Market Snap: At the New York close: S&P 500 down 0.2% at 2056.15. DJIA down 0.2% at 17678.23. Nasdaq Comp down 0.3% at 4863.36. Treasury yields rose; 10-year at 2.007%. Nymex crude oil up 4.5% at $51.43. Gold up 0.7% at $1,205.10/ounce.
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How We Got Here: U.S. stocks fell for a fourth straight session on Thursday, and while the U.S. bulls were able to ring fence the market and prevent a complete rout, that’s cold comfort.
U.S. stocks were looking especially weak in the premarket, after a weak session in Asia and Europe. The reason cited mainly were the Saudi airstrikes in Yemen. This drove some action in the oil markets, send crude prices higher. But the concern didn’t last very long, and the market recovered pretty quickly, with the Dow pushing into the green as oil topped out and bond yields rose. If the market was worried about Yemen, the worry didn’t last long.
Then, the rally didn’t last, either, leaving stocks modestly lower at the close. It all felt, to us, at least, more like the continuation of the week’s downtrend rather that a real response to the geopolitical.
Coming Up: Japan on Friday will release several pieces of data, including its CPI, household spending and retail sales figures. Japan’s year-on-year inflation numbers continue to be distorted by the lagging effect of last April’s sales tax hike. Stripped of that, the CPI is showing virtually zero expansion.
What Japan most needs in order to address that problem is a pickup in household spending and retail sales. That would give a domestic impetus to price pressures. It’s not clear that February’s data will show any significant improvement from the depressing state showed by those indicators in January, however.What You Missed Overnight
Co-Pilot Appears to Have Crashed Jet Andreas Lubitz was alone in the cockpit, breathing in silence, as his captain pounded on a locked door. Those chilling sounds—captured in a black-box recording—have left French investigators with little doubt that the crash that killed 150 people aboard Flight 9525 was a deliberate act.
U.S. Stocks Fall for Fourth Session U.S. stocks declined on Thursday, with major benchmarks falling for a fourth straight session, after a midday push higher stalled.
Oil Companies Reap Large Gains After Cashing In Hedging Bets Rocked by months of plunging crude prices, oil producers are harvesting financial bets to raise, for some, much-needed cash.
Yemen’s President Emerges in Saudi Arabia Yemen’s U.S.-backed president turned up in Saudi Arabia on Thursday, a day after he fled his country as Houthi militants closed in on his southern stronghold, Saudi state television reported.From The Wall Street Journal
Indian Finance Minister Preaches Patience Indian Finance Minister Arun Jaitley has a simple message for critics pushing for deeper change in the economic policies of the world’s largest democracy: It’s coming, be patient.
Singapore Stick’s to Lee’s Pro-Business Path The death of Singapore founder Lee Kuan Yew marks the end of an era at a time when the country is facing slowing economic growth and struggling to complete its transition to a first-world economy.
Foxconn Leads Fight to Save Business Tax Breaks in China Foxconn and other foreign businesses in China are fighting to save tax breaks and other benefits promised by Chinese cities and provinces, as Beijing ramps up a campaign against big spending by local governments.
Japanese Robot Maker Fanuc Reveals Some Secrets Until recently, most outsiders were stopped at the gates—especially investors who coveted a piece of the more than $6.8 billion in cash that Fanuc has amassed. Now Fanuc says it is opening up, answering a call from Prime Minister Shinzo Abe for Japanese companies to be more responsive to investors.From MoneyBeat
A Yemeni Reminder That Oil Risks Run Both Ways The U.S. may be running out of places to store the vast amounts of oil it’s pumping, but developments in Yemen are reminding investors that supply risks run in both directions.
Wall Street Titans Winning on European Banks’ Home Turf European investment banks are being pushed back on almost all fronts in Europe by their Wall Street rivals, and that is before the recent bugle call signaling a further retreat.
High-Water Mark Finally Topped in Americans’ Driving Americans kept on trucking to start 2015, the latest data from the Transportation Department show, as they drove more miles in January–an estimated 237.3 billion–than any prior January. It was a 4.9% increase from a year earlier.
Building a Bridge Between Bitcoin and Wall Street Bitcoin and Wall Street have been like two hostile cultures, each warily eyeing the other. But attitudes are changing as the sides get to know each other, and nowhere are the emissaries of those worlds working together more directly than at Silicon Valley’s premiere start-up shop, the Plug and Play Tech Center.
