Tuesday, December 29, 2015

Wall Street Breakfast: Santa Claus Rally Not Off The Table Yet


Although stocks fell Thursday and declined again Monday, equities look likely to open today's session with gains, suggesting a so-called Santa Claus rally may still be in the cards. The rally is the tendency for stocks to rise over the last five trading sessions of December and the first two sessions of January. Three new reports this morning will also indicate how the U.S. economy performed in the final months of 2015, including international trade data, S&P/Case-Shiller home prices and the consumer confidence index. U.S. futures: Dow +0.5%, S&P +0.4%, Nasdaq +0.5%
Economy
What about the global economic view for 2016? Investor anxiety is definitely growing around the world, but the question is will it also hit the United States. Japan's faith in the radical reforms of Abenomics is failing, while China's growth is slowing. Latin America is also a mess - from Brazil's massive corruption scandal to Argentina's efforts to turn around its government. The mood doesn't get better in Europe, as the continent faces an economic and refugee crisis, and Britain threatens to leave the EU. On the political and security front, the implosion of the Middle East continues.
Saudi Arabia's stock market dropped 3% in the first 15 minutes of trade today after the country unveiled a 2016 budget - the first under King Salman - that included measures to cope with a new era of cheap crude prices. The plan will see heavy spending cuts, tax increases, and rises in fuel, gas feedstock and electricity. Saudi officials said the government ran a record deficit of nearly 367B Saudi riyals ($98B) this year, or about 15% of gross domestic product.
A ship loaded with more than 25K pounds of low-enriched uranium has left Iran for Russia as part of a deal aimed to limit Tehran's nuclear program. In a statement, Secretary of State John Kerry said the move was "one of the most significant steps" in fulfilling last summer's nuclear accord, and it may be only weeks before the agreement takes effect. On "Implementation Day," roughly $100B in Iranian assets will be unfrozen, and the country will be free to sell oil on world markets and operate in the global financial system.
The federal government is trying to get taxpayers off the hook for billions of dollars of potential losses if another mortgage crisis arrives - and in the process, it's quietly giving birth to a new asset class. Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) next year plan to ramp up sales of new types of securities (called Connecticut Avenue Securities and Structured Agency Credit Risk) that in effect transfer potential losses in a housing downturn to private investors. The sales are especially notable because issuances of private-label MBSs, which also give private investors mortgage exposure, are still moribund.
Stocks
It's not only severe weather that hit FedEx (NYSE:FDX) before the holidays. The shipping company is also attributing its delivery failures to volumes that far exceeded all previous records and "unprecedented surge of last-minute e-commerce shipments." UPS seems to have fared way better. The company "completed its deliveries on Christmas Eve, and customer feedback suggests everything was delivered on time," spokesman Glenn Zaccara said by e-mail. Whatever the case may be, both stocks are down year-to-date: FDX -14.5%; UPS -12.8%.
Pep Boys soared 5.1% in extended-hours trading after its board determined activist investor Carl Icahn's latest buyout offer was superior to the deal it accepted from Bridgestone (OTCPK:BRDCY). Icahn Enterprises' (NASDAQ:IEP) latest bid of $18.50 per share values Pep Boys (NYSE:PBY) at about $1B, while Bridgestone's previous offer of $17 per share valued the company at about $947M. The U.S. auto parts retailer has now moved to terminate the Bridgestone agreement.
Intel's $16.7B purchase of chipmaker Altera is likely to be a model for future big acquisitions at the company as the semiconductor industry's merger boom continues, according to Intel's (NASDAQ:INTC) chief deal maker. "We're doing things very differently than we have in the past," Wendell Brooks said, noting that the firm was looking beyond its traditional reliance on in-house development. The Altera (NASDAQ:ALTR) acquisition, for example, is intended to strengthen Intel's position in the data center market and the Internet of Things, as it tries to break its dependence on PCs.


