After Hours Summary: MDRX +51% jumps on deal to sell its CarePort Health business; BBBY +5.3% up on deal to sell non-core assetsAfter Hours Gainers:
Companies trading higher in after hours in reaction to news: MDRX +51% (to sell CarePort Health business to WellSky for $1.35 bln), THTX +14.9% (confirms issuance of US patent covering use of tesamorelin), BBBY +5.3% (to sell certain non-core assets), GME +4.5% (Senvest Mgmt discloses 5.54% stake), ETON +1.7% (stock offering), PASG +1.4% (announces publication of preclinical data), VNOM +1.1% (provides operational update for Q3), FANG +1% (provides operational update for Q3), VFC +0.9% (announces organizational changes), ACGL +0.6% (provides update on catastrophe losses), SNAP +0.6% (confirms it will be among first to put Apple's new LiDAR lens to use, according to TechCrunch), SIX +0.5% (discloses workforce reduction), FROG +0.4% (announces free subscription of its DevOps Platform), RNR +0.2% (provides update on catastrophe losses), SSD +0.1% (new COO), KDMN +0.1% (to move from NYSE to Nasdaq on Oct 26), CMI +0.1% (increases dividend)
After Hours Losers:
Companies trading lower in after hours in reaction to news: SRNE -14.8% (co held COVID-19 pipeline update webcast after the close), OCUL -8.8% (stock offering; also comes to an agreement with FDA to conduct study for its ReSure sealant), LAZY -7.7% (stock offering), ATEC -7.3% (stock offering), RPRX -2.9% (stock offering), ALK -0.6% (provides operational update), CTRA -0.3% (responds to letter from MG Capital), LLY -0.3% (US drug inspectors uncovered serious quality control problems, according to Reuters), NYT -0.1% (to transfer $235 mln in pension obligations to MassMutual), SRC -0.1% (files for mixed securities shelf offering)
Closing Stock Market SummaryThe major indices snapped four-session winning streaks on Tuesday, as discouraging health developments and cautious-minded commentary from high-profile banks tempered enthusiasm. The S&P 500 (-0.6%), Dow Jones Industrial Average (-0.6%) and Russell 2000 (-0.7%) declined around 0.6%, while Nasdaq Composite declined 0.1%.
Weakness was found primarily in value-oriented and cyclical sectors like financials (-1.9%), real estate (-1.7%), energy (-1.6%), and industrials (-1.1%). The communication services (+0.3%) and consumer discretionary (+0.03%) sectors closed slightly higher.
JPMorgan Chase (JPM 100.78, -1.66, -1.6%), Citigroup (C 43.68, -2.20, -4.8%), and Johnson & Johnson (JNJ 148.36, -3.48, -2.3%) kicked off the Q3 earnings-reporting season with better-than-expected quarterly results, but their reports were a seeming afterthought for the market.
That's because JPMorgan said another fiscal relief package, which has been elusive, would simply improve the odds of better economic outcomes; Citigroup said it expects a somewhat more muted and slower recovery in both unemployment and GDP through 2022; and JNJ paused its COVID-19 vaccine trials due to an unexpected illness in a patient.
The S&P 500 fell to session lows (-0.9%) shortly after it was reported that Eli Lilly (LLY 150.08, -4.41, -2.9%) paused its antibody trial for safety reasons, but the benchmark index found support at the 3500 level.
For some perspective, the set-up wasn't good for the banks or the market. The SPDR S&P Bank ETF (KBE 32.25, -0.95, -2.9%) was up 17.7% since Sept. 23, versus a 9.2% gain in the S&P 500, suggesting there might have been a sell-the-news mindset. The same could be said of Apple (AAPL 121.10, -3.30), which declined 2.7% after it rose more than 6% yesterday in front of today's iPhone 12 event.
Within the communication services sector, Walt Disney (DIS 128.96, +3.99, +3.2%) announced a strategic reorganization for its media and entertainment businesses while Netflix (NFLX 554.09, +14.28, +2.7%) reportedly removed free trial offerings for U.S. subscribers. Shareholders liked both news.
U.S. Treasuries ended the session with gains that caused some curve-flattening activity. The 2-yr yield declined one basis point to 0.15%, and the 10-yr yield declined five basis points to 0.73%. The U.S. Dollar Index gained 0.5% to 93.53. WTI crude futures increased 2.2%, or $0.85, to $40.19/bbl.
Reviewing Tuesday's economic data:
- Total CPI and core CPI, which excludes food energy, were both up 0.2% m/m in September, as expected. That left the yr/yr readings at 1.4% and 1.7%, respectively, which is to say they are hanging on the Fed's average 2.0% inflation target like a wet blanket.