Americans kept on trucking to start 2015, the latest data from the Transportation Department show, as they drove more miles in January–an estimated 237.3 billion–than any prior January. It was a 4.9% increase from a year earlier.
The latest data was notable as well because it marked the first time in seven years that U.S. drivers set a 12-month driving record, as they clocked 3.05 trillion miles in the year ending in January.
For decades until the 2008 gas-price spike and financial crisis, Americans continually increased their driving totals as the population steadily rose. But after the financial crisis eased, Americans didin’t return to the roads with gusto. Only in 2014 did activity really pick up, in no small way helped along by the slump in gasoline prices in the second half of the year.
The driving increase is likely a good sign for the broader US economy–if it’s maintained. It’s also good news for sectors like auto-parts retailers.
“Winter weather, while not as harsh as last year, was much worse than normal and is likely leading to increased part failures,” says Wedbush Securities Wednesday. That as lower gas prices are “”not only encouraging incremental driving, but is also encouraging increased maintenance and discretionary spending” in the do-it-yourself space. The firm also notes that at an investor conference Tuesday, repair chain Monro Muffler Brake Inc. said increased repairs near-term should more than offset the impact from recent weather-related store closures.
One industry which likely isn’t applauding the increased driving? Car insurers. They’ve benefited from years of relatively muted claims activity as driving was curtailed. But perhaps 2015 is the year that changes some.
The tech world moves swiftly, and nothing reflects that more than the emergence, seemingly overnight, of two social-media apps that have caused a big ruckus, Meerkat and Periscope, both of which hold the potential to bring the whole “You Are There” thing to an extreme level. But there’s already a big fight brewing over them.
WSJ-D editor Brian Fitzgerald sat down at the MoneyBeat desk to talk about the latest social-media darlings. As you’ll see in the video above, we recorded the interview both the old-fashioned way, with our array of expensive high-definition cameras and lights, and using the Periscope app on an iPhone.
Both Periscope and Meerkat operate through Twitter , and that’s where the fight comes in. Meerkat is an independent startup, Periscope is owned by Twitter, which bought it in January for $100 million. Meerkat was all the rage at South by Southwest earlier this month, but before most people had even heard about it, Twitter was already putting up roadblocks to its use on their service.
Periscope launched this morning.
On one level, this is a lot of noise and navel gazing – there really isn’t much need to watch a live video of somebody boiling pasta, after all. But on another level, imagine an even like United Airways’ Flight 1549, which landed on the Hudson River in 2009. Or any live event for that matter. Imagine the Arab Spring, or the Olympics, or, well, the siege of the Alamo, with scores of people streaming live video.
Welcome to BitBeat, the latest in cryptocurrency news and analysis, written by Paul Vigna and Michael J. Casey.
Bitcoin Latest Price: $250.46, up 1.8% (via CoinDesk)Crossing Our Desk:
- Bitcoin and Wall Street have been like two hostile cultures, each warily eyeing the other. But attitudes are changing as the sides get to know each other, and nowhere are the emissaries of those worlds working together more directly than at Silicon Valley’s premiere start-up shop, the Plug and Play Tech Center in Sunnyvale, Calif.
Plug and Play runs a program that puts new companies through a three-month boot camp of sorts. Entrepreneurs are given seed capital (for an equity stake, of course), mentoring, networking and the nuts-and-bolts of simply building a company from the ground up. Nearly 3,000 start-ups have gone through the program, including LendingClub Corp. and Zoosk Inc.
The latest accelerator program is focused on startups in financial technology, “fintech” in the parlance, and includes a handful of bitcoin startups like ChangeTip and 37Coins. They are working directly with mentors from financial firms like USAA, Citi Ventures, and Capital One, and the interest appears to be very much mutual. For both sides, it’s a chance to learn what the other has to offer.
For USAA, which earlier this year was part of the group that invested in bitcoin-services firm Coinbase, its interest in bitcoin is being driven by the military servicemen and women who are its clients. Over the past nine months, said Vic Pascucci, vice president of corporate development, it’s become clear to the firm than its members are getting interested in an using bitcoin, to a higher degree than the general population. “When we see these trends, it’s our job to understand them,” said Mr. Pascucci. So when the mentorship opportunity came up at Plug and Play, USAA moved in. Literally. They sent a small team to the campus, and are operating out of an office there.
