>>> US Research Calls I

Research Calls I
  • Upgrades:
    • Banc of California (BANC) upgraded to Overweight from Equal Weight at Barclays; tgt raised to $18
    • Danaher (DHR) upgraded to Outperform from Peer Perform at Wolfe Research; tgt $285
    • Envista (NVST) upgraded to Market Perform from Underperform at Leerink Partners; tgt raised to $23
    • KLA Corporation (KLAC) upgraded to Outperform from Perform at Oppenheimer; tgt raised to $850
    • L3Harris (LHX) upgraded to Buy from Neutral at BofA Securities; tgt $300
    • Meritage (MTH) upgraded to Buy from Neutral at Goldman; tgt raised to $235
    • Omega Health (OHI) upgraded to Outperform from Neutral at Exane BNP Paribas; tgt $49
    • Regions Fincl (RF) upgraded to Outperform from Mkt Perform at Keefe Bruyette; tgt raised to $28
    • Smurfit Westrock plc (SW) upgraded to Outperform from Sector Perform at RBC Capital Mkts; tgt raised to $58
    • Valley National (VLY) upgraded to Equal Weight from Underweight at Barclays; tgt raised to $10
    • Wingstop (WING) upgraded to Buy from Neutral at BTIG Research; tgt $370
  • Downgrades:
    • Arm Holdings plc (ARM) downgraded to Underperform from Mkt Perform at Bernstein; tgt $100
    • Biogen (BIIB) downgraded to Equal-Weight from Overweight at Morgan Stanley; tgt lowered to $204
    • Blackbaud (BLKB) downgraded to Neutral from Outperform at Robert W. Baird; tgt lowered to $80
    • Brinker (EAT) downgraded to Market Perform from Outperform at BMO Capital Markets; tgt raised to $105
    • Brinker (EAT) downgraded to Neutral from Overweight at JP Morgan; tgt raised to $100
    • FirstEnergy (FE) downgraded to Neutral from Buy at Seaport Research Partners
    • First Interstate Bancsystem (FIBK) downgraded to Underweight from Equal Weight at Barclays; tgt lowered to $30
    • GlaxoSmithKline (GSK) downgraded to Neutral from Buy at Guggenheim
    • Kraft Heinz (KHC) downgraded to Hold from Buy at Deutsche Bank; tgt lowered to $35
    • Option Care Health (OPCH) downgraded to Hold from Buy at Jefferies; tgt lowered to $26
    • TE Connectivity (TEL) downgraded to Reduce from Hold at HSBC Securities; tgt $137
    • Trane (TT) downgraded to Hold from Buy at HSBC Securities; tgt $405
  • Others:
    • Alumis (ALMS) initiated with an Outperform at Robert W. Baird; tgt $25
    • Enliven Therapeutics (ELVN) initiated with a Buy at JonesResearch
    • ORIC Pharmaceuticals (ORIC) initiated with an Overweight at Wells Fargo; tgt $20
    • ORIC Pharmaceuticals (ORIC) initiated with a Buy at JonesResearch
    • Terns Pharmaceuticals (TERN) initiated with an Outperform at Oppenheimer; tgt $82
    • Vanda Pharma (VNDA) initiated with a Buy at H.C. Wainwright; tgt $18

FT : Elon Musk in funding talks with Middle East investors to value xAI at $45bn

Elon Musk in funding talks with Middle East investors to value xAI at $45bn
Early discussions include existing backers of artificial intelligence start-up

Elon Musk is in talks with some of the largest investors in the Middle East about a fundraising for his artificial intelligence start-up that could roughly double the one-year-old company’s valuation to $45bn.

According to six people with knowledge of the conversations, xAI is in early talks with new and existing investors, seeking fresh capital to compete with OpenAI, which recently raised more than $10bn in debt and equity, as well as Anthropic and Big Tech rivals including Google and Meta.

Musk has approached investors in Qatar and Saudi Arabia about backing his AI start-up, according to three of the people. He has also talked to current investors including Sequoia Capital and Valor Equity Partners.

A potential valuation of $45bn has been floated with investors, close to double the level reached in a funding round this summer, said two of the people. Valor is expected to lead the round and Sequoia to participate, according to two other people with knowledge of the discussions, who cautioned they were at a preliminary stage and that the target valuation and participation could change.

