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Will The Oil Rally Be Sustained This Time Or Fizzle Out?

By
Andy Parker
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Oil_platform

The current two-day oil rally has helped drive global markets higher and has rekindled hopes that the commodity has finally bottomed out. Oil prices rallied 9% yesterday alone, easing concerns over enormous supplies and record-high stock reserve in the U.S.

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Efforts by oil producers

Brend Crude for April delivery was seen trading higher by 0.54% to a high of $35.23 while West Texas Intermediate Crude Oil added up as much as $0.32 to an intraday high of $32.60. Another reason oil may have extended its gains could stem from Venezuela’s efforts within OPEC. Venezuela is one of the least efficient oil exporters in the cartel.  The country’s efforts appear to be yielding some results as the market is abuzz that members of OPEC as well non-OPEC producers might agree to finally meet.

However, analysts are divided over the possible meeting as many believe that pressure will not work until against Saudi Arabia. According to Venezuela’s Oil Minister, Eulogio del Pino, Iran and Iraq along with Russia and Oman are willing to meet over the oil glut issue. Investors will closely follow as to how such reassurances and speculations unfold over the course of the next few days as any fallout or deviation from these statements could badly hurt oil again.

Analysts in Disagreement

Most of the major oil analysts remain sceptical about the sustainability of the current rally. Morgan Stanley has already trimmed its 2016 Brent price outlook to $30 from $49. Moreover, research analysts at the firm held the view that oil prices will remain under pressure for much longer than earlier thought.

At the same time, several analysts are blaming dollar weakness as a factor in driving the young oil rally. A weak dollar supports oil as all oil purchases must be made in dollars.

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CVS (NYSE:CVS) Opens First Pharmacies It Acquired from Target (NYSE:TGT)

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CVS Health Corp (NYSE:CVS) is embarking on its largest expansion in years. The drugstore operator has opened some of the first pharmacies it is acquiring from Target Corporation (NYSE:TGT). Last year, the two organizations declared that Target would sell 1,672 pharmacies for $1.9 billion as part of a deal, which concluded in December. CVS’s “store-in-a-store” pharmacies, starting with a few locations in North Carolina yesterday, will be rebranded as CVS pharmacy and MinuteClinic locations.

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The conversions will happen over a six-to-eight month timeframe, increasing CVS’s pharmacy business by 20% with over 9,000 locations taking it past Walgreens Boots Alliance Inc (NASDAQ:WBA). Walgreens is attempting to purchase the No.3 American drugstore chain, Rite Aid Corporation (NYSE:RAD) for $9 billion but may have to shut down thousands of stores to comply with regulations. The CVS deal wtih Target will give CVS its first pharmacies in important markets such as Portland, Denver and Seattle.

Target CEO Brian Cornell said that more peple will have access to CVS’s pharmacy care and clinical programs while shopping at Target. He added that by giving the pharmacy business to CVS, Target can concentrate on its key goals such as enhancing its offering of health oriented items letting CVS provide services which it is more qualified to offer.

The move will help CVS ramp up its pharmacy business which comprises 70% of its sales. By allying with Target, CVS may be deprived of incremental sales of general merchandise items such as toothpaste that people buy when they come to obtain their prescription. However there appears to be a larger benefit: giving business to Caremark that is presently a larger source of revenue than the drugstores for CVS.

When CVS declared its $1.9 billion takeover of Target’s pharmacy venture in June, several were concerned it would trigger a series of similar alliances as cost pressures adversely affect profits at grocery-store pharmacies. In October, Rite Aid and Walgreens – the second and third biggest pharmacy chains in America after CVS declared a$9.4 billion merger.

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World Markets Cheer Oil Rally, Mostly Up

By
Andy Parker
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oil

Most Asian markets registered a rebound today following a weak session yesterday. The optimism that kept markets high was fueled once again by oil, which extended its gains into today. Referring to a tight correlation between equity markets and oil, AVA Trade analyst said that global markets are acting as if they are a hostage to oil price movement. Australia’s ASX rose by as much as 2% to 5,029.30.

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Nikkei and Taiwan’s TSEC exceptions

The Shanghai SE Composite Index also posted a gain of 1.53% at 2,781.02 while Hang Seng finished the day higher at 19,183.09, up by 1%. Only Japan’s Nikkei 225 and Taiwan’s TSEC 50 seemed to have bucked the trend as each fell by 0.85% to 17.045 and 8,063 respectively. According to analysts, Nikkei’s losses could be fuelled by the strengthening of the yen against the dollar, which is especially puzzling given the Bank of Japan’s new negative interest rate policy.

