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FT : UK online safety bill threatens security, WhatsApp chief warns

UK online safety bill threatens security, WhatsApp chief warns
Moves to undermine messaging encryption could embolden hostile nation states, Will Cathcart says

The head of WhatsApp has warned UK ministers that moves to undermine encryption in a relaunched online safety bill would threaten the security of the government’s own communications and embolden authoritarian regimes.

In an interview with the Financial Times, Will Cathcart, who runs the Meta-owned messaging app, insisted that alternative techniques were available to protect children using WhatsApp, without having to abandon the underlying security technology that safeguards its more than 2bn users.

The UK’s bill, which the government argues will make the internet safer, has become a focus of global debate over whether companies such as Google, Meta and Twitter should be forced to proactively scan and remove harmful content on their networks.

Tech companies claim it is not technically possible for encrypted messaging apps to scan for material such as child pornography without undermining the security of the entire network, which prevents anyone — including platform operators — from reading users’ messages.

Cathcart said the UK’s ultimate position on the issue would have a global impact. “If the UK decides that it is OK for a government to get rid of encryption, there are governments all around the world that will do exactly the same thing, where liberal democracy is not as strong, where there are different concerns that really implicate deep-seated human rights,” he said, citing Hong Kong as a potential example.

His warnings come after Liz Truss, the UK prime minister, said earlier this month that she would press ahead with the legislation under her new government, with “some tweaks” to refocus the bill on child safety.

Tech companies, as well as some security experts and free-speech campaigners, largely opposed the bill’s previous proposals that apps and online services should block “legal but harmful” content for both adults and children.

Given so much of the public sector is now run digitally, Cathcart said he found it “puzzling that the pressure we’re getting from governments is to weaken security, not to increase it”.

“Governments around the world should be pushing tech companies as hard as possible to up the security of their communications, especially liberal democracies,” said Cathcart. “We’re in an era on the internet where cyber attacks are going way up, especially from hostile nation states. And so the idea that now is a moment to weaken security, I just think it’s very, very wrong,” he added.

So-called “end-to-end” encryption — where messages can only be viewed by the sender and recipient — has become a recurring issue between law enforcement and civil liberties campaigners from Washington and Brussels to New Delhi.

The UK Home Office has taken a strong stand on end-to-end encryption in messaging apps, urging tech companies to give “lawful access” to encrypted communications. Former UK home secretary Priti Patel said this summer it “intentionally blinds companies to abhorrent child sex abuse”, with a “disastrous impact on child safety”.

Tech companies have so far struggled to find a technical compromise between personal privacy and community safety on encrypted apps. Apple last year announced a system that could recognise images of child pornography stored in iCloud Photos but postponed its launch following a backlash from privacy campaigners.

“I’m very worried about people believing we can have our cake and eat it, too,” Cathcart said, comparing Apple’s “client-side scanning” concept to someone saying: “Let’s put a camera in everyone’s living room, but don’t worry there’ll be a magic algorithm that decides whether the camera gets turned on or not.”

“Magic algorithms are not perfect,” he said, suggesting that hackers could exploit the system or other governments could repurpose it.

WhatsApp’s existing safety systems include allowing users to flag abusive messages and tracking patterns of behaviour to identify potential risks, Cathcart said. This has led to hundreds of thousands of reports of child sexual abuse material being sent to organisations such as the US-based National Center for Missing and Exploited Children.

“We don’t have to take the huge hit to people’s safety and fundamental rights to go monitor all their communications,” he said. “We can actually make a lot of progress.”

Since Cathcart took charge of the world’s most popular messaging app in 2019, much of his time has been occupied by debates about safety and how users’ data is protected, including a row over changes to its privacy terms in early 2021.

But the former Facebook and Google product manager is also charged with turning WhatsApp — which Facebook bought for $22bn in 2014 — into a profitable business.

WhatsApp currently generates revenue by pushing business users to advertise on Facebook or Instagram, and from larger corporate accounts who plug deeper into its infrastructure, for instance to manage customer service inquiries.

