Wednesday, March 4, 2015

Wall Street Breakfast: The Interest Rate Cuts Continue


Economy
The Reserve Bank of India surprised markets on Wednesday by cutting rates for the second time this year, joining a world-wide trend of monetary easing that is driving global interest rates to multi-year lows. Citing easing inflation and weakness in parts of the economy, the central bank lowered its benchmark rate by 25 basis points to 7.5%. The move sent India's Sensex index to an all-time high of 30,024.74, breaking the key 30,000-level for the first time.
Australia’s economy grew at a slower pace than expected in Q4 as the mining investment boom continued to fade and businesses reined in spending amid low confidence. GDP growth increased by 0.5% in the December quarter, taking the annual rate of GDP growth to 2.5%, down from 2.7% in the prior period. While the RBA held off on a second rate cut yesterday, most economists expect the central bank to pull the trigger in the coming months.
Fed Chair Janet Yellen lashed out at the culture in the nation's biggest banks late Tuesday, echoing similar comments from other regulatory officials to increase pressure on large U.S. financial institutions to improve. "It is unfortunate that I need to underscore this, but we expect the firms we oversee to follow the law and to operate in an ethical manner," said Yellen. "Too often in recent years, bankers at large institutions have not done so, sometimes brazenly." Her remarks come just days before the Fed's annual bank stress tests.
Activity in China's services sector grew modestly in February, with HSBC's Services PMI rising to 52.0 from 51.8 in January, while a sub-index showed new orders rising at their quickest pace in three months. "The solid rise in new orders suggests that activity growth may pick up in the months ahead," said Markit's Annabel Fiddes. China cut interest rates by a quarter percentage point over the weekend, citing deflationary risk and a property market slowdown.
European shares reversed earlier gains this morning following a final estimate of a closely-watched survey of the region's services and manufacturing sectors. The composite reading of Markit's PMI came in at 53.3 in February, weaker than a preliminary reading of 53.5. Crashing through support levels that have held for more than a month, the euro headed to a six-week low today under pressure from the ECB's launch of quantitative easing. The euro is -0.5% at $1.1118.
Stocks
Target is planning to eliminate several thousand positions, mainly from headquarters locations, as part of a restructuring that will cut $2B in costs over two years. During the retailer's earnings call last week, executives made a strong point in saying that the company's digital business is its top priority. Target (NYSE:TGT) also announced that it expects adjusted EPS of between $4.45-$4.65 for the full year to January 2016, compared with last year's $4.27 and consensus of $4.51.
Continuing its aggressive expansion into film and entertainment content, Alibaba (NYSE:BABA) has invested 2.4B yuan ($382.67M) in TV program producer Beijing Enlight Media, the latter said in a regulatory filing on Wednesday. The move follows investments by Alibaba worth more than $3.1B in the entertainment industry last year, including stakes in online video streaming sites, internet TV hardware, film production and video games.
Standard Chartered reported a sharp drop in full-year profit today, and lowered its return on equity target to above 10%, from the midteens percentage it previously aimed for. "2014 performance was disappointing, impacted by a challenging market environment and the significant...restructuring and repositioning actions taken during the year," said StanChart (OTCPK:SCBFF) CEO Peter Sands, who will be replaced by former JPMorgan (NYSE:JPM) executive Bill Winters in June. Net profit for the year sank 37% to $2.51B from $3.99B, a year earlier.
Many institutional investors take months to decide on and execute a reallocation from one fund to another. It is therefore not surprising that withdrawals from Pimco's (OTCQX:AZSEY) flagship fund have persisted for so long, announced chief investment officer, Dan Ivascyn. The firm reported another $8.6B of outflows in February from the Pimco Total Return Fund (MUTF:PTTRX), bringing withdrawals to $76.6B since Gross moved to Janus Capital.
Royal Bank of Scotland is aiming to cut as many as four out of five jobs in its investment banking units by 2019, FT reports, while overhauling its back-office systems to automate them. A large proportion of RBS's (NYSE:RBS) 14,000 lay offs will occur across the U.S. and Asia. Barclay's (NYSE:BCS) CEO Antony Jenkins also revealed his frustration with his firm's investment banking operation yesterday, saying his patience would be limited in waiting for the unit's recovery.
Smith & Wesson +10.7% premarket after beating estimates on both the top and bottom lines and increasing its full-year earnings guidance. "Our third quarter results reflect the successful navigation of a normalizing firearm market following an earlier consumer surge in firearm purchases," said CEO James Debney. For the fiscal year that will end in April, Smith & Wesson (NASDAQ:SWHC) raised its EPS estimate to between $0.87-$0.89 on net sales of $532M-$536M, from its previous estimate of $0.74-$0.78 on sales of $526M-$530M.


Two months after stating cumulative PlayStation 4 sales have topped 18.5M, Sony (NYSE:SNE) says they were above 20.2M as of March 1. Microsoft's (NASDAQ:MSFT) Xbox One sales were only at 10M as of last November, though holiday season demand appears to have been strong. Separately, Sony promises its anticipated Morpheus VR headset will launch in the first half of 2016, marking the first announcement of commercial availability for a major company working in the VR space.
DuPont has nixed a request from Nelson Peltz and his firm, Trian Fund Management, to use a universal ballot in a coming vote on directors, just weeks after the company rejected the hedge fund’s board nominees and proposed two of its own. A universal ballot would put both Trian’s four nominees and DuPont's (NYSE:DD) full 13-member board on the same paper document sent to shareholders, as opposed to the standard approach of each side sending their own version.
Actavis sold the second-biggest corporate-bond offering in history yesterday, with a $21B deal fueled by investors' desire for income-generating investments when yields on government debt remain low. The giant sale comes as companies this year sell debt at the fastest pace on record, extending a multi-year boom that has financed a flurry of deal making and stock buybacks. Actavis (NYSE:ACT) plans to use the money for its $66B acquisition of Botox maker Allergan (NYSE:AGN).
Toyota has appointed its first non-Japanese vice-president as well as its first western female executive, as it looks to diversify its top ranks and respond to the government's set target of women holding 30% of top positions by 2020. The Japanese carmaker named Didier Leroy, a French citizen who currently oversees Toyota's (NYSE:TM) European business, as executive vice president, and appointed current chief communications officer Julie Hamp to managing officer.

Today's Markets:
In Asia, Japan -0.6% to 18704. Hong Kong -1% to 24465. China +0.5% to 3279. India -0.7% to 29381.
In Europe, at midday, London -0.3%. Paris flat. Frankfurt -0.3%.
Futures at 6:20: Dow -0.4%. S&P -0.4%. Nasdaq -0.3%. Crude +0.5% to $50.79. Gold flat at $1203.90.
Ten-year Treasury Yield +3 bps to 2.12%
Notable earnings before today's open: AEO, AMED, ANF, ARQL, ATHM,BF.B, DSX, GTXI, HYH, INXN, LXRX, MTLS, PETM, SCMP, SOL, SSP, TOUR,TSL, W
Notable earnings after today's close: ALIM, ALSK, BIOL, BREW, CPE, DAR,ERJ, GEF, GTY, HRB, JONE, PEIX, POWR, PPO, PQ, RNDY, SMTC, SPOK, SQNM,VSLR, WTI
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