Meanwhile, European indices are broadly positive as the FTSE 100 added 35.80 points to 5,872.94 during late Asian trade. The Euronext 100 is flat at 839.65 while Germany’s DAX gained 0.41% and is trading near 9,473. France’s CAC 40 is marginally lower, trading down by 0.20% to 4,219.

European traders will be looking forward to the quarterly inflation report to be released by the Bank of England later today to help assess the direction of the UK economy.

U.S. markets firm

U.S. markets remained firm yesterday despite weak non-manufacturing and job growth data that failed to indicate that the U.S. economy is growing at the pace expected. The fall in service sector activity may have added to the hopes that the Federal Reserve will find it difficult to keep its hike rate pace as planned earlier, hinted at by New York Federal Reserve head William Dudley yesterday.

Growing speculation that OPEC and non-OPEC countries will arrange a meeting to address oil oversupplies has helped Brent crude chug back above the $35 per barrel level.

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Greenback Broadly Weaker Against Major Currencies

By
Andy Parker
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The U.S. Dollar went back into negative territory against major currencies after key data in the U.S. confirmed sluggish economic growth in the region. The greenback traded lower against both Euro and Yen during the late Asian hours.

Economic activity slides

EUR/USD was seen trading up by 0.20% at 1.1126 as the economic data signalled that the Federal Reserve might not be able to step-up rates as aggressively as it had announced earlier. The ADP Research Institute noted yesterday that the private payrolls grew by 205,000 in January, lower than the growth of 257,000 in December. However, the data came above the Street’s expectations, which estimated numbers to rise by 190,000. The report comes ahead of the official employment data to be released by the U.S. Department of Labor tomorrow. The market is expecting the government to report the addition of 190,000 jobs in January after 292,000 growth in December.

At the same time, the Institute for Supply Management (ISM) reported that the service sector activity slipped to 53.5 in January versus 55.8 in December, confirming the slowdown in the economy.

Other currencies

The Japanese Yen continued to gain against the greenback today as the weak European markets coupled with a dovish tone of the Fed has renewed demand for safe-haven assets. The currency appears to have brushed off the concerns stemmed from the Bank of Japan’s surprise move of embracing negative interest rates. USD/JPY traded down by 0.05% to 117.85 during today’s late Asian hours.

In the meantime, Chinese yuan remained weaker against the U.S. dollar after a report of a major currency transaction involving $43 billion bid by ChemChina for Swiss-based Syngenta. USD/CNY traded up by 0.01% to 6.5775.

The greenback remained low against the British Pound and Australian Dollar. GBP/USD traded up by 0.15% to 1.4623, while Australian dollar too gained as much as 0.40% at 0.7194. The U.S. Dollar index traded steeply lower by a whopping 0.21% to trade around 97.05.

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Cisco (NASDAQ:CSCO) Tastes a Little Victory against Arista (NYSE:ANET)

By
Carol Harper
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Cisco Systems, Inc. (NASDAQ:CSCO)

The International Trade Commission (ITC) has handed down a ruling in favor of Cisco Systems, Inc. (NASDAQ:CSCO) in the patents case against its rival Arista Networks Inc (NYSE:ANET). The judge ruled that the latter violated at least three patents. The ruling comes after a long investigation with supporting evidence, and a fortnight of testimony and the cross-examination.

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In a blog post, Cisco Systems’ Mark Chandler said that the ruling puts an end to Arista’s systematic copying of its intellectual property rights. He said that its rival could no longer support claims to resellers, the market, and customers that Arista has developed. He pointed out that the patents in question related to Arista’s core products. The executive said that one of the patents that were found to have been infringed covered its proprietary, SysDB, which Arista claimed as a ‘secret sauce’.

Chandler indicated that none of the patents, including NetDB, were adopted as industry standards. He claimed that the patents for which it was fighting against were invented by its employees who later became the executives of Arista Networks. Alternatively, the patents were taken by those engineers who worked in Cisco and later joined its rival.

Arista’s Options

The Cisco executive listed four options for its rival. One was to withdraw the products from the market, which he considered the most honorable option. The second was to modify the products so that they don’t infringe on Cisco’s patents. He said that Arista had the option of submitting fresh designs during the investigation of the ITC. However, Arista failed to do so.

The third option suggested by Cisco Systems was to face an exclusion order. Chandler said that Arista could not ignore such an order as that would result in more sanctions. That included a possible permanent injunction against the sale of Arista’s products in the US. The last option was to evade the ITC exclusion order.

