Month: December 2014

Goldman’s Sven Jari Stehn answers the 11 most critical questions regarding to day’s “most-important-FOMC-meeting-ever.”

 

Q: Will “considerable time” be dropped?

A: Yes, we believe the “considerable time” language will be dropped. December has for some time looked like the most natural meeting for modifying the guidance given the leadership’s expectations for liftoff in mid-2015, the typical translation of “considerable time” into about six months, and the absence of a press conference in January. Speeches by Fed Vice Chairman Fischer and New York Fed President Dudley two weeks ago confirmed that we are getting closer to the date when “considerable time” will be removed. Since then we have seen a strong employment report and a bounce-back in University of Michigan long-tem inflation expectations, which reinforce the expectation that the guidance will be modified.

We do not, however, think that a change in guidance is a done deal. First, while a number of Fed officials have explicitly or implicitly voiced support for switching the forward guidance towards “patience,” others including San Francisco Fed President Williams are comfortable with “considerable time.” Second, the October minutes suggest that some participants were worried that the removal of considerable time might be seen as a shift in the stance of monetary policy and therefore tighten financial conditions. The continued decline in oil prices and market-implied inflation expectations, as well as the recent turmoil abroad, might well reinforce these existing concerns.

Q: How will “considerable time” be modified?

A: Recent Fed communication has focused on two themes: the word “patient” has shown up frequently and Fed officials have continued to stress that policy is data dependent. One possibility to combine these themes would be to follow Boston Fed President Rosengren’s formulation and state that the “committee expects to be patient in beginning the normalization of the target range for the federal funds rate until it is clear that the economy is on the path to achieving both the 2 percent inflation target and maximum sustainable employment.”

The leading alternatives, in our view, would be either to keep “considerable time” or adopt “patient” without the data dependence. The former would increase the likelihood of the first hike occurring in September of next year. The latter would raise the parallel with 2004–when “considerable period” gave way to “patient” in January and the FOMC hiked in June–and thereby increase the chance of a rate hike in June or even earlier.

Q: The October FOMC minutes showed concern amongst participants that removing “considerable time” might tighten financial conditions. How could the FOMC limit this risk?

A: The committee could state explicitly that the change in guidance is not intended to signal a change in its policy intentions. One possibility would be to do so in the FOMC statement. For example, the committee could follow the December 2012 formulation–when the committee dropped its calendar-based guidance and adopted the unemployment and inflation thresholds–and state after the updated guidance sentence that “the committee views the updated formulation as consistent with its earlier guidance.” Or Fed officials could adopt the March 2014 template and say at the end of the FOMC statement that “the Committee has updated its forward guidance. The change in the Committee’s guidance does not indicate any change in the Committee’s policy intentions as set forth in its recent statements.” Another possibility would be for Chair Yellen to make one of these statements in the press conference. Given the 30 minute time lag between the statement (in which considerable time would be modified) and the press conference, we think it is most likely that this formulation would be included in the FOMC statement, in order to avoid any ambiguity.

Q. Market-implied inflation expectations have continued to decline in recent days. How will the FOMC respond?

A: We would expect the committee to acknowledge the ongoing drop in breakevens in the statement by, for example, noting that market-based measures of inflation compensation have “continued to decline” (instead of “declined somewhat”). But we would not expect the committee to go much beyond that for a couple of reasons. First, it is likely that at least part of the decline in market implied inflation expectations—even at long forward horizons—is connected to the drop in crude oil prices. Second, New York Fed President Dudley argued that the inflation risk premium might have come down. Third, survey measures of inflation expectations have generally remained stable, on net. The University of Michigan 5-10 year inflation expectations measure bounced back in the preliminary December report and the New York Fed measure of inflation expectations has remained stable throughout.

Q. Financial conditions have continued to tighten and crude oil prices have continued to plummet. What are the likely implications for the committee’s economic outlook?

A: The effects of tighter financial conditions and lower oil prices should be directionally offsetting for growth and reinforcing for inflation. Our analysis with the Fed staff’s FRB/US model suggests that the net effect on growth over the next year is likely to be broadly neutral. We therefore do not expect notable revisions to the committee’s growth projections, except some marking to market for 2014. The effects of dollar appreciation and lower oil prices should, however, reinforce each other in terms of their effect on inflation. Headline inflation is likely to come down mechanically and we expect the mid-point of the central tendency for the 2015 headline PCE forecast to come down from 1.75% in September to 1.6%. (However, a larger-than-expected downward revision to headline inflation in 2014 might argue for a smaller, or even positive, revision to 2015 due to base effects.) We also expect a reduction in core inflation by 10bp in 2015.

Q: The economic turmoil in Russia has intensified. Will the FOMC acknowledge these events in the statement?

A: We do not think so. While it is possible that the committee could reintroduce language highlighting that “strains in global financial markets” pose downside risks to the outlook, we think recent developments have not changed the Fed’s thinking on global risks in a significant way, and we therefore view this as unlikely. Especially as the dust has yet to settle on recent developments, we think the Fed would probably like to avoid the perception of overreacting to this week’s events and potentially sending a bearish signal on growth. In the past, we estimated that the US trade and banking system exposure to EM (including Russia) is fairly small.

Q. What does the Fed think about the recent selloff in high yield bonds?

A: While the recent widening in high yield credit spreads has attracted considerable attention, we do not think the Fed views this development as presenting particular financial stability risks. Indeed, Vice Chairman Stanley Fischer stated as recently as early December that “there are a few areas where risk premia are lower than you would like to see,” and the riskiest bonds are one likely suspect for what he was referring to. As a result, it would be odd for the Fed to see the selloff as an especially adverse development. Furthermore, the Fed likely views financial st
ability risks as primarily stemming from excess leverage and credit growth in the economy as a whole, conditions that are not readily apparent in today’s environment.

