Flavin Nooney & Person Market Flash 7.28.14
courtesy of @seekingalpha
The Federal Reserve begins a two-day policy meeting later in the day, as officials from the central bank continue their long, slow march toward raising interest rates. Investors are not expecting any major decisions this week, but they will be looking for hints on the Fed’s timing for possible future movements. While consensus for a rate rise is leaning towards September, a growing number of market watchers are suggesting two rate increases may be in the cards this year. U.S. futures: Dow +0.5%. S&P +0.6%. Nasdaq +0.5%
Chinese shares whip-sawed between gains and losses today, as Beijing renewed its pledge to prop up an equities market whose wild gyrations have heightened fears about the world’s second largest economy. After a plunge of more than 8% on Monday, Chinese regulators said they were prepared to lend further support, while the central bank injected cash into money markets and hinted at further easing. The tug-of-war trading session saw the Shanghai Composite close down 1.7%, after falling 11% since Friday and nearly 30% from its recent high in mid-June.
A delegation from the so-called troika (and eurozone bailout fund) are in Athens this morning to begin negotiations over an €86B bailout. The talks will start almost a week later than planned, raising pressure on Greek PM Alexis Tsipras, who is already struggling to keep his party from falling apart. The two sides are also racing against time. A new bailout would have to be completed by mid-August if Athens is to secure billions of euros to repay ECB-held bonds that mature on August 20.
U.K. economic growth accelerated in the second quarter, meeting expectations, as the country’s industrial sector posted a strong recovery, business services strengthened and North Sea output surged. The 0.7% increase in GDP marks a 10th straight quarterly expansion and follows a 0.4% advance in the previous three months. “After a slowdown in Q1 of 2015, overall GDP growth has returned to that typical of the previous two years,” said Joe Grice, chief economist at the Office for National Statistics. Sterling +0.1% to $1.5570.
BP swung to a loss in the second quarter, as earnings got whacked by lower oil prices and a $9.8B pretax charge related to its 2010 Gulf of Mexico spill. Underlying replacement cost profit, the company’s definition of net income, was $1.3B vs. $3.6B a year ago, and lower than analyst expectations of $1.64B. BP (NYSE:BP) also slashed its expected full-year organic capital expenditure to below $20B after cutting it by 13% earlier this year. BP +2.4% premarket.
Melrose Industries has agreed to sell its German-based utility metering company, Elster Group, to Honeywell (NYSE:HON) for £3.3B ($5.1B) in cash. Elster had gross assets of £2.5B as of the end of last year and employs about 6,800 people in 39 countries. Melrose (OTC:MLSPY) intends to use the proceeds of the sale to return capital of over £2B to shareholders.
General Electric has offered to sell gas-turbine assets to an Italian rival in another attempt to win EU approval for its plan to buy most of Alstom’s (OTCPK:ALSMY) energy business, Bloomberg reports. On Monday, Alstom agreed to a €300M reduction in the price it would get for selling its power turbines unit to GE (NYSE:GE), to help the latter gain antitrust clearance.
The U.S. Marine Corps has finished tests and filled out the paperwork needed to turn the Lockheed Martin (NYSE:LMT) F-35 fighter jet into an operational aircraft, a key milestone for the $391B program that has suffered years of delays and cost overruns. Once Marine Corps Commandant General Joe Dunford signs off on the filing, the F-35B fleet will have achieved initial operational capability, becoming the first model of the joint strike fighter that’s ready for combat.
New York City’s LaGuardia Airport, consistently ranked among the worst in the U.S. in cleanliness, design and delays, is now slated to be torn down and rebuilt with help from Delta Air Lines (NYSE:DAL). Although a timetable for the full project was not released, the $4B rebuilding of the 50-year-old Central Terminal, will break ground in early 2016 and take 39 months to complete.
So what’s Allergan doing with all that cash from the Teva (NYSE:TEVA) deal? CEO Brent Saunders plans to use the money to increase the size of the firm’s existing drug business, expand into new therapy areas and pursue larger deals. When asked if Allergan (NYSE:AGN) planned to spend the cash within 18 months, Saunders replied that he would, as long as the company could maintain its investment-grade credit rating. Possible targets: Biogen (NASDAQ:BIIB), AbbVie (NYSE:ABBV) and Amgen (NASDAQ:AMGN).
