>>> Europe : Brokers Upgrades & Downgrades - 3rd of November 2023

>>> Up
* Airbnb Raised to Buy at Phillip Secs; PT $157
* Andritz Raised to Overweight at JPMorgan; PT 60 euros
* Chr. Hansen Raised to Overweight at Barclays; PT 555 kroner
* Cordiant Digital Infrastructure/Fund Raised to Buy at Jefferies
* Fortum Raised to Buy at SEB Equities; PT 14.50 euros
* Hexagon Raised to Buy at Nordea; PT 124 kronor
* ISS Raised to Hold at Jefferies; PT 105 kroner
* Kering Raised to Buy at Deutsche Bank; PT 540 euros
* Moderna Raised to Hold at HSBC; PT $69
* Novozymes Raised to Overweight at Barclays; PT 364 kroner
* Relais Group Raised to Buy at Inderes; PT 15.50 euros
* Scatec Raised to Hold at DNB Markets; PT 62 kroner
* Smith & Nephew Raised to Overweight at JPMorgan; PT 1,248 pence
* Uber Raised to Overweight at KeyBanc; PT $60

>>> Down
* Accor Cut to Equal-Weight at Barclays; PT 33 euros
* Estee Lauder Cut to Hold at Berenberg; PT $118

>>> Initiation
* Amazon Rated New Buy at William O'Neil
* Auto Trader Reinstated Buy at Panmure Gordon; PT 695 pence
* Richemont Reinstated Buy at Investec; PT 130.60 Swiss francs
* Yubico Rated New Buy at SEB Equities; PT 128 kronor

>>> Call
* JPMorgan Strategists Say Earnings Weakness Due to Commodities

>>> US Close Dow +1.70% S&P +1.89% Nasdaq +1.78% Russell +2.67%

Closing Stock Market Summary
The stock market was in rally-mode today, aided by falling interest rates, positive earnings news, and short covering activity. The Russell 2000 registered a 2.5% gain while the three main indices closed with gains ranging from 1.7% to 1.9%. The S&P 500 closed above its 200-day moving average (4,244) and the 4,300 level.

The 10-yr note yield fell another 12 basis points today to 4.67% while the 2-yr note yield rose one basis point to 4.98%. The drop in long term rates was aided by some softening manufacturing PMI data out of the eurozone, the Bank of England's decision to keep its Bank Rate unchanged at 5.25%, some short-covering activity in the Treasury market as well, and the Q3 productivity report showing a 0.8% decline unit labor costs.

Just about everything came along for the rally in the stock market. 29 of the 30 Dow components settled with a gain and all 11 S&P 500 sectors closed in the green. The energy (+3.1%) and real estate (+3.1%) sectors jumped more than 3.0% while the communication services sector (+0.9%) saw the slimmest gain.

Reactions to earnings news was generally positive, which acted as added support for the broader market. Qualcomm (QCOM 117.36, +6.47, +5.8%), Eli Lilly (LLY 580.29, +25.83, +4.7%), and Starbucks (SBUX 100.01, +8.66, +9.5%) were winning standouts in that respect.
Meanwhile, Airbnb (ABNB 115.50, -3.97, -3.3%) and Moderna (MRNA 71.23, -4.97, -6.5%) traded down after reporting earnings.

Other factors in play today included the notion that the Fed could be done raising rates, which followed remarks made yesterday by Fed Chair Powell at his press conference after the FOMC meeting, and the seasonality factor. November, on average, has historically been the strongest month for the S&P 500 and marks the start of the best six month return period for the S&P 500.
  • Nasdaq Composite: +27.0% YTD
  • S&P 500: +12.5% YTD
  • Dow Jones Industrial Average: +2.1% YTD
  • S&P Midcap 400: +0.02% YTD
  • Russell 2000: -2.7% YTD