Q: Will the “dots” come down?

A: We see the dots as subject to two offsetting forces. On the one hand, strong growth and a continued decline in the unemployment rate would tend to push up the dots. On the other hand, the likely reduction in the inflation forecast, the reduction in the structural unemployment rate and the recent market volatility would argue for lower dots. Our baseline expectation is that these effects will offset and leave the dots broadly unchanged. However, we see some downside risk to our projection for the dots. For example, for 2015 we expect a reduction in actual and structural unemployment by 10 basis points (bp) and a reduction of core inflation by 10bp. A standard Taylor rule with a coefficient of 1.5 on inflation would suggest that this set of developments might push the warranted path for the fed funds rate down by about 15bp. In addition, as the more hawkish meeting participants tend to place more emphasis on inflation developments and the inflation outlook, it seems likely that some of the “high side” dots may come down more markedly, while the “dovish consensus” dots might be little changed.

Q: Will there be any dissents?

A: Our baseline is for no dissents. Minneapolis Fed President Kocherlakota dissented in October; despite lodging consecutive dissents in the past, it does not appear that he is willing to dissent multiple times over the same issue.

Q: Will Chair Yellen hold a press conference after every meeting next year?

A: This is possible, and it is likely that the subcommittee on communications has deliberated on this topic. If press conferences were introduced for each meeting, and the committee retained “considerable time,” it would open up the possibility of dropping considerable time in January 2015.

Q: Risks to market expectations

A: Our Treasury trading desk recently conducted a survey of client expectations for the December meeting. In line with our own view, the vast majority of respondents expect that “considerable” time will be removed from the statement, and the majority of respondents expect the SEP projection for inflation in 2015 to be downgraded slightly. Most respondents also expect the 5th lowest SEP dot—which we take as a proxy for the “center of gravity” on the committee— to remain unchanged at the end of 2015. The primary area of difference between our own view and clients’ views is that under our baseline scenario, once the Fed begins hiking, rate hikes continue at a gradual pace until reaching a terminal rate of around 4%. In contrast, many respondents expected that rate hikes would either be interrupted by a pause of more than two meetings, or the ultimate terminal level of the fed funds rate would be considerably below 4%.

An area of particular interest for the post-meeting press conference will be any discussion of the post-liftoff guidance. Chair Yellen has stressed in past press conferences that the committee intends to follow a “shallow glide path” for the funds rate target given headwinds that are expected to depress the “neutral” funds rate for years to come. Two aspects of recent Fed communication raise the prospect that views on the speed of normalization might be starting to shift. First, the minutes of the October meeting stated that “a number of participants thought that it could soon be helpful to clarify the committee’s likely approach” with regard to the pace of normalization. Second, in a recent speech, New York Fed President Dudley did not reiterate expectations for a “shallow glide path” but instead stressed that the pace of normalization will depend on economic conditions and financial conditions. If markets digest initial Fed tightening as easily as they have digested the asset purchases’ withdrawal, a “more aggressive” pace of tightening seems likely. Our forecast remains for the first hike in September 2015, followed by a steeper path of the funds rate than current market pricing.

via Zero Hedge http://ift.tt/1zs6jP2 Tyler Durden

Remember the narrative that the plunge in gas prices is supposed to lead to a surge in corporate profitability if only for those companies for which energy is a cost (not a top-line item like in the decimated energy sector?). Moments ago logistics and trade bellwether came out with numbers that roundly refuted this, after it missed not only on the top line, with revenues of $11.94 billion on expectations of $11.98 billion, but a wide EPS miss, printing $2.14, well below the $2.25 expected and one which includes the benefit of $0.16 in EPS from stock repurchases.

This is what the company had to say about its surprising across the board miss:

Operating income and margin increased primarily due to higher volumes and base yields in all three transportation segments. Results in the second quarter also included benefits from the company’s profit improvement programs, lower pension expense and a slightly positive net impact from fuel. These benefits were partially offset by higher aircraft maintenance expense due to the timing of aircraft maintenance events.

 

Revenue increased due to higher U.S. domestic package volume and international export package base revenue, partially offset by lower fuel surcharges and exchange rates. U.S. domestic package volume grew by 7%, including a 10% increase in U.S. overnight box. U.S. domestic revenue per package declined 2% due to decreased fuel surcharges and lower weight.

 

FedEx International Economy® volume grew 5%, while FedEx International Priority® volume increased 1%. International export revenue per package was flat, as higher rates were offset by unfavorable currency exchange and lower fuel surcharges.

But with gas prices seemingly sticky at these new low, low levels surely FedEx would at least boost its guidance as a result of lower costs, right? Wrong:

The company reaffirms its fiscal 2015 earnings forecast of $8.50 to $9.00 per diluted share. The outlook assumes continued moderate economic growth and a modest net benefit from fuel. The capital spending forecast for fiscal 2015 remains $4.2 billion.

And while we commend FedEx on posting revenue increases across its four key segments, including Express, Ground, Freight and Services, what was omitted is how FDX got there. A few things to note:

• Express Package Yield, aka Revenue per Package: down 2%
• Freight total average daily pounds: down 2%
• Revenue per US freight pound: down 2%
• Fedex Ground operating margin down from 15.4% to 15.2% despite a 25% drop in fuel operating expenses.

