Flavin Nooney & Person Market Flash 7.20.14
courtesy of @seekingalpha
Slowly bringing its debt crisis to a close, Greece has initiated the process for a total payment of €6.25B to the ECB and IMF, and will repay a €500M loan to its central bank. As Athens blew past multiple political and financial supposed end-dates over the past five months, July 20 always remained a make-or-break moment, as EU law would then ban the ECB from financing the government. Greek banks also reopened their doors this morning (following PM Alexis Tsipras’ weekend cabinet reshuffle), although extensive capital controls will still remain in place.
Chinese stocks swung wildly in volatile trading today after the Shanghai Composite briefly surpassed the 4,000-point level and a fifth of the market remained frozen. The index has now rebounded 13% since July 8, as policy makers continue to introduce measures to bolster equities. The latest: China has tightened control of online financing, saying all client funds must be parked at established banks and Internet finance firms will need approval from financial as well as cyberspace regulators. Shanghai +0.9%; Shenzhen +1.5%; Chinext +2.3%.
Opening up a new chapter in post-Cold War ties, the U.S and Cuba have formally restored diplomatic relations severed more than five decades ago, by re-establishing embassies in each other’s capitals. While many European officials and companies are visiting Cuba in record numbers to seek business deals, American companies are still prohibited from doing trade with the country and traveling there from the U.S. as a tourist remains illegal.
Gold prices continued falling today, hitting a more than five-year low early in the session, amid growing expectations for a U.S. interest rate increase that has boosted the dollar. Over the weekend, China also disclosed an update on its gold reserves for the first time since 2009 that was far lower than analysts expected. After plunging 4.2% to $1,086.18 an ounce, bullion for immediate delivery is now trading down 1.7% at $1112.20.
Entangled in Greek politics, few European policymakers had time or interest to pay attention to the recent summit talks between the leaders of Brazil, Russia, India, China and South Africa, collectively known as the BRICS. The hotly discussed New Development Bank was reported to have just held its first board meeting and will soon be lending internationally. The BRICS Bank will start off with capital of $50B which will be hiked to $100B in two years. Meanwhile, the combined economic output of the BRICS last year almost matched America’s GDP. Back in 2007, the U.S. economy was double that of the five nations.
A focus is also starting to return to Ukraine, with Grexit talk somewhat on the back burner. The country has hastily extended discussions with creditors amid predictions it could default as early as Friday. Kiev was bailed out by the IMF in early 2014 in the wake of the ousting of former president Viktor Yanukovich, and received a fresh pledge this year as the conflict with Russian-backed separatists worsened. With debt expected to top 100% of GDP this year, Ukraine is hoping for a 40% debt writedown on bonds worth just over $15B, which it says will make the debt more sustainable.
Lockheed Martin has agreed to buy United Technologies’ (NYSE:UTX) Sikorsky Aircraft for over $8B, Reuters reports, cementing a deal that would give the Black Hawk helicopter to the maker of the F-35 fighter jet. The acquisition of Sikorsky, which had more than 15K employees and net sales of $7.5B at the end of last year, would be the biggest by Lockheed (NYSE:LMT) since its $10B takeover of Martin Marietta two decades ago. Pentagon officials said last week they would carefully evaluate any sale to maintain competition and avoid market distortions.
The U.S. Securities and Exchange Commission has launched a civil probe into several firms with links to the corruption scandal at FIFA to see if there were possible violations of U.S. federal bribery laws. The investigation, which is still in its early stages, centers on publicly-traded companies which have been involved in soccer contracts, such as sportswear company Nike (NYSE:NKE).
Barclays is planning to cut more than 30K jobs within two years as the struggling bank considers accelerating a group-wide cost-cutting program after firing CEO Antony Jenkins earlier this month. The layoffs, which could lead the bank’s global workforce below 100K by the end of 2017, are thought to be the only way to address Barclays’ (NYSE:BCS) chronic underperformance and double its share price, according to The Times.