Reviewing today's economic data:
  • Weekly Initial Claims 217K (Briefing.com consensus 214K); Prior was revised to 212K from 210K; Weekly Continuing Claims 1.818 mln; Prior was revised to 1.783 mln from 1.709 mln
    • The key takeaway from the report is much the same, which is to say the low level of initial claims isn't consistent with a material weakening in the labor market.
  • Q3 Productivity-Prel 4.7% (Briefing.com consensus 3.6%); Prior was revised to 3.6% from 3.5%; Q3 Unit Labor Costs-Prel -0.8% (Briefing.com consensus 1.5%); Prior was revised to 3.2% from 2.2%
    • The key takeaway from the report, other than the impressive uptick in productivity, is the decline in unit labor costs. It is a particularly timely piece of data, as it plays perfectly into the market's swelling expectation that moderating inflation pressures will keep the Fed from raising rates again.
  • September Factory Orders 2.8% (Briefing.com consensus 1.0%); Prior was revised to 1.0% from 1.2%
    • The key takeaway from the report is that factory orders in September were boosted nicely by strength in transportation orders, but the increase wasn't just a transportation story.

Friday's economic calendar features:
  • 8:30 ET: October Nonfarm Payrolls ( consensus 175K; prior 336K), Nonfarm Private Payrolls ( consensus 143K; prior 263K), Average Hourly Earnings ( consensus 0.3%; prior 0.2%), Unemployment Rate ( consensus 3.8%; prior 3.8%), Average Workweek ( consensus 34.3; prior 34.4)
  • 9:45 ET: Final October S&P Global US Services PMI (prior 50.1)
  • 10:00 ET: October ISM Non-Manufacturing Index (consensus 53.0%; prior 53.6%)

>>> Apple beats by $0.07; revs slightly ahead of consensus; iPhones and services

Apple beats by $0.07; revs slightly ahead of consensus; iPhones and services top expectations, while Macs miss expectations (177.57 +3.60)
  • Reports Q4 (Sep) earnings of $1.46 per share, $0.07 better than the FactSet Consensus of $1.39; revenues fell 0.7% year/year to $89.5 bln vs the $89.34 bln FactSet Consensus.
  • Apple reports Q4 iPhone revenue of $43.8 bln vs. $43.4 bln and $42.6 bln last year.
  • Apple reports Q4 Mac revenue of $7.6 bln vs. $8.8 bln and $11.5 bln last year.
  • Apple reports Q4 iPad revenue of $6.4 bln vs. $5.9 bln and $7.2 bln last year.
  • Apple reports Q4 wearables revenue of $9.3 bln vs. $9.2 bln and $9.7 bln last year
  • Apple reports Q4 services revenue of $22.3 bln vs. $21.6 bln and $19.2 bln last year.
CEO Tim Cook told CNBC that iPhone 15 Pro and iPhone 15 Pro Max are still constrained because of high demand. Mr. Cook said he is optimistic about Mac business for holiday quarter.

"Today Apple is pleased to report a September quarter revenue record for iPhone and an all-time revenue record in Services," said Tim Cook, Apple's CEO. "We now have our strongest lineup of products ever heading into the holiday season, including the iPhone 15 lineup and our first carbon neutral Apple Watch models, a major milestone in our efforts to make all Apple products carbon neutral by 2030." "Our active installed base of devices has again reached a new all-time high across all products and all geographic segments, thanks to the strength of our ecosystem and unparalleled customer loyalty," said Luca Maestri, Apple's CFO. "During the September quarter, our business performance drove double digit EPS growth and we returned nearly $25 billion to our shareholders, while continuing to invest in our long-term growth plans."

Apple earnings conference call update; co guides Q1 (Dec) revenue below expectations
  • Q1 (Dec) Outlook: The company expects revenue to be similar to last year (Q1 FY23 actual was $117.2 bln; Q1 FY24 FactSet consensus is $123.3 bln) ; expects iPhone revenue to grow yr/yr; expects Mac and iPad performance to accelerate qtr/qtr. The company expects strong double digit rate of growth in services; expects gross margins between 45-46%
  • The company achieved all time record for revenue in India.
  • The company faced F/X headwinds in the September quarter.
  • 66% of college students are choosing a Mac.
  • Subscriptions to Major League Soccer season pass have exceeded expectations.
  • F/X had negative impact of 2 percentage points. Expects negative 1% impact from F/X for FY23.
  • Americas had September quarter record.
  • The company has 1 billion paid subs across its services.