And so on. Judging by the plunge in the stock price, the market is starting to see through the “narrative”

via Zero Hedge http://ift.tt/1wFgVZU Tyler Durden

• Citigroup is pleased: Obama signs $1.1 trillion government spending bill (Reuters)
• Oil holds below $60 as OPEC, Russia keep pumping (Reuters)
• 5 Things to watch at the December Fed Meeting (WSJ)
• Russia Tries Emergency Steps for 2nd Day to Stem Ruble Rout (BBG)
• Ruble crisis could shake Putin’s grip on power (Reuters)
• Apple Curbs Russia Sales as McDonald’s Lifts Prices (BBG)
• Traders Betting Russia’s Next Move Will Be to Sell Gold (BBG)
• China Warms to a More Flexible Yuan (WSJ)
• FX platforms halt ruble trade as banks wary of capital controls (Reuters)
• Russia Crisis Hits Pimco Fund, Wipes Out Options (BBG)
• Uber CEO Says Company Wants to Make Rides Safer (WSJ)
• New York premiere of North Korea comedy canceled after threats (Reuters)
• Chinese Investors Bet This Time Is Different as Stocks Surge (BBG)
• Sears Bets Big on Technology, but at the Expense of Its Stores (WSJ)

 

Overnight Media Digest

WSJ

* Jeb Bush will “actively explore the possibility of running for president” in 2016, according to an announcement the former Florida governor posted to his Facebook page. (http://on.wsj.com/1uRii2k)

* Sony Pictures executives were telling theaters they wouldn’t object if theaters decided not to show its comedy “The Interview” after new terrorist threats surfaced on Tuesday, according to a person with knowledge of the discussions. (http://on.wsj.com/1vXUABM)

* The failure of Sears Holdings’s Mygofer strategy – where customers ordered from computers and picked up goods out back – shows the retailer’s struggle to reinvent its stores. (http://on.wsj.com/1uRii2k)

* The plunging rouble, driven by sanctions and dropping oil prices, is reawakening fears of the kind of financial crises Russian President Vladimir Putin has sought to put behind his country. (http://on.wsj.com/1GrPkym)

* U.S. prosecutors are close to a deal with Alstom that would require the French engineering giant to pay about $700 million, more than any past deal, to settle a foreign bribery probe. (http://on.wsj.com/1syMJKP)

* Ford Motor Co is cutting about 20 percent from the cost of swapping aluminum for steel in F-150 body panels by sorting, cleaning and returning scrap to the same mills that supply it with metal sheets. (http://on.wsj.com/1wJ9CiM)

* A jury ruled in favor of Apple Inc on Tuesday in a class-action lawsuit that accused the technology giant of violating antitrust laws by suppressing competition for its iPod music players. (http://on.wsj.com/1GOkM8v)

* Congress ended the year Tuesday night without extending a federal terrorism insurance program slated to expire later this month. With lawmakers from both chambers gone until January, the program is expected to lapse. (http://on.wsj.com/1BWLMnY)

 

FT

Bank of England governor Mark Carney has promised to make banks undergo stress tests on their emerging market exposures as he warned of newer financial stability risks that were brewing overseas.

Spain’s Repsol SA has agreed to buy Canada’s Talisman Energy for $8.3 bln saying the acquisition will boost its oil and gas output by 76 pct and would transform it into “one of the world’s most significant players”.

U.S. private equity firm Cerberus has agreed to buy 1.2 billion pound ($1.89 billion) worth of commercial property loans fron National Australia Bank and 1.1 billion pound worth of Irish commercial real estate loans from the Royal Bank of Scotland.

European aerospace and defence company Airbus has made changes to its top team to keep a tab on its supply chain. Tom Williams will succeed Gunter Butschek as the company’s Chief Operating Officer. Didier Evrard will succeed Williams as head of aircraft programmes.

 

NYT

* With Russia already staggering under the weight of one of its worst financial crises in years, the United States signaled that it would further increase the economic pressure with a new raft of sanctions targeting the Russian defense, energy and banking industries. (http://nyti.ms/1zq87YR)

* Sony Pictures Entertainment, the Federal Bureau of Investigation, theater owners and competing film studios scrambled to deal with a threat of terrorism against movie theaters that show Sony’s “The Interview,” a raunchy comedy about the assassination of the North Korean leader, Kim Jong-un. (http://nyti.ms/1GrLxRQ)

* The Food and Drug Administration has approved the first system that could be used by blood banks to destroy viruses and bacteria in donated blood plasma, potentially making transfusions safer. (http://nyti.ms/1uRaTAf)

* The Commerce Department began closing a chapter in a protracted trade conflict with China over solar equipment, approving a collection of steep tariffs on imports from China and Taiwan. (http://nyti.ms/1BWDYmf)

* In a class-action case that kicked around courts for 10 years, a jury rejected claims that Apple Inc acted to secure a monopoly over digital music. (http://nyti.ms/13wmXRI)

* On Deck Capital Inc, which makes loans to small businesses, raised about $200 million from its initial public offering, valuing the firm at about $1.3 billion. (http://nyti.ms/1A99Qlw)

* Adyen, an Amsterdam-based payments processing company, has announced $250 million in new fundraising that valued the company at $1.5 billion. (http://nyti.ms/13wpj33)

* The magazine publisher Time Inc is teaming up with Coinbase and will accept Bitcoin payments for subscriptions of Fortune, Health, This Old House and Travel + Leisure. (http://nyti.ms/1xraGuw)

 

Canada

THE GLOBE AND MAIL

** Economists are fast revising their forecasts for Canada’s economy, and those of its provinces, amid the spectacular collapse in oil prices. BMO Nesbitt Burns, for example, has lowered its outlook for economic growth next year to just 2.2 percent. (http://bit.ly/1qZiamc)

** Justice Minister Peter MacKay has appointed two of the country’s most conservative law professors as judges in Ont
ario, one of whom has publicly criticized the court he is about to join. (http://bit.ly/1wEUVP0)

NATIONAL POST

** Despite Talisman Energy Inc chief Hal Kvisle’s intention to re-retire at the end of this month, he will stay on the job a little longer, after his company’s much-rumored deal with Spanish energy company Repsol SA was finally done. (http://bit.ly/1zv9CUq)

** Wind Mobile SA, the mobile-service provider trying to expand across Canada, doesn’t expect wireless prices to drop drastically, even after the country has four competing carriers. Instead, Chief Executive Pietro Cordova said prices will likely fall slowly once Toronto-based Wind strengthens its coverage across the country. (http://bit.ly/1BWy3eh)

** After more than a decade of talks among governments, food regulators and the industry, new rules are being adopted across North America to ensure consumers have a better idea of what kind of maple syrup they’re buying. The changes, which will come into effect over the next two years, will harmonize the grading system for maple syrup produced in Canada and the United States. (http://bit.ly/13b9LRi)

 

China

CHINA SECURITIES JOURNAL

– Regulators are revising commercial banks laws which may see them cancel the enforcement of loan-to-deposit ratios, sources familiar with the matter told the newspaper.