Sequoia declined to comment. Musk and Valor did not immediately respond to a request for comment.

Musk’s relationship with Saudi Arabia deteriorated during the serial entrepreneur’s abortive attempt to take Tesla private in 2018. He became embroiled in a spat with the Saudi sovereign wealth fund, the Public Investment Fund, and its governor, Yasir al-Rumayyan, after tweeting that he had financing in place to take Tesla private.

Days later, Musk said the PIF had agreed to fund the deal. The transaction never materialised, and Musk accused Rumayyan of throwing him “under the bus”, according to subsequent court filings.

But Musk, who has become a close ally of Republican presidential candidate Donald Trump, has been working to engage the Gulf kingdom in recent months and has raised the prospect of investment in xAI, according to a person with knowledge of the conversations.

In a sign that the relationship has largely been repaired, Musk addressed Saudi Arabia’s Future Investment Initiative conference this week.

“It has been raised,” said a person familiar with Musk’s talks with Saudi investors. “These guys are always willing to have a conversation about new investment opportunities and he’s building one of the few AI companies at scale, so there shouldn’t be any surprise they are talking about it, but I don’t think it’s very advanced. In the last few months, he’s been trying to engage and have dialogue again [after the Tesla spat].”

On Tuesday, Rumayyan told the same conference that it was reducing the $930bn sovereign wealth fund’s targeted allocation for international investments, though AI remained a priority for the kingdom. Rumayyan also said the PIF was in talks with potential investors and wanted to make Saudi Arabia a “global hub” for AI.

Musk has also approached Qatari investors, according to one of the people familiar with the talks. The state’s sovereign wealth fund, the Qatar Investment Authority, previously helped finance Musk’s takeover of Twitter.

Oil-rich Gulf states, including Qatar, Saudi Arabia and the United Arab Emirates, have all expressed ambitions to be leading players in AI, as they have significant financial firepower and abundant energy resources.

Last month, Groq, the US AI company, said it planned to establish the world’s largest inferencing data centre in Saudi Arabia after signing a deal with Aramco Digital, the tech arm of the kingdom’s state-owned oil company.

The Wall Street Journal first reported on xAI’s fundraising plans. The Information reported Musk was in discussions with Sequoia and Valor.

Musk is making overtures to the Middle East at the same time as he is becoming increasingly central to the US presidential election. He has donated tens of millions of dollars to Trump’s campaign and affiliated groups, appeared at Trump rallies and used his social media platform X to amplify pro-Trump messages.

“I’ve been playing a significant role in this election,” Musk told the Future Investment Initiative audience on Tuesday.

Funding for AI start-ups has exploded since OpenAI released its popular ChatGPT chatbot in late 2022. In the first half of this year, AI start-ups attracted more than 40 per cent of all US venture funding, according to PitchBook.

Start-ups building the most powerful large language models, which power AI, are burning through billions of dollars a year and are reliant on close relationships with wealthy investors, chipmakers and cloud providers to meet the financial and technical requirements for training their models. As a result, top start-ups are engaged in a near-permanent fundraising effort.

Companies in the industry are also riding a wave of renewed investor interest to reprice themselves following OpenAI’s blockbuster funding round this month that gave the company a $150bn valuation.

>>> Europe : Brokers Upgrades & Downgrades - 31st of October 2024 V2(+)


>>> Up
* Alcon AG Raised to Hold at Kepler Cheuvreux
* Alphabet Raised to Buy at China Renaissance; PT $212
* Arkema Raised to Buy at Berenberg
* Booking PT Raised to $5,500 from $5,000 at Oppenheimer (+)
* Burberry Raised to Buy at HSBC; PT 1,000 pence
* flatexDEGIRO Raised to Buy at Goldman; PT 17 euros
* HelloFresh Raised to Neutral at UBS: Europe Research Digest (+)
* Hexagon Raised to Neutral at BNPP Exane; PT 105 kronor
* J D Wetherspoon Raised to Buy at Goodbody; PT 900 pence
* J. Martins Raised to Outperform at Grupo Santander; PT 23 euros (+)
* Microsoft PT Raised to $548 from $506 at Morgan Stanley
* NoHo Partners Raised to Buy at Inderes; PT 9 euros
* Smurfit WestRock Raised to Outperform at RBC; PT $58
* Sydbank Raised to Buy at Nordea; PT 400 kroner

>>> Down
* Aker BP Cut to Equal-Weight at Barclays; PT 250 kroner
* Altair Eng Cut to Market Perform at William Blair
* Altair Eng Cut to Hold at Loop Capital; PT $113 (+)
* Bridgepoint Cut to Neutral at BofA (+)
* Biogen Cut to Equal-Weight at Morgan Stanley; PT $204
* Grenke Cut to Hold at Hauck & Aufhaeuser; PT 21 euros (+)
* H&M Cut to Sell at Redburn; PT 125 kronor (+)
* Kesko Cut to Reduce at OP Corporate Bank; PT 20 euros (+)
* Meta Platforms Cut to Hold at Punto Casa de Bolsa; PT $619.30
* Microsoft Cut to Hold at Punto Casa de Bolsa; PT $444.65
* Nordic Paper Holding Cut to Hold at ABG; PT 50 kronor
* Orsted Cut to Hold at Deutsche Bank; PT 440 kroner (+)
* SpareBank 1 Nord Norge Cut to Hold at DNB Markets; PT 123 kroner (+)
* Syensqo Cut to Hold at Berenberg

>>> Initiation
* Atoss Software SE Rated New Sell at Bryan Garnier; PT 100 euros (+)
* WH Smith Rated New Neutral at UBS; PT 1,580 pence (+)

>>> Call
* Sydbank Gains as Nordea Upgrades on Further Proof of Momentum (+)

>>> Europe : Brokers Upgrades & Downgrades - 31st of October 2024

>>> Up
* Alphabet Raised to Buy at China Renaissance; PT $212
* Arkema Raised to Buy at Berenberg
* Burberry Raised to Buy at HSBC; PT 1,000 pence
* flatexDEGIRO Raised to Buy at Goldman; PT 17 euros
* Hexagon Raised to Neutral at BNPP Exane; PT 105 kronor
* Microsoft PT Raised to $548 from $506 at Morgan Stanley
* NoHo Partners Raised to Buy at Inderes; PT 9 euros
* Smurfit WestRock Raised to Outperform at RBC; PT $58
* Sydbank Raised to Buy at Nordea; PT 400 kroner

>>> Down
* Aker BP Cut to Equal-Weight at Barclays; PT 250 kroner
* Altair Eng Cut to Market Perform at William Blair
* Biogen Cut to Equal-Weight at Morgan Stanley; PT $204
* Meta Platforms Cut to Hold at Punto Casa de Bolsa; PT $619.30
* Microsoft Cut to Hold at Punto Casa de Bolsa; PT $444.65
* Nordic Paper Holding Cut to Hold at ABG; PT 50 kronor
* Syensqo Cut to Hold at Berenberg

>>> Initiation


>>> Call

>>> What to look at today - 31st of October 2024

Asian equities fell Thursday after US stocks and government bonds dropped as robust economic data blurred the picture for imminent Federal Reserve rate cuts. The yen strengthened after the Bank of Japan’s rate decision. Shares in Japan, Australia and South Korea declined, weighing on an index of the region’s equities, which headed for its worst monthly performance since August 2023. Mainland Chinese shares and those in Hong Kong rose, as investors digested a report showing monthly Chinese manufacturing data registered its first expansionary reading since April. The BOJ kept its benchmark interest rate unchanged after uncertainties increased over the outlook of the economy and the stability of the government after the ruling coalition suffered its worst electoral result since 2009. The yen strengthened. US futures declined, weighed down by post-market losses for Microsoft Corp. and Meta Platforms Inc. after their earnings results. The dollar was steady, and on pace for its best month in over two years. MSCI’s all-country stock index was set for its biggest monthly advance since April. A measure of one-week implied volatility on the Bloomberg Dollar Spot Index rose on Wednesday to the highest since December 2022, when recession fears briefly raced through financial markets. That indicates traders are preparing for large swings in the currency against major peers like the euro, yen, Chinese yuan and Mexican peso, pushing up the cost of options that protect against such moves. Treasuries rose slightly in Asian trading, while yields on Australian and New Zealand sovereign debt advanced. A measure of the global bond market fell to the lowest level in almost three months on Wednesday. Traders trimmed bets on policy easing after data showed that the US economy expanded at a robust pace in the third quarter, helped along by accelerating household purchases and defense spending. A measure of underlying inflation rose 2.2%, roughly in line with the Fed’s target. The prospect of a Donald Trump victory in next week’s US presidential election prompted some to voice concerns over inflation. Elsewhere in Asia, Taiwan has suspended trading on its stock exchange Thursday as a powerful typhoon barrels toward the archipelago.  Corporate earnings took center stage in the region, with Samsung Electronics Co.’s chip operations missing analysts’ expectations for profit. In China, BYD Co.’s shares slumped even after it beat Tesla Inc. on quarterly revenue for the first time, with traders more focused on its net sales per vehicle disappointing.  Meanwhile, Denso Corp.’s shares fluctuated in the aftermath of the company announcing a $2.9 billion stock buyback program just as Toyota Industries Corp. said it will sell all its holding in the company.  Oil edged higher on Thursday, extending its gains from the previous session. Gold was steady at around $2,787 per ounce early Thursday after touching a fresh record in the prior session. Demand for the precious metal was partly supported by the uncertainty posed by next week’s vote. US After Hours CVNA +20.7%, TWLO +11.4%, ETSY +7.2%, BKNG +6.4% higher on earnings; ROKU -11.3%, OLED -7.6%, WSC -7.4%, EBAY -7.3%, MSFT -3.7%, META -2.5% lower on earnings.

Nikkei -0.90% Hang Seng +0.47% CSI +0.22% Shanghai +0.36% Shenzen +1.05%

Eur$ 1.048 CNH 7.1291 CNY 7.1201 JPY 152.87 GBP 1.2949 CHF 0.8654 RUB 96.9963 TRY 34.2887 WTI$ 69.03 +0.63% Gold 2,785 -0.11% BTC 72,315 -0.71% ETH 2,648 -1.15%

S&P -0.42% Nasdaq -0.58% EuroStoxx -0.38% FTSE -0.23% Dax -0.41% SMI

Macro :
- Shock Landlord Tax Hike Is Latest Blow for UK’s High-End Housing
- Franklin Templeton Adds Equity Risk on Improving Macro Backdrop
- EU Set to Send Envoys to China to Discuss EV Tariff Dispute (1)

Keep an eye on :
- ABI BB : AB InBev Narrows FY Organic Adjusted Ebitda Forecast
- ADYEN NA : Adyen Issues 403,724 Shares After eBay Exercises Warrant
- AIR FP : Airbus 3Q Adjusted Ebit Beats Estimates
- AIR FP : Airbus Keeps 2024 Delivery Goal Despite Supply Chain Woes
- AIR FP : Airbus Names New Commercial Jet CEO, Reaffirms Delivery Goal
- AIX NO : Ayfie Offering of 3m Shares Prices at NOK5 Per Share via SEB
- AKSO NO : Aker Solutions 3Q Adjusted Ebitda Margin Beats Estimates
- AKSO NO : Aker Solutions Proposes Extraordinary Dividend of NOK21/Share
- ARCAD NA : Arcadis 3Q Oper Ebitda EU137M Vs. EU128M Y/y
- ARCH NO : Archer Offers $40 million Shares
- ARGX BB : Argenx 3Q Vyvgart Sales Beats Estimates
- AKE FP : Arkema Says 40% of Group Employees Took Part in Capital Increase
- ATS AV : AT&S 1H Loss EU63M Vs. Profit EU48.5M Y/y
- AVOLT SW : Avolta AG 3Q Organic Revenue +5.7%, Avolta To Cancel 4% of Shares, Saw 3Q Organic Revenue +5.7%
- AZN LN : China Widens AstraZeneca Probe as Country Boss Investigated
- CS FP : AXA 9M Revenue EU84B Vs. EU78.8B Y/y
- BBVA SM : BBVA 3Q Net Income Beats Estimates
- BCP PL : BCP 9M Net Income EU714.1M Vs. EU650.7M Y/y, Plans to Boost Dividend Payout, Buyback Shares
- BHP LN : BHP Says Chairman’s Comments Not Intended Under UK Takeover Code
- BNP FP : BNP Paribas 3Q Net Income Meets Estimates,BNP Paribas Gets Boost From Trading as Lending Headwinds Linger
- BA US : Boeing Union Continues to Hold Talks With Planemaker
- BKNG US : *BOOKING RAISES FY GROSS BOOKINGS OUTLOOK TO ABOUT +8%, EST 6.4%
- CABK SM : CaixaBank 3Q Net Income Beats Estimates, CaixaBank To Launch €500M Share Buyback Program
- CBK GY : Commerzbank to Set Up New Division for Takeovers: Handelsblatt
- DEEZR FP : Deezer 3Q Revenue EU134M Vs. EU120.7M Y/y
- DIE BB : Belron Minority Holders to Buy Additional 1.4% Stake in Company
- DIS US : Disney to Pay More Than $500 Million to Air the Grammys -- WSJ
- DFSIR NA : DSM-Firmenich Boosts FY Adjusted Ebitda Forecast
- ELIS FP : Elis 3Q Organic Revenue Misses Estimates
- EQT SS : EQT Buys Australia-Based Software Provider PageUp; No Terms
- EPR NO : Europris 3Q Ebitda Misses Estimates
- GLPG NA : Galapagos 3Q Cash & Other Misses Estimates