>>> US After Hours Summary: Busy earnings session, led by AAPL -3.4%; BILL -28%,

After Hours Summary: Busy earnings session, led by AAPL -3.4%; BILL -28%, FTNT -16.7%, FND -14.7%, FOXF -14.6%, TEAM -10.4%, BKNG -4.2%, OLED -4.2%, COIN -4% also lower on earnings; DOCN +18.4%, SQ +15.9%, TRUP +10%, PARA +4.9% higher on earnings

After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: DOCN +18.4%, SQ +15.9% (also authorizes new $1 bln share repurchase program; also employees warned of potential job cuts according to Business Insider), IAS +14.2%, FNKO +13.8%, UDMY +13.6%, DH +12%, SPT +11.6%, PODD +10.2%, TRUP +10%, FIGS +9.8%, EVH +8.3%, ALHC +8.2%, EXPE +7.5% (also authorizes new $5 bln share repurchase program), DKNG +7.1%, BL +6.1%, DVAX +5.9%, ACAD +5.4%, HASI +5.3%, FIVN +4.9%, PARA +4.9%, YELP +4.6%, CLDX +4.1%, MNST +3.5%, TSLX +3.1%, PRDO +2.8%, LYV +2.7%, QLYS +2.7%, RMAX +2.7%, FRT +2.4%, VTLE +2.4%, HURN +2.1%, BAND +2%, CHUY +2%, SM +2% (also increases dividend), GDYN +1.8%, MSI +1.7%, RDFN +1.6%, ALTR +1.5%, EOG +1.4% (also increases dividend by 10%, declare special dividend of $1.50/sh), CVNA +1.4%, CRUS +0.9%, MCW +0.9%, PLYA +0.8%, LNT +0.7%, VIR +0.7%, DBX +0.6%, REG +0.6%, EXPI +0.5%, VTR +0.3%, COLD +0.2%, AMN +0.1%, KWR +0.1%, MC +0.1%, CPK +0.1%

Companies trading higher in after hours in reaction to news: BURL +6.5% (to join S&P MidCap 400), PLL +3.7% (North American lithium drill results show potential for mineral resource upgrade), ENV +3.7% (moving to S&P SmallCap 600 from S&P MidCap 400), CELH +3.3% (approves 3-for-1 stock split), APO +2.8% (acquires majority stake in Modern Aviation), TERN +1.9% (first participant dosed in Phase 1 trial of TERN-601), BOX +1.9% (names new COO), MBLY +1.6% (Director Claire McCaskill trust bought 27819 shares at $35.95 worth $1 mln), BCO +0.5% (increases share repurchase authorization by $500 mln), SNA +0.1% (increases dividend), X +0.1% (decision regarding sale could be on horizon according to Bloomberg)

After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: BILL -28%, FTNT -16.7% (also says it's sharpening its focus to prioritize high-growth markets), BOOM -15.1%, FND -14.7%, FOXF -14.6% (also authorizes new $300 mln share repurchase program), AGL -12.9%, ABCL -11.3%, PCTY -10.9%, TEAM -10.4%, OPEN -9.1%, OUT -9.1%, WW -8.9%, HLIO -8.4%, TXG -6.9%, ACCO -6.3%, BOOT -6.2%, PEN -5.7%, SWKS -5.6%, BAP -4.8%, NET -4.8%, STEM -4.8% (also enters into alliance with SB Energy), BECN -4.5%, BKNG -4.2%, OLED -4.2%, APPN -4.1%, COIN -4%, SYK -3.7%, AAPL -3.4%, VIAV -2.9%, SG -2.5%, MCHP -2.2% (also increases dividend), RKT -2.2%, SPXC -2.1%, HCAT -2% (also acquires Electronic Registry Systems; also announces partnership with Accountable Health Partners), MP -2%, SEM -1.9%, IRTC -1.8%, OHI -1.7%, ICFI -1.5%, MERC -1.5%, KTOS -1.4%, CYTK -1.1%, SXI -1.1%, LOCO -0.7% (also CEO to step down; also $20 mln buyback auth), GDDY -0.3%, OTEX -0.3%, CODI -0.1% (also announces sale of Marucci Sports for $572 mln), HTGC -0.1%, PXD -0.1% (also increases dividend), RPT -0.1%, TMST -0.1%