– Yunnan Yuntianhua Co Ltd said it plans to issue a total of 199 million shares through private placements to set up a joint venture with Israel Chemicals Ltd.

SHANGHAI SECURITIES NEWS

– The China Insurance Regulatory Commission is seeking to implement three health insurance policies which include providing incentives to encourage the purchase of personal commercial health insurance, the newspaper reported, citing sources.

CHINA DAILY

– State-owned oil refiner Sinopec Group plans to increase the number of executives in its top management team who are aged below 45 to more than 10 percent next year, a spokesman for the firm told the newspaper.

 

Britain

The Times

BANKS STAND UP TO STRESS TESTS BUT A FRESH CRASH WOULD WIPE OUT PROFITS

Profits at Britain’s leading banks would collapse by 91 billion pounds in the event of a new financial crisis, forcing the country’s largest lenders to slash shareholder payouts and implement swingeing cost cuts, according to the Bank of England’s latest industry stress tests. (http://thetim.es/1DJ8q5d)

INVESTORS CHEERED BY BT TAKEOVER European investors have backed BT Group Plc’s proposed 12.5 billion pounds takeover of the mobile operator EE, driving the share prices of all interested parties higher 24 hours after the deal was announced. That was despite growing speculation that the merger is likely to be the subject of full-blown scrutiny by regulators on the Continent and by the Competition and Markets Authority in the UK. (http://thetim.es/1z0ROmq) The Guardian

BANK STRESS TESTS: CO-OP FAILS AS LLOYDS AND RBS SCRAPE THROUGH

A severe economic shock would exhaust the Co-operative Bank’s capital and force Lloyds Banking Group and Royal Bank of Scotland to bolster their financial strength, the Bank of England has found after exposing the banking sector to tests designed to measure its resilience. (http://bit.ly/1vV3tw1) LASTMINUTE.COM SOLD FOR FRACTION OF ITS 2005 PRICE

Lastminute.com, the travel site that became one of the best-known names of the dotcom era, has been sold for a fraction of the price it fetched almost a decade ago. Bravofly Rumbo Group, a European online travel agent, will pay 76 million pounds ($119.68 million) to Sabre Corp, the US owner of Travelocity, which paid 577 million pounds for Lastminute in 2005. (http://bit.ly/1ztRdYc)

The Telegraph

OIL PRICE COLLAPSE IS GOOD NEWS FOR BRITISH PEOPLE, SAYS GEORGE OSBORNE

The collapse in world oil prices is “overall a very good thing” for Britain, the US and Western economies, George Osborne has said. The Chancellor called the fall in oil prices this year a “net positive” that would also put pressure on Russian President Vladimir Putin and his oil-dependent economy. (http://bit.ly/1ztZL16)

RBS RAISES 2 BLN STG TO PASS BANK OF ENGLAND STRESS TEST

The Royal Bank of Scotland has been forced to go to investors for 2 billion pounds to placate the Bank of England, it emerged on Tuesday, as the regulator said the taxpayer-owned bank was one of three major lenders at risk in a financial crisis. (http://bit.ly/1zp1tCq)

Sky News GOOGLE SHUTS DOWN SPANISH NEWS SERVICE

Google Inc has gone ahead with its threat to shut down its news service, Google News in Spain, before a Spanish intellectual property law comes into effect in January. The service, which provided aggregated news content, has been replaced by a message from Google saying it is ‘incredibly sad’ to announce the removal of Spanish publishers from the site, as well as the closure of Google News in Spain. (http://bit.ly/1BVRI0y)

WPP PICKS QUARTA TO SUCCEED LADER AS CHAIRMAN WPP Plc, the marketing services giant, will this week end a year-long search for a new chairman when it names Roberto Quarta, a respected industrialist, to the role. (http://bit.ly/16pP0n3)

The Independent

BRENT OIL PRICES PLUNGE BELOW $59 A BARREL Oil extended losses on Tuesday, falling below $59 a barrel for the first time since July 2009 and heaping further pressure on oil exporters. Not only have billions been wiped off the value of London-listed companies like BP in recent weeks, analysts fear that spending across the industry could be cut by up to $1 trillion and thousands of jobs lost in the UK. (http://ind.pn/1BVSoD5)

 

 

Fly On The Wall Pre-Market Buzz

ECONOMIC REPORTS

Domestic economic reports scheduled for today include:
Consumer Price Index for November at 8:30–consensus down 0.1%
Current account balance for Q3 at 8:30–consensus deficit $97.5B
FOMC meeting announcement to be released at 14:00

