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After Hours Summary: JDSU +12.2%, MSON -10.1%, LFVN +8.0%, EOPN -24.0%, WTSL -10.1%, SYMX -8.3% following earnings/guidance
After Hours Gainers: Companies trading higher in after hours in reaction to earnings: JDSU +12.2%, MSON -10.1%, LFVN +8.0%, SIGM +5.0%, MW +2.2%
Companies trading higher in after hours in reaction to news: JDSU +11.9% (co announced plans to separate into two entities; reaffirmed Q1 guidance), LAND +7.7% (announced it elected to be taxed as a real estate investment trust), GOGO +4.5% (co and T-Mobile announced a new partnership to deliver free in-flight texting and voicemail to their customers on all Gogo equipped U.S. airline aircraft), EXXI +2.3% (strength attributed to speculation of Gulf of Mexico asset sale), MDVN +1.4% (received FDA approval of new indication for the use of XTANDI (enzalutamide) capsules for patients with metastatic castration-resistant prostate cancer)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings: EOPN -24.0%, WTSL -10.1%, SYMX -8.3%, DLIA -7.0%, FIVE -5.3%, RH -4.6%
Companies trading lower in after hours in reaction to news: INVE -9.0% (announced proposed stock offering), TWTR -1.5% (announced $1.3 bln convertible unsecured senior note offering), JCP -0.1% (announced pricing of offering of senior unsecured notes, size increased to $400 mln from $350 mln)
Asian Market Update: China CPI slows to 4-month lows; RBNZ holds cash rate; Australia monthly employment change hits record high
***Economic Data*** - (CN) CHINA AUG CPI Y/Y: 2.0% V 2.2%E (4-month low) - (CN) CHINA AUG PPI Y/Y: -1.2% V -1.1%E (30th consecutive y/y decline; first sequential decline in 5 months) - (NZ) NEW ZEALAND CENTRAL BANK (RBNZ) LEAVES OFFICIAL CASH RATE AT 3.50%, AS EXPECTED; raises Q1 GDP forecast 3.2% from 2.7% - (AU) AUSTRALIA AUG EMPLOYMENT CHANGE: +121.0K V +15.0KE (36-year record high); UNEMPLOYMENT RATE: 6.1% V 6.3%E (first decline in 4 months) - (AU) AUSTRALIA SEPT CONSUMER INFLATION EXPECTATION: 3.5% V 3.1% PRIOR (first rise in 4 months) - (JP) JAPAN Q3 BUSINESS SURVEY INDEX (BSI) LARGE ALL INDUSTRY Q/Q: +11.1 V -14.6 PRIOR; BSI LARGE MANUFACTURING Q/Q: +12.7 (1-year high) V -13.9 PRIOR - (JP) JAPAN AUG TOKYO AVERAGE OFFICE VACANCIES: 6.0% V 6.2% PRIOR - (KR) South Korea Aug Bank Lending to Household (KRW): 497.0T v 492.0T prior - (UK) UK AUG RICS HOUSE PRICE BALANCE: 40% V 47%E (1-year low)
***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 +0.4%, S&P/ASX -0.2%, Kospi -0.2%, Shanghai Composite +0.4%, Hang Seng -0.1%, Sept S&P500 -0.1% at 1,992
***Commodities/Fixed Income/Currencies*** - Dec gold +0.3% at $1,248, Oct crude oil +0.2% at $91.85/brl, Dec copper flat at $3.11/lb - GLD: SPDR Gold Trust ETF daily holdings rise 3.0 tonnes to 788.7 tonnes (first rise since Aug 20th) - JGB: (JP) Japan's MoF sells ¥2.46T in 0.2% (0.2% prior) 5-yr notes; Avg yield: 0.179% v 0.147% prior; Bid to cover: 3.69x v 4.87x prior - (KR) South Korea sells 5-yr bonds, avg yield 2.755% - (CN) PBoC to drain CNY10B in 14-day repos (14th consecutive drain); Drains net CNY5B this week v injected CNY7B prior (1st drain in 5 weeks) - (JP) Japan investors bought net ¥763.6B in foreign bonds v bought net ¥511.4B in prior week; Foreign Investors bought net ¥187.9B in Japan stocks v sold net ¥110.7B in prior week
***Market Focal Points/Key Themes*** - RBNZ held its cash rate on hold at 3.50% after 4 consecutive increases, just as forecasted by a unanimous survey of analysts. The accompanying policy statement was mixed - RBNZ affirmed 2014 GDP, raised Q1 2015 GDP, and cut its projections for 90-day bill rates to imply a pause until Q1 of 2015. NZD/USD fell about 40pips to new 7-month lows below $0.82 after RBNZ said NZD level is unjustified, unsustainable, and will likely fall significantly further. RBNZ Gov Wheeler did note that this is just a pause, and that the current rate of 3.5% is still below the "neutral level" of 4.5%. - BOJ Gov Kuroda and Japan PM Abe are reported to hold their first direct talks in 5 months amid chatter that Abe will push for more monetary easing to help offset the next round of sales tax hikes. Japan MoF put out its quarterly Business Survey Index hitting a 1-year high for large manufacturing, while also increasing its projections for FY14/15 corporate capex to 5.7% from 4.5%. - China inflation figures were generally soft, with CPI hitting a 4-month low and PPI coming in negative for the 30th straight month. China Stats Bureau cited the decline in material prices and warned the outlook for industrial demand is not optimistic, in addition to gradual slowdown in the economy translating into lower price growth. Consumer inflation was once again heavily tilted toward food prices, which rose 3% y/y compared to 0.2% for non-food items. - Australia employment saw a record high 121K net change - almost 9x consensus levels and the highest in the data series going back over 30 years. Unemployment rate fell for the first time in 4 months while labor participation rate hit a 16-month high. AUD/USD spiked up about 60pips on the data, rising above $0.9210, even as economists with UBS said the figures reflect "sample error" and would equate to 1.5M new jobs in the US. - President Obama delivered a statement to the nation on expanding the US air campaign against ISIS that will also target its militants in Syria. Obama further announced he is sending 475 more troops to Iraq, but continued to insist the personnel are for training/intelligence and will not have a combat mission.
***Equities*** US markets: - JDSU: To separate into two separate public companies; Reaffirms Q1 $0.08-0.12 v $0.10e, R$405-425M v $416Me- filing; +12.7% afterhours - GOGO: Gogo and T-Mobile Team Up to Deliver Free In-flight Texting and Voicemail to T-Mobile Customers; +5.1% afterhours - MW: Reports Q2 $1.10 v $1.06e, R$803.1M v $933Me; +2.2% afterhours - OREX: Orexigen receives FDA approval for weight loss pill Contrave; +0.7% afterhours - TMUS: CEO: Gross adds in August amounted to 2.75M, branded gross subscriber additions amounted to 2M; +0.6% afterhours - TWTR: To offer $1.3B (4% of market cap) in convertible notes - filing; -1.4% afterhours - RH: Reports Q2 $0.67 v $0.64e, R$433.8M v $454Me; Raises FY14 EPS guidance, cuts FY14 Rev guidance; -5.1% afterhours
Notable movers by sector: - Consumer Discretionary: Myer Holdings MYR.AU -7.9% (FY14 results; cuts final dividend) - Industrials: Worley Parsons WOR.AU +1.9% (guides margin to improve) - Technology: Hisense Electric 600060.CN +8.1% (unveils 100-inch laser TV); Dainippon Screen Manufacturing 7735.JP +2.5% (press on LCD business); Sharp Corp 6753.JP +1.5% (new products in China) - Healthcare: Sigma Pharmaceuticals SIP.AU -3.4% (H1 results; no div) - Utilities: Kyushu Electric Power 9508.JP +5.9%, Kansai Electric Power 9503.JP +3.0% (Japan aims to restart Sendai nuclear facility); Oki Electric Industry 6703.JP +1.1% (raises H1 guidance)
Washington Trading Probe Broadens to Hedge Funds
SEC Examines Communications Between Investors and Height Securities After Alert on Health-Insurance Policy Shift
WASHINGTON—Federal investigators have uncovered a flurry of communications between Washington research firm Height Securities and several New York-based hedge funds, opening a new front in an insider-trading probe focused on the firm's 2013 investor alert about a change in government health-care policy.
The Wall Street Journal has previously reported that the Securities and Exchange Commission is investigating whether anyone in the government illegally leaked word of the announcement to the policy-research firm. Now, the agency is looking at whether hedge funds violated securities rules by trading on the resulting alert to Height Securities' clients.
According to people close to the investigation, the SEC has evidence of more than 20 phone calls, emails and instant messages between investors and analysts at Height Securities between the time the firm sent the email alert and when markets closed.
The communications involved at least four hedge funds: SAC Capital Advisors (now called Point72 Asset Management LP), Viking Global Investors LP, Visium Asset Management LLC and Citadel LLC.
The existence of phone calls and emails between Height Securities and its Wall Street customers in the moments before the government made its announcement wasn't previously known. Officials at Point72, Viking and Visium declined to comment. A lawyer for Height declined to comment but has said previously that the company did nothing wrong.
Katie Spring, a Citadel spokeswoman, said: "Our communication was for the sole purpose of verifying information contained in what we understood to be a broadly disseminated email, and was part of our compliance process specifically undertaken at the behest of our compliance team."
Ms. Spring declined to talk about any information that was shared between Height Securities and the hedge fund at the time.
There is nothing inherently illegal about investors talking with individuals at Height Securities about its research note. In fact, it would be normal for them to do so before making a large trade based on a research note. But investors could be liable for violating insider-trading rules if they knew the information was obtained illegally—or if they should have known that the information was obtained illegally. As a result, the information relayed in the communications between Height and the hedge funds is critical.
Investigators haven't alleged any wrongdoing on the part of Height or the hedge funds.
At issue is a series of events in the hours before the federal Centers for Medicare and Medicaid Services announced it would reverse course on planned funding cuts for private insurance plans. The shift was a boon to health-insurance firms, and their stocks went on a tear when news of it came out.
The probe has become the centerpiece of the SEC's efforts to investigate Washington's political-intelligence industry. Investigators believe it represents one of their best chances to determine whether or not the flourishing Washington business of ferreting out tips about policy changes for investors violates insider-trading laws.
The content of the communications between Height and its clients could help the SEC determine whether any of Height's investor clients violated the law in any trading of health-insurance stocks that day.
Under standard insider-trading rules, the SEC must prove that an investor traded on the basis of nonpublic, material information that was obtained in violation of a duty. Securities lawyers say the SEC can also pursue civil charges if investors "recklessly ignore a substantial risk" that they were trading on insider information.
"To pursue charges against the trader, the government would need to prove that he knew or had reason to know that the original tipper breached a duty by disclosing the information," said Justin Shur, a former federal prosecutor now with MoloLamken LLP. "Thus, figuring out what the trader knew about the source of the information is critical for prosecutors," he said.
That makes it important for the SEC to determine what information was relayed between Height Securities and its investor clients in the phone calls, emails and instant messages that followed its blast email.
At 3:42 p.m., on April 1, 2013, Height Securities sent an email alert to more than 150 investor clients predicting the government announcement. After markets closed, CMS sent a news release at 4:22 p.m. that day announcing that it would, indeed, restore the spending cuts.
In its filings, the SEC has said it is reviewing trading by 44 hedge funds and other investors who received the email alert from Height and traded shares in health-insurance firms ahead of the CMS announcement.
The SEC hasn't determined whether information relayed by Height Securities that day violated securities rules. Investigators are still looking into whether anyone in Washington broke insider-trading rules by relaying word of the government decision to Wall Street.
If no one violated securities rules in obtaining the information, then investors who traded based on Height's email wouldn't face any potential liability.
According to emails and documents made public as part of the investigation, a CMS official with knowledge of the decision spoke with a top congressional health-care aide in the days before CMS announced its decision.
That aide, Brian Sutter, later spoke on the phone about the decision with Mark Hayes, a health-care lobbyist who previously had worked for Height Securities. About 10 minutes later, at 3:12 p.m. on April 1, Mr. Hayes sent an email to Height Securities saying that informed sources told him CMS would reverse course on its planned funding cuts for private health insurers. The SEC has said in court papers it believes that Mr. Sutter could have been a source for Mr. Hayes's prediction.