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Starboard Value to Bet on Marvell Technology (NASDAQ:MRVL)

By
Carol Harper
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Marvell Technology

Starboard Value LP, a New York based hedge fund, is betting on Marvell Technology Group Ltd. (NASDAQ:MRVL). Starboard has a 6.7% stake in the company. WSJ reports indicated that the investment firm was confident that the struggling Marvell could enhance its margins apart from other improvements. The company is already facing investigations on its accounting, causing the stock to dip recently.

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Enough Space to Cut Costs

Starboard Value believes that there is enough space to improve Marvell’s margins by resorting to cost cutting. For example, the hedge fund wanted the semiconductor firm to exit the mobile-device unit since it failed to deliver the expected results. However, Marvell had already indicated in September last year that it would scale back that unit by reducing its workforce by 17%.

Starboard appears to be attracted by the available cash on Marvell’s balance sheet, which is about $2.3 billion, though the company’s market cap is around $4.6 billion. Activists want the cash to be returned to investors. It was not the first time that the hedge fund has invested heavily in a semiconductor firm as it has a history of participating in ten earlier campaigns by having an over 5% stake. It has also held smaller stakes in a number of semiconductor firms. Interestingly, most of them have sold themselves after being pushed into a corner by the hedge fund for management and board changes.

Potential Takeover Target

Starboard has engaged three semiconductor executives as advisors for Marvell. Richard Hill, Oleg Khaykin and Jeffrey McCreary were the three executives from the industry.

Given Starboard’s history, it won’t be surprising if Marvell Technology becomes a potential takeover target. Last month, Cowen analyst Timothy Arcuri indicated that Marvell shares could be valued $17.35 in the event of any takeover bid. That meant the stock, which witnessed a 44% drop in the last 12-months, has the potential to nearly double from today’s closing price of $9.27.

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Tesla (NASDAQ:TSLA) CEO Musk Gets Into a Tizzy Over a Blog Post

By
Carol Harper
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Tesla Motors Inc (NASDAQ:TSLA)

Tesla Motors Inc (NASDAQ:TSLA) CEO, Elon Musk, showed a bit of his temper after cancelling a blogger’s pre-order. Musk’s move was motivated by a venture capitalist who wrote about what he thought was a bad launch event for the Model X, Tesla’s most recently launched sports utility vehicle. His behavior has been termed petty by some.

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Critical Letter Written

A venture capitalist from California, Stewart Alsop, chose to write an open letter to Tesla Motors CEO on what he thought was a badly run launch event for the Model X back in September. The letter, which was headlined  ‘You should be ashamed of yourself,’ listed his issues with the event. That included a late start and the heavy focus on safety. On that day, the showroom was so packed so much that Alsop, who placed an order for the car, failed to get any chance to test drive it.

The Californian venture capitalist deposited $5,000 for the Model X, which was to be shipped in 2013 originally. However, at the end of the last year, 2015, it only delivered 208 cars. Concluding the letter, Alsop wanted Tesla Motors to apologize to consumers who bought the car.

Banned By Tesla

The net effect of the letter was that Alsop’s pre-order was cancelled by Musk personally. However, Alsop relayed his conversation with Tesla Motors’ Musk through the phone in a follow-up post, which was titled  ‘Banned By Tesla’. He told Musk that the CEO was not comfortable in allowing Alsop to own a Tesla model car, and, therefore, cancelled his order. He expressed his surprise when he said that he was taken aback at being banned.

Alsp pointed out that an earlier incident involved posting a critical blog on the BMW X1. He said that BMW’s CEO did not take the vehicle back despite his criticism.

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GlaxoSmithKline (NYSE:GSK) Suffers Loss in Fourth Quarter

By
Carol Harper
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GlaxoSmithKline plc (ADR) (NYSE:GSK)
GlaxoSmithKline

GlaxoSmithKline (NYSE:GSK) suffered a net loss of £428 million or a loss of 7.3 pence a share in the fourth quarter. By comparison, the company earned a profit of £1.03 billion or 21.5 pence a share in the same quarter last year. The British firm blamed the loss on integration costs of new businesses.

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Revenue Rises Modestly

GlaxoSmithKline delivered 4% growth in its turnover to £6.286 billion up from £6.186 billion last year. However, gross profit dipped 7% to £3.745 billion from £4.157 billion during the same period. While R&D expenses grew 9% to £1.05 billion from £979 million, selling, general and administrative expenses increased 15% to £2.498 billion from £2.207 billion.