ANALYST RESEARCH

Upgrades

Aaron’s (AAN) upgraded to Buy from Hold at KeyBanc
Approach Resources (AREX) upgraded to Neutral from Reduce at Global Hunter
Calpine (CPN) upgraded to Buy from Hold at Deutsche Bank
Check Point (CHKP) upgraded to Buy from Hold at Deutsche Bank
Columbia Sportswear (COLM) upgraded to Buy from Neutral at Goldman
Dakota Plains Holdings (DAKP) upgraded to Buy from Hold at Canaccord
Saba (SABA) upgraded to Buy from Neutral at B. Riley
Stillwater Mining (SWC) upgraded to Buy from Neutral at Goldman
SunCoke Energy (SXC) upgraded to Outperform from Neutral at Credit Suisse
Taylor Morrison (TMHC) upgraded to Buy from Hold at Evercore ISI
Teck Resources (TCK) upgraded to Buy from Neutral at UBS
VeriFone (PAY) upgraded to Overweight from Equal Weight at Barclays
Xoom (XOOM) upgraded to Hold from Sell at Evercore ISI

Downgrades

Allergan (AGN) downgraded to Neutral from Buy at UBS
CVR Refining (CVRR) downgraded to Underperfo
rm from Neutral at Credit Suisse
Consolidated Edison (ED) downgraded to Sell from Hold at Deutsche Bank
Covanta (CVA) downgraded to Neutral from Outperform at RW Baird
Cubist (CBST) downgraded to Neutral from Buy at UBS
Cyclacel downgraded to Market Perform from Outperform at JMP Securities
Fifth Street Asset (FSAM) downgraded to Neutral from Overweight at JPMorgan
JP Energy (JPEP) downgraded to Sector Perform from Outperform at RBC Capital
PG&E (PCG) downgraded to Hold from Buy at Deutsche Bank
Portland General Electric (POR) downgraded to Hold from Buy at Deutsche Bank
Sierra Wireless (SWIR) downgraded to Sector Perform from Outperform at RBC Capital
Symantec (SYMC) downgraded to Market Perform from Outperform at William Blair
Talisman Energy (TLM) downgraded to Underperform from Sector Perform at RBC Capital
Tumi (TUMI) downgraded to Neutral from Buy at Goldman
Verizon (VZ) downgraded to Neutral from Buy at Goldman

Initiations

Anacor (ANAC) initiated with a Neutral at Goldman
Barracuda Networks (CUDA) initiated with a Buy at Roth Capital
CDK Global (CDK) initiated with an Outperform at Oppenheimer
Crown Crafts (crws) initiated with a Buy at Wunderlich
Dorel Industries initiated with a Buy at Wunderlich
Earthstone Energy (ESTE) initiated with an Accumulate at Global Hunter
KLX Inc (KLXI) initiated with a Buy at Sterne Agee
Laclede (LG) initiated with an Outperform at Credit Suisse
LendingClub (LC) initiated with a Sell at Compass Point
Liberty Global (LBTYA) resumed with an Overweight at JPMorgan
Materialise (MTLS) initiated with an Outperform at Pacific Crest
Navios Maritime Midstream (NAP) initiated with an Outperform at Credit Suisse
NorthWestern (NWE) initiated with a Neutral at Credit Suisse
PerkinElmer (PKI) initiated with a Buy at KeyBanc
Rocket Fuel (FUEL) initiated with a Buy at Janney Capital
Stantec (STN) initiated with a Buy at Brean Capital
Summer Infant (SUMR) initiated with a Buy at Wunderlich
Thermo Fisher (TMO) initiated with a Buy at KeyBanc
Tremor Video (TRMR) initiated with a Neutral at Janney Capital
Vital Therapies (VTL)  at undefinedinitiated with a Buy at SunTrust
Waters (WAT) initiated with a Hold at KeyBanc
YuMe (YUME) initiated with a Neutral at Janney Capital

COMPANY NEWS

Philips (PHG) said it would acquire Volcano (VOLC) for $18 per share, or a total equity purchase price of $1B
American Apparel (APP) terminated former President and CEO Dov Charney for cause, named Paula Schneider as CEO, effective January 5
SeaWorld (SEAS) cut 300 jobs, postponed Q4 dividend, announced $12M in pre-tax restructuring charges
Cerus (CERS) confirmed FDA approval of INTERCEPT Blood System for plasma
Dave & Busters (PLAY) forecast FY14 SSS up 5.5%-6%

EARNINGS
Companies that beat consensus earnings expectations last night and today include:
Joy Global (JOY), HEICO (HEI), Darden (DRI), Dave & Busters (PLAY)

Companies that missed consensus earnings expectations include:
Upland Software (UPLD)

Joy Global (JOY) sees FY15 EPS ex-items $3.10-$3.50, consensus $3.57
Darden (DRI) narrows FY15 EPS view to $2.25-$2.30 from $2.22-$2.30, consensus $2.26

NEWSPAPERS/WEBSITES

Baidu (BIDU) to take stake in Uber, Reuters reports
The Pantry (PTRY) close to deal to be sold, WSJ says
Sony (SNE) hackers threaten ‘The Interview’ attendees, WSJ reports
Honda (HMC) to add additional $168M to FY14 expenses from airbag recall, Nikkei reports
U.S. announces tariffs on Chinese, Taiwanese solar companies, NY Times reports
Lions Gate (LGF) tried to discuss merger with Sony (SNE), Reuters reports

SYNDICATE

Axion Power (AXPW) files $7.6M mixed securities shelf
Bovie Medical (BVX) files $25M mixed securities shelf
CounterPath (CPAH) files $50M mixed securities shelf
NRG Yield (NYLD) intends to file Form S-3 on or about January 16, 2015

via Zero Hedge http://ift.tt/1wFgXkB Tyler Durden

Previewing today’s market: near record low liquidity, with chance of ridiculous volatility in the Ruble, energy and equity markets.

While no doubt today’s main event will be the “considerable” FOMC announcement and the Fed’s downward-revised economic projections followed by Yellen’s press conference, what traders will be most excited by is that, finally, Jim Bullard will no longer be bound by the blackout period surround FOMC decisions, and as such can hint of QE4 again at his leisure during key market inflection (i.e., selling) points.