A lawyer for Mr. Hayes said that his client "did not possess any nonpublic information" and "did nothing improper." A spokesman for Mr. Sutter declined to comment. A lawyer for Mr. Sutter has previously said that Mr. Sutter didn't share nonpublic information.
The SEC has also said it doesn't know if the CMS official who spoke with Mr. Sutter shared the news of the pending decision. In May, the SEC issued a subpoena to Mr. Sutter to compel him to turn over records related to his communications with CMS and the lobbyist.
Through lawyers for the U.S. House of Representatives, Mr. Sutter refused to comply with the subpoena. In June, the SEC filed a federal lawsuit seeking to force Mr. Sutter to turn over his records to investigators.
A federal judge is expected to issue a ruling on the case shortly.
The stock market ended the midweek session on an upbeat note with the Nasdaq Composite providing leadership. The tech-heavy index advanced 0.8%, while the S&P 500 added 0.4% with seven sectors posting gains.
Equities were driven into the red shortly after the open due to notable weakness in the energy sector. The growth-sensitive group was down in excess of 1.0% during the first hour of action, but narrowed its loss to 0.3% by the close. For its part, crude oil fell 1.1% to $91.71/bbl, ending the pit session at its lowest level since early January.
While the continued weakness in crude prices weighed on the sector, which is now down 4.1% for the month, the persistence of dollar strength also contributed negatively to earnings prospects of multinational companies like Chevron (CVX 124.28, -0.90) and ExxonMobil (XOM 96.81, -0.58). The Dollar Index (84.22, -0.06) climbed to its best level in 14 months before slipping in the early afternoon. The greenback retreated against the British pound after latest poll results from Scotland indicated majority support for staying in the UK (weekend YouGov poll gave a slight edge to the pro-independence movement). The pound/dollar pair climbed to 1.6210 after trading at 1.6070 in the early morning.
Despite the early weakness in the energy sector, equity indices were able to climb off their lows with help from top-weighted financials (+0.4%), health care (+0.7%), and technology (+0.8%). The three groups began the day ahead of the broader market and their strength pulled dip-buyers into the fray.
The technology sector finished in the lead with Apple (AAPL 101.00, +3.01) fueling the strength. The top-weighted sector component jumped 3.1%, while social media names also did some heavy lifting. Twitter (TWTR 52.91, +2.30) rallied 4.5% following an upgrade at UBS, while Facebook (FB 77.43, +0.76) and Yelp (YELP 82.64, +1.76) gained 1.0% and 2.2%, respectively.
Elsewhere, health care received significant support from biotechnology as the iShares Nasdaq Biotechnology ETF (IBB 274.41, +4.93) jumped 1.8%, which factored into the strong showing for the Nasdaq Composite.
Also of note, the industrial sector (+0.1%) was pushed into the green during afternoon action by the relative strength of defense contractors. The PHLX Defense Index added 0.7%, while transport stocks could not keep up with the broader market. The Dow Jones Transportation Average added 0.1%.
Treasuries slumped overnight and spent the duration of the session near their lows. The 10-yr note shed eight ticks to send its yield higher by three basis points to 2.54%.
Participation was a bit light with fewer than 600 million shares changing hands at the NYSE floor.
Economic data was limited to just two data points:Tomorrow, weekly initial claims (consensus 300K) will be released at 8:30 ET, while the Treasury Budget for August (expected deficit of $129 billion) will cross the wires at 14:00 ET.
- The weekly MBA Mortgage Index fell 7.2% to follow last week's uptick of 0.2%
- Wholesale inventories increased 0.1% in July following a downwardly revised 0.2% (from 0.3%) increase in June
- The consensus expected an increase of 0.5%
- Overall, wholesale sales increased 0.7% in July after increasing by 0.4% in June
- Nasdaq Composite +9.8% YTD
- S&P 500 +8.0% YTD
- Dow Jones Industrial Average +3.0% YTD
- Russell 2000 +0.1% YTD