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Wall Street Breakfast: Crude Oil Stabilizes After Yesterday's Plunge
May 26, 2017 6:32 AM ET|
Includes: BMWYY, DDAIF, GM, NTDOF, NTDOY, QQQ, SPY, T, TWX, UPS, VLKAF, VLKAY

(Just popping in, NOT here long!)

Wall Street Breakfast
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Crude oil prices are edging higher, recovering a little of yesterday's big losses triggered by disappointment that OPEC did not take more aggressive measures to cut production. Global markets are steady, with U.S. stock futures pointing to a slightly lower open after tallying a sixth straight gain yesterday despite a dismal showing in the energy sector, which tumbled along with crude oil prices; most European and Asian markets are slightly lower. Some of the sharpest moves are in currencies, where Britain's pound is ~0.5% lower and looks set to close out its steepest one-week decline since early April.

Economy

President Trump nears the end of his foreign trip with a two-day Group 7 summit in Sicily, where he will be expected to reassure his counterparts that he is a reliable statesman and not an unpredictable populist. Yesterday, Trump promised NATO leaders that the U.S. would "never forsake" them but also reminded them of their duty to pay their fair share of the costs of defense. Back in the U.S., Trump son-in-law Jared Kushner reportedly is under scrutiny by the FBI in the Russia investigation, and a federal appeals court in Richmond, Va., refused to reinstate Trump's revised travel ban, saying it discriminated on the basis of religion.

Oil traders and analysts are expecting large drawdowns of crude oil from storage tanks across the U.S. in the coming weeks, Reuters reports. Supplies have remained stubbornly high for months, but traders say seasonally unusual spring drawdowns in the U.S., record refining runs, and big exports to Asia and Latin America signal potentially sharp declines in crude stocks, according to the report. Some traders expect draws of as much as 10M bbls per week soon, while others see 3-4M per week; U.S. crude stocks peaked at 533M barrels in March and were at 516M as of last week, according to the U.S. EIA.

St. Louis Fed President James Bullard says the path of inflation in the U.S. is "worrisome... not as severe as the 1990s Japanese experience, but it is worrisome." Bullard cites the current level of U.S. prices, noting the gap between where they stand currently and where he says they should be if the Fed had been able to deliver on its 2% inflation target in recent years. On the Fed's rate hike plans, Bullard reiterates his long-held view that the Fed is seeking to raise rates too quickly and by too much, adding that the financial markets' view of the upcoming rate hike trajectory is out of lockstep with the Fed.

A noted Fed dove may have turned a bit more hawkish, as Fed Governor Lael Brainard told a panel discussion yesterday that a brighter global outlook has shifted the risk balance for the U.S. economy. She expects upward revisions to global growth forecasts to continue. Her comments are notable, as she has previously staked out a position as a dovish FOMC member.

Traders may be attempting to manipulate the VIX, according to a paper from two University of Texas researchers. A quirk leaves the volatility market vulnerable to a sophisticated trade involving pushing around the prices of underlying S&P 500 options in order to manipulate the value of VIX derivatives as they settle. "This market is fairly unique because you've got a very liquid market that's settling based on the price of a less liquid options market," says one of the authors. The CBOE says the work is based on "fundamental misunderstandings."

Stocks

"The Germans are bad, very bad," President Trump reportedly told EU officials in a closed-door meeting, referring to German carmakers for selling too many vehicles in the U.S. and contributing to a lopsided German trade surplus that he believes hurts the U.S. economy. Trump vowed to block German car exports to the U.S., according to reports from German news magazine Der Spiegel. Trump has repeatedly criticized Germany's high trade surplus with the U.S., and has threatened a 35% import duty for foreign-built cars sold in the U.S. Volkswagen (OTCPK:VLKAF, OTCPK:VLKAY), Daimler (OTCPK:DDAIF, OTCPK:DDAIY) and BMW (OTCPK:BMWYY) shares are down slightly in Frankfurt trading.

General Motors is accused of using emissions testing defeat devices in some trucks, sending shares down nearly 2% in yesterday's trading. A class action lawsuit against GM was filed on the behalf of 705K GM Duramax owners, claiming the company installed defeat devices in two models of heavy-duty trucks from 2011 to 2016. General Motors' (NYSE:GM) cheating allowed its trucks to pass U.S. inspections, even while they spewed emissions two to five times the legal limit under regular driving conditions, according to the complaint filed in Detroit federal court. GM becomes the fifth carmaker scrutinized since the Volkswagen scandal erupted in 2015.

A U.S. federal judge yesterday ordered United Parcel Service (NYSE:UPS) to pay ~$247M in damages and penalties for "illegally shipping" hundreds of thousands of cartons of untaxed cigarettes in New York state and City. The court said it believed a more modest penalty would not make a "sufficient corporate impact" on UPS, citing the company's "consistent unwillingness to acknowledge its errors." UPS calls the court's decision "excessive" and plans to appeal the decision.

Nintendo shares rallied more than 5% in Tokyo trading, hitting their highest levels since October 2008, after game maker Capcom said a popular game would be coming to the Nintendo Switch. Capcom, the game studio behind major titles including the "Street Fighter" and "Resident Evil" franchises, announced the release of "Monster Hunter XX" on Switch, giving investors hope that sales of the console could get a boost. "Monster Hunter" is not well known in western markets, but analysts say it is credited with helping sales of Nintendo's (OTCPK:NTDOF, OTCPK:NTDOY) handheld 3DS console.

AT&T's DirecTV Now streaming TV service has seen growth stall after a splashy fall debut, Bloomberg reports. The company keeps its numbers under wraps, but sources said that after an initial two-month total of 328K subscribers, DirecTV Now lost 3K subscribers in February and was flat in March. DirecTV Now represents a big bet and a key initiative for AT&T (NYSE:T), which has put the service front and center in industry discussions and in its own promotions, all while pursuing an $85B deal for content powerhouse Time Warner (NYSE:TWX).

Today's Markets

In Asia, Japan -0.6%. Hong Kong flat. China -0.1%. India +0.8%.
In Europe, at midday, London +0.1%. Paris -0.7%. Frankfurt -0.4%.
Futures at 6:20, Dow -0.1%. S&P -0.1%. Nasdaq -0.2%. Crude +0.5% to $49.15. Gold +0.8% to $1266.40.
Ten-year Treasury Yield -2 bps to 2.24%

Today's Economic Calendar

8:30 Durable Goods
8:30 Corporate Profits
8:30 GDP Q1
10:00 Consumer Sentiment
1:00 PM Baker-Hughes Rig Count
8:15 PM Fed's William’s speech on Sunday
Companies reporting earnings today »
https://seekingalpha.com/earnings/upcoming