Bill Winters, the new Chief Executive of Standard Chartered (OTCPK:SCBFF), has written a letter to staff declaring that “the group needs to kick-start performance, reduce its cost base and bureaucracy…and speed up decision making.” The new structure will see Winters take over the lender’s investment bank, commercial and private bank, and retail banking divisions – three major units that previously reported to his deputy, Mike Rees. Hurt by fines, plunging commodity prices and a weakened trading environment, StanChart’s shares have fallen by a third over the past two years, but have recovered by 5% since January.
JPMorgan has agreed to pay $388M to settle a suit by investors who claimed the bank misled them about the safety of $10B worth of residential MBSs it sold before the financial crisis. The lawsuit, brought by Fort Worth Employees’ Retirement Fund and other investors, accused JPMorgan (NYSE:JPM) of misleading them about the underwriting, appraisals and credit quality of the home loans underlying the certificates.
So what happened at Tesla’s press conference on Friday? The automaker gave Model S owners a new option with a $3K battery upgrade to a 90-kilowatt version. Range will be extended to 300 miles at 65 mph with the new battery. Tesla (NASDAQ:TSLA) CEO Elon Musk also promised “ludicrous” mode with a software update that helps deliver 0-to-60 acceleration in 2.8 seconds. The time drops to around 3.2-3.3 seconds for the Model X SUV.
Microsoft has reportedly decided to acquire Israeli cloud security company Adallom for $320M, marking the group’s largest-ever acquisition in the country. Over the past year Microsoft (NASDAQ:MSFT) has scooped up several other Israeli firms, including Aorato (cyber security) for $200M, Equivio (text analysis) for $200M, and N-trig (digital pen) for several tens of millions of dollars. Adallom has raised $49.5M to date from investors Sequoia Capital and Index Ventures as well as EMC (NYSE:EMC) and Hewlett-Packard (NYSE:HPQ).
Alibaba has signed a strategic partnership agreement with Unilever (NYSE:UL) to help reach more Chinese shoppers, after the latter’s sales in the country fell 20% in the final three months of 2014. The partnership will allow Unilever to widen its distribution channels to reach rural consumers in China and use data from Alibaba’s (NYSE:BABA) online marketing unit, Alimama, and its cloud business to advance its digital advertising strategy.
Royal Dutch Shell, which is all set to acquire rival BG Group (OTCQX:BRGYY), may cut its capital expenditure for the year by several billion dollars from its previously announced $33B figure, according to the FT. Shell (RDS.A, RDS.B) also told investors that the BG deal works with crude oil at $70 per barrel, citing much greater synergies that will likely be “a multiple” of the $1B in annual projected savings.
Following reports of a merger on Friday, CF Industries (NYSE:CF) has confirmed it’s in preliminary talks about a combination with certain businesses of Dutch rival OCI (OTCQX:OCINY). It’s the second time in less than a year that CF has tried to merge with a competitor. In October, it terminated talks with Norway’s Yara International (OTCPK:YARIY) about creating the world’s largest nitrogen fertilizer maker. OCI shares are now up 14.5% in Amsterdam. Following the initial report on Friday, CF shares jumped 9.9% in New York.
In Asia, Japan closed. Hong Kong flat at 25404. China +0.9% to 3992. India -0.2% to 28395.
In Europe, at midday, London +0.4%. Paris +1.1%. Frankfurt +1%.
Futures at 6:20: Dow +0.2%. S&P +0.2%. Nasdaq +0.2%. Crude -0.5% to $50.97. Gold -1.7% to $1112.20.
Ten-year Treasury Yield flat at 2.35%
Today’s economic calendar:
No events scheduled.
Notable earnings before today’s open: CALM, CBU, EXAS, GPC, HAL, HAS, LII, MS, PETS, SAH
Notable earnings after today’s close: BMI, BRO, BXS, CCK, CNI, EFII, ELS, HLX, HSTM, HXL, IBM, RLI, RMBS, SANM, STLD, WERN, WWD, ZION