Gapping down
In reaction to disappointing earnings/guidance:
- KMT -17%, KWR -3.6% (guidance update) LII -0.6%
M&A news:
- IPHS -9.8% (to be acquired by One Rock Capital Partners for $32.00/share in cash; deal includes 30-day "go-shop" period)
Select pharma related names showing weakness on reports that opioid trial is expected to commence Monday:
- TEVA -3.6%, MCK -1.6%, CAH -1%, ABC -0.7%
Other news:
- SNN -8.1% (CEO steps down)
- PUMP -2.4% (reports the SEC is investigating PUMP regarding financial disclosures)
- GSK -0.5% (agrees to divest rabies and tick-borne encephalitis vaccines to Bavarian Nordic; co will receive an upfront payment of approximately EUR 301 mln)
Analyst comments:
- BA -2.1% (downgraded to Neutral from Buy at UBS; downgraded to Neutral from Outperform at Credit Suisse)
- IBM -0.7% (downgraded to Neutral from Buy at UBS)
Gapping up
In reaction to disappointing earnings/guidance:
- ONB +5.5%, PETS +2.8%, SAP +2.4%, HAL +0.8%
Select EU financial related names showing strength:
- PUK +6.4%, DB +2.9%, RBS +2.8%, LYG +2.6%, ING +2.5%, CS +1.7%, BCS +1.2%
Select metals/mining stocks trading higher:
- MT +4.7%, SBGL +2.6%, RIO +2.4%, BBL +2.3%, X +1.7%, AU +1.1%
Other news:
- MDR +26.8% (enters into agreement with certain of its secured lenders under which it will have access to up to $1.7 bln of additional financing, including letter of credit capacity; guidance withdrawn)
- YNDX +9.8% (Russian government eased foreign ownership rules, according to Moscow Times)
- SGEN +8.9% (positive topline results from HER2CLIMB trial)
- TAK +6.4% (presents real-world data for vedolizumab presented that complements the extensive body of clinical evidence)
- FOMX +6.3% (receives FDA approval for AMZEEQ)
- CPE +4.7% (production guidance)
- BHP +2.1% (announced four new renewable power agreements, to meet power demand for its Escondida and Spence copper operations in Chile; new renewable energy contracts will be value accretive even including a provision of approximately $780 mln)
- ALXN +1.6% (receives FDA approval for ULTOMIRIS)
- COP +1.3% (positive Barrons article)
- VRTX +1% (announces reimbursement of cystic fibrosis medicines SYMDEKO in Australia)
Analyst comments:
- RES +5.2% (upgraded to Neutral from Sell at Citigroup )
- PINS +3.2% (upgraded to Outperform from Sector Perform at RBC Capital Mkts)
- PTON +2.9% (initiated with an Overweight at JP Morgan, among others)
- HPE +2.6% (upgraded to Buy from Underperform at BofA/Merrill)
- ZGNX +1.3% (initiated with a Buy at Needham)
- TW +1.2% (upgraded to Buy from Neutral at UBS)
- STT +1% (upgraded to Mkt Perform from Underperform at Keefe Bruyette)
- GWPH +0.8% (initiated with a Buy at Needham)
- AAPL +0.6% (target raised to Street high $280 from $225 at Raymond James)
Early premarket gappers
- Gapping up:
- YNDX +10.2%, PUK +7%, MT +5%, QIWI +4.9%, RBS +3.8%, SBGL +2.7%, ING +2.7%, HPE +2.6%, DB +2.4%, LYG +2.3%, RIO +2.2%, BBL +2.2%, X +2.1%, ABB +2.1%, BHP +2%, CS +2%, SAP +1.8%, BCS +1.7%, ASML +1.5%, CMCM +1.4%, BP +1.3%, BABA +1.2%, AMD +1.2%, AU +0.9%, HAL +0.9%, MSFT +0.8%
- Gapping down:
- ENDP -11.6%, SNN -8%, TEVA -4.3%, INFY -3.5%, BA -1.8%, UN -1.5%, UL -1.1%, QGEN -1%, IBM -1%, EXPO -1%, EBAY -0.9%, GSK -0.7%
Weekend Reading Summary
Macro Related
Stock Specific
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Lagarde Says U.S. Is at Risk of Losing Global Leader Role
The incoming European Central Bank head warns of U.S.-China trade war risks and urges President Trump not to push for lower interest rates
Christine Lagarde, the departing head of the International Monetary Fund who is set to take over as president of the European Central Bank, said in an interview that the U.S. risks diminishing its role as a global leader and warned of dire consequences of its trade war with China.