FOMC aside, overnight markets were shaped by the now usual suspects: declining energy, with WTI trading again below $55 at last check, and Brent also back below $60. One of the drivers for today’s weakness appears to be a late digestion of yesterday’s story that Russia will race OPEC to the bottom with “plans to boost daily oil exports in the first quarter of 2015 by 6.6 percent to 52.32 million tonnes, quarter-on-quarter, according to Reuters. This follows WTI closing higher (even if literally by pennies) for the first time in a week yesterday, however today’s European session has so far seen both WTI and Brent crude back under selling pressure, with the stronger USD combined with yesterday’s API Crude Oil Inventories showing a build in crude stockpiles of 1.9mln weighing on oil ahead of DoE inventories.

As for the RUB, things appear to have stabilized a bit even if the intraday gyrations remain, and the USDRB was trading a little below 68 at last check, while more and more brokers simply refuse to trade the Russian currency, in line with what was first reported here yesterday.  One of the factors leading to the stabilization is that the Russia finance ministry announced it would start selling its own FX reserves on market leading to a brief ruble rally vs USD. Also, PM Medvedev added that order must be brought to Russian FX market, while Kremlin economic aide Andrey Belousov said that Russia was working to stop ‘bacchanalia’ on FX market, according to Interfax. In other Russian news, Sberbank will raise FX, ruble deposits rates starting tomorrow, while president Putin plans no ‘special statements’ on markets, Kommersant says.

Over in Asia, equities traded mostly higher as oil prices saw a brief respite from the ongoing downturn during yesterday’s session. The Nikkei 225 (+0.4%) snapped its 2-day decline as JPY weakened ahead of the Fed rate decision although at last check it has reverted to trading back around the 117 USDJPY tractor beam moderating the zero liquidity exuberance in S&P futures.

Elsewhere, the Shanghai Comp (+1.31%) touched a 4yr high led by financials and brokerage names, following reports that China may loosen capital restrictions on brokerages. (read “Chinese Investors Bet This Time Is Different as Stocks Surge“) Money market rates are also notably higher amid a liquidity shortage further stoking expectations of a PBoC intervention. The Hang Seng (-0.3%) fell on casino stocks weakness as Fitch said sees Macau gaming revenue negative in 2015 and reports of a possible China crackdown on Macau casinos. China’s central bank has issued short-term funds to some local banks to ease liquidity strains and has also renewed some banks medium-term lending facilities that have expired, according to sources familiar with the matter. (RTRS) This has prompted some analysts to suggest that this action reduces the probability of a RRR cut before year-end.

European equities trade in the red following from the negative Wall Street close as lower oil prices combined with the depressed economic climate in Russia weighs on stocks. In a relatively quiet session with all focus on the FOMC rate decision, position squaring has been observed boosting the USD-index back above the 88.00 handle with the market looking to see whether the Fed drop their ‘considerable time’ rhetoric. In Fixed income markets, Bunds have remained relatively flat due to a lack of major macro news.

Also of note, the Greek presidential vote begins today at 1700GMT/1100CST with the govt. expecting its candidate Stavros Dimas to receive at least 161 of 300 MP’s votes, short of the 200 needed to be elected but a basis for a coalition to work for final ballot Dec 29th.

Looking ahead, all eyes will be on the FOMC rate decision, also we get US inflation data with CPI expected to print -0.1%, while CPI ex food and energy are expected to rise 0.1%, below last month’s 0.2% increase.

Market wrap summary

European stocks drop lead by banks and industrial companies. Asian shares decline, U.S. stock index futures advance. Euro drops against dollar, WTI crude oil falls as Russia reiterates it will keep crude production steady. Fed to end 2-day meeting and economists expect it to drop a vow to keep interest rates low for a  “considerable time.”

• S&P 500 futures up 0.6% to 1976
• Stoxx Europe 600 down 0.6% to 327.06
• US 10Y yield up 3bps to 2.09%
• German 10Y yield little changed at 0.59%
• MSCI Asia Pacific down 0.4% to 133.86
• Gold spot little changed at $1196.89/oz

Bulletin Headline Summary from Bloomberg and RanSquawk

• Dampened economic sentiment and a continued slide in oil prices weighs on European equities.
• USD-index strengthens as market participant position square ahead of the latest Fed policy announcement
• Treasuries decline, 10Y and 30Y yields retreat from YTD lows before FOMC statement and summary of economic projections at 2pm, Yellen press conference at 2:30pm.
• Fed seen likely to drop “considerable time” language,  may address recent global market turmoil
• Russia struggled for a second straight day to reverse a rout in the ruble, with Finance Ministry selling its FX on the market;  Sberbank, Russia’s largest lender, to raise FX and ruble deposit rates starting tomorrow
• Fallout from Russia’s crisis is spreading across markets: Pimco is facing mounting losses on its Russian bond holdings almost every bullish ruble option contract registered in the U.S. has been made worthless; and forex brokers in New York and London told clients they’re no longer taking ruble trades
• The Bank of Russia will probably intensify interventions and spend almost a sixth of its reserves ($70b) after its emergency increase of interest rates failed to stem the ruble’s worst crisis since 1998, according to a survey of economists
• The biggest causes for worry, according to SLJ Macro’s Stephen Jen, bigger than a recession in Russia or the oil-price plunge: the slowdown in China, which has already upended commodity prices, and likelihood U.S. growth will propel USD higher and suck assets out of emerging markets
• German govt to sell EU185.5b in bonds and bills in 2015, lowest level since 2002, Federal Finance Agency says in provisional calendar; may sell 30Y linkers for first time next year
• PBOC rolled over at least a portion of a three-month lending facility from September that was set to expire, according to a government official familiar with the matter
• A federal judge weighing whether an immigrant from Honduras should be deported said Obama’s executive order on immigration is unconstitutional and violates the principle of separation of powers
• Taliban militants vowed more strikes on Pakistan’s army if it doesn’t halt operations along the Afghan border, a threat that comes a day after the group slaughtered young students in one of the country’s deadliest attacks
• No IG or HY deals priced yesterday.
• Sovereign yields mostly higher. Asian stocks mixed, European stocks fall, U.S. equity-index futures gain. Brent crude falls 0.8%, trades below $60/bbl level; copp
  er declines, gold little changed

