Wall Street Breakfast: Crude Nears Fresh Bear Market

Wall Street Breakfast: Crude Nears Fresh Bear Market

Since crude prices hit a year-high above $52 a barrel in June they have slipped almost 20%, leaving them on the cusp of a new bear market. EIA data on Wednesday unexpectedly showed a 1.7M barrel rise in U.S. crude inventories vs. what had been steady declines in previous weeks. “The improvement in oil fundamentals remains fragile and continues to feature large offsetting forces,” Goldman Sachs said in a research note overnight, but predicted oil prices to remain in the $45-$50 range until mid-2017.


The Federal Reserve acknowledged an improving economy at its July meeting, but gave no insight into when it might hike rates, leaving markets guessing about when monetary policy tightening will resume. “December is the base case at this point,” said Mike Baele of U.S. Bank Private Client Reserve, but “given the strong data, a September move is plausible and can’t be ruled out. The Fed left the door open subject to data going forward.”

Barack Obama, Joe Biden, Tim Kaine and Michael Bloomberg took aim at Republican presidential nominee Donald Trump at the DNC Wednesday evening, as the war of words heats up between the major U.S. political parties. Meanwhile, Trump has come under fire for encouraging Russia to release any emails they had stolen from Hillary Clinton and appeared willing to consider recognizing Crimea as Russian territory and lift sanctions against the country.

Atlantic City is likely to default on $3.4M of debt payments on Aug. 1 without an agreement with New Jersey on a $74M bridge loan or other state action, according to Moody’s Investors Service. Although NJ lawmakers approved a loan as part of a rescue package in May for the distressed gaming hub, the terms are still being worked out between the city and state.

Stirring alarm among Ankara’s NATO allies, Turkey’s government has shut down 130 media outlets and sacked more than 1,684 military officers, widening a crackdown almost two weeks after a failed coup. The decree was the second announced under emergency powers. The first, issued last week, closed 2,341 institutions, including private schools, universities, unions, charities and foundations.


Facebook +5.2% premarket after blowing past quarterly earnings and revenue estimates, and easily crushing Wall Street’s predictions for its advertising business – mobile ad revenue hit $5.24B (+81% Y/Y). “We’re… improving the experience for our community by helping them build more relevant and engaging ads,” CEO Mark Zuckerberg said on a conference call. Facebook (NASDAQ:FB) also said it reached 1.17B monthly active users and 1.13B daily active users in June.

Strong sales of its flagship Galaxy S7 propelled Samsung Electronics (OTC:SSNLF) to its most profitable quarter in two years. Net income rose 1.7% from a year earlier to 5.85T Korean won ($5.2B), while operating profit rose 18% to 8.14T won. Samsung anticipates solid earnings to continue in the second half and is expected to unveil its new Galaxy Note smartphone next week before Apple (NASDAQ:AAPL) launches new iPhones in September.

Low oil prices continued to weigh on European oil majors Royal Dutch Shell (RDS.A, RDS.B) and Total (NYSE:TOT) in the second-quarter of 2016. Shell’s current cost of supplies basis attributable to shareholders (excluding identified items) plunged 72% Y/Y to $1.05B, while Total’s adjusted net income fell 30% to $2.2B. Between late May and the middle of June, the price of Brent rose above $50/bbl, but has since come off to trade in the low $40s.

BHP Billiton has doubled its provisions for last year’s Samarco mine disaster and will recognize another charge in the range of $1.1B-$1.3B, when it reports financial results next month. This “demonstrates our support for the long-term recovery of the communities and environment affected by the Samarco tragedy,” BHP’s Andrew Mackenzie declared. In a separate statement, joint operator Vale (NYSE:VALE) said it booked a $1.2B provision.

As part of a restructuring agreement reached in May with key lenders, Halcon Resources (NYSE:HK) has filed for Chapter 11 bankruptcy. The company is seeking court approval for a plan supported by most of its top creditors that would cut its debts by $1.8B and reduce annual interest expenses by $200M. The filing in Delaware federal bankruptcy court lists $3.12B in debt and $2.85B in assets.

In a bid to stave off a Brexit-induced earnings slump, Lloyds (NYSE:LYG) announced plans to cut 3,000 more jobs and £400M of annual expenses, after seeing pretax profit fall to £4.16B in the first half of 2016. The news adds to a mixed picture for U.K. business following the EU referendum on June 23. McDonald’s (NYSE:MCD) said Wednesday it would create 5,000 new British jobs by the end of 2017, while GlaxoSmithKline (NYSE:GSK) vowed to boost investment. LYG -2.7% premarket.

