Friday, June 19, 2015

Wall Street Breakfast: Chinese Shares Shout Mayday!


  |  6 comments  |  Includes: AAPLALRMAMZNBACAGEADSYFOGOGILDMBNWS
Economy
China's benchmark share indexes plunged on Friday, taking losses since their early-June peak to more than 10% and putting the market into correction territory. The Shanghai Composite finished the session down 6.4%, its biggest weekly decline since October 2008, after more than doubling over the past 12 months. Shenzhen -6%. ChiNext -5.4%.
As widely expected, the Bank of Japan maintained its massive stimulus program today, keeping intact its pledge to increase base money at an annual pace of ¥80T through aggressive asset purchases. At a press conference following the announcement, BOJ Governor Haruhiko Kuroda reiterated his expectations for consumer inflation to hit the BOJ's 2% target around April to September 2016, a time-frame many analysts believe is too optimistic. Kuroda also explained his recent comment on the weak yen. "I wasn't talking about the current nominal yen level or about the yen's outlook...The weak yen's effect varies for each entity."
There will be a solution to the Greek debt crisis that will allow the country to return to growth while staying in the eurozone, Prime Minister Alexis Tsipras said on Friday. The statement was strikingly upbeat given the tone at yesterday's Eurogroup meeting. Greek Finance Minister Yanis Varoufakis proclaimed that the eurozone was dangerously close to accepting an "accident," and an emergency summit was scheduled for Monday. Some also expect Greek banks not to open next week, after savers withdrew €2B over the past three days.
Meanwhile, Russia is considering the option of giving Greece financial aid. "The most important things for us are investment projects and trade with Greece. If financial support is required, we will consider this question," Russian Deputy Prime Minister Arkady Dvorkovich said in a television interview quoted by TASS news agency.
Although it must go back to the Senate for another vote, the U.S. House of Representatives has approved a bill granting President Obama "fast-track" trade authority. The move will likely see the swift completion of the Trans-Pacific Partnership, which is central to Obama's focus on strengthening ties with Asia.
Stocks
So who won the Paris Airshow? Although Airbus's (OTCPK:EADSY) orders and commitments of 421 aircraft ($57B) topped rival Boeing's (NYSE:BA) 331 jets ($50.2), the latter came out on top in terms of firm orders - Boeing won 145 ($18.6B) vs. Airbus's 124 ($16.3B). Despite their combined $107B in orders and commitments, their total sales agreements fell short of last year's $115.5B intake at the Farnborough Air Show and the $134B in deals at Paris two years ago.
Apple plans to have a camera built into the second-gen Watch's front bezel to let users make and receive FaceTime video calls, reports 9to5 Mac's Mark Gurman in his latest iScoop. He adds Apple's (NASDAQ:AAPL) recently-unveiled watchOS 2.0 will launch this fall, allowing "users to answer FaceTime Audio calls from the Apple Watch, as well as route FaceTime video calls to either be answered on an iPhone or rejected."
Project Lightning is "a brand-new way to look at tweets," announced Twitter (NYSE:TWTR) product chief Kevin Weil. "This is a bold change, not evolutionary." Lightning, due in a few months, will provide curated (human-edited) feeds for major events (the Super Bowl, the Oscars, major elections etc.), replete with photos, autoplay videos, and tools for embedding the content in other sites/apps (thus helping Twitter reach logged-out viewers).