Cathcart sees further opportunities for monetisation by allowing consumers to make payments to businesses. Today WhatsApp has only enabled payments between individual users in India and Brazil, where such transactions typically have no charge to the user.

“In the future, you might expect to see us add in the ability to pay merchants [or] pay businesses,” he said, allowing WhatsApp to charge a commission.

However, local regulations have slowed WhatsApp’s efforts to offer payment services more widely, he added. The FT reported earlier this year that the messaging app’s payments system in Brazil has also been held back by negotiations over fees and other contract terms with local payments groups.

“There’s a lot of countries in the world where there’s more people using WhatsApp than there are people using a bank account,” Cathcart said. “Our business is growing very, very quickly. I’m pretty optimistic about where it will be in a couple of years.”

>>> Europe : Brokers Upgrades & Downgrades - 28th of September 2

>>> Up
* Biogen Raised to Outperform at Baird; PT $340
* Biogen Raised to Buy at Mizuho Securities; PT $270
* Renault Raised to Buy at Berenberg on Continued Strong Execution
* Sparebanken Vest Raised to Buy at Arctic Securities

>>> Down
* Intrum Cut to Hold at SEB Equities; PT 154 kronor
* Mediclinic Cut to Equal-Weight at Barclays; PT 504 pence

>>> Initiation
* Aker Carbon Capture Rated New Buy at Nordea; PT 25 kroner
* Almirall Rated New Outperform at RBC; PT 13.50 euros
* CNH Industrial Rated New Outperform at Baird; PT $17
* Ipsen Rated New Sector Perform at RBC; PT 107 euros
* Mips Rated New Buy at Jefferies; PT 430 kronor
* OVH Rated New Underperform at Oddo BHF; PT 11.50 euros
* SkiStar Cut to Sell at Handelsbanken
* SkiStar Rated New Hold at Jefferies; PT 145 kronor
* Sobi Rated New Sector Perform at RBC; PT 235 kronor
* Treatt Rated New Hold at HSBC; PT 600 pence
* Thule Rated New Hold at Jefferies; PT 235 kronor

>>> Call
* Almirall Top Specialty Pharma Pick Among Three Initiations: RBC
* Darktrace Equal-Weight at Morgan Stanley, Risks Skewed to Upside
* Renault Raised to Buy at Berenberg on Continued Strong Execution

>>> What to look at today - 28th of September 2022

The dollar soared after the White House talked down the prospect of a currency agreement to weaken the greenback and equities extended declines in Asia after hawkish comments from Federal Reserve policymakers. Global stocks were headed for the lowest level in almost two years as major market levels crumbled. Hong Kong’s Hang Seng benchmark was at a decade low, the yield on the US 10-year Treasury breached 4% for the first time since 2010 and a gauge of the greenback set another all-time high. European and US futures slid, extending a move that saw the S&P 500 cap its worst run since early 2020. Apple Inc. scrapped plans to increase iPhone production, further weighing on sentiment. The dollar’s rally brought further loses to the pound and the euro, while the onshore yuan fell to the weakest level against the greenback since the global financial crisis in 2008. The yen remained near the key 145 mark versus the dollar and within sight of levels that have drawn intervention from Japan. The move in the 10-year Treasury continues to reverberate through bond markets. The Bloomberg Global Aggregate Index of government and corporate bonds has lost more than 20% since end-December and is in the first bear market since its inception in 1990.
Fed official James Bullard reiterated the central bank’s determination to tame inflation with tighter monetary policy, increasing the divergence with Japan and China. The urgency in the tone from Bullard and his US colleagues also contrasts with the Bank of England, which looks like it will wait until the next scheduled meeting in November to address inflationary forces triggered by planned tax changes and government spending. Leaks to a gas pipeline between Russia and Western Europe were labeled as sabotage by US and German officials, ratcheting up friction with Vladimir Putin’s regime. Russia threatened to cut off gas to Ukraine’s allies in Europe and annexed a large chunk of Ukraine in the latest signs of escalating conflict. European gas prices rose while worries about slowing global growth weighed on other raw materials, sending a Bloomberg index of commodity prices to the lowest level since February. West Texas Intermediate crude fell to around $77 per barrel. The stronger dollar and signs of growing US stockpiles countered speculation that OPEC+ will cut output. US After Hours SEC settles with various Wall Street firms for recordkeeping failures; FYBR +5.9% will join S&P Midcap 400; BB -4.5%, PRGS -0.9% lower on earnings.