- The key takeaway from the report is that there are pockets of inflation excess, but overall, the inflation rate isn't going to be ringing any tightening alarm bells at the Federal Reserve.
- The NFIB Small Business Optimism Index increased 104.0 in September following a 100.2 reading in August.
Looking ahead, investors will receive the Producer Price Index for September, the Fed Beige Book for September, and the weekly MBA Mortgage Applications Index on Wednesday.
- Nasdaq Composite +32.2% YTD
- S&P 500 +8.7% YTD
- Dow Jones Industrial Average +0.5% YTD
- Russell 2000 -1.9% YTD
Elon Musk’s Boring Company has taken the first step to expand the Loop system with Tesla vehicles throughout Las Vegas.
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What was just one of many of Musk’s wild ideas just a few years ago is now becoming a reality.
Last year, Electrek reported on The Boring Company announcing a new proposed “Loop” system of tunnels for approval in Las Vegas.
The Boring Company Loop is an underground tunnel system in which autonomous Tesla vehicles travel at high speed to transport people.
The project was initiated by the Las Vegas Convention and Visitors Authority (LVCVA), which operates the city’s massive convention center.
LVCVA ended up giving the Boring Company $50 million to build the system.
Earlier this year, they completed the excavation of both tunnels for the project, and now they are working on the electric transportation system and stations for the launch in just a few months.
Over the last few months, we have been hearing that The Boring Company was looking into expanding the Loop beyond the convention center and throughout the entire city.
Today, LVCVA boss Steve Hill confirmed that The Boring Company has taken the first step to expand the transportation system:
During the Las Vegas Convention and Visitors Authority’s (LVCVA) Board of Directors meeting today, Steve Hill, LVCVA president and CEO, shared that Musk’s tunneling company recently submitted its special use permit application to the City of Las Vegas and intends to file a land use (design review) application in Clark County shortly, the first steps in the process to construct the system across Las Vegas.
Here’s the new map of the proposed expansion of The Boring Company Las Vegas Loop:
The Boring Company and Vegas Loop President Steve Davis commented on the application:
“We are very excited about the future of Loop transportation in Las Vegas and are grateful for the enthusiasm shown by Clark County, the City of Las Vegas, the LVCVA, the resorts, and attractions,”
The company is expected to move fast and has already applied to expand the system from the LVCVA to a few resorts, like Resorts World Las Vegas, a new casino resort to launch next year, and Encore At Wynn.
Ant Group under scrutiny over exclusive sale of shares in IPO
Chinese company sold exposure via its mobile payments platform in deal with 5 funds
China’s Ant Group, controlled by billionaire Jack Ma, is facing growing scrutiny for offering retail investors access to its $30bn share sale through an exclusive arrangement on its own mobile payments app.
Under the deal, investors bought exposure to the initial public offering — expected to be the world’s largest — through five funds that were exclusively allocated a portion of the company’s shares. Ant’s Alipay mobile phone application was the sole third party distributor of the funds.
“Is there a conflict of interest? Clearly there is,” said Peter Alexander, managing director at Z-Ben, a Shanghai-based consultancy, of Ant’s arrangement with the fund managers. “From an ethical standpoint you’re using your own platform to raise money from your clients to invest in your own company.”
In response to questions from the Financial Times, Ant said details about the funds had been “fully disclosed”, and that it was not underwriting its own IPO. “The newly established mutual funds that participated in Ant Group’s IPO as strategic investors . . . have been operating independently,” it said.
The planned dual listing of Ant, China’s dominant payments platform, in Shanghai and Hong Kong is one of this year’s most eagerly anticipated share offerings.
But while the Shanghai Stock Exchange approved the listing on its technology-focused Star market last month, Ant has yet to gain approval from China’s securities regulator for the Hong Kong portion of the IPO.
Fund managers and analysts said Ant’s arrangement with fund managers on Alipay could disrupt China’s capital markets business by diminishing the power of the country’s investment banks. It was unclear how China’s regulators would view the practice.
In addition to the normal retail tranche set to be offered to investors in Shanghai as part of the IPO, Ant allowed five domestic fund managers to buy up shares that they then offered to retail investors as “strategic allocation funds”. Alipay promoted the funds heavily ahead of China’s recent national holiday.
The five funds — run by China Asset Management, China Universal Asset Management, Zhong Ou Fund Management, Penghua Fund Management and E Fund Management — said they had raised a total of Rmb60bn ($8.9bn). Each was permitted by regulations to invest as much as 10 per cent of their assets in Ant shares.