Companies trading lower in after hours in reaction to news: MCY -4.3% (announces deal with US Navy), PANW -3.3% (in sympathy with weak FTNT results), HSIC -2.6% (to delay its 10-Q), BBIO -2% (stock offering by selling shareholders), CRWD -2% (in sympathy with weak FTNT results), VRNS -1.9% (in sympathy with weak FTNT results), RY -1% (charged by SEC with internal accounting controls violations; to pay a $6 mln penalty), AUPH -0.6% (presents data on LUPKYNIS), MU -0.3% (files mixed shelf securities offering), CERS -0.1% (files $150 mln mixed shelf securities offering)

WSJ : Russia’s Wagner Group May Provide Air Defense Weapon to Hezbollah, U.S. In

Russia’s Wagner Group May Provide Air Defense Weapon to Hezbollah, U.S. Intel Says
The Lebanese militant group could threaten a second front against Israel

The U.S. has intelligence that the Wagner Group, the Russian paramilitary group, may provide an air defense system to Hezbollah, the Lebanese militia, U.S. officials say.

The system in question is the SA-22, which uses antiaircraft missiles and air defense guns, to intercept aircraft.

One U.S. official said that Washington hasn’t confirmed that the system has been sent. But it is monitoring discussions involving Wagner and Hezbollah and that the potential delivery is a major concern.

The U.S. has positioned an aircraft carrier in the Eastern Mediterranean to try to deter Hezbollah, an Iranian-backed militias, from opening up a northern front.

Wagner has personnel in Syria, where Hezbollah fighters have also been present.

WSJ : U.S. Seeks Help From Arab States to Plan Gaza Governance After War

U.S. Seeks Help From Arab States to Plan Gaza Governance After War
While some see a role for Qatar, Washington and its partners are struggling to enlist volunteers

Secretary of State Antony Blinken and his deputies are speaking with their counterparts in Arab states about plans for governing Gaza after Israel finishes its main military operations there, according to people familiar with the early stage conversations.

Officials involved in the brainstorming sessions say it is too early to discuss specifics, and outside analysts don’t see a precise blueprint for administering Gaza as feasible at the moment, but the issue is expected to come up during Blinken’s coming visit to the region.

Blinken will be visiting Israel on Friday for meetings with members of the Israeli government and is expected to make a stop in Jordan. The assistant U.S. secretary of state for Near Eastern affairs, Barbara Leaf, has been in the region ahead of Blinken’s visit, discussing future plans for Gaza, among other issues.

Officials aware of the early discussions stress that there isn’t yet a plan backed by Washington. One option is a period where Gaza is led by a multinational force from the region.

“The major stakeholders are engaged in these discussions,” said Sen. Ben Cardin (D., Md.), chair of the Senate Foreign Relations Committee. “You have to have a credible administrator that can come into Gaza to provide the opportunities for Palestinians.”

Some form of backing from Arab nations is important, officials and analysts say, but coming up with a governance plan in the middle of a ground operation is “like asking about cleaning up after a Category 5 hurricane right as it’s happening,” said Brian Katulis, vice president of policy at the Middle East Institute in Washington.

The attempt at postwar planning comes as the high civilian death toll from Israel’s air and ground operations in Gaza has deepened the rift between the Jewish state and its Arab neighbors. Arab governments are reluctant to get involved in Gaza if the Israel Defense Forces are still conducting sporadic or continuous operations against Hamas.

The aftermath of the Hamas attack on Israel that killed some 1,400 Israelis—mostly civilians—in October has delayed, if not halted, a multiyear effort to bridge divides between Israel and Arab states. On Wednesday, Jordan recalled its ambassador from Israel in protest of the war in Gaza.

Some Israelis have backed occupying Gaza in the longer term—an option President Biden has rejected—or pushing Gazans to the Sinai region of neighboring Egypt, an idea Egyptian leaders oppose.