- GEBN SW : Geberit 3Q Ebitda Beats Estimates, Geberit Boosts FY Ebitda Margin Forecast
- HPUR NO : Hexagon Purus Offering of 145m Shares Prices at NOK6.90/Share
- NK FP : Imerys 3Q Adjusted Ebitda Misses Estimates
- INGA NA : ING 3Q Net Income Beats Estimates, *ING RAISES OUTLOOK FOR 2024 TOTAL INCOME TO MORE THAN €22.5B,
- JMT PL : J. Martins 3Q Net Income EU187M Vs. EU202M Y/y, Says Higher Costs, Lower Prices Are Straining Margins
- KBX GY : Knorr-Bremse 3Q Ebit Misses Estimates
- MC FP : Sovereign Funds Ready to Get Dolce & Gabbana Stake: Corriere
- MSFT US : Microsoft 1Q Revenue Beats Estimates, Microsoft Shares Drop on Disappointing Azure Growth Forecast (1)
- MSTR US : MicroStrategy Lays Groundwork to Raise $42 Billion for Bitcoin
- MTX GY : MTU Aero CEO Lars Wagner Won’t Extend Contract
- NOS PL : NOS 3Q Net Income EU52.6M Vs. EU45.9M Y/y
- NOVOB DC : Hims Falls Amid FDA Shortage Update for Novo’s Obesity Drug
- NOVOB DC : Novo’s Semaglutide Reduces Knee Osteoarthritis Pain, Study Says
- PLX FP : Pluxee FY Recurring Ebitda EU430M Vs. EU363M Y/y
- PUBLI NO : PPI Picks Andre Gaden as New CEO, Ilija Batljan as CIO
- 1913 HK : Prada Shares Jump Most in a Month as 3Q Sales Beat Estimates +6,4%
- PROX BB :
- PRY IM : Prysmian 3Q Revenue Meets Estimates
- QTCOM FH : QT Group 3Q Operating Profit Misses Estimates
- RECT BB : Recticel 3Q Sales EU156.6M Vs. EU132.3M Y/y
- RNO FP : Ampere: Nissan Asked Ampere to Explore Development of a Small EV
- RUI FP : Rubis Cuts FY Ebitda Forecast, Misses Estimates
- RYA ID : Ryanair Says UK Aviation Tax Hike Will Hurt Economy
- SAB SM : Sabadell 3Q Net Income Beats Estimates
- 005930 KS : Samsung’s Profit Rises After Broader Business Offsets AI Gloom +2%
- SIE GY : Siemens Agrees to Buy Software Group Altair in $10 Billion Deal (113/share)
- SIE GY : Siemens to Sell Airport Logistics Unit to Vanderlande for €300M
- GLE FP : SocGen 3Q Net Income Beats Estimates, Societe Generale Deputy CEO Aymerich, CFO Dumas to Step Down
- SOP FP : Sopra Steria 3Q Revenue Misses Estimates
- SWON SW : SoftwareONE Cuts FY Adjusted Ebitda Margin Forecast, SoftwareOne Names Raphael Erb CEO as Take-Private Talks Continue
- SPIE FP : Spie 3Q Revenue Misses Estimates
- STM GY : Stabilus Prelim FY Adjusted Ebit EU157.1M
- STMPA FP : STMicro 4Q Net Revenue Forecast Misses Estimates, STMicro Cuts FY Net Revenue Forecast
- SCMN SW : Swisscom 3Q Net Revenue Misses Estimates
- TE FP : Technip Energies to Acquire Two Italian Engineering Companies
- TFI FP : TF1 3Q Revenue Misses Estimates Van Lanschot Kempen 3Q Total Client Assets EU162.3B
- VLK NA :
- VOW GY : VW Unveils Cost-Saving Plan That May Keep German Plants Open
- WLN FP : Worldline 3Q Revenue Misses Estimates
- ZURN SW : Zurich Insurance Completes CHF1.1B Share Buyback

FT : Chinese sanctions hit US drone maker supplying Ukraine

Chinese sanctions hit US drone maker supplying Ukraine
Move by Beijing leaves California company rushing to find new battery providers

Skydio, the US’s largest drone maker and a supplier to Ukraine’s military, faces a supply chain crisis after Beijing imposed sanctions on the company, including banning Chinese groups from providing it with critical components.

Skydio is rushing to find alternative suppliers after Beijing’s move, which also blocks battery supplies from its sole provider, said people familiar with the situation.

The drone-maker has sought help from the Biden administration. Chief executive Adam Bry last week met US deputy secretary of state Kurt Campbell and held discussions with senior officials at the White House.

American officials are concerned about China disrupting US supply chains and provision to Ukraine of drones used in intelligence gathering.

“This is a clarifying moment for the drone industry,” Bry wrote in a note to customers obtained by the Financial Times. “If there was ever any doubt, this action makes clear that the Chinese government will use supply chains as a weapon to advance their interests over ours.

“This is an attempt to eliminate the leading American drone company and deepen the world’s dependence on Chinese drone suppliers,” he added.

The crisis for Skydio underscores the risks facing US companies that rely on China and comes amid concern among foreign businesses about Beijing’s use of security laws to detain their local employees and carry out corporate raids in the country.

China’s sanctions, imposed on October 11, hit several US groups, including privately held Skydio, in retaliation for Washington’s approval of the sale of attack drones to Taiwan. Skydio had recently won a contract with Taiwan’s fire agency.

Beijing imposed the sanctions before Skydio had succeeded in finding alternative suppliers.

One person familiar with the situation said Chinese authorities visited Skydio’s suppliers, including Dongguan Poweramp — a subsidiary of Japan’s TDK that makes drone batteries — and ordered them to sever ties.

Skydio on Wednesday told its customers it was rationing the number of batteries supplied with drones because of the Chinese move and that it did not expect to have new suppliers until spring.

Skydio is talking to companies in Asia, including in Taiwan. One person familiar with the situation said US officials had contacted Asian allies to discuss ways to help the company. Skydio has also been in touch with Taiwan’s vice-president Hsiao Bi-khim about the issue.

The San Mateo-based group sells to corporate and government customers, including the US military. It said it had sent more than 1,000 drones to Ukraine for intelligence gathering and reconnaissance purposes. The drones have also been used to help document Russian war crimes.

Skydio said its latest model, the X10, was the first US drone to pass Ukrainian electronic warfare tests — meaning they are hard to jam — and that Kyiv had requested thousands of them.

The Chinese action comes as the US Congress considers legislation that would ban Americans from flying drones made by DJI, the Shenzhen-based company that dominates the global commercial drone industry.

“We suspect Skydio was targeted by Beijing because it is likely seen as a competitor to DJI,” said one US official. “If there is a silver lining, we can use this episode to accelerate our work to diversify drone supply chains away from . . . China.”

US officials said they hoped the Skydio crisis would also raise awareness in the private sector about the danger of having supply chains concentrated in China.

China has in the past restricted supplies of rare earths to try to pressure other countries and recently warned Japan it would block shipments of critical minerals if Tokyo adopted export controls pushed by Washington.

Beijing has in recent years placed sanctions on several US defence companies, including Lockheed Martin, Raytheon, Boeing and Anduril Industries, which makes some of the attack drones going to Taiwan.

“While China’s sanctions today target defence and drone manufacturers, tomorrow they will almost certainly expand to other sectors as US-China relations worsen,” said Craig Singleton at the Foundation for Defense of Democracies. “Batteries and rare earths are just the canary in the coal mine.”

The White House, state department and TDK declined to comment.