Reeling from a $1.3B accounting scandal, Toshiba (OTCPK:TOSYY) intends to ask for a new ¥300B ($2.5B) credit line to fund a large-scale restructuring, a move that comes on top of a ¥400B commitment line secured in September. Last week, Toshiba had its credit rating downgraded to junk by Moody's, and said it would slash 6,800 consumer electronics jobs, taking total cuts beyond 10,000.
Two of the world's largest technology firms, IBM (NYSE:IBM) and Microsoft (NASDAQ:MSFT), are vying to tap the fast-growing market for forecasting air quality in China. Bouts of smog enveloping Beijing already prompted authorities to declare two unprecedented "red alerts" this month, and while prediction technology won't be able to make the air better, it could be a step toward helping the city's 22M people live with it. IBM and Microsoft's advances in "cognitive computing" can provide predictions for the air quality index up to 10 days in advance using data on weather, traffic and factory use.
Remember the massive Hanergy selloff in May that hammered solar stocks? Well, it turns out that the Chinese company is likely worth a fraction of its previous market value. Hanergy (OTC:HNGSF) founder Li Hejun has agreed to sell about 2.5B of his shares - or a roughly 6% stake - to unidentified parties at 0.18 yuan ($0.03)/share, putting the company's market value at approximately $1.16B, down from $21.06B when shares were suspended in Hong Kong. A resumption in trading of Hanergy still "seems infinitely far away," said Ronald Wan, CEO of Partners Capital International.
Adidas isn't facing pressure to trim its portfolio beyond the sale of Rockport and several golf labels, despite the recent arrival of three big activist shareholders, the company's CFO said in an interview with FT. "I've never had a conversation where anyone has given me any pressure about anything," Robin Stalker declared, ruling out a Reebok or TaylorMade sale. Over the course of 2015, U.S. investor Mason Hawkins, Belgium's Albert Frère and Egyptian billionaire Nassef Sawiris have all built stakes in Adidas (OTCQX:ADDYY).
Valeant Pharmaceuticals plunged 10.5% on Monday in response to the company's announcement that CEO Michael Pearson will go on medical leave as he undergoes treatment for a severe case of pneumonia. In his absence, Valeant (NYSE:VRX) has created an Office of the Chief Executive Officer, consisting of General Counsel Robert Chai-Onn, Chairman Ari Kellen and CFO Robert Rosiello, that will serve on an interim basis.
Energy stocks also got battered yesterday as oil sank 3% below $37/barrel, while Brent fell close to 11-year lows. "The pre-Christmas rally in crude has ground to a halt as the countdown to the New Year starts. Iran is gearing up to flood the market...while the ceasefire in Libya may also add extra barrels," said Ole Hansen, the head of commodity strategy at Saxo Bank. Coal, gold, and silver shares also slumped amid the commodity rout.
Whole Foods has agreed to pay $500K to resolve an investigation into whether the supermarket chain charged too much for some foods at its New York City stores. The settlement will also require the company to adhere to standards aimed at preventing overpricing. In June, the Department of Consumer Affairs had announced an investigation into Whole Foods (NASDAQ:WFM) after finding its NYC stores routinely overstated the weight of prepackaged meat, dairy and other goods.
In a move that mirrors promos long offered by rivals, Verizon (NYSE:VZ) is now offering mobile users up to $650 per line to switch from another carrier. Consumers who trade in their current smartphone and buy one on a Verizon payment plan get up to $650 (through a prepaid card) to cover remaining installment balances with another carrier. Big Red reported 1.3M retail postpaid net adds for Q3, including 430K postpaid phone net adds.
Two weeks after the Fed delivered a highly anticipated rate hike, the WSJreports JPMorgan (NYSE:JPM) will up the deposit rates it provides some of its biggest clients. The step will make the lender one of the first major U.S. banks to change its fees post-FOMC. With low rates having squeezed net interest margins for some time, many peers have been hoping to pocket the higher rates charged on account of the Fed's decision.
Today's Markets 
In Asia, Japan +0.6% to 18982. Hong Kong +0.4% to 21999. China +0.9%to 3564. India +0.2% to 26079.
In Europe, at midday, London +0.3%. Paris +1.3%. Frankfurt +1.5%.
Futures at 6:20, Dow +0.5%. S&P +0.4%. Nasdaq +0.5%. Crude +0.4% to $36.97. Gold +0.1% to $1069.30.
Ten-year Treasury Yield +2 bps to 2.24%
Today's Economic Calendar
Companies reporting earnings today
Source:http://seekingalpha.com/article/3780126-wall-street-breakfast-santa-claus-rally-not-off-the-table-yet
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