Market Snapshot
Asia: : Japan -0.6% to 20258. Hong Kong -1.1% to 26567. China -3.4% to 4889. India +0.4% to 26677.
Europe: London -1.1%. Paris -0.6%. Frankfurt -0.9%.
Futures: Dow -0.5%. S&P -0.5%. Nasdaq -0.7%. Crude +0.3% to $59.69. Gold -0.3% to $1182.30.
Ten-year Treasury Yield -4 bps to 2.31%
Economic News
FOMC meeting begins
8:30 Housing Starts
8:55 Chain Store Sales
Key earnings before the open
FDS, JW.A
Key earnings after the close
ADBE, BOBE, LZB
Markets
U.S. stocks trim earlier losses after data on housing starts came in better than expected. Investors stil remain cautious however, due largely to the upcoming Federal Reserve meeting and a lack of progress in Greece’s debt talks.
Overseas markets remain under pressure today as Greece teetered on the brink of default with a debt deal nowhere in sight. Athens doesn’t have plans to present new proposals at the Eurogroup meeting on June 18, Greek Finance Minister Yanis Varoufakis told Bild newspaper, signaling that the country won’t make any further concessions. Adding to the nervousness is caution about the Federal Reserve’s two-day policy meeting, which will begin later this morning.
A divergence in the direction of bond yields is at work yet again today, with money flowing into the fixed-income markets of the U.S. and Germany, and out of Spain, Italy and Portugal. Excluding a jump in May, yields on bonds issued by the eurozone’s most vulnerable states were on track for their biggest three-day move since mid-2013. Italian 10-year bond yields rose 10 bps to 2.43%. Spanish yields rose 14 bps to 2.52%, while Portuguese yields jumped 16 bps to 3.42%.
One of the most important weapons in the ECB’s arsenal has passed its final legal hurdle, after the European Court of Justice ruled policy makers’ plan to buy government bonds in potentially unlimited quantities was legal. The verdict is an important win for Mario Draghi against hostile German opposition to the OMT (Outright Monetary Transactions) plan announced in September 2012.
Hong Kong is on high alert after authorities arrested 10 people and seized suspected explosives ahead of a crucial vote on a China-backed electoral reform package. Hong Kong’s legislature will begin debating the proposal in the Legislative Council tomorrow, with a vote due by Friday. Pro-democracy protesters are staging evening rallies throughout the week.
Chinese stocks posted their biggest slump in nearly three weeks as investors dumped shares amid fears of a fresh government crackdown on illegal margin financing, a new wave of IPOs and other signs of excess. Twenty-five companies are launching initial public offerings this week, which analysts estimate will lock up about 6T yuan ($966.7B) of capital. The Shanghai Composite Index fell 3.4% at the close, extending losses to 5.4% in the past two days.
Stocks
Coty has acquired three beauty products and fragrance lines from Procter & Gamble (PG) for as much as $12B, NY Post reports. The businesses are believed to include PG’s Max Factor, CoverGirl and Wella hair care brands, and would catapult Coty (COTY) into the big leagues of the consumer space.
Fitbit has raised its IPO price range to $17-$19 per share (from $14-$16), CNBC reports, valuing the fitness-band maker at $3.7B at the midpoint. The move is expected to be announced in a regulatory filing ahead of Fitbit’s (FIT) stock pricing, which will take place on Wednesday.
Following a top to bottom review by management, Gap (GPS) is closing 26% of its North American namesake stores (a total of 175 outlets) over the next several years in an effort to streamline its fleet. 250 workers at Gap’s headquarters will also see their positions slashed.
While still in the early planning stages, Goldman (GS) plans to go head-to-head with Main Street banks, not to mention online startups like LendingClub (LC), Prosper, and PayPal (PYPL) to offer loans of a few thousand dollars to regular folk. Goldman’s effort will be strictly online, and it’s being led by new hire Harit Talwar, who joined the bank from Discover (DFS).
Honda is expanding the ever-widening Takata (TKTDY) recall to passenger-side air bags, after confirming a seventh death due to faulty inflators in another one of its vehicles. While a recall for front driver-side air bags had previously been increased beyond “high humidity” states, Honda (HMC) has now expanded a passenger-side air bag recall nationally – affecting another 1.4M vehicles.
HSBC and JPMorgan are in discussions to relocate parts of their businesses to Luxembourg as they weigh tougher rules for conducting business outside of the eurozone and the possibility of a British exit from the EU, The Times reports. According to the International Consortium of Investigative Journalists, more than 300 companies, including PepsiCo (NYSE:PEP), AIG (NYSE:AIG) and Deutsche Bank (DB), have already secured secret deals from Luxembourg to slash their tax bills. HSBC (HSBC) and JPMorgan (JPM) could be next.
At its Monday night E3 presentation, Sony (SNE) took the opportunity to announce it’s expanding its PlayStation Vue streaming video service to two additional markets – San Francisco and Los Angeles. That brings the limited-service offering to five markets in total, counting launch markets of Chicago, New York and Philadelphia. The service, which starts at $49.99/month, will also now have slightly more unbundling: new national a la carte choices, including Showtime, Machinima and Fox Soccer Plus.
Toyota shareholders have approved a controversial new class of stock that is aimed at lifting the ratio of the carmaker’s long-term investors. Despite receiving 75% of shareholder approval, the proposal faced heavy opposition from foreign funds as the stock is readily available only in Japan. Toyota (TM) will now be able to issue up to 50M “Model AA” shares for as much as ¥500B ($4B), although the automaker plans to buy back the same number of shares, to avoid dilution of its common stock.
Merger talk in the health-insurance industry is heating up as firms grapple with the challenges and opportunities the federal healthcare overhaul has created. UnitedHealth (UNH) has reportedly approached Aetna (AET) about a takeover deal that would likely be valued at more than $40B, after Anthem (ANTM) approached Cigna (CI) with a $45B buyout offer that was rebuffed. Meanwhile, Aetna and others are considering buying Humana (HUM), which is looking at strategic alternatives including a sale.
Verizon has no desire to sell the Huffington Post or buy Dish Network (DISH), Chief Financial Officer Fran Shammo announced, saying Verizon (VZ) likes all of the AOL (AOL) portfolio and hopes to keep it together. Speculation recently has centered on whether AOL’s content assets, which include HuffPost as well as TechCrunch, were a fit in a $4.4B Verizon acquisition deal said to be focused on AOL’s ad technology.