FT : Chinese factory activity expands ahead of expected economic support package

Chinese factory activity expands ahead of expected economic support package
First rise in six months comes as Beijing set to unveil fiscal stimulus targeting struggling local governments

Chinese factory activity strengthened for the first time in six months in October, in a heartening signal for policymakers as they prepare a crucial fiscal package to support the world’s second-largest economy.

The figures represent the last data release before a meeting next week of the standing committee of China’s rubber-stamp parliament, the National People’s Congress, which is expected to confirm the size of a fiscal stimulus to try to boost economic growth.

This month’s official purchasing managers’ index came in on Thursday at 50.1, higher than 49.8 in September and stronger than the average forecast of 49.9 by analysts polled by Bloomberg. A reading above 50 marks an expansion from the previous month.

The non-manufacturing PMI was 50.2 in October, slightly below analysts’ forecasts of 50.3 but also exceeding September’s reading of 50, as underlying domestic consumption remained weak.

Analysts estimate China needs to spend up to Rmb10tn ($1.4tn) over three years to restore confidence among domestic consumers, whose wealth has been hit by a deep property sector slowdown and job and salary cuts.

But many believe the government plans to direct most of next week’s stimulus package to fixing local governments’ balance sheets through debt swaps, as well as providing funds to buy land and unsold apartments to put a floor under the slumping property market.

Authorities unveiled an initial monetary stimulus push in late September that targeted the stock market and interest rates and sent China’s benchmark CSI 300 share index soaring as retail investors crowded back into equities.

Morgan Stanley analysts said ahead of Thursday’s data release that activity was probably supported by “accelerated fiscal deployment on infrastructure projects”, as the government sped up spending in the final months of the year in an effort to hit its growth target.

China’s economy grew 4.6 per cent year on year in the third quarter, short of the official full-year target of 5 per cent.

The government has since raised expectations for more action, after a highly anticipated briefing by state planners failed to lay out stronger fiscal support, disappointing investors and sending stocks sinking.

The finance ministry then signalled this month that the planned fiscal stimulus package would focus on local governments, many of which depend on property sales for revenue and have been devastated by the sector’s three-year slowdown.

Repairing local government finances would enable them to pay arrears owed to local suppliers and back-salaries to employees, as well as resume investing.

But economists have said doing so by swapping existing local government debt for new debt would not amount to stimulus because it would not involve more spending.

Commenting on a Reuters report this week that Rmb6tn of the planned stimulus would be in the form of local government debt swaps, Nomura economist Ting Lu said this “would not represent any incremental borrowing and could not be considered stimulus”.

What is needed instead, economists argue, is direct assistance to households, in the form of improved social welfare and healthcare programmes and other services to give families the confidence to spend again.

Chi Lo, senior market strategist at BNP Paribas Asset Management, noted that Beijing had “multiple policy goals beyond sustaining economic growth”, including “implementing structural reforms and reducing financial risk”. The government, he added, “has no target for fiscal spending”.

>>> US After Hours Summary: CVNA +20.7%, TWLO +11.4%, ETSY +7.2%, BKNG +6.4% hig

After Hours Summary: CVNA +20.7%, TWLO +11.4%, ETSY +7.2%, BKNG +6.4% higher on earnings; ROKU -11.3%, OLED -7.6%, WSC -7.4%, EBAY -7.3%, MSFT -3.7%, META -2.5% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: ROOT +59.1% (also refinances term loan facility with BlackRock), CVNA +20.7%, RELY +16.7%, NXT +16%, CFLT +12.3%, DAWN +12.3%, SFM +12%, ATEC +11.4%, TWLO +11.4%, MCW +11.3%, TDOC +10.4%, LMND +10.3%, NVST +10%, RSI +9.8% (also authorizes new $50 mln share repurchase program), COMP +8.1%, PAYC +7.8%, ETSY +7.2% (also authorizes new $1 bln share repurchase program), BKNG +6.4%, MDXG +6.3%, AMSC +5.8%, VAL +5.6%, MAX +5.1%, STAA +5.1%, MUSA +5%, SCI +5%, ALKT +4.8%, NMFC +4.7%, ERII +4.2%, INFA +4.2% (also authorizes new $400 mln share repurchase program), CGNX +3.8% (also increases dividend), RIG +3.8%, FRT +3.2%, BIO +3.1%, CLX +3.1%, LPLA +3% (also to resume share repurchases in Q4), ALL +2.9%, BHE +2.9%, PCTY +2.7%, FND +2.6%, AX +2.3%, COLM +2.3% (also authorizes new $600 mln share repurchase program), CTSH +2.2%, AEM +2.1%, GEN +1.7%, KMPR +1.7%, MKL +1.7%, AMGN +1.4%, WTS +1.1% (also CFO to retire), AWK +1%, OHI +1%, AR +0.9%, GDDY +0.8%, ACGL +0.7%, CF +0.4%, CHRW +0.4%, SBUX +0.4%, HCC +0.3%, HTGC +0.3%, DASH +0.2% (also DASH and LYFT to partner to unlock exclusive benefits), ACA +0.1%, AIN +0.1%, CNMD +0.1% (CEO to retire; promotes COO to become new CEO; names new Chair of the Board), ETD +0.1%, FCPT +0.1%, IRT +0.1%, MATX +0.1%, PEN +0.1%, PGRE +0.1%, UDR +0.1%, SNCY +0.1%, KRG +0.1%