US Event Calendar

• 7:00am: MBA Mortgage Applications, Dec. 12 (prior 7.3%)
• 8:30am: CPI m/m, Nov., est. -0.1% (prior 0.0%)
  • CPI Ex Food and Energy m/m, Nov., est. 0.1% (prior 0.2%)
  • CPI y/y, Nov., est. 1.4% (prior 1.7%)
  • CPI Ex Food and Energy y/y, Nov., est. 1.8% (prior 1.8%)
  • CPI Core Index SA, Nov., est. 239.485 (prior 239.162)
• 8:30am: Current Account Balance, 3Q, est. -$97.5b (prior – $98.5b)

Central Banks

• 4:30am: Bank of England issues minutes
• 2:00pm: FOMC seen maintaining overnight bank lending rate between 0% and 0.25%; release of summary of eco projections
• 2:30pm: Fed’s Yellen holds news conference

FX

In FX markets, AUD/USD initially reached June’10 lows of 0.8140 after tripping stops allied by the subsequent USD-index strength despite this AUD/USD has since come off worst levels. NZD was dragged lower in sympathy, further weighed on by comments from RBNZ assistant governor McDermott, who reiterated the exchange rate remains unjustifiable and unsustainable. Separately, GBP was relatively unmoved following the BoE minutes vote remained at 7-2 and a broadly in line UK jobs report. Elsewhere, Russian news agency Interfax reported that the Russian Finance Ministry would sell USD 7bln worth of FX stocks to the market, while the Russian government and Russian Central Bank announced that they have worked on packages of additional measures for the RUB.

COMMODITIES

In the energy complex, WTI and Brent crude remain under selling pressure with the stronger USD combined with yesterday’s API Crude Oil Inventories showing a build in crude stockpiles of 1.9mln. Looking ahead, the DoE Crude Inventories data release is expected to show a drawdown of -2.25mln/bbl. Elsewhere, copper prices traded lower overnight following the release of yesterday’s production figures from China which showed output of the red metal rose by 3.1% M/M to a record for its 4th consecutive month, while the benchmark China iron ore prices extended on its declines for the 8th day with prices near this year’s low

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Back in March, otherwise very under-the-radar Swiss commodities trading giant Gunvor and the fifth largest oil trader in the world, made headlines in the press when one of its then-Russian owners, billionaire Gennady Timchenko (estimated net worth of $8.5 billion), sold his entire 44% stake in the company to his partner in the firm, Torbjorn Tonqvist, just a day before the US revealed its first round of sanctions against individuals affiliated with the Putin regime. Timchenko was among them. As a result of the sale, however, Gunvor avoided falling on the US sanctions list and a Treasury official said that “Gunvor Group Ltd. isn’t subject to automatic blocking from dealing with U.S. persons under Russian sanctions because co-founder Gennady Timchenko owns less than 50 percent of the company.”

Since then the Geneva-based company rarely appeared in the media which is how the nondescript company lliked it. Until last week, that is, when Bloomberg reported that the company was giving up trading physical precious metals, read gold, less than a year after the commodity house started a business dedicated to buying and selling gold. Gunvor is, or rather was, one of the few large commodity firms that handles precious metals. The move into gold was part of an expansion into non-oil businesses that now include iron ore, industrial metals and natural gas. Gold trading was done by a handful of people in Singapore and Geneva.

Gunvor’s move away from physical commodities trading in itself is not surprising: recall that first it was Germany banking titan Deutsche Bank which announced it would no longer trade physical precious metals last month.

According to Bloomberg at least two traders are leaving the company in Geneva and Singapore: Francois Beuzelin, hired in 2012 as head of metals in Geneva, and Cedric Chanu, who started in Singapore in January as a precious-metals trader. Chanu declined to comment by phone and Beuzelin didn’t answer calls to his office nor an e-mail sent via his LinkedIn account.

But the biggest surprise in this story was the reason why Gunvor chose to discontinues its gold trading. Per Bloomberg, “executives decided to abandon the precious metals trading business partly because of difficulties in finding steady supplies of gold where the origin could be well documented, one of the people said.”

And while we would certainly love to learn more about this problem of “undocumented” physical gold, just like that we have the most definitive confirmation yet that the story surrounding China’s rehypothecated commodities scandal in the port of Qingdao which as previously reported included copper and aluminum and which mysteriously disappeared just as abruptly as it first appeared, not only also involved the precious yellow metal but never really went away, and instead what appears to have happened is that “robosigned” physical gold – or gold whose ownership traders are unable to validate – has now flooded into the global trading infrastructure.

Because if the world’s fifth largest trader of commodities has chosen to outright not trade gold, and thus not generate value for its shareholders over risks and fears that another, or two, or three, or a countless number of other prior “owners” may come knocking one day and demanding delivery of gold whose origin could not be documented by its trading intermediaries, and whose ownership link Gunvor is unable to trace, then just what on earth is really going on with the world’s physical gold inventory (here’s looking at you, Chinese gold-backed Commodity Funding Deals), and just what is the catalyst that will unleash what is essentially the infamous US mortgage robosigning scandal onto the gold arena, at which point owners of gold realize the gold they thought they owned, even if held safely in a deposit box deep in a gold vault in a safe offshore location, in reality “belongs” to someone else?