More dealmaking in the healthcare sector: Hikma Pharmaceuticals (OTCPK:HKMPY) will buy Boehringer Ingelheim GmbH’s Roxane business for $2.65B to become the sixth-largest supplier of generic medicines in the U.S. Hikma, which will pay $1.18B in cash and issue 40M new shares to Boehringer, has also agreed to make milestone cash payments of up to $125M.
Zurich Insurance is considering a potential offer for the U.K. rival RSA Insurance (OTCPK:RSNAY), in a deal that could be valued at around $7B. Zurich (OTCQX:ZURVY) said it was responding to media speculation about a bid and that its announcement doesn’t mean it will definitely make an offer. RSA shares are up 11.4% in London on the news.
Millions of computer owners will be able to download Windows 10 for free after tomorrow, marking the first time Microsoft (NASDAQ:MSFT) has given away its latest Windows version without a fee. While many believe the push is to keep users on board, it may also highlight a shift in the overall strategy of Microsoft, which is looking to reverse a four-year slide in PC sales. The software giant seems to now be moving away from making money just once – when it sells a fresh version of Windows – to generating long-term revenue by selling apps, Web-search ads and other add-ons.
An aggressive AT&T is fighting back against a proposed FCC fine of $100M, saying it’s “unprecedented and indefensible,” and has asked for its total withdrawal. Last month, the agency charged the company with misleading customers about slowing mobile data on unlimited data plans. At the time, FCC Chairman Tom Wheeler said the ultimate fine would depend on AT&T’s (NYSE:T) response, and might include customer refunds.
In the coming weeks, Verizon (NYSE:VZ) will customer-test its upcoming video service – Go90 – via a beta version. “This is unlike any other system…a completely new product,” Verizon’s Alberto Cana said. The service had been delayed from an expected early-summer start, but CFO Fran Shammo maintains it’ll be ready by late summer, as the company integrates more content from AOL.
General Motors intends to invest $5B over the next several years to develop a new family of vehicles with its Chinese partner, SAIC Motor, aimed at fast-growing emerging markets. The new generation of Chevrolet compact cars and SUVs will use common components and will go on sale in countries including India, China, Brazil and Mexico starting in 2019. GM (NYSE:GM) expects the $5B investment to result in a sell rate of about 2M vehicles a year.
Meanwhile, Volkswagen surpassed Toyota to become the biggest automaker by global vehicle sales for January-June, the first time the German automaker has come out on top in the intensely competitive tallies. Toyota (NYSE:TM) said it sold 5.02M vehicles in the first half, trailing the 5.04M that Volkswagen (OTCQX:VLKAY) reported earlier this month. General Motors (GM), the top-selling automaker for more than seven decades until being surpassed by Toyota in 2008, is expected to report its figure on Thursday.
Monday’s key earnings
American Capital Agency (NASDAQ:AGNC) hardly changed despite a rough quarter. (link)
Baidu (NASDAQ:BIDU) -8.2% AH on soft guidance. (link)
Philips (NYSE:PHG) +3.3% following a profit rise. (link)
In Asia, Japan -0.1% to 20329. Hong Kong +0.6% to 24504. China -1.7% to 3663. India -0.4% to 27459.
In Europe, at midday, London +0.9%. Paris +1.3%. Frankfurt +1.4%.
Futures at 6:20: Dow +0.5%. S&P +0.6%. Nasdaq +0.5%. Crude -0.8% to $47.02. Gold -0.3% to $1093.
Ten-year Treasury Yield +2 bps to 2.25%
Today’s economic calendar:
FOMC meeting begins
8:55 Redbook Chain Store Sales
9:00 S&P Case-Shiller Home Price Index
9:45 PMI Services Index Flash
10:00 Consumer Confidence
10:00 Richmond Fed Mfg.
10:00 State Street Investor Confidence Index
1:00 PM Results of $26B, 2-Year Note Auction