted to its weakest level in more than two years.

Stocks

Walt Disney's deal to buy media assets from Twenty-First Century Fox (NASDAQ:FOXA) has gotten something of an endorsement from the U.S. antitrust chief. Speaking at a corporate governance conference, Makan Delrahim said the $52.4B transaction was "surgically" structured with regulatory issues in mind. Eyes are also on Comcast (NASDAQ:CMCSA), which is now considered a real contender to outbid Disney (NYSE:DIS).

Gavin Patterson, who has led BT Group (NYSE:BT) for almost five years, is stepping down just a month after announcing 13K job cuts across the company. Chairman Jan du Plessis said the board was fully supportive of his strategy but that a new CEO was needed. A failure to hit a revenue target and a forecast for flat profits for the next couple of years previously sent shares to near six-year lows.

It's the largest single fundraising round in history. Ant Financial has raised about $14B, including both U.S. dollar and Chinese yuan tranches. The cash will boost the Alibaba (NYSE:BABA) affiliate's firepower ahead of a widely expected IPO in Hong Kong and mainland China, though the company has neither publicly set a timetable nor chosen a likely stock exchange.

New Jersey's legislature has unanimously passed a bill to regulate and tax sports betting at casinos and racetracks, making it one of the first states to legalize the activity following last month's Supreme Court ruling. The legislation now goes to Governor Phil Murphy, who will have to sign it before operators start taking wagers.

The Washington Capitals have won the NHL's Stanley Cup for the first time in their 44-year history with a 4-3 win in Game 5 over the Vegas Golden Knights. The series, which was broadcast over NBC and NBCSN (CMCSA), averaged about 4.4M viewers a game (excluding last night's matchup) and brought an end to what had been a magical inaugural season for the Knights.

Bayer has successfully completed the $62.8 acquisition of Monsanto (NYSE:MON), delisting the shares of the U.S. company from the NYSE. The combined unit will be based in Monheim, Germany. Integration should begin in about two months once the sale of Bayer's (OTCPK:BAYRY) agriculture assets to BASF (OTCQX:BASFY) is completed, satisfying regulatory concerns.

Privacy issues at Facebook are still making headlines, with the latest referencing a flaw that automatically changed posts to "public" for up to 14M people. The bug was active from May 18 to May 27 and switched the settings without user knowledge. While the problem has been fixed, Facebook (NASDAQ:FB) will notify those who could have been affected.

Alphabet news roundup: Google (GOOG, GOOGL) has pledged not to allow its AI software to be used in weapons or unreasonable surveillance efforts following employee protests and resignations due to participation in Project Maven, a Pentagon-backed drone AI imaging program. Separately, Waymo has announced that it wants to bring its robo-taxis to Europe after its U.S. launch later this year.

Airbus is set to close a deal to take a controlling stake in Bombardier's (OTCQX:BDRAF) CSeries jetliner division on July 1, as the program battles sluggish sales and low production. Airbus's (OTCPK:EADSY) move prompted Boeing (NYSE:BA) to hold its own tie-up talks with Brazil's Embraer (NYSE:ERJ) and followed a trade ruling that permitted Bombardier to sell its CSeries in the U.S. without hefty duties.

Thursday's Key Earnings

Broadcom (NASDAQ:AVGO) -2% AH despite data center strength.
J. M. Smucker (NYSE:SJM) -5.2% amid weak earnings.

Today's Markets

In Asia, Japan -0.6%. Hong Kong -1.8%. China -1.4%. India -0.1%.
In Europe, at midday, London -0.7%. Paris -0.4%. Frankfurt -1.3%.
Futures at 6:20, Dow -0.6%. S&P -0.6%. Nasdaq -1%. Crude -0.6% to $65.68. Gold +0.1% to $1304.30. Bitcoin -1.5% to $7573.
Ten-year Treasury Yield -2 bps to 2.9%

Today's Economic Calendar
10:00 Wholesale Trade
1:00 PM Baker-Hughes Rig Count

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