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Wall Street Breakfast: France, Germany Report Slight Growth In Q3

Nov. 14, 2014

Economy

France’s economy grew for the first time this year during the third quarter and Germany narrowly avoided sliding back into recession, as the two reported Q3 GDP data today. French GDP expanded by 0.3% Q/Q, above forecasts of 0.2%, marking a return to growth for the struggling euro zone nation. GDP in Germany was just 0.1% higher in the three months to September, in line with expectations. The sluggish performance could strengthen the hand of Mario Draghi if he decides to expand his controversial €1T asset purchase plan to corporate bonds and sovereign debt.

"If Russia takes a positive approach towards Ukraine...we could see those sanctions removed, if Russia continues to make matters worse then we could see those sanctions increased, it's as simple as that," warns David Cameron ahead of Saturday's G20 leaders summit in Australia. The summit will focus on world growth, the global banking system and closing tax loopholes, but with much of the economic agenda agreed upon in Beijing this past week, security concerns are moving to center-stage, setting up a showdown between Western leaders and Vladimir Putin.

Baghdad and the Kurdistan Regional Government have reached an interim agreement over oil exports and budget payments, ending a feud that began earlier this year when Kurdish officials bypassed the Iraqi Oil Ministry and exported oil directly. Iraq’s central government called the move unconstitutional and halted the national budget payments allotted to the regional government. Under the new agreement, Baghdad will pay $500M to the K.R.G., while the Kurds will give 150K barrels per day of oil exports to the national budget.

Stocks

After launching an investigation into Starbucks' tax deal with the Netherlands five months ago, the European Commission has now publicly accused Dutch authorities of illegal state aid, allowing the coffee chain to make payments on a lower corporate income tax base. It is not immediately clear how much Starbucks (NASDAQ:SBUX) might have to pay in back taxes if there is a ruling against the Netherlands in the case. A final decision could take years.

U.S. District Judge Carl Barbier has refused to overturn his ruling that finds BP's (NYSE:BP) 2010 Gulf of Mexico oil spill conduct "grossly negligent." The decision means BP could still face close to $18B of penalties for violating the federal Clean Water Act. On Monday, Barbier rejected BP's bid to remove Patrick Juneau, the administrator overseeing payouts to businesses and individuals claiming damages from the spill.

Petrobras says it will not meet a Friday deadline for reporting its Q3 earnings, and expects to release unaudited "accounting information relative to the third quarter" on Dec. 12. Petrobras (NYSE:PBR) cites internal and external probes into corruption allegations as reasons for the delay, adding that it is considering accounting adjustments based on the accusations.

Baker Hughes has confirmed it has engaged in preliminary talks with Halliburton (NYSE:HAL) about a potential business combination and will offer no further comment. A combination of the second and third largest listed oil services groups by market cap is likely to draw scrutiny from U.S. regulators, but the biggest obstacle to a deal might come from its E&P customers worried about the potential for higher prices at a time of falling crude oil prices. BHI +7.3%; HAL +1.1% premarket.

Royal Bank of Scotland is fully exiting its U.S. mortgage trading business after originally planning to reduce it by two-thirds. RBS (NYSE:RBS) said in May it would eliminate hundreds of jobs in the U.S. due to new legislation passed by the Fed in February. The new laws require foreign banks with $50B or more in U.S. assets, to set up an intermediate holding company subject to the same capital, risk management and liquidity standards as U.S. banks.

Amazon has ended its brutal battle with Hachette, reaching an agreement to sell its print books and e-books, after a six month stand-off that battered the French-owned publisher’s sales. The new terms give Hachette (OTCPK:LGDDF) the ability to set its own prices for e-books, which it sees as critical to its survival. The groups also announced that they would resume normal trading immediately and that Hachette titles would be "prominently featured in promotions" on Amazon (NASDAQ:AMZN).

SAP has agreed to pay Oracle $359M to settle a long-running legal battle over software copyrights. Oracle (NYSE:ORCL) filed suit in 2007 alleging that TomorrowNow, a company that SAP had acquired, illegally downloaded Oracle’s software. SAP (NYSE:SAP) admitted liability, but the lawsuit dragged on for years over the amount of damages the company should pay.

Warren Buffett is again using tax code to his advantage with his new deal to buy Duracell from Procter & Gamble (NYSE:PG). Berkshire Hathaway (BRK.A, BRK.B) is paying $4.7B for the business, but the currency will be its P&G stock with a cost basis of just $336M. Had Berkshire instead sold the shares, it would have faced a capital gains tax bill of more than $1B.

Airbus reported a 14% rise in operating earnings in the three-month period to €744M, comfortably beating analysts’ expectations. Q3 net income dropped 41% to €264M due to negative foreign exchange revaluation, but Airbus' (OTCPK:EADSY) nine-month period net income is still up 16% to €1.4B. Despite a warning on possible "negative cost and risk evolution" at its A400M military transport plane program, the planemaker is sticking to its full-year guidance.

A NY federal grand jury has subpoenaed Takata's (OTCPK:TKTDY) U.S. unit to produce documents on its defective air bags, which have been linked to five deaths in Honda (NYSE:HMC) vehicles. The U.S. Senate commerce committee has scheduled a hearing next Thursday to solicit testimony from Takata execs on the air bag defects, as well as from officials of the NHTSA on the vehicle recall process. Honda says it will also be sending a representative to testify before the Senate committee.

Virgin America's initial public offering has been priced at $23 per share, valuing the low-cost airline at $993M. The company earned $10.5M on revenue of $1.42B in 2013, its first profitable year since it started flying in 2007. Virgin America (NASDAQ:VA) will debut on the Nasdaq today under the symbol "VA".

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Today's Markets:

In Asia, Japan +0.6% to 17491. Hong Kong +0.3% to 24087. China -0.3% to 2479. India +0.4% to 28047.

In Europe, at midday, London -0.2%. Paris -0.1%. Frankfurt -0.4%.

Futures at 6:20: Dow +0.1%. S&P +0.1%. Nasdaq +0.2%. Crude flat at $74.22. Gold -0.7% to $1152.90.

Ten-year Treasury Yield flat at 2.35%

Today's economic calendar: