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Daily Agenda: Saudi Royal Family and Government Shakeup

Japanese Prime Minister Abe to address Congress; Twitter earnings leaked over Twitter; SEC to regulate executive compensation.

Saudi King Salman has removed his half-brother of the title of crown prince in favor of his nephew, Mohammed bin Nayef, 55 and bestowing the title of deputy crown prince to his nephew, Mohammed bin Salman, who sources say is around 30 years old. The move, which makes the king’s nephew heir apparent to the throne, comes on the same day as news of arrests of more than 90 suspected Islamic State, or ISIS, operatives within Saudi Arabia. Crown Prince Mohammed bin Nayef, who is also interior minister, has an international reputation as an antiterrorism czar, having survived an assassination attempt by al-Qaeda members in 2009. The new deputy crown prince is also the Saudi defense minister. The king also appointed Adel al-Jubeir, Saudi ambassador to the U.S., as foreign minister, replacing royal family member Prince Saud al-Faisal, 75, who has been abroad seeking medical treatment. With a crisis in Yemen to the south and ISIS to the northeast, from the cabinet shakeup, it appears that the world’s largest oil exporter and OPEC stalwart is now making security a top priority.

FOMC and GDP. In advance of the Federal Open Market Committee's announcement this afternoon, U.S. market sentiment is down on disappointing U.S. first-quarter GDP data. The Bureau of Economic Analysis initial estimate for GDP growth for the first three months of 2015 is 0.2 percent, compared to consensus forecasts of 1 percent and annualized 2.2 percent growth during the fourth quarter of 2014.

Twitter drops on earnings leaked — via Twitter. Research firm Selerity leaked first-quarter earnings for Twitter via the company’s Twitter accounting during the final hour of equity market trading yesterday. The social media company was scheduled to report after the market close. Twitter confirmed the numbers and the stock was halted before reopening to close 18 percent lower than the prior day. Although revenue at the firm was 74 percent higher than during the first three months of 2014, it was still well below analysts’ forecasts and coupled with lower guidance for second-quarter results.

Abe to address U.S. Congress. Japanese Prime Minister Shinzo Abe today will become the first leader of his nation to address a joint meeting of U.S. Congress today as part of a tour to drum up U.S. support for the proposed Trans-Pacific Partnership trade pact. The speech is likely to at least allude to the shifts in economic and geopolitical dynamics driven by China’s rise as a military and economic power.

Wal-Mart to expand in China. Wal-Mart CEO Doug McMillon has announced that the company will expand its presence in China by 115 new locations by 2017 and will upgrade 50 existing stores. The retail giant has been refining its presence in China in recent years, where it operates the Yihaodian online grocery platform.

SEC weighs in on executive pay. The Securities and Exchange Commission is expected today to issue rules governing executive compensation at U.S. public companies. The new regulations are required under the 2010 Dodd–Frank Wall Street Reform and Consumer Protection Act and are expected to strengthen transparency for shareholders in how performance-based incentives are calculated.

Euro zone shows mixed economic sentiment. Eurostat April sentiment data for the 19-nation currency bloc showed the headline index decline marginally after reaching a multiyear high in March. The results were mixed across segments, with a significant improvement in the business climate and service sector subindexes.

ECB throws lifeline to Greek banks. The European Central Bank’s Governing Council increased the Emergency Liquidity Assistance available to Greek banks by €1.4 billion ($1.54 billion) today, the second such increase over the past two weeks.

Portfolio Perspective: Will the FOMC Meeting Matter?Robert Savage, CCTrack Solutions

The Federal Open Market Committee’s decision is widely expected to be a nonevent, albeit with a dovish tilt on the back of weaker first-quarter growth. Markets are not prepared for anything more. The blog from former FOMC Chair Ben Bernanke is worth reading today ahead of the Fed statement, if for no other reason than that he touches on the key debate: whether discretion is more important than models. The much-discussed Taylor rule would have U.S. rates higher already and the Fed is late to the lift-off on almost any other similar model. A sluggish start to 2015 and the ongoing debate about global deflation has left discretionary authority to Fed Chair Janet Yellen and the doves. Markets still think this is credible. The real risk comes when markets stop believing in central banks.

Robert Savage is the CEO of CCTrack Solutions, a New York–based hedge fund firm. CCTrack is backed by Citic Capital Holdings, which in turn is backed by the sovereign wealth funds of China and Qatar.

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