Companies trading higher in after hours in reaction to news: SAVE +3.4% (to furlough about 330 pilots, according to Reuters), CRDF +1.9% (announces publication of Phase 2 trial data evaluating onvansertib), BCC +1.1% (increases buyback auth by 1.4 mln shares), BX +0.8% (aiming to bid for $7 bln RCI investment, according to Globe and Mail), VLO +0.5% (Chairman/CEO to retire; Lane Riggs to assume Chairman position), MPC +0.5% (increases dividend), SUPN +0.5% (releases new data from its Phase 2a study of SPN-820), UBER +0.4% (DASH and LYFT to partner to unlock exclusive benefits), LYFT +0.2% (DASH and LYFT to partner to unlock exclusive benefits), GVA +0.1% (announces $42 mln Naval Facilities contract), WSR +0.1% (rejects indication of interest as it does not reflect an appropriate valuation), PEB +0.1% (provides update on impact of Hurricane Milton)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: ACHC -14%, ALGT -13.2%, CORT -12.6%, IRTC -11.6% (also receives FDA 510(k) clearance for design modifications to Its Zio AT Device), ROKU -11.3%, AUR -10.5%, HOOD -9.8%, MPWR -8.2%, NOVA -7.8%, TWI -7.7%, OLED -7.6%, WSC -7.4%, EBAY -7.3%, RIOT -7%, MTW -6.6%, SRI -6.6%, MET -6.3%, MGM -6.3%, CRK -5.2%, SNBR -4.9% (also CEO to retire), HWKN -4.5%, COIN -3.9%, ALTR -3.8% (also to be acquired by Siemens), BECN -3.7%, MSFT -3.7%, CTOS -3.1%, AM -2.7%, META -2.5%, PCOR -2.5% (also authorizes new $300 mln share repurchase program), NTGR -2.1%, TRUP -2%, TENB -1.9% (also increases share buyback authorization by $200 mln), EQIX -1.8%, AXS -1.7%, TNK -1.7% (also declares $1/sh special dividend), GRBK -1.5%, MSTR -1.4% (also files prospectus detailing sales agreement to issue and sell shares up to $21 bln), RYAN -1.4% (also in final discussions to acquire Innovisk Capital Partners), AFL -1.1%, BHC -1%, FTAI -0.8%, HLF -0.7%, PSA -0.5%, EQR -0.4%, NSA -0.3%, RGR -0.3%, FORM -0.2%, VTR -0.2%, EPR -0.1%, IMAX -0.1%, INVH -0.1%, MAA -0.1%, WHD -0.1%

Companies trading lower in after hours in reaction to news: CWH -8% (commences $300 mln share offering), APLD -5.6% ($300 mln converible notes offering), ENVX -5.2% (commences $100 mln share offering), BMEA -1.4% (presents preclinical data for icovamenib), CTRE -1.1% (11.5 mln share offering), BLD -0.9% (to acquire Shannon Global Energy Solutions), WVE -0.7% (highlights growing pipeline), MU -0.2% (Board Chair to retire), LUV -0.2% (Elliott Mgmt aiming to increase economic exposure to 11.3%, according to Bloomberg), ARW -0.1% (expands with new development centres in Munich and Istanbul)