Wall Street Breakfast - June 26, 2017
End Of The Road For Takata
Plagued by the auto industry's largest-ever recall, Takata (OTCPK:TKTDY) has filed for bankruptcy protection in the U.S. and Japan. It's being bought for $1.6B by Key Safety Systems, which said top management will resign when the takeover is complete. With 17 deaths linked to its airbags adding to costs and lawsuits, Tokyo Shoko Research estimates Takata's total liabilities stand at ¥1.7T ($15B).
Economy
President Trump and Narendra Modi will hold their first face-to-face meeting today in Washington, seeking to boost U.S.-Indian relations despite differences over trade and immigration. Trump, who campaigned on an "America First" platform, has been troubled by the growing U.S. trade deficit with India, and has called for reform of the H-1B program that has benefited Indian tech firms.
Top Republicans want a vote on the Senate healthcare bill this week after juggling objections from all corners of the GOP caucus this weekend. Issues such as Medicaid and insurance regulations remain key holdups. The healthcare sector has been the strongest 2017 performer on the S&P 500 with a gain of 16.7%, and the best grouping during the second quarter with a rise of 8.2%.
Illinois is on track to become the first U.S. state to have its credit rating downgraded to "junk" by S&P, according to a new report by the Associated Press. While the Democrat-controlled General Assembly and Republican Gov. Bruce Rauner have failed to agree on a state budget since 2015, the outlook didn't look better on Saturday as a special legislative session remained deadlocked a week before the start of the new fiscal year.
Investors are turning their attention to the ECB's fourth annual "Forum on Central Banking" in Portugal, where the focus will be on investment and growth in advanced economies. The conference runs Monday through Wednesday. Speakers include ECB President Mario Draghi and Ben Bernanke, and some 150 central bank governors, academics, journalists and high-level financial market representatives will exchange policy views.
Brexit minister David Davis is "pretty sure" he could negotiate a good deal to leave the EU, throwing his support behind Prime Minister Theresa May and taking his share of the blame for advising her to hold an early election. Meanwhile, the leader of the DUP, Arlene Foster, met with May in Downing Street this morning; a coalition deal is expected to be announced in the next few hours.
A fresh round of trade talks between the EU and Mexico will kick off today, as officials attempt to update a free trade pact dating from 2000. A new deal would seek to include public tenders, energy products and raw materials, broader protection of intellectual property and greater benefits for smaller companies. The EU is Mexico's third largest trading partner after the U.S. and China.
German business morale hit a record high in June as Angela Merkel's conservatives pulled further ahead of the Social Democrats three months ahead of the country's vote. The Ifo economic institute said its business climate index rose to 115.1 - the highest level since 1991 - from a reading of 114.6 in May, underpinning optimism by the Bundesbank that the upswing in Europe's largest economy is set to continue.
Mongolians will vote for a new president today, choosing from among three fresh faces to replace Tsakhiagiin Elbegdorj, whose second four-year term ends next month. Once the world's fastest-growing economy, Mongolia has seen foreign investment and commodity export earnings collapse, and recently secured a $5.5B bailout from the IMF after implementing austerity measures.
Major central banks should press ahead with interest rate increases, the Bank for International Settlements said in its annual report, stating that global growth could soon be back at long-term average levels. However, the central bank of central banks warned against the rolling back globalization, which would be a blow against robust expansion, along with the risks from high debt levels.
Stocks
Pandora co-founder and chief Tim Westergren plans to step down, according to Recode, but he'll likely remain at the company until a replacement is found. Westergren started his second stint as Pandora's (NYSE:P) CEO in 2016. Since then, the streaming business has been the subject of many sales rumors, and earlier this month SiriusXM (NASDAQ:SIRI) agreed to invest $480M in exchange for a stake and three board seats. P +1.6% premarket.
Facebook is talking to Hollywood studios and agencies about producing TV-quality shows with an eye toward launching original programming by late summer, WSJ reports. Facebook (NASDAQ:FB) is willing to commit to production budgets as high as $3M per episode - the price range of high-end cable-TV shows - as part of a two-track effort to up its game in video and target the tens of billions of ad dollars spent on TV.
The emir of Qatar met with Exxon Mobil (NYSE:XOM) CEO Darren Woods in Doha on Saturday for talks on "cooperation" following a Gulf rift that has raised worries about energy supplies. Qatar and Exxon have had LNG development agreements for more than a decade, but the company said earlier this month that production and exports have not been affected by the row.
Some traders who lost money in last week's ethereum "flash crash" are going to be credited for their losses, according to the GDAX cryptocurrency exchange. The price of ethereum, the alternative digital currency to bitcoin, crashed as low as $0.10 from around $319 in about a second last Wednesday. The exchange blamed the move on a "multimillion dollar market sell" order.
Italian banks are trading strongly after news that Intesa Sanpaolo (OTCPK:IITOF) will help bail out Veneto Banca (OTC:VENBF) and Banca Popolare di Vicenza. The deal could cost Italy up to €17B as the government said it will offer additional guarantees to cover potential losses. It follows a long weekend of negotiating and an ECB statement from Friday describing the two banks as "failing."
Royal Bank of Scotland is planning to cut 443 U.K. jobs dealing with business loans as it outsources many of the positions. "By shipping these jobs to India, RBS will be getting that work done more cheaply," a spokesman declared. The latest wave comes after RBS shifted at least 400 roles to India last year, including 300 or so investment banking positions.
The U.K.'s biggest health food retailer is being bought by a Russian billionaire for £1.8B. Mikhail Fridman is using his fund, L1 Retail, to acquire Holland & Barrett from private equity firm Carlyle (NASDAQ:CG) and expects the deal to close in September. The chain has more than 1,300 stores around the world.
Daniel Loeb has unveiled a stake of more than 1% in Switzerland's Nestle (OTCPK:NSRGY) and urged the world's largest packaged foods maker to improve its margins, buy back stock and shed non-core businesses. The holding, worth 3.28B Swiss francs ($3.5B), is the largest ever taken by Third Point, and an unusually big bet for a U.S. activist fund in Europe.
Six emails sent by and to an Arconic (NYSE:ARNC) sales manager are raising questions about why the company supplied combustible cladding to a distributor for use at Grenfell Tower in London. 79 people died there in a blaze almost two weeks ago. When asked about the emails by Reuters, Arconic said it was not its role to decide what was or was not compliant with local building regulations.
Jury selection will begin today in the federal securities-fraud trial of Martin Shkreli, the "Pharma Bro" who rose to international infamy two years ago for dramatically raising the prices of lifesaving drugs. Eight criminal counts will be leveled against him. To conceal mounting losses, prosecutors allege Shkreli produced phony performance reports and misappropriated assets from Retrophin (NASDAQ:RTRX).
The green push by Fiat has hit a roadblock after the automaker suspended production of its hybrid Pacifica minivan amid technical glitches, sources told WSJ. The development could throw a spotlight on Fiat's (NYSE:FCAU) ability to keep up with rivals on lowering overall emissions, and is a bit of a curveball for Waymo (GOOG, GOOGL), which is using hybrid Pacificas for autonomous vehicle testing.
SpaceX capped off two successful missions to space this weekend - the company's quickest launch turnaround yet. Boosters of both Falcon 9 rockets returned safely to floating platforms, repeating what has become a signature feature for SpaceX (Private:SPACE). The "weekend doubleheader" was also a show of strength for the company, which intends to up the pace of its launches.