Nikkei -2.09% Hang Seng -2.35% CSI -0.98% Shanghai -0.97% Shenzen -1.59%

Eur$ 0.9557 CNH 7.2330 CNY 7.2262 JPY 144.66 GBP 1.0682 CHF 0.9949 RUB 58.6936 TRY 18.4877 WTI$ 77.51 -1.26% Gold 1,623.80 - 0.31% BTC 18,845 -1.20% ETH 1,289.-260%

S&P -0.29% Nasdaq -0.56% EuroStoxx -0.66% FTSE -0.96% Dax -0.76% SMI -0.18%

Macro :
- Saudi King Salman Names Crown Prince as Prime Minister
- Morgan Stanley’s Wilson Says Stocks Can Get a Lift Into Earnings
- EU Eyes Ban on Nationals in Top Jobs at Russia State Enterprises
- Crypto Billionaire Bankman-Fried Eyeing Bid for Celsius Assets

Keep an eye on :
- AIR FP : Cathay in Talks With Boeing, Airbus to Refresh Aging Cargo Fleet
- BT/ A LN : BT Tops List of Cheap UK Stocks Attracting Takeover Speculation
- BRBY LN : Burberry Chief Creative Officer Riccardo Tisci to Step Down
- CBK GY : Commerzbank Sticks to 2022 Net Outlook Despite mBank Hit
- DBK GY : Deutsche Bank CEO Is Scenario Planning Amid Taiwan Tensions
- DUFN SW : Dufry Wins Duty-Paid Contract at China’s Chongqing Intl Airport
- EOAN GY : E.On Agrees With German Govt on Potential Continued Isar 2 Ops
- MBG GY : Mercedes, Volvo Call For Better EV Regulations in South Korea
- NHY NO : Hydro Curtails Aluminum Output at Norway Plants as Demand Drops
- PDG LN : Pendragon Conducting Review of All Potential Strategic Options
- PHARM NA : Pharming’s Leniolisib Gets FDA Acceptance For Priority Review
- RMG LN : Royal Mail Postal Workers Call 19 Days of Strike Action: Union
- SGO FP : Steelworkers, AFL-CIO Allege Threats to Workers at Mexico Plant
- SAN SM : Banco Santander Board Agrees on Shares Buyback, Dividend Payment
- TIT IM : Telecom Italia Director Luca de Meo Resigns From Board
- TWTR US : Elon Musk Asks Appeals Court to End His ‘Twitter Sitter’ Deal
- VWS DC : Vestas, Siemens Gamesa, Nordex Set for Uplift From UK Wind Plan
- DG FP : Vinci Steps Up Hydrogen Push With Stations, Airport Hub Plan
- WHA NA : Wereldhave Sees Dutch Tax Plan Impact of About -5% on EPRA EPS

>>> US After Hours Summary: SEC settles with various Wall Street firms for recor

After Hours Summary: SEC settles with various Wall Street firms for recordkeeping failures; FYBR +5.9% will join S&P Midcap 400; BB -4.5%, PRGS -0.9% lower on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: None

Companies trading higher in after hours in reaction to news: FYBR +5.9% (to join S&P Midcap 400), HAIN +5.4% (to move to S&P SmallCap 600 from S&P Midcap 400), SNCR +4.4% (signs 3-yr extension with telecom operator Fastweb), TSN +0.7% (names new CFO), NOVA +0.1% (NOVA to deploy energy to alleviate peak capacity needs with PGE's Northern California service area), CS +0.1% (to settle with SEC, agrees to pay $125 mln penalty), GS +0.1% (to settle with SEC, agrees to pay $125 mln penalty)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BB -4.5%, PRGS -0.9%, ASTL -0.8%, CALM -0.1% (also increases dividend)