“Our product and services will look very different in six months, nevertheless two years,” said Zach Gibson, a vice president of product innovation at USAA. “It’s about how we drive change in our products and services.”
For Nick Sullivan, founder of the micropayments service ChangeTip, the program is a way for forge relationships in the financial world, and possibly find investments as well. He, too, has seen the change in the banking world in its attitude toward bitcoin. “My assumption going in [to meetings] is they may feel threatened by bitcoin, but instead what I see is that they are welcoming it.”
Jonathan Zobro is one of the founders of 37Coins, a bitcoin startup that’s building a remittance platform. The group is operating in the Phillipines, on one end of the remittance trade, and is looking to gain the knowledge on how to build the platform out for this side, the expat side.
So far he’s been impressed by the talks he’s had with the teams from USAA and Citi Ventures. “It’s surprising how much they knew,” he said. “We need to have both sides of the market covered, and it feels like we’re starting to get that.” He noted that he’s scheduled to begin working directly with the team from Citi Ventures in a few weeks.
To Saeed Amidi, Plug and Play’s founder, he sees the change in attitude at the banks being driven by the pace of technology. “Suddenly they are really open-minded, because they’re scared to be left behind,” he said. “In the tech world, the toughest to sell to are the banks.” That, he said, is changing fast. “They are incredibly proactive.” (Paul Vigna)
- The Bitcoin Investment Trust, the first publicly traded bitcoin fund, on Thursday received formal approval for listing on the OTC Markets Group. The fund is listed under the symbol GBTC, and trading is expected to begin early next week.
It’s the first product from Barry Silbert’s new Grayscale Investments, a digital-asset management firm being launched concurrently by his Digital Currency Group. It’s also the latest addition to the growing number of bitcoin trading platforms that aim to expand bitcoin investments beyond the volatile spot exchanges and attract a new class of investors.
There are platforms for trading bitcoin derivatives, like Tera Group’s TeraExchange. Additionally, the Winklevoss twins are working on getting SEC approval to list their own ETF, the Winkelvoss Bitcoin Trust, and are building Gemini, a U.S.-based bitcoin exchange. While Mr. Silbert and his group chose a roundabout way in listing on OTC (you can read the background here), he said they are seeking SEC approval for the fund, and would move to list it on the NYSE or Nasdaq.
All of this is designed to open bitcoin investing up to the wider world of the capital markets, to ordinary investors who have been scared off by bitcoin’s wild price swings. If it all takes off, it could bring a whole new breed of investor into bitcoin. The degree to which traditional investors are willing to take a flyer on bitcoin as an investment will be one key thing to watch.
“Over the past three or four months, a handful of banks have started to experiment,” Mr. Silbert said. “Some of them are experimenting around trading, some around using the blockchain for settlement, and some are interested in deploying capital as investors.” The ETF, he said, becomes one option for financial advisors and brokers who are fielding calls from clients interested in getting a taste of bitcoin. (Paul Vigna)
The U.S. may be running out of places to store the vast amounts of oil it’s pumping, but developments in Yemen are reminding investors that supply risks run in both directions.
Oil prices jumped as Saudi Arabia and other Persian Gulf countries, together with Egypt, launched airstrikes against rebel forces in Yemen. Brent crude surged over 4% to within a few cents of $60.
It’s not that Yemen is a significant oil producer–it ranks 39th in the world and accounts for only around half a percentage point of Middle Eastern output [read our explainer on how important Yemen is to the world's oil market here].
But the country, which forms the southern corner of the Arabian Peninsula, controls an oil shipping pinch-point, where the Red Sea opens to the Indian Ocean and thus has potential to disrupt traffic through the Suez Canal. Equally significantly, it reawakens concerns about some of the serious risks facing the region.
Only the U.S. pumps more oil than Saudi Arabia. While Saudi has been stable since the Second World War, there are serious underlying strains. On the one side, the country’s Shiite minority has long been resentful of its second class status to the ruling Sunni majority. Iran, a predominately Shia country, is not averse to stirring tensions in its big Gulf rival.
The Saudis won’t need reminding about the Shiite uprisings that roiled its small and oil-rich Gulf neighbor, Bahrain, in recent years. So they’ll have been particularly sensitive to the current Shia rebellion in Yemen against the Sunni-backed government.