Retail investors in the funds are subject to an 18-month lock-up period.
“Ant Group is . . . enabling Alipay users to invest in mutual funds. Just last week it raised $9bn, some people [were] investing as little as one yuan,” said Jeffrey Lee Funk, a tech consultant and former associate professor at the National University of Singapore.
Ant said in a statement on Tuesday that it was making “steady progress in the approval processes in Shanghai and Hong Kong”. This followed a Reuters report that regulators in China had delayed the approval of the listing in Hong Kong while they scrutinised Alipay’s arrangement with the funds.
The China Securities Regulatory Commission has not yet given the approvals Ant needs to get the green light for its IPO from the listings committee at the Hong Kong stock exchange, a person familiar with the matter told the FT. The person added that the IPO schedule remained within the normal timeframe.
Brock Silvers, former chief investment officer at Adamas Asset Management, said the Alipay arrangement with fund managers could have a “dramatic impact” on Chinese capital markets. “It aims to allow China Inc to increasingly bypass traditional investment banks in accessing vast pools of retail capital via companies like Alipay and [Tencent’s] WeChat Pay,” Mr Silvers said.
Z-Ben’s Mr Alexander said Ant could face resistance from China’s banking watchdog. But he added that the arrangement did not, to his knowledge, violate any financial regulations.
China’s securities regulator said in guidelines effective this month that fund distributors should assess whether there were conflicts of interest when selling their products and disclose these to investors.
One Asia-based fund manager said Ant had set up “a walled garden” around a portion of its listing.
The company will offer at least 10 per cent of its shares between Hong Kong and Shanghai to raise as much as $30bn, with some analysts valuing the company at as much as $318bn.
Capital Group Boosts Stake in Deutsche Bank
U.S. investor’s move sounds a note of confidence in troubled European banking sector
U.S. investor Capital Group Cos. has raised its stake in Deutsche Bank AG , sounding a rare note of confidence in prospects for the troubled European banking sector.
The asset manager, which has over $1.7 trillion under management, added another 3.61% stake to its existing holdings in Deutsche Bank AG, according to a securities filing Tuesday. Together with an investment the bank disclosed in March, Capital Group now owns 7.35% of Deutsche Bank.
Capital Group is backing the sector at a difficult time. Deutsche Bank is undergoing a turnaround plan involving cutting costs, scaling back its U.S. operations and shedding risky assets. The European banking sector broadly is facing structural hurdles including perennially low interest rates, a pileup of bad loans and a negative economic outlook, and banks now more than ever have been considering consolidation.
Deutsche’s shares have recovered since plunging in March with the rest of the market. They are up 13% this year while shares of most rivals are down.
The disclosure of the bigger stake in Deutsche Bank comes after rival Commerzbank AG last week said Capital Group had increased its stake to 5.31%, becoming the second-largest investor in Commerzbank after the German government.
Deutsche Bank first disclosed Capital Group’s holdings in February.
A spokesperson for Commerzbank declined to comment. Spokespeople for Capital Group and Deutsche Bank couldn’t immediately be reached.
Separately on Tuesday, Deutsche Bank said it would pay a fine of €13.5 million, equivalent to $15.9 million, for failing to report so-called suspicious activity reports on time related to money flows at Danske Bank. The Frankfurt public prosecutor’s office has dropped its investigation into Deutsche Bank and found there was no criminal misconduct, the bank said.
Boeing Subsidies Merit EU Tariffs on $4 Billion in U.S. Goods, WTO Rules
EU expected to refrain from imposing tariffs quickly in the hope of negotiating a settlement with the U.S.
The World Trade Organization on Tuesday said the European Union may impose tariffs on $3.99 billion in Boeing Co. jets and other U.S. goods as part of a long-running trade dispute.
The ruling clears the way for the EU to respond to tariffs that the trade body last October authorized the U.S. to impose on $7.5 billion in Airbus SE jets and other imported European products. Washington in 2004 took European countries to the WTO over subsidies to Airbus, and Europe responded soon after with a case against U.S. support to Boeing.
WTO rulings since then have found that both sides provided prohibited subsidies, but Europe did so to a greater extent.
EU officials have recently said they hope to negotiate a settlement with Washington, so many observers expect Europe to refrain from levying tariffs quickly. The EU last year said it had prepared a preliminary list of U.S. products to target for retaliation, if necessary.
The U.S. Trade Representative and Boeing have said Tuesday’s WTO ruling has no impact because the underlying violation—a tax break in Washington state—has been repealed.