Thursday, March 24, 2016

Wall Street Breakfast: Stocks Slide Along With Commodities As Dollar Rises

 Includes: AAPL, CHTR, EXC, KBH, POM, PYPL, QQQ, SBUX, SPY, TSL
U.S. futures are lower alongside a dip in global stocks. The dollar is notably strong and commodities weak after a series of hawkish Fed speakers in the days since last week's FOMC meeting. Shanghai and Tokyo closed in the red overnight, and Europe is down more than 1% at midday. U.S. stock index futures are off by about 0.4% across the board.
Economy
One of this week's Brussels suicide bombers was detained last summer by Turkish authorities near the Syrian border on suspicion of being an Islamic State fighter. When Belgian authorities couldn't establish a link to terrorist groups, he was deported to the Netherlands at his request and allowed to go free. "Despite our warnings that this person is a foreign terrorist fighter, Belgium wasn't able to make the terrorism connection," says Turkish President Erdogan. "At that time, he wasn't known to Belgian authorities for terrorism, but only criminal acts," says Belgian Justice Minister Koen Geens.
The Fed last week may have slashed its expectation for rate hikes this year by 50 basis points, but public comments since have taken a more hawkish tone. The latest was yesterday, with St. Louis Fed President Jim Bullard suggesting April could work for the next boost in interest rates. The dollar moved nicely higher, and gold sharply lower, with the metal falling to about its worst price in a month. It's off another $8 per ounce this morning to $1,217.
The Rockefeller Family Fund said it's dropping fossil fuel companies from its stock portfolio, including Exxon Mobil (NYSE:XOM), the successor company to John D. Rockefeller's Standard Oil. "There is no sane rationale for companies to continue to explore for new sources of hydrocarbons," says the fund, adding that Exxon's conduct on climate issues appears to be "morally reprehensible."
Brazilian stocks tumbled yesterday after construction giant Odebrecht agreed to cooperate with corruption investigators in exchange for leniency. Eurasia Group says the plea deal is an important signpost potentially incriminating President Dilma Rousseff, and now expects impeachment within weeks. The Economist doubts Rousseff can survive past next month, noting the appointment of former President Lula as chief of staff "put the interest of her political tribe above the rule of law."
Stocks
Activist investor Starboard plans to announce this morning its intention to nominate nine directors to Yahoo's (NASDAQ:YHOO) board, following through on its threat to shake up the board. Starboard says the board and management have continually failed to live up to their own promises, and shouldn't be trusted with the decision on whether or not Yahoo should remain an independent company. A win by Starboard in a vote likely to take place a few months from now would boost the chances of the company being broken up as the investor has warned "turning around this business is extremely difficult," and believes credible buyers for Yahoo's core operations are out there.
Apple has been telling companies that Apple Pay (NASDAQ:AAPL) will be available later this year on sites accessed via the Safari browser on iPhones/iPads containing a TouchID fingerprint sensor, reports Re/code. Online payments leader PayPal (NASDAQ:PYPL) fell 1.2% in after hours action. The company handled $20B worth of mobile transactions last year (+45% Y/Y, and 25% of total volume), and has seen its One Touch mobile payment solution adopted by over half of the top 500 online retailers.
After easily beating earnings estimates for the quarter ended February 29, homebuilder KB Home (NYSE:KBH) shot higher in after hours trading. Housing revenue jumped 28% from a year ago, with deliveries up 23% and the average selling price higher by 5%. Margins gained 120 basis points to 20.7%. The company's ending backlog was up 22% in homes and 29% in value.
A month after sparking an uproar by announcing loyalty program stars will be linked to how much users spend (rather than transaction count), Starbucks (NASDAQ:SBUX) has attempted to soften the blow by unveiling a reloadable Visa prepaid card that lets users earn stars nearly anywhere Visa is accepted. The announcement was one of several made in tandem with the company's annual meeting. Also disclosed was the intention to bring Teavana's offerings to Starbucks stores in EMEA and Asia-Pacific by the end of September.
After word last week that a draft order was close, the FCC is not expected to act this week on Charter Communications' (NASDAQ:CHTR) bid to acquire Time Warner Cable (NYSE:TWC), according to Reuters. The agency has an informal 180-day "shot clock" expiring on Friday, but has often stated that the public interest outweighs any hewing to the informal timeline. With OKs from shareholders and most states already in place, the merger's fate rests only with the FCC and California.
Tesla's major rally since the February 11 bottom took a pause, with the stock tumbling 5% yesterday amid a downgrade to Sell from S&P Global Market Intelligence. Analyst Efraim Levy acknowledges that Tesla's (NASDAQ:TSLA) sales and earnings are sure to surge this year, but argues it's more than priced into the stock. His $155 price target (vs. Tuesday's close of $234) is 111x his estimate for 2016 EPS and 43x that of 2017. The stock islower by another 2.7% premarket to $216.50.
The D.C. Public Service Commission voted 2-to-1 to approve Exelon's (NYSE:EXC) $27.75 per share purchase of Pepco (NYSE:POM). Previously, the board had twice rejected the deal. The companies already have the other necessary regulatory approvals in pocket. Pepco blasted 26.9% higher on the news.
Wednesday's Key Earnings
KB Home (KBH) +8.5 AH after strong fiscal first quarter.
Today's Markets 
In Asia, Japan -0.6% to 16892. Hong Kong -1.3% to 20346. China -1.6% to 2961. India closed. 
In Europe, at midday, London -1.0%. Paris -1.4%. Frankfurt -1.1%. 
Futures at 6:20, Dow -0.4%. S&P -0.4%. Nasdaq -0.5%. Crude -1.9% to $39.05. Gold -0.5% to $1219. 
Ten-year Treasury Yield flat at 1.87%.

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