Credit Suisse reported a surprise profit for Q2, as Tidjane Thiam, the bank’s recently appointed chief executive, pressed ahead with a radical overhaul. But net income still fell 84% to 170M Swiss francs ($172M), compared with 1.05B francs in the same period last year. “We are working hard to build a more flexible, resilient and efficient bank,” Thiam said in the statement. “Brexit has no impact yet, honestly. As things clarify, we will adapt.” CS -1.5% premarket.

More earnings: SoftBank (OTCPK:SFTBY) reported an increase in Q1 operating profit as solid returns in its domestic telecommunications business offset losses at Sprint (NYSE:S). Generic competition to cholesterol drug Crestor in the U.S. market pushed second-quarter earnings down by nearly a third at AstraZeneca (NYSE:AZN). Diageo (NYSE:DEO) +3.5% premarket after delivering strong second-half revenue and focusing on protecting its Scotch whisky business in the wake of the Brexit.

U.S. firms operating in Venezuela have escalated the use of an accounting maneuver to insulate themselves from the plunging bolivar and worsening economic crisis in the country that has erased more than $10B in profits over the past 18 months. Colgate-Palmolive (NYSE:CL), Procter & Gamble (NYSE:PG) and PepsiCo (NYSE:PEP) have all begun deconsolidating the financial results of their Venezuelan operations, meaning they can essentially no longer hurt or benefit a U.S. parent company.

Teva Pharmaceutical has won U.S. antitrust approval to purchase Allergan’s (NYSE:AGN) generics business, after agreeing to divest 79 generic drugs to rival firms. According to Teva (NYSE:TEVA), the deal will be 14% accretive to 2017 non-GAAP EPS, increasing to 19% in 2019. The transaction, now valued at approximately $35B, should close next week.

M&A roundup from across the globe: Fresh off a $70M investment from Twitter (NYSE:TWTR), SoundCloud (Private:SOUND) may be putting itself up for sale for as much as $1B. Sony (NYSE:SNE) has agreed to sell a portion of its battery business to Murata Manufacturing (OTCPK:MRAAY) and Asciano’s (OTCPK:AIOYY) $6.8B buyout by a global consortium led by Brookfield Infrastructure (NYSE:BIP) has cleared final antitrust hurdles in Australia, marking the country’s biggest foreign takeover in five years.

The largest publishing event of the summer isn’t a novel or a tell-all biography. It’s a script. Harry Potter and the Cursed Child, the top pre-order for both Amazon (NASDAQ:AMZN) and Barnes & Noble (NYSE:BKS), is slated to hit shelves on Sunday. Scholastic (NASDAQ:SCHL), the U.S. publisher of Rowling’s collaboration with John Tiffany and Jack Thorne, has printed 4.5M copies in North America.

Toyota is in danger of losing its crown as the world’s biggest automaker this year as sales fall behind Volkswagen (OTCPK:VLKAY). Toyota (NYSE:TM), which has held the title for four years running, sold 4.99M vehicles in the six months through June, compared to the 5.12M of VW (despite the German automaker’s emissions scandal). General Motors (NYSE:GM) holds third place with 4.76M vehicles sold in the first half of 2016.

Wednesday’s Key Earnings

Altria (NYSE:MO) -1.7% as smokable products volume declined.
Amgen (NASDAQ:AMGN) flat AH despite raising guidance.
Barrick Gold (NYSE:ABX) -0.4% after missing expectations.
Boeing (NYSE:BA) +0.8% after beating estimates.
Coca-Cola (NYSE:KO) -3.3% cutting its sales forecasts.
Comcast (NASDAQ:CMCSA) +1.1% on a strong Internet business.
Corning (NYSE:GLW) -1% following a decline in Q2 profit.
Facebook (FB) +4.7% on ad sales growth.
GoPro (NASDAQ:GPRO) +1.6% AH after topping expectations.
Groupon (NASDAQ:GRPN) +23.8% increasing the level of active users.
T-Mobile (NASDAQ:TMUS) +1.5% on new subscriber additions.
Whole Foods (NASDAQ:WFM) -5.2% AH as comparable sales declined.

Today’s Markets

In Asia, Japan -1.1% to 16477. Hong Kong -0.2% to 22174. China +0.1% to 2994. India +0.7% to 28208.
In Europe, at midday, London -0.2%. Paris -0.1%. Frankfurt flat.
Futures at 6:20, Dow +0.1%. S&P +0.1%. Nasdaq flat. Crude -0.2% to $41.82. Gold +0.9% to $1347.
Ten-year Treasury Yield flat at 1.5%

Today’s Economic Calendar

8:30 International trade in goods
8:30 Initial Jobless Claims
9:45 Bloomberg Consumer Comfort Index
10:30 EIA Natural Gas Inventory
11:00 Kansas City Fed Mfg Survey
1:00 PM Results of $28B, 7-Year Note Auction
4:30 PM Money Supply
4:30 PM Fed Balance Sheet

Companies reporting earnings today »