Wall Street Breakfast: Uber, Didi Declare Chinese Peace Treaty

Economy

The Fed should be cautious in considering an interest rate increase due to lingering risks to the U.S. economy, New York Fed President William Dudley declared, describing Friday’s GDP growth figure of 1.2% as “sluggish.” Although he said it was “premature” to rule out monetary policy tightening in 2016, he added that negative shocks were more likely than positive ones due to the unknown fallout from Brexit, a strong dollar and because it was safer to delay a move with rates so low.

China’s manufacturing sector painted a mixed picture in July, with the official activity gauge unexpectedly slipping into contraction territory while another survey pointed to an expansion for the first time in 17 months. The government’s manufacturing PMI came in at 49.9, but Caixin’s figure, which tracks smaller-scale private firms compared to the official gauge, rose above the key 50 level for the first time since February 2015.

Other PMIs from around the globe: Manufacturing growth across the eurozone eased in July, with Markit’s PMI for the bloc dropping to 52.0 from 52.8 in June, while Greek factory activity fell back in contraction. Sterling pulled back from the highs hit late last week on weak manufacturing figures, signaling some economic backlash from June’s Brexit vote. Japanese factory activity shrank in July at a slower pace than the previous month but new export orders contracted the fastest in more than 3.5 years.

Failure to ratify the TPP would hand China “the keys to the castle” on globalization and do nothing to solve the real problems underlying American anxiety over jobs, according to U.S. Trade Representative Michael Froman. The tariff-slashing deal has turned into a hot-button topic in the run-up to the Nov. 8 presidential election, threatening to dampen support from lawmakers needed to pass an agreement critics condemn as a job-killer.

Britain’s Financial Conduct Authority and the China Securities Regulatory Commission are discussing an agreement that will pave the way for landmark financial services projects between the countries, easing fears that the U.K. could be a less attractive partner in a post-Brexit world. The scheme includes cooperation on a regulatory framework for distributing fund products in each other’s jurisdiction and a proposed London-Shanghai link for trading shares.

“The oil market is oversupplied now but there are expectations that there will be balance between demand and supply in the market,” Iran’s Oil Minister Bijan Namdar Zanganeh said after a Reuters survey showed OPEC’s oil output this month was likely to reach its highest point in recent history. Today also marks the first day at the desk for OPEC’s new general secretary. Nigeria’s Mohammed Barkindo will be the first new top official at the cartel in almost a decade. Crude futures -1.4% to $41.04/bbl.

Brazil’s interim President Michel Temer has expressed confidence in Rio de Janeiro’s ability to pull off a successful Olympics (beginning this Friday), despite fresh data showing surging crime rates in the capital. Around 85,000 security personnel are expected to be deployed during the Games, the largest contingent for a mega event, to guard the half a million visitors expected to descend upon Rio.

Stocks

Goldman Sachs has cut its three-month rating on equities to “underweight”, saying its risk appetite indicator has turned neutral as stocks remain expensive and earnings growth is poor. The downgrade follows a recent rally in risk assets which Goldman (NYSE:GS) said has been driven by a combination of light positioning into Britain’s vote to leave the EU and a search for yield.

The latest batch of tech-industry earnings are showing how two trends – mobile and the cloud – are taking root and delivering big earnings for the companies betting on them. Among them: Profits at Facebook (NASDAQ:FB) and Alphabet (GOOG, GOOGL) fueled by users spending more time on smartphones and strength in Amazon’s Web Services (NASDAQ:AMZN) and Microsoft’s Azure (NASDAQ:MSFT). The power of the technologies is intertwined. Mobile devices are increasingly becoming people’s primary computers, which is driving demand for the cloud.

Despite emerging as the worst performer in the EBA’s stress tests, Banca Monte dei Paschi (OTCPK:BMDPY) shares are on the rise after the world’s oldest bank revealed its third bailout plan in as many years. The two-pronged rescue scheme hinges on raising €5B in a cash call to be completed by the end of the year – a tall order for a lender that is worth less than €1B on the market and has burned through €8B from share issues since 2014.

Gambling may be illegal in mainland China, but that is not stopping Chinese tech investors from betting on casino-style mobile games. A consortium led by Shanghai Giant Network Technology and Jack Ma’s Yunfeng Capital has agreed to pay $4.4B for Caesars Interactive Entertainment’s subsidiaries, including mobile-games unit Playtika. CIE is currently owned by Caesars Acquisition (NASDAQ:CACQ) and Caesars Entertainment (NASDAQ:CZR).

U.S. authorities have issued subpoenas to Goldman Sachs (GS) for documents related to 1MDB, the Malaysian investment fund at the center of an international corruption scandal, WSJ reports. Goldman received the orders earlier this year from the DOJ and SEC, which also want to interview current and former bank employees in connection with the inquiries.

GlaxoSmithKline is teaming up with Alphabet’s (GOOG, GOOGL) Verily Life Sciences unit to develop bioelectronic medicines, or treatments that use miniature electronic devices to modify how impulses are transmitted around the nervous system. The pair will spend up to £540M over seven years on the venture, called Galvani Bioelectronics, provided they succeed in hitting various milestones along the way. GSK +0.6% premarket.

Theranos founder Elizabeth Holmes is scheduled to speak today at the annual meeting of the AACC in Philadelphia, where she is expected to share the first data about the secretive company’s technology. Government regulators have already barred Holmes from owning or operating a clinical laboratory for two years and Walgreens (NASDAQ:WBA) recently closed the Theranos (Private:THER) testing centers in its drugstores.

After a month of due diligence and negotiations, Tesla (NASDAQ:TSLA) and SolarCity (NASDAQ:SCTY) are likely to announce an all-stock merger today that was previously valued at about $2.8B, Reuters reports. The agreement is expected to include a go-shop provision, allowing SolarCity to solicit bids from other potential buyers before bringing the offer to a shareholders vote. SCTY +7.4% premarket.