Glaxo has been under pressure as it has faced increasing competition from generic drug manufacturers. Its focus has been on its strengths in the fourth quarter. Also, results came a day after the company announced its collaboration expansion with Adaptimmune Therapeutics. The objective was to lift its position in the market of oncology. The alliance would fuel Adaptimmune powered T-cell receptor therapy for cancer treatment.

Outlook For 2016

Glaxo further said that it continued to see earnings percentage reaching double-digit growth on a constant currency basis. However, it indicated that it was fully aware of the macro-economic, as well as healthcare environment, which would remain challenging. Therefore, it said it would focus on enhancing commercial execution and realizing the gains of its restructuring and integration program.

Glaxo also expects considerable options for its new R&D portfolio of more than 40 assets. The company believes that 80% of them have the potential to be rated as first in class. The British drug company expects development milestones for assets like Daprodustat, Cabotegravir, Sirukumab, and Shingrix. It indicated that it would pay a dividend of 80 pence a share for the current year, as well as next year.

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AstraZeneca’s (NYSE:AZN) Cancer Drug to be a Growth Driver After EU Approval

By
Carol Harper
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AstraZeneca plc (ADR) (NYSE:AZN)

AstraZeneca (NYSE:AZN) should be a happy lot after regulators in Europe gave their approval to its lung cancer drug, Tagrisso. Tagrisso has the potential to be a key growth driver almost immediately for the pharma company. AstraZeneca considers Tagrisso to be a top seller in its portfolio though some analysts have their own doubts about its potential.

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AstraZeneca’s lung cancer drug was the first to focus on a subset of patients that develop a treatment-resistant mutation known as T790M. Lung cancer is the most common type of cancer and considered one of the deadliest. Tagrisso is the first drug to get accelerated approval from the European Medicines Agency. However, the FDA in the United States gave a green light to Tagrisso two months ago.

In 2013, the drug reached its first human trials and since then has witnessed accelerated development. The company submitted two phase 2 trial results based on a total of 474 patients enrolled. The trials indicated that the drug shrank tumors in 66% of cases. AstraZeneca is also conducting the final phase trials for Tagrisso to collect additional data on efficacy and safety.

Potential Revenue Generation

AstraZeneca thinks that the lung cancer drug has the potential to generate revenue of $3 billion in sales per year. In 2014, the company achieved total revenue of about $26 billion and planned to reach $45 billion by the turn of 2023. The drug should help the firm in achieving its ambitious target, at least to some extent.

However, some analysts appeared to be cautious on the potential sales numbers. For instance, Citigroup Inc (NYSE:C) analyst Andrew Baum, expects Tagrisso to fetch sales of $1 billion by the end of the decade. In any case, it will contribute to the company’s growth. By how much is the question.

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Russia Restates Its Intention To Address Oil Glut With OPEC And Non-OPEC Members

By
Andy Parker
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Oil has pared its early day losses today after Russia again showed a willingness to enter into a dialogue with OPEC (the Organisation of Petroleum Exporting Countries). The statement came after oil slipped below $30 per barrel yesterday, causing a turmoil across the world markets.

Nothing happened last time

It is to be noted that Russia had made similar statement few days back, but such reassurance failed to solidify. Now, Russian Foreign Minister, Sergei Lavrov, has yet again indicated that they are open to talk about oil output cuts if both OPEC and non-OPEC members agree. The hint coming from one of the largest producers of oil left a positive impact on the oil market, which witnessed an upswing following a slide during early trading hours today.

The Brent Crude (ICE) for April delivery was seen trading higher by 1.59% at $33.24 while the WTI Crude Oil added $0.48 to trade at $30.36.

Oil oversupply needs to be solved

According to analysts, there is an urgent need to address the oil glut scenario as the oil slide by nearly 70% over the last one and a half year has already done damage to oil-exporting nations such as Venezuela, Nigeria, Russia and other Gulf countries. Meanwhile, U.S. is also battling with higher oil stock reserves as its reserves increased to 500.4 million, up by 3.8 million barrels during the week ended on January 20, as per a report from the American Petroleum Institute.

Amidst the disruption in the global oil market, analysts at Morgan Stanley believe that balance between oil supply and its demand will not reach a balance until the middle of 2017. The research firm added that capex cuts alone will not bring rebalance, but action needs to be taken in containing the production as well.

Going ahead, it will be seen if Russia’s initiative will get a similar response from the OPEC nations, particularly Saudi Arabia, which has been adamant about maintaining the output. The market is hoping that Russia’s statement, this time, is legitimate.

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