Thursday, September 17, 2015

Wall Street Breakfast: Fed Decision Day Finally Arrives

It's one of the most anticipated monetary policy decisions for years, with markets still unclear if the Federal Reserve this afternoon will unveil its first interest rate hike in almost a decade. Traders this week have been reluctant to make significant bets ahead of the decision, which is expected to reverberate throughout the global economy. Two months ago, it seemed almost certain that the Fed was going to raise rates in September, but turmoil in the financial markets and concerns about China's economy may see the Fed wait until December for an increase. U.S. futures are all lower by 0.2% pending the announcement.
Economy
Copper prices rose to two-month highs in early Asian trading on worries about supply disruptions due to a powerful earthquake off the coast of Chile - the world's largest copper producer. The magnitude 8.3 quake shook buildings in the capital Santiago and generated tsunami warnings from New Zealand to California. Five people are now known to have died, and one million residents have been evacuated from Chilean coastal areas.
It looks like the the Swiss National Bank is done with its surprises for the year. The central bank kept its benchmark interest rate on hold today at a record low of -0.75% as widely expected. In January, the SNB roiled markets by removing the upper limit on the Swiss franc, allowing it to massively appreciate. "Overall, the Swiss franc is still significantly overvalued, despite a slight depreciation," the central bank said. "Negative interest rates and the SNB's willingness to intervene as required make investments less attractive...easing pressure on the franc."
Just a week after the Puerto Rico governor Alejandro Garcia Padilla laid out plans for attacking the island's heavy debt, analysts are already beginning to publicly question the proposals. Concerns include financial assumptions on which the plans are based, "kick the can" strategies and the enforcement of austerity measures. The commonwealth's legislature is expected to take up the issue of an independent control board in the next two weeks, but other elements of the five-year plan will not be considered until January.
Ukraine's parliament has approved a pact negotiated by the government to restructure $18B of its foreign debt, chasing away concerns that a lawmaker revolt would jeopardize the flow of bailout funds. The debt accord envisages a 20% writedown of the face value of bonds, higher average coupons and warrants tied to a recovery in Ukraine's shrinking economy.
Stocks
Securing an even bigger U.S. footprint, French media giant Altice (OTCPK:ATCEY) has confirmed it will buy Cablevision (NYSE:CVC) for an enterprise value of $17.7B, or $34.90/share in cash (a 22% premium to Wednesday's closing price). "Together both operators represent the fourth-largest cable operation in the U.S. market," the companies said in a statement. In May, Altice's brash chief Patrick Drahi scooped up U.S. cable firm Suddenlink for $9.1B after ditching a run at Time Warner (NYSE:TWC).
U.S. startup Lyft has formed an alliance with China's pre-eminent ride-hailing service, Didi Kuaidi, by creating an international car-hailing company to compete against Uber (Pending:UBER). While traveling to each other's countries, users will be able to hail rides from drivers of the other app, but pay for the service in their native currency. Other ride-sharing news: France's BlaBlaCar, which is already present across Europe, Russia and India, has closed a new funding round at a valuation of about $1.5B.
SAP expects its chief executive, Bill McDermott, to return to the software maker's headquarters in Germany early next month after he lost an eye in an accident while visiting relatives in the U.S. SAP (NYSE:SAP) had previously disclosed McDermott's injury, but not its severity. A company representative said McDermott nearly bled to death after falling down a flight of stairs while carrying a water glass at night.
General Motors has agreed to pay $900M and sign a deferred-prosecution agreement to end a U.S. government investigation into its handling of an ignition-switch defect linked to 124 deaths, Reuters reports. The deal means GM (NYSE:GM) will be charged criminally with hiding the defect from regulators and defrauding consumers, however, the charges will be put on hold while the automaker fulfills the terms of its settlement. Individuals are also not expected to be charged in the criminal suit.
The beer industry is calling it "Megabrew" - or the potential $275B merger between Anheuser-Busch InBev (NYSE:BUD) and SABMiller (OTCPK:SBMRY). Word that SABMiller would receive an offer from its bigger rival triggered a beer stock rally yesterday, on hopes the potential takeover would prompt a number of follow-on deals as the two shed assets to win regulatory backing. Separate from those approvals, Anheuser-Busch InBev must also win over a number of important players. Among them are two of SABMiller's biggest investors: Altria (NYSE:MO) and the Santo Domingos, one of the wealthiest families in Colombia.
Under Armour capped off its 2015 investor day on Wednesday by announcing an extension to its sponsorship deal with Stephen Curry through 2024, and granting last year's NBA MVP an equity stake. Shares rose 4.8% in regular trading after Under Armour (NYSE:UA) used the conference to set a $7.5B 2018 revenue target, a figure that implies a 25% compound annual growth rate from 2014-2018.
Australia's antitrust regulator has deferred a decision again on Royal Dutch Shell's (RDS.ARDS.B) proposed $70B takeover of BG Group (OTCQX:BRGYY), this time until Nov. 12, warning the deal could raise prices and cut the supply of natural gas to consumers on the east coast of Australia. The takeover has already been cleared by the European Commission, U.S. and Brazilian antitrust authorities, but still needs approvals from Australia's Foreign Investment Review Board and China to go ahead.
Amid a flurry of divestments, General Electric (NYSE:GE) has no intent to split off any (significant) parts of its healthcare business, despite questions about whether the division fits its new model any more than finance assets. "Bottom line is we have been black and white that all aspects of healthcare are part of our portfolio," GE Healthcare CEO John Flannery told a Morgan Stanley investor conference. GE Healthcare, whose products include diagnostic and imaging equipment, has reported flat revenue and profit over the past few years.
Saying the deal was unlikely to hurt competition, the Justice Department has granted antitrust clearance to Expedia's (NASDAQ:EXPE) $1.3B takeover of rival Orbitz Worldwide (NYSE:OWW). The department had investigated how the merger might affect the commissions Expedia and Orbitz negotiate with airlines, car rental companies and hotels and explored new charges to consumers.
Back from the dead? Google (GOOGGOOGL) seems to have resurrected its troubled Glass connected eyewear project, now called Project Aura, by hiring engineers and software developers from Amazon's (NASDAQ:AMZN) Lab126 R&D unit. According to Business Insider, Aura will remain within Google rather than Alphabet to collaborate more closely with advanced technology efforts and develop other wearables. Google stopped selling the initial $1,500 version of Glass to consumers in January following waning interest, criticism over its price and privacy concerns.
Wednesday's Key Earnings
FedEx (NYSE:FDX-3% after cutting its full-year profit outlook.
Oracle (NYSE:ORCL-2.4% AH on soft FQ2 guidance.
Today's Markets 
In Asia, Japan +1.4% to 18432. Hong Kong -0.5% to 21855. China -2.1% to 3086. India closed.
In Europe, at midday, London -0.3%. Paris +0.1%. Frankfurt +0.2%.
Futures at 6:20, Dow -0.2%. S&P -0.2%. Nasdaq -0.2%. Crude -1.4% to $46.50. Gold -0.1% to $1117.40.
Ten-year Treasury Yield -2 bps to 2.27%
Today's Economic Calendar
Companies reporting earnings today

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