Israeli Defense Minister Yoav Gallant said the goal is to destroy Hamas’s military capabilities and its ability to govern, but added that his country has no interest in permanently reoccupying Gaza.

Yet as Israel’s ground forces move deeper into Gaza, Israeli and U.S. leaders are faced with the question of who will govern the densely populated enclave once Hamas is removed. What that governing authority might look like is unclear.

“At some point, what would make the most sense would be for an effective and revitalized Palestinian Authority to have governance and ultimately security responsibility for Gaza,” Blinken said.

Under current leader Mahmoud Abbas, 87, the Palestinian Authority, which governs the parts of the West Bank not controlled by Israeli forces or settlers, is seen as too weak to administer Gaza in the near term, officials say.

Some analysts say a coalition of Arab-nation or Palestinian officials or Palestinian leaders could oversee Gaza on a temporary basis until the territory is in a better place to elect its own leadership. Involving Arab nations comes with its own hurdles.

“I think the U.S. would need to accept that Qatar, Turkey, Egypt and Jordan have to play a key role,” said Tuqa Nusairat, strategy director at the Atlantic Council’s Middle East program.

Another possibility would be to persuade Arab states who have signed peace deals or normalization pacts with Israel to provide or oversee a security force for Gaza. But that would require some country or organization to take administrative responsibility and oversee security—essentially an international peacekeeping force.

In general, Arab neighbors are reluctant to take a governing role, fearing it could undermine their long-term goal of an independent Palestinian state. Cairo has also long resisted calls to govern Gaza over concerns it is an excuse to push the territory’s two million inhabitants into Egypt. And Jordan would likely have little interest in participating in a plan that appears at odds with a “two-state solution” to the Israel-Palestinian problem.

“We don’t have answers to what is next in Gaza because none of us know what Gaza is going to look like,” Ayman Safadi, Jordan’s foreign minister, said last week at the Center for Strategic and International Studies, a Washington-based think tank.

Blinken brought up the future of Gaza on Monday in a conversation with Qatar’s prime minister, Sheikh Mohammed bin Abdulrahman al-Thani, according to a person familiar with the call.

Qatar is a natural choice to play a role in Gaza’s future, given its role as a diplomatic intermediary and in brokering talks with Hamas on issues like hostage release. The oil-rich nation has for years hosted a Hamas political office.

“The Israelis have tried to think of other people than Qatar after Hamas,” said Simon Henderson of the Washington Institute for Near East Peace.

Yet it isn’t clear that Israeli troops will immediately leave or entirely cease operations, after Hamas is removed from power. Remnants of Hamas, or Palestine Islamic Jihad, another militant group, will likely remain, or others could come in. So whoever steps in to help in Gaza in the immediate future will likely have to coordinate on security with Israel, analysts say, which might be a nonstarter.

The idea of Arab nations providing security forces to stabilize Gaza at the same time Israel is looking to destroy remnants of Hamas is “fantasyland,” said Katulis, who expects the U.S. to back security and political leadership from among more moderate Palestinian groups, potentially the Palestinian Authority. “The early thinking is that it’s some form of an indigenous force,” he said, referring to elements of the Palestinian leadership in Gaza from before Hamas came to power in 2007.

One organization that might struggle to take the lead in Gaza governance is the United Nations, although its agencies are heavily involved in humanitarian efforts.

The U.N. Security Council has been deadlocked over the Gaza issue, one of many divides between the U.S. and Russia, which each have veto power, and Israeli officials have criticized Secretary-General António Guterres and threatened to withhold visas from U.N. workers.

The Information : What it Takes to Make Open-Source AI Cheaper Than OpenAI; Micr

What it Takes to Make Open-Source AI Cheaper Than OpenAI; Microsoft Goes Multimodal


When Meta Platforms’ released its open-source Llama models earlier this year, the tech giant was praised for giving developers a free alternative to the expensive, bleeding-edge large-language models offered by proprietary LLM developers such as OpenAI.

Turns out it’s not so simple.

In many cases, using open-source LLMs can actually be more costly than proprietary AI software from OpenAI and its ilk, as I discovered while researching this piece I published this morning.

