Top Reads for Monday 4/11/16
News and more
Economy
The U.S. Federal Reserve will conduct a closed meeting this morning "under expedited procedures" during which the Board of Governors will review and determine advance and discount rates charged by the Fed banks. The event is notable because the last time such a gathering took place was on November 21, less than a month before the central bank's historic rate hike. President Obama is also scheduled to meet with Fed Chair Janet Yellen later this afternoon to discuss the economy and Wall Street reform.
Negative interest rates have helped boost demand and support stable prices by supplementing conventional monetary stimulus, senior officials at the International Monetary Fund said in a paper. The report comes ahead of the IMF's annual spring meetings this week in Washington, D.C. Six of the world's central banks have so far introduced negative rates, most notably the ECB and BOJ, and around a quarter of the world economy by output is now experiencing official rates that are less than zero.
Texas Senator Ted Cruz and Vermont Senator Bernie Sanders scored more victories over the weekend, taking shots at front-runners Donald Trump and Hillary Clinton, and extending an increasingly bitter nomination fight. Although the two states only offer a handful of delegates, and won't give Sanders extra ground (due to an evenly split caucus), the contests play a pivotal role in candidates' momentum ahead of the important New York primaries later this month.
Chinese consumer inflation came in a little under forecast in March, prompting speculation that further stimulus measures may be needed in the world's second largest economy. The consumer price index last month advanced 2.3% Y/Y, compared to analyst estimates for a 2.5% rise, while consumer inflation dropped 0.4% M/M. The producer price index, meanwhile, fell on-year for the 49th consecutive month, down 4.3%, but at a slower rate of decline than in February.
The recent G20 agreement to avoid competitive currency devaluation does not mean Japan can't intervene in response to the one-sided moves of the yen, according to Chief Cabinet Secretary Yoshihide Suga. "What the G20 is talking about is arbitrary intervention, which is different from responding to a one-sided move." The dollar hit a fresh 17-month low versus the yen last week on expectations that the U.S. Federal Reserve would raise interest rates very slowly.
Seeking to repair the damage from questions about his personal finances, U.K. Prime Minister David Cameron is creating a new task force to tackle tax avoidance, and will address MPs today on how he plans to investigate claims in the Panama Papers. Cameron published his tax records on Sunday to defuse criticism and clear his name in the Panama leak, in which his late father was mentioned for setting up an offshore fund.
Geopolitical tensions across the globe: Iranian Foreign Minister Mohammad Javad Zarif declared the country's missile program is not up for negotiation with the United States. The U.N. special envoy for Yemen welcomed the start of a tentative truce in the country's year-old conflict, but warned that peace talks due to start later this month would require difficult compromises for all sides. North Korea said it successfully tested a "long-range" engine designed for an ICBM that would "guarantee" an eventual nuclear strike on the U.S. mainland.
Ukrainian Prime Minister Arseniy Yatsenyuk has resigned following weeks of pressure, paving the way for a government revamp seeking to end the nation's worst political crisis in two years and resume a $17.5B bailout. His decision leaves parliament with 30 days to form a new coalition, while Ukrainians and the nation's foreign backers lose patience over delays in fighting corruption and modernizing the economy.
Puerto Rico Governor Alejandro Garcia Padilla declared an emergency at the island's Government Development Bank on Saturday, suspending lending power and freezing most withdrawals as the institution struggles to avoid default on a crucial May 1 debt payment. The executive order follows the signing of a law this week that takes steps to avoid receivership at the GDB, the territory's primary fiscal agent, and prevent a run on the bank.
Investor interest in Argentina's new bond offering has reached a zenith as the nation, sidelined from global debt markets since its 2001 default, launches a five-day marketing tour across the U.S and U.K. According to sources, Argentina will cap the offering at $15B across 5-, 10- and 30-year tenures; the bonds are expected to come to market as early as April 18.
Stocks
The parent company of British newspaper and tabloid site, Daily Mail, is in talks with private-equity firms about a possible offer for Yahoo (NASDAQ:YHOO), WSJ reports. A bid is likely to take one of two forms: 1) A PE partner would acquire Yahoo's core business, with the Mail taking over news/media properties, or 2) The PE firm would acquire Yahoo's core business and merge its media/news properties with the Mail's online operations. YHOO +1.4% premarket.
SAP Chief Executive Bill McDermott has 'perfect and clear confidence' Europe's largest software company will meet its full year targets despite warning on Friday that Q1 results will be weaker than expected. Sales of software licenses to corporate clients, particularly in Brazil and the U.S., fell 13% during the period, as business customers continue to shift to cloud-based software instead of older software packages. SAP +1.5% premarket.
Admitting the Priv's price was too high, BlackBerry (NASDAQ:BBRY) CEO John Chen told The National that the company will launch two mid-range Android handsets this year - one with a physical keyboard and one with a full touchscreen. "The fact that we came out with a high end phone [as our first Android device] was probably not as wise as it should have been." While the handset division has shown some recent signs of improvement, Chen said he would still exit the segment if it cannot achieve profitability.
Wells Fargo has reached a deal to pay $1.2B to the Federal Housing Administration, in what is now the biggest recovery for loan origination violations in FHA history. According to the settlement, which covers the 2000-2010 period, Wells Fargo (NYSE:WFC) "admits, acknowledges, and accepts responsibility" for having falsely certified many of its home loans and for failing to file timely reports that had material defects or were badly underwritten.