Companies trading lower in after hours in reaction to news: MNMD -33.2% (stock offering), GMDA -15.4% (stock offering), FDMT -3% (names new COO), GROY -2.2% (stock offering by selling shareholder), JEF -0.8% (to settle with SEC, agrees to pay $50 mln penalty), DB -0.4% (to settle with SEC, agrees to pay $125 mln penalty), MS -0.4% (to settle with SEC, agrees to pay $125 mln penalty), UBER -0.3% (in sympathy with LYFT), MFA -0.2% (files mixed securities shelf offering), UBS -0.1% (to settle with SEC, agrees to pay $125 mln penalty), TMO -0.1% (FDA approves co's Oncomine Dx Target Test as a companion diagnostic), LYFT -0.1% (freezing all US hiring thru end of 2022, according to NY Post)

>>> SEC charges 16 Wall Street firms with widespread recordkeeping

SEC charges 16 Wall Street firms with widespread recordkeeping failures, firms agree to pay combined penalties of more than $1.1 bln, according to SEC

The SEC announces charges against 15 broker-dealers and one affiliated investment adviser for widespread and longstanding failures by the firms and their employees to maintain and preserve electronic communications. The firms admitted the facts set forth in their respective SEC orders, acknowledged that their conduct violated recordkeeping provisions, agreed to pay combined penalties of more than $1.1 billion, and have begun implementing improvements to their compliance policies and procedures to settle these matters.

  • The following eight firms (and five affiliates) have agreed to pay penalties of $125 mln each: Barclays Capital; BofA Securities (BAC); Citigroup (C); Credit Suisse (CS); Deutsche Bank (DB); Goldman Sachs (GS); Morgan Stanley (MS); and UBS Securities (UBS).
  • The following two firms have agreed to pay penalties of $50 mln each: Jefferies (JEF); and Nomura Securities. Cantor Fitzgerald has agreed to pay a $10 mln penalty.
  • See full release

>>> US Close Dow -0,43% S&P -0,21% Nasdaq +0,25% Russell +0,40% VIX 32,60 +1,05

Closing Stock Market Summary

The stock market started the day in rally mode, bouncing from oversold conditions, with the Nasdaq up 2.2% and the S&P 500 up 1.7% at this morning's highs. A drop in Treasury yields, a weaker dollar, and strong mega caps were all support factors for the rebound. Each of these support factors weakened, however, and as they did, the major indices gave up their gains and spent most of the day in negative territory. The S&P 500 set a new intraday low for 2022 (3,623.29), having fallen below the June low (3,636.87) in afternoon trade.

Moves in the stock market were largely driven by moves in the Treasury market. The 10-yr note yield sat at 3.80% before today's open, but settled the day at 3.96%. The major indices were able to lift off session lows when the 10-yr note yield failed to breach 4.00%. Still, the sharp move towards that level undercut the early rebound efforts. 

Another driving factor was the roller-coaster action in the currency market. The U.S. Dollar Index traded down to 113.33 this morning, as the euro and British pound rebounded; however, that rebound effort lost steam and the U.S. Dollar Index bounced back to 114.23, up 0.1%.

Separately, the mega cap stocks were unable to hold a stronger line as well. The Vanguard Mega Cap Growth ETF (MGK), up as much as 2.2% early on, finished the session flat. The movement in the mega cap stocks had a heavy influence on the movement of the major indices. 

Most of the S&P 500 sectors closed in the red with consumer staples (-1.8%) and utilities (-1.7%) bringing up the rear. On the flip side, energy (+1.2%) and consumer discretionary (+0.3%) sat atop the leaderboard. 

Energy outpaced the other sectors by a sizable margin as oil prices rose. WTI crude oil futures settled up 2.8% to $78.77/bbl. Natural gas futures fell 3.1% to $6.79/mmbtu.

The advance-decline line painted a mixed picture of the market. Advancers were roughly in-line with decliners by the close at both the NYSE and Nasdaq. 

There was mixed Fed speak for market participants to digest today. Chicago Fed President Evans (not an FOMC voter) acknowledged to CNBC Europe that he is a little nervous that the Fed is moving too much, too quickly, but added that he remains "cautiously optimistic" that the U.S. can avoid a recession.

