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Daily Agenda: Oil Decline Continues to Take its Toll

Russia confirms worst recession since 2009 on lower energy prices; Johnson Controls to merge with Tyco; Puerto Rico utility missed debt deal deadline.

Plummeting oil prices has become the dominant theme in macro risk narratives for 2016. On Monday, the same day Saudi Arabian Oil Co. officials revealed no changes in the company’s strategy for new capacity investments despite weakening prices, Russian data confirmed the lowest growth rate since 2009. The Federal Statistics Office reported that Russian gross domestic product contracted by 3.7 percent for full year 2015, slightly better than consensus forecasts. Oil’s 15 percent swoon in the first weeks of 2016 have driven the ruble down by more than 7 percent. Even after a nearly 20 percent rally in front-month delivery futures pricing for West Texas Intermediate grade crude in recent sessions, the pain inflicted by global oversupply on producers appears unlikely to relent any time soon. This morning Houston energy giant Halliburton underscored this by reporting a net income loss of $0.79 per share for full-year 2015 on revenues 28 percent, or roughly $9 billion, lower than in 2014.

Johnson Controls to merge with Tyco in tax-advantaged deal. On Monday Milwaukee-based Johnson Controls announced an agreement to merge with Tyco International in a transaction that will see the combined company headquartered in Ireland. The merger will be a stock and cash deal leaving Johnson Controls’ shareholders as majority owners, potentially courting political controversy as a so-called “tax inversion,” with a majority of its operations in the U.S., but a domicile for corporate tax purposes in Ireland.

No resolution for Puerto Rico’s power provider. Lawmakers in Puerto Rico failed to pass legislation to complete a proposed settlement between Puerto Rico Electric Power Authority (Prepa) and its creditors. On Sunday, power vendors and the utility negotiated a temporary respite that will expire February 12. Elected officials were unable to come to an agreement over increased power rates for consumers to cover debt servicing.

Exports decline sharply in Japan. In the latest signal that massive easing measures by the Bank of Japan are not having the desired effect, export data released today by the Japanese Ministry of Finance registered a contraction of 8 percent year-over-year. At a decline of nearly 9 percent versus December 2014, weak demand for shipments to China was a primary driver of the shortfall. Critically, an 18 percent deceleration in imports from the same period a year prior suggests that domestic demand remains weak.

Afternoon Egg McMuffin sales drive profits at McDonald’s. Shares of Oak Brook, Illinois McDonald’s Corp., the world’s largest restaurant chain, rose in premarket trading after better-than-forecast fourth-quarter earnings were announced. The fast food giant reported earnings of $1.31 per share for the final three months of 2015 with a nearly 6 percent increase in same-store sales year-over-year largely attributed to the launch of an all-day breakfast menu.

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