TheChek News Flow

Gloves are off for Sprint and T-Mobile US

Within the space of three weeks, Sprint and T-Mobile US have gone from potential allies to enemies in a price war that threatens to destabilise the US telecoms market. Having abandoned its takeover pursuit of T-Mobile US in early August over regulatory concerns, Sprint started to put a new pricing plan into action last week. It had previously made clear that it wanted to reverse the loss of customers to T-Mobile with aggressive offers of its own. Among these offers is now an unlimited data package at $60 a month, well below the previous price of $80 a month, and also $20 cheaper than T-Mobile’s comparable offer (albeit without a subsidised phone). Sprint has also launched a family service plan with double the data available from AT&T and Verizon for a family of four. But T-Mobile, Sprint’s Deutsche Telekom-controlled rival, has made clear that its own efforts to shake up the market are far from over. On Monday, T-Mobile quadrupled the data limit of its entry-level Simple Starter plan, which costs only $5 a month – just a week after launching a ‘Sprint customer rescue’ campaign giving customers who refer a friend unlimited data for a year. John Legere, T-Mobile US chief executive, said: "The old guard telecoms punish people for using more data on their networks with crazy . . . charges and fees. Get Verizon’s $50 plan and use just one gig more data, and the price jumps to $65. It’s crazy!" But even Verizon – one of Mr Legere’s "old guard" – has unveiled a single line plan with 2GB of data for $60 per month, with a subsidised phone. Across the board, promotions have increased, with US mobile users bombarded with offers of credit, lower charges and extra data – leading Bernstein, the research group, to warn of the "dangers of tariff wars surfacing in the US". As a result, T-Mobile is finding its position as "best-value challenger" under threat from Sprint, while the larger AT&T and Verizon are at risk of losing customers to rivals offering more data at lower prices. However, behind the rhetoric – in particular that of Mr Legere – some analysts suspect that all four major US operators may want to avoid the kind of all-out price war seen in markets such as France. There, low-cost offers from Iliad’s Free service led to prices across the market being slashed by one-third in a little under two years – with a corresponding affect on profits. JPMorgan offered some hope to those seeking a better outcome in the US by describing the latest Sprint deal as more of a "price restructuring rather than a price cut" – and pointing out that Sprint gave more data "but on what is still a weaker network". Jefferies, likewise, questioned how much damage Sprint could do given its network quality disadvantages. Rival operators may therefore have more to worry about when Sprint – flush with cash from its Japanese owner SoftBank – narrows this service quality gap through network investment. Sprint has promised superior services using Spark, a tri-band LTE network, which will be available to 100m people by end of the year. Even so, with its network offering still lagging behind the other three, Sprint is unlikely to be finished with price offers – especially if T-Mobile meets it head on with further discounts of its own. Hannes Wittig, analyst at JPMorgan, said Sprint should be determined to prevent further customer losses: "We feel a bit reminded of the market view on T-Mobile little over a year ago. Companies were able to regain momentum, based on a cash flow sacrifice, despite seemingly inferior network quality at the outset." The question is how far T-Mobile and Sprint are willing to go to attract customers from the two larger networks – and stop their own from leaving. "We expect Sprint, with its new network, to do whatever is needed to no longer feed its peers with churning customers," Mr Wittig said. Mr Legere, a prolific tweeter, made it clear on Monday that the battle between the US carriers is far from over. "Last week I announced unli’d 4G LTE data for you and a friend. Today, quadruple data for #simplestarter plans. #wewontstop. Ready for more??"

Asian Market Update: New Zealand trade falls into deficit as exports to China fall again

***Economic Data*** - (NZ) NEW ZEALAND JUL TRADE BALANCE (NZ$): -692M V -475ME (1st deficit in 9 months) - (CN) CHINA JULY CONFERENCE BOARD ECONOMIC INDEX M/M: 1.3% V 1.3% PRIOR - (JP) JAPAN JUL PPI SERVICES Y/Y: 3.7% V 3.7%E - (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence Index: 113.5 v 112.5 prior

***Index Snapshot (as of 02:30 GMT)*** - Nikkei225 -0.5%, S&P/ASX +0.1%, Kospi +0.4%, Shanghai Composite -0.2%, Hang Seng flat, Sept S&P500 -0.1% at 1,993

***Commodities/Fixed Income/Currencies*** - Dec gold flat at $1,279, Oct crude oil +0.2% at $93.53/brl, Sept Copper -0.4% at $3.20/lb - (CN) China end-July crude oil inventory +5.8% m/m - Xinhua - GLD: SPDR Gold Trust ETF daily holdings falls 3.0 tonnes to 797.1 tonnes (first decline since Aug 13th) - JGB: (JP) Japan MoF sells ¥399.4B in 1.7% 40-yr bonds, bid to cover: 2.54x v 3.73x prior - (CN) PBoC to drain CNY10B in 14-day repos (9th consecutive drain) - USD/CNY: (CN) PBoC sets yuan mid point at 6.1663 v 6.1653 prior setting (2nd consecutive weaker Yuan setting, weakest setting since Aug 6th)

***Market Focal Points/Key Themes*** - Despite the record high set in SP500 cash index on Monday, sentiment in Asia is noticeably more subdued. Ukraine standoff remains tense going into the Minsk meeting among Putin, Poroshenko, as well as European Trade Commissioner De Gucht and EU Energy Commissioner Oettinger on Tuesday. There is little hope that any meaningful breakthrough will be achieved after Russia pushed through its humanitarian convoy through the border over the weekend without agreed upon inspections by Kiev govt and international monitors. On Monday, fresh reports surfaced that as many as 50 Russian armored vehicle crossed the border in the southern part of the country near Sea of Azov, potentially opening a new front with Ukraine military. US National Security Advisor Rice has reportedly tweeted the Russian incursion into Ukraine represents significant escalation in the conflict.

- Kiwi dollar hit a fresh 6-month low of $0.8310 on disappointing trade data, as New Zealand fell into deficit for the first time in 9 months. Among notable components, exports to China fell 5.4% y/y and 9.5% m/m - 7th consecutive sequential decline which marks the longest streak of deteriorating demand since 1996. Growth in exports of dairy was marginal at +0.9% y/y. Later in the day, S&P affirmed New Zealand sovereign rating at AA with stable outlook, noting the rating reflects the country's fiscal and monetary policy flexibility, economic resilience, public policy stability, and sound financial sector.

- Conference Board Leading Index for China rose by another 1.3%, matching an 8-month high rate of growth. Resident economist cautioned that the "improvement was driven primarily by an increase in new floor space starts, which is unsustainable in the longer-term", adding that bank loans offered their weakest contribution to the index since January 2012. Despite the recent slowdown in lending, PBoC drained another CNY10B in liquidity via 14-day repos - its 9th consecutive drain.

***Equities*** US markets: - KITE: Announces Patients With Aggressive Non-Hodgkin's Lymphoma Experience Positive Results After Receiving Anti-CD19 Chimeric Antigen Receptor (CAR) T Cells at the National Cancer Institute (NCI); +28.7% afterhours - CMTL: Confirms it is exploring strategic alternatives; +2.2% afterhours - AMZN: Confirms acquisition of Twitch for $970M in cash; +0.3% afterhours - VMW: CFO: See opportunity for mid-teens Rev growth in FY15; See op margin expansion of about 100bps - analyst day; -0.2% afterhours - COCO: Entered into consent, amendment to credit agreement; expects to book impairment charge $55M-59M - filing; -5.5% afterhours - KANG: Reports Q1 $0.13 v $0.17e, R$60.2M v $63.9Me (2 est); -17.2% afterhours - BKW: Burger King, Tim Hortons (THI.CA) deal could be announced in a day or two; Buffet's Berkshire Hathaway to provide about 25% of funding - financial press

Notable movers by sector: - Consumer staples: China Modern Dairy 1117.HK +6.6% (H1 results) - Financials: Servcorp Ltd SRV.AU +3.9% (FY14 results) - Materials: Zhejiang Crystal-Optech 002273.CN +4.3%, Han's Laser Technology 002008.CN +2.5%, Roshow Technology 002617.CN +2.9% (Huawei launches smartphone with sapphire material screen); Mirabela MBN.AU +15.0% (FY14 results) - Energy: AWE AWE.AU -3.1% (FY14 results); Senex Energy SXY.AU -6.0% (FY14 results) - Industrials: Boart Longyear BLY.AU -15.4% (H1 results)

Closing Market Summary: Stocks Climb Amid Paltry Volume

The stock market began the last week of August on an upbeat note with the S&P 500 making its first appearance above the 2,000 level. The benchmark index added 0.5% with all ten sectors ending in the green, while the Russell 2000 (+0.5%) finished in-line despite showing relative strength at the start.

Equity indices rallied out of the gate, but the opening push ran out of steam after the S&P 500 notched a session high at 2,001.95. The benchmark index took a couple steps back after reaching that level and held its ground throughout the afternoon.

M&A activity in the health care sector (+0.7%) contributed to the opening rally after Swiss drug maker Roche (RHHBY 36.57, +0.25) agreed to acquire InterMune (ITMN 72.85, +19.05) for $74.00 per share, representing a 38.0% premium to Friday's closing price. Shares of ITMN surged 35.4%, which helped lift the iShares Nasdaq Biotechnology ETF (IBB 272.63, +6.20) to its best level since late February. The biotech ETF extended its August gain to 8.7%, settling within three points of its all-time high (275.40) that was notched on February 25.

The relative strength of biotechnology underpinned the Nasdaq Composite (+0.4%), but the index could not keep pace with the S&P 500 amid relative weakness in the technology sector (unch). Large cap components were mixed with Apple (AAPL 101.54, +0.22) and IBM (IBM 191.16, +0.75) posting modest gains, while Google (GOOGL 590.57, -1.97) and Intel (INTC 34.81, -0.13) struggled. Furthermore, high-beta chipmakers weighed as evidenced by a 0.4% decline in the PHLX Semiconductor Index.

Similar to the tech sector, three other cyclical groups could not keep up with the broader market, while energy (+0.8%) and financials (+0.8%) outperformed.

The financial sector finished in the lead with Goldman Sachs (GS 177.87, +2.40) climbing 1.4% after reaching a settlement with the Federal Housing Finance Agency over claims with respect to mortgage-backed securities.

Also of note, the consumer discretionary space (+0.3%) underperformed with homebuilders showing relative weakness following today's disappointing New Home Sales report. The iShares Dow Jones US Home Construction ETF (ITB 23.97, -0.12) lost 0.5%. However, quick-service restaurants rallied after Burger King (BKW 32.40, +5.29) confirmed it has entered into merger discussions with Tim Hortons (THI 74.72, +11.88).

Treasuries finished the day with modest gains after spending the day in positive territory. The 10-yr yield slipped two basis points to 2.39%.

Despite the advance, there wasn't much conviction in the rally as only 482 million shares changed hands at the NYSE floor. This represented the lowest total of the year.

Economic data was limited to the New Home Sales report for July, which declined 2.4% to 412,000 from an upwardly revised 422,000 (from 406,000), while the consensus expected an increase to 427,000. While sales were a disappointment, demand in July remained in-line with recent trends even after taking into account the June revision. Since January, the 12-month moving average has averaged 426,000 and the drop in July sales brought the moving average to exactly 426,000.

Tomorrow, Durable Orders for July (consensus 7.0%) will be released at 8:30 ET, while June Case-Shiller 20-city Index (consensus 8.3%) and the FHFA Housing Price Index for June will both be reported at 9:00 ET. The day's data will be topped off with the Consumer Confidence report for August, which will be released at 10:00 ET (expected 88.3).

* Nasdaq Composite +9.1% YTD  * S&P 500 +8.1% YTD  * Dow Jones Industrial Average +3.0% YTD  * Russell 2000 +0.2% YTD

Apple May Sweeten MobileIron's Prospects

MobileIron's MOBL +11.63% investors have swapped worrying about competing with Apple AAPL +0.32% for hoping they get a little help from the iPhone maker.

MobileIron's stock leapt Monday, having endured a beating last month. The latter owed much to fears about a partnership between Apple and IBM IBM +0.41% potentially creating a more powerful competitor to MobileIron, which is only seven years old and went public in June. Businesses use MobileIron's software to manage their fleets of mobile devices and content across platforms that include iOS, Android and Windows.

IBM sells a competing service and has partnered with Apple to take the iPhone deeper into the enterprise market. News of that contributed to a selloff that cut nearly 30% from MobileIron's market cap in mid-July. The stock has spent most of the past month below its $9 initial public offering price.

Investors now seem to be rethinking that judgment following a report from Deutsche Bank DBK.XE +2.23% that Apple's upcoming release of iOS 8 may include many enhancements to make it more attractive for enterprises. Much will depend on how it compares with BES 12, the mobile enterprise server platform from BlackBerry BB.T +1.29% also expected to launch this fall. A stronger iPhone offering for enterprise customers would boost demand for a service like MobileIron's, the thinking goes.

That it may, but MobileIron's many competitors realize the same. Besides IBM and BlackBerry, the company also competes with VMware's VMW -1.39% AirWatch service, Citrix CTXS +0.01% and Good Technology. The latter also has an IPO waiting in the wings. And it is worth noting that BlackBerry has hinged much of its recovery plan on becoming a provider of enterprise-grade mobile software.

In this light, MobileIron's recent gains raise the stakes for its success. The stock currently trades about 5.3 times forward sales, below VMware's multiple at 6.6 times but above Citrix at 3.4 times. The company better hope Apple can give it a shine.

Commodities Rally Is Half-Baked

It all started so well: a surprise drop in Treasury yields, expectations of accelerating economic recovery, and more than a dash of geopolitical turmoil.

Yes, 2014 was shaping up to be a good year for commodities. And indeed, the first half was more than acceptable. At 7.1%, the recently renamed Bloomberg Commodity Index (formerly the Dow Jones- UBS UBSN.VX +0.87% index) had its best six-month period since the latter half of 2010 and its best first half since that of 2008, when the supercycle's ascent seemed unstoppable.

Fast forward all of eight weeks and the good times are over. Commodities as a whole are now in negative territory for the year. Their lead over the S&P 500 has flipped to an 8.5 percentage point disadvantage. And while August may traditionally be a month of thin trading, there is good reason to think summer will set the tone for the rest of the year.

The broad issue is sufficient supply. Take energy, which makes up about a third of the Bloomberg index. Despite four million barrels a day of global oil supply being offline—around the highest since the Gulf War—according to BofA Merrill Lynch, prices are down for the year. Rising U.S. supply and recent cutbacks in estimates for global oil consumption in 2014 are offsetting geopolitical turmoil. Meanwhile, a cool summer in the eastern U.S. has undercut an earlier rally in natural-gas prices.

Similar dynamics are playing out with grains—23% of the index—and gold, which accounts for 11.5%. Citigroup C +1.45% forecasts seasonal records for U.S. corn and soybean harvests. Having rallied 21% by the end of April, the Bloomberg Agriculture subindex is down 5.5% year-to-date. In the gold market, miners added 13% more supply in the second quarter, year over year, even as demand fell 16%, according to the World Gold Council's latest report. Gold's rally stalled out in March.

One relative bright spot: Industrial metals, about 17% of the index. This owes mostly to nickel, which rose by more than 50% earlier this year on the back of Indonesian export restrictions removing about 15% of global supply. That rally has stalled since May, though.

Meanwhile, copper continues to struggle as financing deals in China backed by the metal unwind—raising supply—and worries about the country's property sector have taken hold, suggesting slower construction activity. And copper's bigger market makes it a powerful headwind: At 7.5% of the index, it outweighs nickel and aluminum combined.

Add up oil, gas, grains, copper and gold, and you have two-thirds of the commodity sector weighted to raw materials showing signs of adequate supply, softening demand, or both. Barring that old standby for commodities—an unforeseen disruption from war or some other catastrophe—2014 looks like being a year of dashed hopes.