World shares are heading into the green (Asia closed lower overnight) despite shaky commodity markets, a junk-bond selloff and a likely Fed rate hike tomorrow. Gold hit six-year lows yesterday and oil fell below $35/bbl, but both are now bouncing higher. The high-yield bond market also plunged drastically due to its ties to crude prices. A Fed rate hike on Wednesday would be the first increase in nearly a decade, and is viewed as a first step toward normalizing monetary policy and a broader U.S. economic recovery.
Economy
Analysts are all weighing in on the rocky high-yield bond sector, with some saying it "marks the start of a new trend" or could lead to a "contagion effect" of defaults, while others maintain its "overdone" and "illiquidity" could clear up soon. How did it all start? The junk bond bear has been growling since mid-2014, but the real panic started last week when investment firm Third Avenue Management froze investor withdrawals from its nearly $1B high-yield bond fund (MUTF:TFCVX) and subsequently fired its CEO. Uncertainty also persists ahead of the FOMC's policy decision on Wednesday.
U.K. inflation edged back above zero in November for the first time in four months, a move that still leaves the rate a long way from the Bank of England's target. Returning to positive territory, consumer price inflation rose 0.1% last month from October's reading of -0.1%. The central bank still expects price growth to be below 1% until the second half of next year and only reach its 2% goal in late 2017.
Sweden's central bank kept its key lending rate unchanged at a record-low of -0.35% today and refrained from boosting its bond purchasing program in a bet that a surge in growth will propel the economy out of three years of zero inflation. "Developments in the Swedish economy have been somewhat stronger than expected, while uncertainty remains globally," the bank said. "There has been an upward trend in inflation since last year, but it is not yet on a firm footing." The Riksbank's outlook for rates to first rise in early 2017 was also kept unchanged.
The European Union has delayed a decision on whether to renew sanctions against Russia, after Italy insisted that more discussion was needed. The failure to continue the sanctions for another six months from January indicates cracks in the bloc's stance against Russian aggression in Ukraine. It could also push the issue to the agenda of a summit meeting of Europe's leaders later this week.
Saudi Arabia has announced the formation of a 34-state Islamic military coalition to combat terrorism, according to a joint statement published on state news agency SPA. A long list of countries including Egypt, Qatar, and the United Arab Emirates were mentioned, although Iran was absent from the participants. Separately, a cease-fire between another Saudi-led coalition and Houthi rebels in Yemen will go into effect today, looking to halt nine months of war as U.N.-backed peace talks begin in Switzerland.
Following a two-year hiatus, Turkey and the European Union have reignited membership talks in Brussels, a step that would pave the way for it to adopt the euro if and when it joins the 28-nation bloc. "We are committed to doing whatever it takes to become a full EU member," Turkish Deputy Prime Minister Mehmet Simsek told reporters. The discussions were revived after Turkey pledged to stem the flow of refugees through its borders instead of pointing them toward western Europe.
Puerto Rico's unpopular governor Alejandro Garcia Padilla has declared that he won't seek a second four-year term in next November’s election, as he turns his attention to solving the island's $72B debt crisis. The territory narrowly avoided default earlier this month, but owes $332M in constitutionally-guaranteed debt on January 1.
Stocks
Lumber Liquidators surged 21.6% in extended-hours trading yesterday after hedge-fund manager Whitney Tilson said he had covered his short position. "In the past week, I've received information that leads me to believe that senior management of Lumber Liquidators (NYSE:LL) wasn't aware that the company was selling Chinese-made laminate that had high levels of formaldehyde...If there are no 'smoking gun' documents/emails, then the doomsday scenario for the company (and the stock) is less likely."
Drone owners will have to register their devices starting next week under new FAA rules aimed at controlling the sharp increase of unmanned aircraft in U.S. skies. After signing up their device, operators will receive a unique user number that they must attach to or write on any machines they own. Registration is seen as the latest step in the drone industry's transition from a hobbyist community to a mass-market commercial industry. Related stocks:AMBA, AVAV, OTCQB:DRNE, GPRO, INVN, IXYS, TRMB
European policy makers are scheduled to meet today to complete long-awaited data protection rules aimed at giving people across the region a greater say over how corporations use their personal data. The overhaul will also force tech giants like Alphabet (GOOG, GOOGL) and Facebook (NASDAQ:FB) to report data breaches or face stiff sanctions, and aims to make doing business across the EU easier by subjecting companies to just one regulator, in whatever country they have their European headquarters.