Amazon has sealed a digital and print book deal with Penguin Random House (NYSE:PSO), the last of the five major publishers to reach an agreement with the Web retailer following a dispute last year over e-book pricing and shared revenue. "We are still in business with Amazon (NASDAQ:AMZN)...and will continue to be," Penguin Random House said in a statement. The new contract covers sales in the U.S. and U.K.
Toyota moved into damage control mode this morning after its new communications chief, Julie Hamp, was arrested on suspicion of illegally bringing pain killers into Japan just two months after her high-profile appointment. Police investigators say 57 Oxycodone pills from the U.S., labeled as "necklaces", were scattered in a small parcel addressed to her in Japan. Toyota (NYSE:TM) CEO Akio Toyoda has vowed to stand by Hamp.
Bankers say the return of IPOs over the past few weeks reflects the continued demand for stocks, even as investors anxiously eye global concerns. U.S. listings in 2014 came at the fastest pace since 2000, with 293 offerings raising $96B, although they slowed toward the beginning of this year due to uncertainty of oil prices and a Fed rate hike. But activity has quietly picked up. There were 20 deals last month, just three fewer than in May 2014, and June is expected to bring forth 32 deals, just one less than the prior year. Upcoming IPOs: Fogo de Chao (Pending:FOGO), Mindbody (Pending:MB), TransUnion (Pending:TRU) and Alarm.com (Pending:ALRM).
Meanwhile, Fitbit soared 48.4% on its first day of trade yesterday, closing up almost $10 above its $20 IPO price. The world's biggest wearables maker is valued at $6.2B, or 8.3x 2014 sales and 47x net income. Given recent growth (Q1 sales were up 209% Y/Y), the forward P/S ratio could be around 4-5, and the forward P/E closer to 20. FIT +2.4% premarket.
According to the Minneapolis Star Tribune, Target (NYSE:TGT) has laid off another 140 workers at its corporate headquarters. Most of those given the pink slip were in the recently formed "business performance optimization" group, which works on large-scale projects within the company's core strategic areas. After the most recent round of paring, Target will have cut the number of employees from its Twin Cities HQ by 20%.
News Corp. is also launching a big reorganization at its Dow Jones unit which will result in jobs cuts and bureaus closed at The Wall Street Journal, as well as changes in investment to focus on digital media. A few dozen positions were cut yesterday, but in coming weeks cuts could be well over 100. News Corp. (NASDAQ:NWSA) also said it will pay a semiannual dividend for the first time since the company split from Twenty-First Century Fox two years ago, and is extending its poison pill for another three years.
Activist hedge fund Jana Partners has disclosed a 7.2% stake in ConAgra Foods (NYSE:CAG), saying the company's shares were "undervalued". Since the acquisition of RalCorp in 2013, ConAgra has missed guidance repeatedly, has cut long-term targets and there has been no growth in dividends, Jana said in a regulatory filing. CAG +6.7% AH.
China has rejected Gilead Sciences' application for a new patent related to its costly hepatitis C drug Sovaldi, after advocacy group I-MAK challenged the filing so patients could get cheaper generic versions. Although Gilead (NASDAQ:GILD) still holds a Chinese patent for sofosbuvir, the main ingredient of Sovaldi, I-MAK believes the decision to reject the prodrug application could encourage challenges to the sofosbuvir patent as well. Sovaldi costs $1,000 per pill in the U.S., or $84,000 for a typical 12-week course. GILD -0.4% premarket.
Thursday's notable earnings
Red Hat (NYSE:RHT-1.1% AH following subdued FQ2 forecasts. (link)
Rite Aid (NYSE:RAD-3.8% after slashing its earnings guidance. (link)
Smith & Wesson (NASDAQ:SWHC-4.9% AH on a weak outlook. (link)

Today's Markets:
In Asia, Japan +0.9% to 20174. Hong Kong +0.3% to 26760. China -6.4% to 4481. India +0.7% to 27316.
In Europe, at midday, London +0.6%. Paris +1.3%. Frankfurt +1.1%.
Futures at 6:20: Dow +0.1%. S&P +0.1%. Nasdaq +0.1%. Crude -1% to $60.19. Gold -0.2% to $1200.10.
Ten-year Treasury Yield -4 bps to 2.31%
Today's economic calendar:
10:00 Atlanta Fed's Business Inflation Expectations
Notable earnings before today's open: KBHKMX

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