“I was brought up as a citizen of this world. The risk I see is that the United States is at risk of losing leadership. And that would be just a terrible development,” Ms. Lagarde said in a “60 Minutes” program that aired Sunday.
Ms. Lagarde also warned President Trump against pushing the Federal Reserve for lower interest rates because it could spur inflation. “When the unemployment rate is at 3.7%, you don’t want to accelerate that too much by lowering interest rates,” she said. “Because the risk you take is that then prices begin to go up. You have to be very careful. You know, it’s like navigating a plane.”
She said she would tell Mr. Trump: “Market stability should not be the subject of a tweet here or a tweet there. It requires consideration, thinking, quiet and measured and rational decisions.”
The White House didn’t immediately respond to a request for comment.
Ms. Lagarde, who made the comments in interviews in September, said the U.S. has been a force for good, fostering the principles of rule of law, democracy, free markets and respect for the individual.
She urged policy makers to work to end the trade war between the U.S. and China, which she said is seriously affecting the global economy. “If you shave off, you know, almost a percentage point of growth that means less investment, less jobs, more unemployment, reduced growth.”
Finance ministers and central bankers who gathered in Washington for the IMF’s fall meetings this past week said the biggest risks to the global economy are trade-related uncertainties. Global economic growth has shrunk this year to its slowest pace since the 2009 recession, the IMF said.
Ms. Lagarde, in the interview, lamented both the U.S. and the U.K.’s retreat from international ties, saying that the U.K.’s attempt to leave the European Union in particular has caused her “great sadness.”
“International trade, connections, movement of people and movement of capital has taken hundreds of millions out of poverty. Now, some people in the advanced economies might say, ‘Pooh. What do I care?’” she said.
She added: “What can walls do about pandemics? What can walls do about terrorism? What can walls do about climate change and destruction of the environment? This is not the answer to the global questions and issues that interconnect, whether we like it or not.”
Hedge funds and mutual funds converge on US stock holdings
Ownership overlap increases risk of crowded trades, which can lead to large losses
The overlap in US companies owned by both hedge funds and traditional mutual funds has climbed to a fresh high in a convergence that elevates the risk of crowded trades.
About 12 per cent of the top 50 US stocks held as overweight positions by hedge funds and traditional mutual funds are owned by both sets of managers, according to Bank of America Merrill Lynch. The overlap in ownership was zero as recently as June 2015.
Savita Subramanian, head of US equity and quantitative strategy at BofA, said strong momentum effects in the US market were one possible explanation.
US stocks that have performed well have tended to attract more buyers, helping the shares of those companies to maintain their upward momentum.
“We have seen convergence of strategies that has led to a narrower and narrower cohort of stocks outperforming the market,” said Ms Subramanian.
This has also been reflected in valuations where the gap between expensive and cheap stocks, measured on a share price multiple to earnings, stands close to an all-time high.
“Valuations for growth stocks have been creeping higher while the reverse is true for value stocks. Being a value focused investor has been the best way to lose money in recent years,” said Ms Subramanian.
Companies owned by both sets of managers which are also held as large overweight positions by hedge funds include United Airlines, Charter Communications, health insurer Humana, Las Vegas-based hotels group Wynn Resorts, aircraft components manufacturer TransDigm and restaurant chain Chipotle Mexican Grill.
The tech stocks known as the Faangs (Facebook, Apple, Amazon, Netflix and Alphabet’s Google) have also been popular choices for hedge funds and mutual fund managers.
“Hedge funds like to focus on sectors where there is high volatility, such as the large US technology stocks which are widely held by mutual fund managers,” said Sara Rejal, a senior director at Willis Towers Watson, the adviser.
Ms Rejal added that more hedge funds were now running “long only” strategies, which may have increased their overlap with mutual funds. “Some hedge funds have become overly conservative because their clients don’t want large drawdowns but this has led to even worse performance and reduced their ability to generate returns,” she said.