After scooping up its European P-E financing business in June, Sumitomo Mitsui Financial Group (NYSE:SMFG) has agreed to buy General Electric's (NYSE:GE) Japanese leasing business for $4.8B. The deal is part of the conglomerate's plan to sell off about $200B of GE Capital assets (a move it hopes to largely complete by end-2016), as it distances itself from finance to focus on its industrial roots.
Yahoo Japan is offering to take over travel website Ikyu Corp. (OTC:IKYCF) for around ¥100B ($828M), as the e-commerce company looks to expand its travel and restaurant reservation business. The move comes as the U.S.-based Yahoo (NASDAQ:YHOO), which is still establishing its New Year's resolution, considers what to do with its $8.5B stake in Yahoo Japan (OTCPK:YAHOY), and explores options for its core business and Alibaba (NYSE:BABA) holdings.
The Force Awakens, the first film from Disney (NYSE:DIS) in the Star Warsseries, will debut in more than 4,100 theaters this weekend, a record number for a December opening. BoxOffice.com is forecasting $223M in U.S. and Canadian ticket sales in the first weekend, topping Jurassic World from Universal Pictures (NASDAQ:CMCSA), which brought in $208.8M in its debut weekend in June.
Sanofi has entered exclusive negotiations with Boehringer Ingelheim on a possible exchange of its animal health business for the German group's consumer health operation. Since the Sanofi (NYSE:SNY) division is valued at €11.4B and Boehringer's at €6.7B, the latter would pay the French drugmaker €4.7B as part of the deal, but Boehringer's Chinese consumer healthcare unit would be excluded from the transaction.
He did it again...Carl Icahn has boosted his stake in Xerox (NYSE:XRX) to 8.13%, putting his ownership at 83.31M shares of an outstanding 1.012B. Icahn disclosed a 7.13% stake late last month along with statements that he intended to talk performance with management, including strategic alternatives. The investment made the activist the company's No. 2 shareholder. XRX +0.6% premarket.
Boeing climbed 1% after-hours following a move to bump its dividend 20% to $1.09 per share, and an increase in its repurchase authorization to $14B total. Some $5.25B had remained on the company's prior buyback authorization, which was for $12B last December. The dividend increase marks the fifth straight year Boeing (NYSE:BA) committed to a raise.
After settling a dispute with the French government over the balance of power in their car-making partnership, Renault (OTCPK:RNLSY) and Nissan (OTCPK:NSANY) will step up integration without moving toward a full merger. "I don't think we're ready," alliance chief Carlos Ghosn told reporters. "Yeah, I know the markets want a merger. It's not only about the market. It's about the sustainability of what we're doing."
According to the Association of European Carmakers, European car sales rose 13.7% in November, with U.S. brands recording strong gains, but Volkswagen (OTCPK:VLKAY) continued to pay the price of its diesel emissions test-rigging scandal. VW saw its core brand market share tumble to 12.2% from 13.5%, as sales edged just 3.1% higher, underperforming the market. The German group as a whole posted a 3.9% gain.
Seattle has become the first city to give Uber (Pending:UBER) and Lyft (Pending:LYFT) drivers the right to unionize. The decision comes ahead of a June 2016 California trial for a class-action suit regarding the status of drivers as independent contractors or full-fledged employees. Meanwhile, Uber has also begun testing UberHop, a service through which multiple Uber riders going along the same route are paired with the same driver at pre-determined locations. The company is also testing Commute, a service that allows commuters looking to pick up fares to and from work to share their routes.
Today's Markets
In Asia, Japan -1.7% to 18566. Hong Kong -0.2% to 21274. China -0.3% to 3510. India +0.7% to 25320.
In Europe, at midday, London +1.7%. Paris +2.3%. Frankfurt +2.2%.
Futures at 6:20, Dow +0.8%. S&P +0.8%. Nasdaq +0.7%. Crude +1.4% to $36.83. Gold +0.2% to $1065.
Ten-year Treasury Yield +1 bps to 2.23%
Today's Economic CalendarIn Europe, at midday, London +1.7%. Paris +2.3%. Frankfurt +2.2%.
Futures at 6:20, Dow +0.8%. S&P +0.8%. Nasdaq +0.7%. Crude +1.4% to $36.83. Gold +0.2% to $1065.
Ten-year Treasury Yield +1 bps to 2.23%
FOMC meeting begins
8:30 Consumer Price Index
8:30 Empire State Mfg Survey
8:55 Redbook Chain Store Sales
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital
Companies reporting earnings today8:30 Consumer Price Index
8:30 Empire State Mfg Survey
8:55 Redbook Chain Store Sales
10:00 NAHB Housing Market Index
4:00 PM Treasury International Capital
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