Looking to pare its balance sheet after booking record impairments, Standard Chartered (OTCPK:SCBFF) is seeking to sell major assets in Asia, Bloomberg reports. The London-based bank is speaking with potential buyers for about $1.4B of stressed loans made to Indian firms including GMR Infrastructure (OTC:GMQRY), and has started a sale of around $3B of assets across the rest of the region. Those assets include loans as well as proprietary bond and equity investments in China, Indonesia and Malaysia.
Annaly Capital Management has announced a definitive merger agreement with Hatteras Financial (NYSE:HTS), which values the latter at $15.85 per share, or $1.5B. "With the acquisition of Hatteras, we significantly grow our diversified portfolio and broaden our investment options, further fortifying Annaly's (NYSE:NLY) position as the market leading mortgage REIT," commented CEO Kevin Keyes. The transaction has been unanimously approved by the boards of both companies.
In a world of barely visible interest rates, it pays to borrow, rather than invest, Bill Gross told Barron's. One way to do that is to speculate in merger-arbitrage plays where the acquiring company does the borrowing for you - think Berkshire Hathaway's (BRK.A, BRK.B) purchase of Precision Castparts last year or the current AB InBev (NYSE:BUD) bid for SABMiller (OTCPK:SBMRY) - both of which Gross' Janus Unconstrained Bond Fund (MUTF:JUCAX) were/are in. Other ways include closed-end funds which borrow and lever assets and mortgage REITs.
Is Italy finally fixing its banks? Treasury and central bank authorities will meet with the country's largest lenders later today, to firm up plans on a fund to tackle bad loans. Although the details remain under discussion, it foresees the establishment of a private vehicle that will include upwards of €5B in equity contributions, and a larger debt component. The backstop fund will mop up shares in distressed lenders, while a second vehicle will seek to buy non-performing loans at market prices.
Opposition is growing in Germany to Deutsche Boerse's (OTCPK:DBOEY) planned $20B tie-up with London Stock Exchange (OTCPK:LDNXF), amid mounting concerns about the merged entity if Britain votes to leave the EU. Many want the exchange to be headquartered in Frankfurt instead, to reflect Deutsche Borse's larger market capitalization, as well as the city's status as home to the ECB and center of the euro's settlement, clearing and payments.
More trouble at Valeant Pharmaceuticals... A Senate committee may soon start contempt proceedings against the drugmaker's chief executive. "Michael Pearson was under subpoena to appear for a deposition related to the Senate Special Committee on Aging's drug pricing investigation, and he did not comply with that subpoena," Senators Susan Collins and Claire McCaskill said in a statement. "It is our intent to initiate contempt proceedings against him." VRX unchanged premarket.
France and Germany have joined Britain in suspending export credit facilities for Airbus (OTCPK:EADSY) jet deliveries, expanding the fallout from a potential U.K. corruption probe. Last week, the Serious Fraud Office said it found anomalies in Airbus' declaration of overseas agents. The move leaves both the world's largest planemakers facing paralysis over government export financing, as Congressional delays leave the U.S. Export Import bank unable to support Boeing (NYSE:BA).
An experiment in which self-driving trucks crossed Europe has paved the way for adoption of the technology ahead of a crucial meeting of EU transport ministers this week. Six European truck companies - Volvo (OTCPK:VOLVF), Scania (OTC:SVKBF), Daimler (OTCPK:DDAIF), Iveco, DAF and MAN - took part in the project, in which they drove in connected convoys along highways. The technique, known as "platooning," permits trucks to communicate via wireless technology, allowing them to brake and accelerate together.
Volkswagen CEO Matthias Mueller will likely push for a significant reduction in bonuses for the automaker's management board today, sources told Reuters. The proposal follows criticism from the state of Lower Saxony, one of VW's (OTCPK:VLKAY) major shareholders, about intentions to pay extras while the company grapples with its diesel emissions crisis and prepares to slash costs elsewhere. How much of a cut is being discussed? According to Germany's Bild am Sonntag, Mueller will ask board members to accept a voluntary bonus reduction of about 30%.
After four failed attempts, SpaceX (Private:SPACE) has finally landed its Falcon 9 rocket on a drone ship at sea. The success is a crucial milestone, as it shows the company can land its rockets both on solid ground and the ocean. SpaceX hopes to recover as many rockets as possible to cut down on cost of creating new vehicles. The Falcon 9 costs $60M to make and $200K to fuel.
TransCanada has received authorization from the Pipeline and Hazardous Materials Safety Administration to restart the 590K barrel per day Keystone crude pipeline at reduced pressure. The channel, which delivers light and heavy crude from Hardisty, Alberta, to Cushing, Oklahoma, and Illinois, was shut last Saturday after TransCanada (NYSE:TRP) discovered a tube leak in South Dakota.
BP will face further pay plan opposition at its annual meeting on Thursday after British shareholder advisory group ShareSoc joined a chorus of shareholders objecting to CEO Bob Dudley's $19.6M compensation package for 2015. "We consider the pay of the CEO to be simply too high, in a year when the company suffered a record loss of $6.4B. Even so his pay went up by 20%," the group said, adding that the compensation package was partly due to BP's "excessively complex" remuneration scheme.
Today's Markets
In Asia, Japan -0.4% to 15751. Hong Kong +0.4% to 20441. China +1.6% to 3034. India +1.4% to 25022.
In Europe, at midday, London flat. Paris +0.7%. Frankfurt +1.3%.
Futures at 6:20, Dow +0.3%. S&P +0.3%. Nasdaq +0.3%. Crude -0.6% to $39.49. Gold +0.6% to $1251.30.
Ten-year Treasury Yield +1 bps to 1.73%