Wall Street Breakfast: Next Prime Minister To Confront Brexit Chaos

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Boris Johnson is expected to be elected leader of Britain’s governing Conservative Party today, succeeding Theresa May, who stepped down over her failure to get parliament to ratify her Brexit deal. Johnson has said he wants to renegotiate a divorce agreement – a move the EU said is not up for discussion – but has also issued a “do or die” pledge to deliver Brexit by Oct. 31. The pound already lost 2% since May announced her departure, but equity markets seem to be giving Johnson the benefit of the doubt, with a messy no-deal departure not yet priced in.

Opening gains

Lots of things are going for stocks this morning as U.S. index futures head back to record highs. Contracts tied to the Dow, S&P 500 and Nasdaq are all up by 0.3% after the U.S. and China moved closer to their first face-to-face talks in months, while President Trump appeared to soften his stance on blacklisted Huawei. Congress also struck a deal late Monday with the White House over spending, while investors await the latest round of corporate results from Visa (NYSE:V), Coca-Cola (NYSE:KO), Lockheed Martin (NYSE:LMT) and United Technologies (NYSE:UTX).

Debt ceiling deal

The bipartisan agreement will suspend the U.S. debt ceiling until the middle of 2021, eliminating the risk that the government could miss payments as early as September, a move that would have severe economic ramifications. It will also likely push the annual budget deficit for the U.S. above $1T next year, while Congress agrees on the details of the annual budget in separate appropriations bills to avert the possibility of a U.S. government shutdown. Lawmakers further decided that no “poison pills” could be attached to that legislation, such as funding for a border wall with Mexico, or a demand for President Trump’s tax returns.

What’s up with Huawei?

Seven CEOs from the tech and telecom industries descended on the White House on Monday to discuss trade, national security and most importantly – Huawei. The CEOs of the companies “requested timely licensing decisions from the Department of Commerce” regarding Huawei, which President Trump agreed to, while the executives expressed “strong support” for national security restrictions on U.S. telecom equipment purchases and sales to the blacklisted Chinese company. Among those present: Micron (NASDAQ:MU), Western Digital (NASDAQ:WDC), Qualcomm (NASDAQ:QCOM), Google (GOOG, GOOGL), Cisco (NASDAQ:CSCO), Intel (NASDAQ:INTC) and Broadcom (NASDAQ:AVGO).

European bank earnings

Switzerland’s UBS (NYSE:UBS) and Spain’s Banco Santander (NYSE:SAN) kicked off a slate of European bank earnings, with both lenders reporting income for the second quarter that topped the highest analyst estimates. A net profit of $1.4B was UBS’s best Q2 in nine years, though it expects “sharp” rate cuts will continue to hurt net interest income, while its equity trading revenues fell 9% from a year earlier. Santander’s profits meanwhile fell 18% from a year ago, but results were hurt by one-off restructuring costs from its acquisition of Banco Popular and a weak performance in Britain. SAN +1% premarket.

IMF outlook

Set a reminder… The International Monetary Fund will present an update to its World Economic Outlook at 9:00 a.m. ET, providing clues about the state of the global economy after a downbeat growth assessment in April. The report is expected to provide a forecast of how the IMF sees issues such as the U.S.-China trade dispute and the U.K.’s departure from the EU affecting global growth.

Protecting Gulf shipping

Britain has called on allies to lead a new maritime alliance to protect commercial ships sailing through the Strait of Hormuz after Iran’s seizure of a British-flagged tanker in the waterway last week. One-fifth of all global crude exports passes through the narrow strait between Iran and Oman. Not many details are yet available, but U.K. foreign secretary Jeremy Hunt said he had consulted with foreign ministers of Oman, the U.S., France, Germany, Italy, Finland, Spain and Denmark.

Intel and Apple

Apple (NASDAQ:AAPL) is in advanced talks to buy Intel’s (INTC) smartphone modem-chip business, in what could be a major push toward developing the critical components powering its devices, WSJ reports. An agreement could value a portfolio of patents and staff at $1B or more and could come in the next week. For Intel’s part, the deal would allow the company to shed its smartphone operation, which has been losing about $1B annually and has generally failed to live up to expectations.

Starbucks licenses its tech

Seeking to speed up its offering of mobile ordering and payment options at its global stores, Starbucks (NASDAQ:SBUX) is taking a stake in privately-held digital tech company Brightloom. In return for the equity stake, Brightloom will make the coffee chain’s system for mobile ordering and payment, loyalty perks and delivery order management available to licensees. Starbucks and Brightloom will also sell access to the platform to other restaurants trying to adopt their own digital programs.

What else is happening…

Moody’s joins Fitch in warning over Boeing’s (NYSE:BA) credit rating.

China’s Nasdaq-style board reverses on day two.

Coca-Cola (KO) to debut first alcoholic drink in Japan.

USDA rule change would end food stamps for millions.

Sanofi (NASDAQ:SNY) signs U.S. rights deal with Roche (OTCQX:RHHBY) for Tamiflu.

Icahn says Buffett took Occidental (NYSE:OXY) CEO ‘to the cleaners.’

FTC set to announce $5B settlement with Facebook (NASDAQ:FB).

Monday’s Key Earnings

Halliburton (NYSE:HAL) +9.2% idling fracking gear, cutting costs.
Whirlpool (NYSE:WHR) +5.2% AH on profit beat, strong guidance.

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