But Shias aren’t the only worry confronting the Saudi government. So too are the radical Islamic State militants currently making a misery of Syria and parts of Iraq. Although both IS and Saudi Arabia follow their own strict Sunni interpretations of Islam, IS has made it clear it’s an enemy of the Saudi state.
There is nothing to suggest the Saudi monarchy is at any near-term risk. But with Iran seeking to press ahead with its nuclear program, with the Palestinian-Israeli conflict a perennial flashpoint, with no end in sight to the Syrian civil war, with Iraq’s own internal conflicts simmering away, with Libya in the midst of a civil war and Egypt only just returning to stability, the potential for regional upheavals to spill over shouldn’t be ignored.
The Saudis have spent prodigal sums on the country’s military. Yemen’s rebels–or Islamic State militants for that matter–are unlikely to be a match. But as the rest of the region has shown, a well-funded army and past stability isn’t a guarantee of a quiet future.
The pain at semiconductor company SanDisk Corp. is getting worse.
On Thursday, SanDisk cut its revenue outlook for the year and current quarter and withdrew its other forecasts. Shares of the company dropped 17% in early trading.
Nomura analyst Romit Shah said investors were likely spooked the most by the company’s announcements that sales of its enterprise products were lower than expected. “That’s the crown jewel of SanDisk,” Mr. Shah, who downgraded the company to a sell in January, said in an interview.
It’s not the first time this year that SanDisk has disappointed investors. In January, the company warned that revenue would contract during the first half of the year.
BTIG analyst Walter Piecyk downgraded SanDisk to neutral Thursday. In a research note, Mr. Piecyk said that he’s a believer that demand trends can benefit SanDisk, but “we have to re-evaluate if the management team can take advantage of those factors and whether we have over-estimated their technological superiority,” he wrote.
Credit Suisse analyst John Pitzer see clear signs that headwinds are rippling throughout the semiconductor industry, as some of SanDisk’s competitors, including Intel Corp., have warned of slowing demand for its products plus the negative effects of a strong U.S. dollar:
The breadth and magnitude of recent FX volatility is somewhat unusual and places us in uncharted territory. The most benign scenario is a buyer-strike, a work down of inventory but importantly no true demand destruction – a less benign scenario would involve demand destruction and/or margin pressures… While our bias is the former, the latter is not a zero-risk proposition
Still not everyone on the Street is down on the industry. Citigroup analyst Christopher Danely expects the negative trends in the industry, particularly currency headwinds, to be temporary, and says the dip could be a buying opportunity.
SanDisk’s stock is down almost 40% from its all-time highs hit in July.
Trying to trade the euro against the dollar recently has been like trying to nail jello to a wall.
It fell faster than anyone imagined. Now it’s picking up more than most predicted.
Along the way, it’s been flapping around for reasons that are hard to fathom.
Barclays has been bearish for a while, and it’s staying bearish now. The recent pickup, it says, is just a blip.
In fact, the U.K. bank has even brought forward its parity call by three months to the third quarter of this year.
“We think we’ll see a slowing in the U.S. dollar appreciation and the euro depreciation. But the underlying factors driving this trend are still here,” said Marvin Barth, European head of FX strategy at the bank.
The euro has hovered up around 1.10 since Janet Yellen signaled last week that the U.S. Federal Reserve isn’t in a tearing hurry to raise interest rates. It had dropped as low as 1.05 earlier this month right after the European Central Bank ramped up its bond-buying program.
Mr. Barth highlights that the two underlying drivers of the divergence between the euro and the dollar are still very much in place. The euro area has the largest output gap of any major economy, depressing returns on capital. Returns on capital in the U.S., by contrast, look far more attractive.More In euro
Moreover, the ECB’s commitment to keep interest rates at rock-bottom levels is also powerful.
“This is facilitating the euro being used as a funding currency,” said Mr. Barth, noting that euro debt issuance from foreign firms has surged to its highest level since the 2005-2007 credit boom.
Crucially though, this funding is not being used to invest in the European economy, but for investment and debt repayment in other parts of the world.
Mr. Barth reckons the euro area’s inflation outlook would have to change for the euro’s descent towards parity to stall permanently.
He believes the current euro rally is more a factor of the market digesting the news of the Fed potentially pushing back its expected timetable for tightening monetary policy. This could support the euro in the near-term, he said, but over a longer time horizon, the only way is down.
European investment banks are being pushed back on almost all fronts in Europe by their Wall Street rivals, and that is before the recent bugle call signaling a further retreat.