That’s because OpenAI and Meta are providing essentially different services. When companies use OpenAI’s model, it takes care of all the pesky behind-the-scenes work of building and running a model. All users have to do is tap into their nicely-packaged application programming interface. In contrast, anyone relying on an open-source model like Llama starts with a bare-bones model. They then have to figure out the complexities of actually getting that model up and running, which can end up being expensive.

Luckily, there are a few things startups can do to use open-source AI models without breaking the bank.

First, not every task requires a state-of-the-art model. As I discussed in my piece, smaller models can handle simpler tasks like summarizing and translating text, while reasoning-heavy applications like code generation are best-suited for the latest LLMs like GPT-4. (And there’s even more wiggle room within that. For instance, research has shown that open-source code generation models like Meta’s Code Llama can be greatly improved by training them on model-generated coding examples—crazy, I know!)

Some of these smaller models, like the 7 billion parameter version of Llama 2, can run on older-generation AI chips, such as Nvidia’s V100, that are cheaper and more widely available than the chipmaker’s in-demand H100s, said Vikram Sreekanti, cofounder and CEO of model deployment startup RunLLM. (In case you’ve forgotten, “parameters'' refers to the “settings” of a model.) Even better, these smaller models are faster to run, making them optimal for the generative AI features that customers use the most.

These models can also be optimized further through a couple different approaches. One is called “quantization,” a technique that simplifies the parameters of a model. In most cases, it can significantly reduce compute needs with only a slight hit to model quality.

Another is “batching,” in which model queries are bundled together and processed simultaneously rather than one at a time, which uses the AI hardware more efficiently. Unfortunately, most companies can only really take advantage of that hack once they reach a certain scale, as it requires a consistently high volume of model requests (something that OpenAI and its peers benefit from).

An additional way developers can improve their model’s performance without having to spend too much is by training them on their own data, otherwise known as “finetuning.”

But Stephanie, you might say, OpenAI offers finetuning for GPT-3.5 Turbo too! Sure, you’re not wrong there. However, OpenAI’s finetuning uses a technique called low-rank adaptation of large language models, or LoRA, according to a person with direct knowledge of the product. LoRA is cheaper but slightly less effective at improving a model’s performance because it tweaks just a subset of a model’s parameters versus full-parameter finetuning. So if you’re a startup that wants more control over model quality, perhaps opt for full-parameter finetuning on an open-source LLM instead.

The Takeaway: If you’re a startup that’s just getting up and running, it may make sense to start out by experimenting with OpenAI’s proprietary models, especially since they handle the hassle of optimization and batching for you. However, once you’re able to grow your customer base, open-source models could provide a cheaper and more customizable alternative. (Plus, there are plenty of companies out there, like OctoML and Mosaic, that can help you with model optimization.) And if you’re lucky, the combination of optimization and batching could land you an open-source model that runs at less than 1% the cost of a finetuned version of GPT-3.5 Turbo, according to one startup I spoke with.

Here’s what else is going on…

Microsoft Dips Its Toes In Multimodal
A few weeks ago, we told you that Microsoft’s research division had a new priority: building AI models that are smaller and cheaper than OpenAI’s GPT-4 and that could still mimic the larger model’s quality. As we reported, one of Microsoft’s priorities was to make those smaller models “multimodal,” meaning they could understand images in addition to text.

On Wednesday, Microsoft researchers confirmed that they’ve upgraded one of their in-house AI models, dubbed Phi, to be multimodal. That breakthrough has big implications for developers who want to build AI into their apps but don’t want to pay a premium for state-of-the-art models like GPT-4. Microsoft Research has said that it eventually plans to release Phi as an open-source model, meaning anyone would be able to use it. And Phi is just a fraction of the size of OpenAI’s models, with 1.5 billion parameters compared to GPT-4’s several trillion parameters.

The proliferation of smaller models like Phi could chip away at OpenAI’s dominance. Microsoft product teams have already been switching out GPT-4 for open-source models to carry out more rudimentary tasks in products like Bing, The Information first reported. And companies who initially paid top dollar for OpenAI’s models have recently been eyeing a rising tide of cheaper competitors, including open-source models.—Aaron Holmes