In contrast, Cleveland Fed President Mester (2022 FOMC voter) said policy rates need to be at a restrictive level for longer to bring inflation down and to make sure inflation expectations do not move up. St. Louis Fed President Bullard (2022 FOMC voter) said the U.S. has a serious inflation problem and that the credibility of inflation targeting is at risk, according to Bloomberg. Minneapolis Federal Reserve Bank President Kashkari (2023 FOMC voter) said the Fed is united and will move to bring down inflation at an "appropriately aggressive" pace, according to Reuters.

Looking ahead to Wednesday, market participants will receive the following economic data:

  • 7:00 ET: Weekly MBA Mortgage Index (prior 3.8%)
  • 8:30 ET: August advance international trade in goods (prior -$89.10 bln), advance Retail Inventories (prior 1.1%), and advance Wholesale Inventories (prior 0.8%)
  • 10:00 ET: August Pending Home Sales (prior -1.0%)
  • 10:30 ET: Weekly crude oil inventories (prior +1.14 mln)

Reviewing today's economic data:

  • August Durable Orders fell 0.2% (consensus -0.1%) following the prior revised 0.1% decrease in July (from 0.0.%). Durable Orders, Excluding Transportation rose 0.2% (consensus 0.3%) following the prior revised 0.2% increase (from 0.3%)
    • The key takeaway from the report is that business spending held up remarkably well. That point resonated in the 1.3% month-over-month increase for nondefense capital goods orders, excluding aircraft, that came on top of a 0.7% increase in July.
  • July FHFA Housing Price Index fell 0.6% after the prior 0.1% increase in June
  • July S&P Case-Shiller Home Price Index came in at 16.1% ( consensus 17%) after the prior 18.6% reading in June
  • September Consumer Confidence Index rose to 108.0 (consensus 105.0) from prior revised reading of 103.6 (from 103.2)
    • The key takeaway from the report is that the increase in confidence was bolstered partly by consumers' view of jobs and wages. That could be a good portent for spending, yet it won't help assuage concerns about Fed tightening given the Fed's belief that there needs to be some softening in the labor market to help temper wage-based inflation pressures.
  • New home sales surged 28.8% month-over-month in August to a seasonally adjusted annual rate of 685,000 units (consensus 500,000) from an upwardly revised 532,000 (from 511,000) in July. On a year-over-year basis, new home sales were down 0.1%
    • The key takeaway from the report is that new home sales were much stronger than expected, aided by a sense of urgency to sign contracts as mortgage rates came down. This strength, however, is apt to be an aberration given the surge in mortgage rates that has occurred in the ensuing period.

Dow Jones Industrial Average: -19.8% YTD
S&P Midcap 400: -22.4% YTD
S&P 500: -23.5% YTD
Russell 2000: -26.0% YTD
Nasdaq Composite: -30.8 YTD

>>> Insider Trading: notable purchases -- CEO adds to HIW; nota

Insider Trading: notable purchases -- CEO adds to HIW; notable sales -- CFO active in CPRX

Buyers:

  • HIW President/CEO and EVP, General Counsel & Sec. (2) bought 6,000 shares at $28.23 - $28.26 worth ~$170K.
  • JYNT 10% owner bought 127,885 shares at $15.7446 - $16.0366 worth ~$2.0 mln.
  • LAZY 10% owner bought 19,950 shares at $12.69 - $12.75 worth ~$254K.
  • NDLS 10% owner bought 74,121 shares at $4.5095 - $4.6004 worth ~$338K.

Sellers:

  • CPRX VP, Treasurer and CFO sold 60,000 shares at $11.89 - $11.925 worth ~$714K.
  • NE 10% owner sold 114,859 shares at $27.7379 - $27.7658 worth ~$3.21 mln.
  • RPRX 10% owner / Director sold 211,380 shares at $41.00 -$41.36 worth ~$8.70 mln.
  • SMR 10% owner sold 236,663 shares at $12.52 - $13.51 worth ~$3.16 mln.