Wall Street Breakfast
Crude Continues Decline Following OPEC Decision
Nov. 28, 2014 6:32 AM ET | Includes: ABBV, AZN, BT, DTEGY, GOOG, GOOGL, GTE, HSBC, HUWHY, LUKOY, MAG, ORAN, PFE, QIHU, QQQ, RIO, SHPG, SPY, TEF, TKTDY, VIVHY
Economy
Following OPEC's announcement to keep its collective output target at 30M barrels a day, crude has continued its decline. The 12-member group, which pumps 40% of the world’s oil, will convene again June 5 in Vienna. West Texas Intermediate is down 5.9% at $69.34, with Brent trading near four year lows.
Japanese shares gained ground today as a weaker yen and falling oil prices boosted exporters, supporting investor sentiment. The Nikkei benchmark added 1.2% to reach 17,459.85, climbing over 10% since the BOJ stunned markets with stimulus just one month ago. However, the massive asset-purchase scheme is crushing debt yields, pushing Japanese government bonds to trade at a negative yield for the first time ever today.
The European Commission has given Belgium, France and Italy until March to bring their budgets in line with legal requirements, saying they were at risk of breaking EU rules. This gives the countries more time to adjust policy before the EU executive decides whether to fine France for missing consolidation targets or put Italy and Belgium under a disciplinary procedure because of their debt. The Commission will also publish the draft budget assessments of the 18 euro zone countries today, except Greece and Cyprus which remain under bailout programs.
An estimated 25,000 demonstrators took to the streets yesterday in central Athens to protest against the government’s austerity program in a 24-hour nationwide general strike. The strike, timed to coincide with parliamentary discussions on the country’s 2015 budget, comes as Greece struggles with its troika of international inspectors — the European Commission, IMF and ECB - over further cutbacks to address the country’s public finances.
The weather did not seem to stop Black Friday shoppers yesterday, as long queues formed in front of retail stores. Economists are closely watching whether retailers can tempt consumers to spend during the biggest shopping weekend of the year, especially after a year of lackluster sales. The National Retail Federation has forecast that sales in November and December, excluding auto, gas and restaurant sales, will rise 4.1% from the same months last year, up a bit from 3.1% in 2013.
Stocks
Pfizer's attempt to gain control of AstraZeneca through a £69.4B ($110B) takeover bid in May would have collapsed on changes to U.S. tax inversion laws, announced AstraZeneca's (NYSE:AZN) chief exec, cooling off speculation of another Pfizer (NYSE:PFE) bid for the U.K. pharmaceutical company. "If we had agreed to a deal at the time, probably that deal would have fallen apart by now, just like the AbbVie (NYSE:ABBV)/Shire (NASDAQ:SHPG) deal, and created enormous destruction and disruption in our company," said Pascal Soriot in an interview with CNBC.
Hutchison Whampoa, the owner of Britain's fourth largest mobile operator 3 Group, is now entering the race for either O2 (NYSE:TEF) or EE, the U.K.'s number one and two wireless carriers. The move sparks the prospect of a bidding war, as Deutsche Telekom (OTCQX:DTEGY) and Orange (NYSE:ORAN) confirmed on Wednesday that they were in talks to sell EE to BT (NYSE:BT). Hutchison (OTCPK:HUWHY) could put forward a bid for either EE or O2 by the end of the year.
Vivendi has closed the sale of its mobile carrier SFR to domestic cable company Numericable (Altice's subsidiary) for €13.4B ($16.7B). Numericable is looking to make SFR its flagship brand and displace Orange as France's largest broadband operator. Vivendi (OTCPK:VIVHY) will use the sale to cut debt, announcing plans to proceed with the early redemption of €5.3B in bonds.
Takata received an ultimatum from the NHTSA yesterday, which gave the Japanese air bag supplier until Tuesday to declare that its inflators are defective and issue a recall. If it does not comply, the NHTSA could begin steps to fine the company up to $7K per vehicle and could force a recall. Takata (OTCPK:TKTDY) has so far resisted the regulator's call to broaden its recall, which is currently limited to a few high-humidity states and territories where initial reports of air-bag ruptures have occurred.
Following years of heavy spending, Rio Tinto (NYSE:RIO) says it is committing to give significantly more money back to shareholders in 2015 despite a sharp slide in iron-ore prices. "Looking out over the next five years, we expect to generate strong free cash flow and we remain committed to materially increase cash returns to shareholders in a sustainable way," announces CEO Sam Walsh. Iron-ore prices have slumped by around 50% this year after a surge in mine supply swamped the market.
Lukoil vice-president Leonid Fedun warns that falling oil prices and western sanctions will lead to a bigger fall in Russian oil production than previously forecast. Although the decline would not be "dramatic", he predicts a drop from a peak of about 525m tonnes this year to 490m tonnes within four to five years. Lukoil (OTCPK:LUKOY) announced yesterday that profits had more than halved in Q3 due to tumbling oil prices and a weak ruble.
European Parliament lawmakers overwhelmingly voted in favor yesterday of a resolution urging antitrust regulators to consider splitting Internet search engines, such as Google (GOOG, GOOGL), from other commercial services. The controversial initiative will have no binding power over the European Commission, the bloc’s top antitrust regulator, but proponents of the measure hope it will add pressure.
Argentina’s tax agency said it found thousands of undeclared bank accounts at HSBC’s (NYSE:HSBC) Swiss unit that helped Argentines avoid paying taxes. The claim is the latest hit to HSBC this month, having also faced a metals price fixing lawsuit, a fine for manipulating forex benchmarks and pleading guilty to assisting U.S. citizens evade taxes also at its Swiss unit.
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Today's Markets:
In Asia, Japan +1.2% to 17460. Hong Kong -0.1% to 23987. China +2% to 2683. India +0.9% to 28694.
In Europe, at midday, London -0.7%. Paris -0.5%. Frankfurt -0.4%.
Futures at 6:20: Dow -0.2%. S&P -0.3%. Nasdaq +0.1%. Crude -5.9% to $69.34. Gold -1.2% to $1183.20.
Ten-year Treasury Yield -4 bps to 2.21%
Today's economic calendar:
4:30 PM Money Supply
4:30 PM Fed Balance Sheet
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