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Submitted by Simon Black via Sovereign Man blog,

Last night, the Russian central bank announced a shock decision to hike up its key interest rate from 10.5% to 17%, effective immediately. Incredible.

On Monday alone the ruble declined more than 9% against the dollar, and almost 50% in 2014. It looks like a massacre.

If you listen to conventional financial news, they’ll all tell you that you’d have to be insane to own anything in Russia right now—stocks, bonds, currency, etc.

They’ll tell you that the ruble is in freefall, and that the dollar is the place to be.

But if you have been a reader of this column for any length of time, you know that I am a very data-driven person.

So… just for kicks, I decided to dive into the numbers and make an objective comparison between the US dollar and the Russian ruble.

The results might surprise you.

First of all, I start off with the premise that ALL paper currencies are fundamentally flawed.

Our global monetary system is absurd—the idea of letting unelected central bankers conjure as much money as they want to out of thin air is simply insane.

But it is true that some fiat currencies have better fundamentals than others. And if you want to understand the health of a currency, it’s imperative to look at the ISSUER of that currency, i.e. the central bank.

As with any bank, one of the most important metrics in determining a central bank’s financial health is its level of solvency.

Specifically we look at the bank’s capital (i.e. net assets) as a percentage of its total balance sheet.

The US Federal Reserve only has a basic capital ratio of 1.26%. Talk about razor thin. (This is down from 4.5% just a few years ago)

That means if the value of the Fed’s assets declines by only 1.26%, the issuer of the world’s dominant reserve currency becomes insolvent.

Now, what happens to the liabilities of an insolvent entity? They decrease in value. Just like how Greek bonds (the liabilities of the Greek government) collapsed a few years ago.

What are the Fed’s liabilities? Open your wallet. Those green pieces of paper aren’t ‘dollars’. Just look. They have “Federal Reserve Note” (i.e. debt) printed on them.

So the Fed’s pitiful financial condition directly affects the value of the dollar over the long-term.

On the other hand, the Russian central bank’s ratio is 12.5%—literally almost TEN TIMES GREATER than the Fed.

Capital cushion is crucial because when the unsuspected happens, this is what can help keep you afloat.

Think about it: you might be able to keep going without savings, perhaps even accumulating debt, but only until something happens out of the blue.

Until your car breaks down, or you need to go to the hospital, for example. Then all of a sudden, your lack of capital can become a serious issue.

Another important metric is gold. As I mentioned, since all fiat currencies are fundamentally flawed, it’s important to see the amount of REAL ASSETS that a central bank holds in reserve.

To make an apples-to-apples comparison, we look at a central bank’s GOLD reserves as a percentage of the money supply, i.e. how much gold backs the money supply.

In Russia, it’s 6.2%. And rising. Last year it was 5.5%, and the central bank is continuing to heavily stockpile more.

How much gold backs the dollar?

Precisely zero point zero percent. Zilch. Nada.

The Fed doesn’t own gold. It loudly proclaims this on its own website: “The Federal Reserve does not own gold.”

It holds ‘certificates’ which are redeemable for US dollars. But there’s not a single ounce of gold backing the US dollar.

So… with no gold and pitifully razor thin solvency levels, it really wouldn’t take much of a shock to topple the dollar.

By comparison, the ruble is much better capitalized and actually has something backing it.

Now, I’m not necessarily advocating to buy the ruble, but hard, publicly available numbers clearly demonstrate the discrepancy between “sentiment” and objective data.

And at a time when the ruble and the whole Russian economy have been beaten down so much that Apple alone is now worth more than the whole Russian stock market, Russian assets certainly make for an interesting speculation.

The bottom line, however, is—if you wouldn’t own the ruble, then what are you doing holding 100% of your assets in the dollar?

via Zero Hedge http://ift.tt/1z1v5qx Tyler Durden

Just when you thought you had seen it all, Islamic State militants turn up the amplifier of terror to 11. As The Mirror reports, ISIS is launching bombs containing live scorpions as the latest terror weapon in Iraq. Canisters of the creatures are being blasted into towns and villages, according to a British military expert who has just returned from the country. Hamish de Bretton-Gordon, ex-head of chemical and biological weapons for the Army and Nato, said: “it’s madness. IS have improvised devices to launch them.” The weapon harks back to the scorpions stuffed into pots and launched by Iraqis thousands of years ago – in 198 AD.

 

As The Mirror reports,

Islamic State militants are launching bombs containing live scorpions as the latest terror weapon in Iraq.

 

Canisters of the creatures are being blasted into towns and villages, according to a British military expert who has just returned from the country.

 

Hamish de Bretton-Gordon, ex-head of chemical and biological weapons for the Army and Nato, said: “It’s madness. IS have improvised devices to launch them.

 

“They promote the fact that they are doing it and it creates panic.”

 

“Scorpions are robust – even if they are launched a couple of miles, when the canister breaks thousands are flung out and start crawling all around.

 

“Some scorpions are very poisonous but the main thing is creating fear.”

 

He said the 2ft bombs were not causing mass casualties but had a massive “psychological impact”.

 

Mr de Bretton-Gordon – of Avon Protection Systems – returned from Baghdad last week, where he was advising security forces.

 

Senior Iraqi officials reported the beasts were being used to target civilian areas in the north of the country.

 

The weapon harks back to the scorpions stuffed into pots and launched by Iraqis thousands of years ago – in 198 AD.

 

They were defending themselves against the Roman invasion.

*  *  *
Time for some non-boots-on-the-ground US Marine ‘exterminators’…

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Submitted by Charles Hugh-Smith of OfTwoMinds blog,

Big Pharma has followed the only avenue left to reap billion-dollar profits: jack up the price of generics.

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