Market Snapshot
Asia: Japan +0.8% to 18171. Hong Kong +2.4% to 21967. China +4.9% to 3152. India +1% to 25964.
Europe: London +0.8%. Paris +1.2%. Frankfurt +0.4%.
Futures: Dow -0.1%. S&P -0.2%. Nasdaq -0.1%. Crude +1.8% to $45.38. Gold +0.5% to $1108.10.
Ten-year Treasury Yield flat at 2.28%
Economic News
FOMC meeting begins
7:00 MBA Mortgage Applications
8:30 Consumer Price Index
10:00 NAHB Housing Market Index
10:30 EIA Petroleum Inventories
Markets
The drama surrounding this week’s FOMC meeting is unprecedented in recent memory, with the picture complicated by the recent market turbulence that may see the central bank hold off on raising rates. Many investors are hesitant to make big trades ahead of the decision, and U.S. economic data published on Tuesday did little to show which way the Fed will swing. While raising rates will almost certainly send waves through equity markets, not moving will likely keep the guessing game – and accompanying stock gyrations – alive for weeks to come. U.S. futures are cautious on the upcoming decision: Dow -0.1%. S&P -0.2%. Nasdaq -0.1%.
The Labor Department will report on consumer prices for August later today – another important economic release before the FOMC’s rate decision tomorrow. While the Fed may raise interest rates to head off any threat of inflation down the road, the report is unlikely to hint at higher prices ahead. Due to lower gasoline prices, economists expect August’s CPI to come in unchanged, compared with a 0.1% rise in July.
Meanwhile, the Obama administration has begun preparations for a possible federal shutdown next month as a series of obstacles threaten a repeat of 2013. Issues that could close government doors: Planned Parenthood, the sequester, the Iran deal, leadership challenges, the Export-Import Bank and/or Highway Trust Fund. Lawmakers have just 15 days to reach a budget agreement before September 30, when current funding expires.
Snapping a major two-day slump, China’s Shanghai Composite Index jumped 4.9% to 3,152.26 at the close, with all of the gains coming one hour before markets shut in a pattern that’s generally interpreted as government intervention. Volumes, however, remained subdued; the 10-day average volume in Shanghai has been sliding steadily since August and trading volumes are now down 28% below their 30-day average.
Japan got its debt ratings reduced by Standard & Poor’s today over doubts the government will revive economic growth and end deflation in the next two to three years. It’s not a good news for Abenomics, the pet project of Prime Minister Shinzo Abe. The country currently has some ¥54T ($450B) of debt outstanding, which now holds a AA- rating instead of an A+ report card.
Eurozone officials are racing against the clock to restructure Greece’s banking system before new rules kick in that could wipe out corporate deposits and result in disastrous effects for the country’s economy. The rush has been complicated by Sunday’s snap parliamentary elections, which could produce no clear winner and prolong negotiations over a governing coalition. Syriza’s Alexis Tsipras and New Democracy’s Evangelos Meimarakis are going neck-and-neck in the polls and both state they will broadly honor Greece’s recent bailout commitments and negotiations.
White House press secretary Josh Earnest confirmed yesterday that the Obama administration does not support a House bill to lift the ban on U.S. oil exports, and such a decision is for the U.S. Commerce Department. House Republicans are planning to vote in the coming weeks to lift the four-decade-old ban in a move that could further rattle global oil markets. Crude futures +1.8% to $45.38/bbl.
Stocks
The pre-spinoff HP hasn’t been shy about carrying out major job cuts and it looks as if post-spinoff HP Enterprise won’t be any different: 25K-30K workers are now expected to leave HP’s enterprise IT operations as part of the company’s efforts to save $2.7B in costs. “We’ve done a significant amount of work over the past few years to take costs out and simplify processes and these final actions will eliminate the need for any future corporate restructuring,” CEO Meg Whitman announced at HP’s (HPQ) 2015 analyst day.
Mark Zuckerberg has confirmed Facebook is working on adding a “dislike” button, although it’s turning out to be “surprisingly complicated” to create. Facebook (FB) wants to limit use of the button to expressing sympathy when someone posts something sad or upsetting. Zuck also reiterated his optimism about artificial intelligence/machine-learning and predicted the “golden age of video” to arrive over the next five years. Beyond that, he sees virtual reality going mainstream.
The Senate has approved legislation that will likely suspend current compensation for heads of Fannie Mae (OTCQB:FNMA) and Freddie Mac (FMCC) following the disclosure of massive pay raises for the officials. On July 1, the two government-controlled entities disclosed that Fannie CEO Timothy Mayopoulos and Freddie head Donald Layton would earn $4M annually, up from their previous salaries of $600K. If the House passes the compensation legislation, it will be sent to President Obama to become law.
AMC Networks is back in talks to acquire billionaire John Malone’s Starz (STRZA), Bloomberg reports. “They probably ultimately need to combine with others at least from a bundler point of view, if not from an ownership point of view,” Malone declared last week. A deal would also require the sign-off of the Dolan family, who control voting power after AMC (AMCX) was spun off from Cablevision (CVC) four years ago.
Fitbit just bagged one of its largest corporate accounts to date. Target (TGT) is now offering the company’s activity trackers to its 335K U.S. employees, becoming the latest firm to turn to wearable devices to improve worker fitness and reduce healthcare costs. While corporate services generate less than 10% of Fitbit’s (FIT) revenue, it’s “one of the fastest-growing parts of the business,” Chief Executive Officer James Park said in an interview.
Anheuser-Busch InBev has informed rival SABMiller (SBMRY) that it intends to make an offer to acquire the British firm in a deal that would bring together the world’s two largest beermakers. “No proposal has yet been received and the board of SABMiller has no further details about the terms of any such proposal,” the company said in a statement.
Glencore has raised about £1.6B ($2.45B) in a share placing, fulfilling its recently announced plan to cut its massive debt load and safeguard its investment grade credit rating. The 1.31B shares issued represent 9.99% of the company’s existing share base and were priced at 125 pence a piece, a 2.4% discount to Tuesday’s closing price. Glencore (GLNCY) senior management bought a large portion (22%) of the new stock, while the remaining 78% was acquired by institutional investors.
The United Auto Workers union has reached a tentative labor deal with Fiat Chrysler (FCAU) after a long drawn-out night of negotiations. The union hopes the terms can be used as a template for Ford (F) and GM (GM), which also extended their deals past a midnight deadline on Monday to allow more time to wrap up negotiations. Under the agreement, Fiat Chrysler will eventually phase out the two class wage system between new factory workers and more senior employees.
Meanwhile, carmakers are continuing to reposition themselves for the advent of driverless cars as competition heats up to develop a fully autonomous vehicle. Google (GOOG, GOOGL) named industry veteran John Krafcik CEO of its self-driving car project on Monday, and other carmakers are snapping up software experts to refocus their products and business models. New developments: BMW (BAMXY) is testing a driveless taxi/car-sharing project, while Mercedes-Benz (DDAIF) is considering a similar limousine service.
In other automotive news: Porsche and Mercedes-Benz are planning electric cars to take on Tesla (TSLA), as luxury brands begin to see the latter as serious competition. Volkswagen’s (VLKAY) Porsche division has unveiled a prototype four-seat sedan sports car, powered by electric batteries that charge in 15 minutes and can accelerate faster than the new generation 911. Mercedes’ (DDAIF) electric vehicle will likely come to market in the next few years and would go 250-310 miles between charges.