Thursday, September 3, 2015

Wall Street Breakfast: Markets Rally Ahead Of ECB Policy Meeting


Traders will be listening to announcements from the European Central Bank today, as President Mario Draghi and the governing council gather in Frankfurt to set monetary policy and discuss the state of Europe's economy. Economists expect the inflation forecast to be lowered and for ECB staff to cut their growth outlook amid emerging market concerns and upward pressure on the euro. Draghi is also likely to repeat earlier statements that the central bank is ready to deploy further stimulus measures if needed. Euro flat at $1.1223.
Economy
Eurozone business activity accelerated at its fastest pace in more than four years last month, as output growth increased in both the manufacturing and services sectors. Markit's final August Composite PMI beat an earlier estimate of 54.1, settling at 54.3 - its highest level since May 2011. While the upbeat surveys provide some welcome news for the European Central Bank, they still only point to modest third-quarter GDP growth.
Activity in Japan's services sector expanded at the quickest rate in almost two years in August, despite persistent signs of frailty in Asia's second largest economy. The Markit/Nikkei Japan Services PMI rose to a seasonally adjusted 53.7 from 51.2 in July to reach its highest point since October 2013. The positive services sector reading follows several disappointing figures of Japanese industrial production and household spending.
Chinese markets are closed today and tomorrow due to a giant military parade marking the 70th anniversary of the end of World War II. Presiding over the extravaganza, President Xi Jinping said China would remain committed to "the path of peaceful development" and unexpectedly pledged to slash 300K troops from the country's 2.3M strong military. The cuts, the largest reduction since 1997, will be mostly complete by the end of 2017.
Separately, Russia and China are working on an eastern equivalent to Euroclear's bond, stock and currency settlement services as they seek to boost two-way investment. The move is a response to U.S. and EU sanctions over Ukraine, which has crimped Russia's access to the capital markets. Trading in the yuan-ruble currency pair on Russia's main bourse jumped fourfold in August compared with a year earlier.
Brazil's two-decade rule over the Latin American stock markets is continuing to dwindle as the nation's recession and political crisis deepen and its currency plunges. At one point a few years ago, Brazil's market was four times larger than nearest rival Mexico, but that gap, once as much as $1.1T, is now down to just $133B. Regression analyses of the current pace of declines indicate Brazil's lead could disappear over the next 13 months.
The latest polls out of Greece are showing that the country's upcoming election is too close to call. Former Prime Minister Alexis Tsipras' Syriza party is neck and neck with Greece's main opposition New Democracy, which are both forecast to get about a quarter of the total vote. The figures lower the likelihood of outright majority in the next parliament, meaning Europe's most indebted state could face thorny coalition talks after the ballot.
Stocks
Sony Pictures has reached a settlement with former employees in a lawsuit related to the massive data breach it suffered almost a year ago. The federal lawsuit, which is still pending class-action status, is a combination of seven different cases brought by nearly 50K current and former employees whose personal, financial and medical information were posted online. Additional details about Sony's (NYSE:SNE) settlement are expected to be filed by mid-October.
Toshiba is likely to post a net loss of about ¥10B ($83M) when it discloses its upcoming annual earnings, Yomiuri reports, citing the first figure of how deep the Japanese conglomerate's loss will be. Tarnished by a $1.2B accounting scandal, Toshiba (OTCPK:TOSYY) postponed its annual results for a second time on Monday, citing the discovery of new errors. If the company does not report earnings by September 7, it will become at risk of being delisted.


Twitter's board is scheduled to meet today to discuss the results of the company's CEO search, as investors get impatient for directors to make a decision. Interim CEO Jack Dorsey is still seen as a leading candidate, sources told Bloomberg, although Twitter's (NYSE:TWTR) board has insisted that applicants must make a "full-time commitment" to the job (Dorsey is also CEO of Square). Twitter shares -22% YTD.
Kicking off a new era in American medicine, Novartis (NYSE:NVS) has launched the first "biosimilar" copy of a biotechnology drug approved in the United States, following a green light from a U.S. appeals court. Biosimilars have been on the market in Europe since 2006, but the U.S. regulatory pathway for the drugs was only established by a healthcare reform in 2010. Novartis' Sandoz unit will begin selling Zarxio, a knockoff version of Amgen's (NASDAQ:AMGN) Neupogen that was approved by the FDA in March.
Tesla will begin taking preorders for its smaller and lower cost Model 3 in March at a price of $35,000. Production will start in about two years, Elon Musk announced in a tweet, stating a fully operational Gigafactory will be needed. Tesla (NASDAQ:TSLA) will also begin delivering its first luxury electric crossovers, the Model X Signature series, on September 29. TSLA +2.4%premarket.
Looking to appease shareholders after rejecting a $47B takeover attempt from Monsanto (NYSE:MON), Syngenta (NYSE:SYT) is planning to buy back more than $2B of shares and sell its global vegetable seeds business. "The board and management are determined to accelerate shareholder value creation and our actions today underpin our commitment to do so," Chairman Michel Demare said in a statement. Syngenta's share repurchase program will begin in the coming weeks.
Royal Dutch Shell's proposed $58B merger with BG Group (OTCQX:BRGYY) has received unconditional clearance from the European Commission, the third of five key markets needed to clear the deal. After a brief investigation, the EU's top antitrust regulator concluded that the acquisition would not allow Shell (RDS.A, RDS.B) to influence prices for oil and natural gas, and that the markets would remain competitive after the transaction.
Pimco Total Return saw another $1.8B in net outflows in August, down from $2.5B in July and $3B in June. Total assets under management at the former giant of mutual funds have now fallen below $100B for the first time since 2007 (the fund neared $300B at its peak). As for the performance scorecard, Pimco Total Return's (MUTF:PTTRX) gain YTD is 0.72% vs. the benchmark of 0.45%. It's also outperformed the benchmark over 3-year, 5-year, and 10-year periods, as well as since its inception.
Meanwhile, Bill Ackman has joined a string of high profile hedge fund managers in reporting deep losses for August as global markets tumbled amid fears of slowing growth in China. The firm's Pershing Square Holdings portfoliodropped 9.2%, and is now down 0.1% since January. Last year the fund gained 40%, beating the S&P's 13.7% gain. Other hedge fund losses for August: Greenlight Capital -5.3%; Third Point -5.2%; Jana Partners -4.3%; Viking Global -2.1%; Omega Advisors -6%; Andor Capital -4.5%.
Wednesday's Key Earnings
Costco (NASDAQ:COST) -0.3% AH after comparable-store sales declined.
Today's Markets 
In Asia, Japan +0.5% to 18182. Hong Kong closed. China closed. India+1.2% to 25765.
In Europe, at midday, London +1.6%. Paris +1.4%. Frankfurt +1.7%.
Futures at 6:20, Dow +0.4%. S&P +0.4%. Nasdaq +0.4%. Crude -0.2% to $46.16. Gold -0.3% to $1130.30.
Ten-year Treasury Yield -1 bps to 2.18%
Today's Economic Calendar
Companies reporting earnings today
Source: http://seekingalpha.com/article/3487036-wall-street-breakfast-markets-rally-ahead-of-ecb-policy-meeting
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