Wall Street Breakfast: Must-Know News 171213
Rajesh Desai
Top Stories
World markets tilt lower ahead of FOMC meeting. Global stock markets were predominantly flat-to-lower at the time of writing as investors awaited the outcome of a two-day FOMC meeting today and tomorrow. The main question is whether the Fed will decide to start tapering. A budget deal in Congress and solid economic data suggest that the chances have gone up, although Rockwell Capital's Peter Cardillo is unworried. "The economy is on a roll, and tapering is not a concern for the market any more," Cardillo says.
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Budget deal looks to have the votes in the Senate. The budget agreement that the House has overwhelmingly passed appears to have the necessary support to withstand a filibuster attempt in the Senate, the Washington Post reports. That means at least five Republicans will join the (presumably) 55 Democrats voting in favor of the measures.
Boeing approves $10B in buybacks, hikes dividend. Boeing's (BA) board has authorized $10B in additional stock repurchases and a 50% rise in the company's dividend to $0.73 a share. The move reflects "sustained, strong operational performance, increasing cash flow, and confidence in the future," CEO Jim McNerney said.
Top Stock News
Judge orders companies to pay $1.1B in lead paint ruling. Superior Court Judge James Kleinberg has tentatively ordered Sherwin-Williams (SHW), NL Industries (NL) and ConAgra (CAG) to pay $1.1B to replace or contain lead paint in millions of homes in California. However, Kleinberg dismissed the claims against two other defendants, BP (BP) unit Atlantic Richfield and DuPont (DD). The case was brought by 10 city and county governments in California that argued that the lead - which dates back to the 1970s and earlier - is harmful to children.
Facebook set to launch video ads. Facebook (FB) will reportedly announce the launch of video advertisements today and will start introducing them into users' newsfeeds on Thursday. It's not clear how much the commercials will cost, although a figure of $2M a day to reach all Facebook members aged 18-54 has been bandied about. A major question is whether there will be a user backlash - the ads will play automatically, which some people might find exceptionally annoying.
Banks could face tougher stress tests next year. The Fed intends to use its own estimates about the effect of a recession on bank balance sheets in its stress tests in 2014. Previously, the Fed has relied on data from the firms themselves. The central bank could project that bank assets would grow during a slump, as has happened in the past three recessions, rather than fall, as the banks have predicted. With such a finding, the Fed could require banks to hold more loss-absorbing capital or limit shareholder payouts.
BP-led group to invest $45B to pipe gas to Europe. A consortium led by BP (BP) has signed a $45B deal to expand a natural-gas project at Azerbaijan's Shah Deniz field in the Caspian Sea and pipe the gas to Italy via Turkey, Greece and Albania. Output from the reserve, which holds an estimated 1.2T cubic meters of gas, is projected to increase by 16B cubic meters a year and enable Europe to reduce its reliance on Russia. Other companies in the group include Norway’s Statoil (STO) and Total (TOT).
KKR to purchase KKR Financial for $2.6B. KKR (KKR) has agreed to acquire KKR Financial (KFN) in an all-stock deal valued at $2.6B. The offer is also worth $12.79 a share, based on KKR's finish yesterday of $25.08, or a 35% premium to KKR Financial's close. The transaction is expected to be accretive to the size of KKR's distribution per unit, as well as to the predictable and recurring component of future payouts.
Top Economic & Other News
Inflation seen edging up. While the FOMC members settle in for their two day meeting this morning, U.S. inflation data for November is due to be released. Economists expect that CPI rose 0.1% on month after declining 0.1% in October. On year, inflation is seen increasing to 1.3% from 1%, while core inflation is projected to be unchanged at 1.7%.
German investor confidence hits seven-year high. The German ZEW survey of investor confidence has climbed to its highest since April 2006 in December, surging to 62 from 54.6 in November and topping consensus of 55. The current situation print also increased, as did sentiment for the eurozone. "Despite rather disappointing economic data released recently, the financial-market experts expect the economic development in Germany and the eurozone to improve further in 2014," said ZEW President Clemens Fuest.
Eurozone CPI falls on month, rises on year. As expected, Eurozone inflation increased to 0.9% on year in November from 0.7% in October, thereby edging back up towards the ECB's target of just under 2%. That could still give the bank room to further loosen policy in order to boost the bloc's fragile economy if it wants to.
Alpha-Rich Stock Movers and Great Calls
1) Investment firm Suhail Capital called Veeva (VEEV) the tech sector's best short on December 3, explaining that frothy underwriter coverage and a much smaller market opportunity than analysts had forecast had left shares overvalued. The stock is -18% to date. Read article »
2) On August 12, Street Smart Investor forecast a double over two years for Sterlite Industries (SSLT), as a difficult merger closed and tailwinds faded away. The share is almost halfway there, now +46.7% since. Read article »
Alpha-Rich Stocks To Watch
1) Perry Ellis (PERY) trades below book value, with its shares depressed by unwarranted concerns over margins. Intangible Valuation says numerous catalysts should create 50% upside. Read article »
2) Alpha Gen Capital says IDT Corporation (IDT) has made an impressive recovery from the brink, but a sum-of-the-parts analysis shows there's much more room for shares to run. Read article »
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Today's Markets:
In Asia, Japan +0.8% to 15279. Hong Kong -0.2% to 23069. China -0.45% to 2151. India -0.2% to 20612.
In Europe, at midday, London -0.3%. Paris -0.8%. Frankfurt -0.3%.
Futures at 6:20: Dow flat. S&P flat. Nasdaq flat. Crude -0.2% to $97.29. Gold -0.6% to $1237.
Ten-year Treasury Yield -1 bps to 2.87%
Today's economic calendar:
FOMC meeting begins
7:45 ICSC Retail Store Sales
8:30 Consumer Price Index
8:30 Current Account
8:55 Redbook Chain Store Sales
10:00 NAHB Housing Market Index
1:00 PM Results of $35B, 5-Year Note Auction
Notable earnings before today's open: FDS, SAFM
Notable earnings after today's close: HEI, JBL, PAY
CA. Rajesh Desai