Plus, new details are emerging on the phase one trade deal between the U.S. and China, Boeing is officially halting production of the 737 Max, and Fiat Chrysler and Peugeot might be about to finalize a memorandum of understanding to merge.
Stocks rose slightly to start Tuesday with the Dow adding 28 points, or 0.1%. The S&P 500 also gained 0.1% to a new all-time high, while the Nasdaq hovered around the flatline.
U.S. Trade Representative Robert Lighthizer said this morning that the phase one trade deal between the U.S. and China is “totally enforceable” and will be confirmed in the first week of January. New details about the agreement have emerged, including that China will increase imports from the U.S. by as much as $200 billion over the next two years including the $40 to $50 billion in additional agricultural purchases that some have said aren’t feasible. Beijing also reportedly plans on restarting purchases of ethanol by lifting or waiving trade war tariffs on the fuel. In 2016, China imported around 200 million gallons of the fuel from the U.S. but ceased doing so in 2018 when the U.S. raised tariffs on ethanol imported to China by roughly 70% as part of the trade war.
British Prime Minister Boris Johnson said today that he will change the law to ensure that the Brexit transition phase will not be extended past December 31, 2020, setting up what the European Commission’s director general for trade, Sabine Weyand, called “another cliff-edge situation.” EU leaders have warned that it’s highly unlikely negotiators can complete and ratify the kind of new free-trade agreement Johnson wants by the end of next year. Johnson could put the Brexit deal reached earlier this fall to a vote as soon as Friday, which if ratified would see the U.K. divorce from the EU by January 31,2020, and his move suggests he is trying to apply pressure to EU negotiators to make concessions in trade talks by writing the threat of a no-deal crash out of the bloc at the end of the transition period into law. The pound dropped to pre-election levels on the news.
Boeing shares were down -1.5% at the open Tuesday following the aircraft maker’s decision yesterday afternoon to suspend production of its 737 Max indefinitely as the prospect of recertification of the plan gets pushed into next year. According to JPMorgan, even with the halt in production, Boeing will still burn more than $1 billion a month from the grounding of the plane. “We estimate that Boeing is burning nearly $2 bn per month on the MAX but this will not drop to zero during the halt,” wrote JPMorgan analyst Seth Seifman in a note to clients. “We expect Boeing to support suppliers, which comprise ~65% of the 737 cost base, in order to preserve labor and production capabilities. For now, we assume ~50% of supply chain costs hang around, resulting in monthly cash burn that is still solidly >$1 bn.” In other bad news for Boeing, Southwest Airlines joined American Airlines today in canceling thousands of flights with the 737 Max into April.
Bed Bath & Beyond’s new CEO Mike Tritton showed he is serious about forcing change at the company this morning when he ousted six senior executives in the middle of the holiday shopping season. Shares of the retailer are up nearly 7% on the news. The departures include BBBY’s chief merchandising officer, marketing officer, digital officer, its general counsel, and chief administrative officer, following the company’s chief brand officer who resigned last week. “This is the first in a number of important steps we’re taking,” Tritton said in a statement. “Balancing our existing expertise with fresh perspectives from new, innovative leaders of change, will help us to better anticipate and support our customers in their life journey and shopping needs.”
The boards of Fiat Chrysler and Peugeot will reportedly meet separately today to discuss finalizing a memorandum of understanding to formalize the $50 billion merger of the two that would create the world’s fourth largest carmaker. Fiat Chrysler and Peugeot have said that they will seek to finalize the deal by year-end to create the combined entity with 8.7 million in annual vehicle sales, with brands including Fiat, Jeep, Dodge, Ram, Chrysler, Alfa Romeo, Maserati, Peugeot, DS, Opel, and Vauxhall.
Stocks We’re Watching
HemaCare Corp (OTC: HEMA): Shares of this producer of human-derived cellular products for the cell therapy market jumped 25.5% yesterday after Charles River Laboratories International announced that it had reached an agreement to acquire HemaCare for approximately $380 million in cash. President and CEO of HemaCare Pete van der Wal said in a statement, “We are very pleased to be joining the Charles River team, which is widely recognized as the industry-leading, early-stage contract research organization. Partnering with Charles River will strengthen the value proposition for our clients, enabling them to work seamlessly with one scientific partner to enhance the speed and efficiency with which they can advance their cell therapies. The transaction will offer compelling value to our shareholders. This is an exciting day that will usher in a new era for HemoCare and my talented colleagues.” The acquisition is expected to close early in the first quarter of 2020.
The Meet Group (NASDAQ: MEET): Shares of this internet-based streaming apps company jumped as much as 18% yesterday after Reuters reported that German broadcaster ProSiebenSat.1 Media’s e-commerce arm NuCom Group is exploring acquiring the company, though talks are in early stages. Roth Capital Partners LLC wrote in a research note of the deal, “We believe the interest in Meet Group likely involves implementing Meet Group’s live streaming platforms across NuCom’s various dating sites, as well as potential user overlaps in Europe and Germany.”