The five American investment banks in the global top 10 saw their share of European revenues increase from 48% in 2012 to 53% in 2014, according to figures compiled for The Wall Street Journal by Coalition, the business intelligence firm. The increase was even higher in fixed income, which covers trading in bonds, currencies and commodities, with the share rising from 47% to 53%. In advisory banking, Wall Street has advanced from 53% to 55%.
Only in equities, have the five European banks kept their noses in front, holding their market share at 51%.
Total revenues for the top 10 banks in Europe were down 6% at $23.7 billion.
The American investment banks outstripped the Europeans in the aftermath of the financial crisis as their domestic market recovered more quickly. More recently, the Wall Street banks have pulled further ahead as they have gained market share in Europe.
James Cowles, Citigroup ’s chief executive for Europe, Middle East and Africa, said in an interview that the Wall Street banks had reacted more quickly to the financial crisis and were now benefiting from that head start.
“The U.S. banks started doing their restructuring, they started dealing with their balance sheets and they started deciding what businesses they were going to be in earlier than the European banks which are now going through that process. As a result, the American banks are now realizing the benefit of having that clarity of strategy,” he said.
Royal Bank of Scotland Group plc recently announced plans to cut back its investment bank further, while the recent appointment of Tidjane Thiam as the new chief executive of Credit Suisse Group AG has prompted speculation that he may refocus its investment bank.
Viswas Raghavan, head of banking for Europe, the Middle East and Africa at J.P. Morgan Chase , said that U.S. banks were benefiting from the scale of their strongly recovering home market. “There is also a trend for companies to reduce the number of banks they deal with,” he said.
Explaining the Europeans’ loss of share in fixed income, Paul Johny, director of research and analytics at Coalition, said this was the area where there has been most regulatory pressure, including the new rules requiring banks to hold much more capital in certain business. It is also easier to exit certain product lines in fixed income, whereas most banks believe it is necessary to have a broad presence in equities.
Mr. Johny added that he expected the trend of increasing American dominance to continue over the longer term. However, the Europeans may make up some ground this year because of the strength of European government bond and currency trading, where the Europeans tend to be relatively stronger.
Lululemon on Thursday gave a weak outlook for its current quarter and full year, despite posting better-than-expected results for its holiday quarter as traffic improved.
SanDisk on Thursday cut its revenue outlook for the year and current quarter, citing lower-than-expected sales of enterprise products and soft pricing in some areas of its business.
Accenture said Thursday it will take a larger-than-expected hit from foreign exchange this year, though the consulting giant raised its revenue growth target on a local-currency basis.
ConAgra Foods Inc. raised its guidance for the year ending in May on Thursday after posting better-than-expected results in its latest quarter.
Winnebago Industries Inc. reported an unexpected decline in earnings in the February quarter as ongoing labor-related constraints and higher expenses offset shipment growth.
Fred's Inc. swung to a loss in its holiday quarter and gave a disappointing outlook for the current quarter and full year, as weakness in general merchandising sales offset strength in the company’s key pharmacy department. But the company said it “began to see progress” in the quarter and expressed “optimism” for the year.
Higher demand for Red Hat Inc.'s open source software drove a double-digit revenue increase in the fourth quarter, the company said Wednesday.
Five Below Inc. reported that its fourth-quarter profit rose 34% as the teen-focused discount retailer also said it plans to continue its rapid expansion.
Genesee & Wyoming Inc. cut its outlook for the current quarter, suggesting a year-over-year decline in revenue because of harsh weather impact and weakness in some commodity groups, including steam coal and metals.
Commercial Metals Co.'s earnings easily topped analysts’ expectations.
RadioShack Corp.'s chances of surviving bankruptcy are growing increasingly dim, as top-ranking lenders mounted a new challenge to the company-saving bid from hedge fund Standard General LP.
The U.S. Treasury Department disclosed on Wednesday a $7.7 million settlement with eBay Inc. unit PayPal Inc. over alleged sanctions violations by the electronic payments company.
Facebook Inc. unveiled plans on Wednesday to beef up its Messenger mobile application to allow users to book reservations, track online orders and send custom videos, a push to make the app a tool for commerce.
American Apparel Inc.'s loss widened in the fourth quarter as sales declined and the company reported nearly $4 million in expenses related to the internal investigation of its ousted chief and founder Dov Charney.