If a hedge fund has already banked profits on successful trades, it can then choose to shrink the tracking error relative to the US market as a deliberate tactic.
“In that scenario, hedge funds tend to pad out their portfolios with the largest market capitalisation stocks, such as the Faangs, which will lead to more overlap with the holdings of mutual fund managers,” said Farouk Jivraj, head of quantitative investment strategies research at Barclays.
But overlapping holdings between hedge funds and mutual funds create the risk of crowded trades, which can lead to larger losses if a company misses an earning targets or issues a profit warning, and investors rush for the exit.
“The risk of crowding is high if the overweight position is held in a company with a smaller market value which has less liquidity. The risk is not as great if the overweight is in the biggest, most liquid stocks,” said Mr Jivraj.
DAX:
- Wirecard (WDI TH) +5%
- Wirecard Commissions KPMG to Carry Out Independent Audit (1)
- SAP (SAP TH) +1%
- SAP Confirms 2019, Mid-Term Ambitions After 3Q Profit Increases
- Covestro (1COV TH) +0.8%
- Fresenius Medical (FME TH) -1%
- Vonovia (VNA TH) -1.2%
- Watch German Property After Berlin Agrees 5-Year Rent Freeze
MDAX:
- ProSieben (PSM TH) +1.8%
- Software AG (SOW TH) +1.1%
- Qiagen (QIA TH) +1%
- Hugo Boss (BOSS TH) +0.9%
- Metro AG (B4B TH) +0.9%
- Deutsche Wohnen (DWNI TH) -4.8%
- Watch German Property After Berlin Agrees 5-Year Rent Freeze
SDAX:
- Steinhoff (SNH TH) +2.6%
- Borussia Dortmund (BVB TH) +2%
- Ceconomy (MEO TH) +1.8%
- Deutz (DEZ TH) +1.6%
- SAF Holland (SFQ TH) +1.2%
- Schaeffler (SHA TH) -0.9%
- HelloFresh (HFG TH) -2.4%
- HelloFresh Initiated With Reduce at Kepler as Growth May Slow
Stocks in Asia got off to a mixed start to the week as traders digested the latest trade developments and waited for a slew of earnings reports. The pound dropped as Boris Johnson’s Brexit deal hangs in the balance.
Shares in Japan and Hong Kong rose modestly, though trading volume was about 30% down on the average over the last month. Equities were flat in Shanghai and retreated in Sydney. Futures on the S&P 500 Index edged up, signaling American stocks may test a fresh all-time high this week. The dollar traded near the lowest level since July, while Treasury yields edged up.
Nikkei +0.25% Hang Seng -0.02% CSI -0.08% Shanghai -0.37% Shenzen -0.69%
Eur$ 1.1156 CNH 7.0726 CNY 7.0783 JPY 108.53 GBP 1.2920 CHF 0.9858 RUB 63.8054 TRY 5.7881 WTI$ 53.70 -0.15%
S&P +0.18% EuroStoxx +0.14% Dax +0.19% SMI +0.11%
Macro :
- Gulf Families to Sell $600 Million London Hotel Via Blockchain
- U.K. Stocks ‘Investable Again;’ Morgan Stanley Favors Small Caps
- Watch German Property After Berlin Agrees 5-Year Rent Freeze
Keep an eye on :
- ABVX FP : Abivax Reports Positive Data on Ulcerative Colitis Treatment
- ALM SM : Almirall to Receive $100M Milestone From AstraZeneca Accord
- AZN LN : AstraZeneca’s Farxiga Approved in US to Cut Hospitalization Risk
- BG AV L: Bawag to Start EU400 Million Buyback Offer for 11% of Stock (1)
- BMAX SS : Byggmax Third Quarter Ebitda SEK250.9 Mln
- CAPC LN : Nick Candy Weighs Capital & Counties Bid, Sunday Times Says
- COB LN : Advent Plans Guarantees With U.K. Govt on Cobham: Telegraph
- DWNI GY : German Property After Berlin Agrees 5-Year Rent Freeze
- FCH LN : Funding Circle Third Quarter New Originations GBP561 Mln
- IMPN SW : Implenia to Discuss Spinoff of Real-Estate Development Portfolio
- IMPN SW : Veraison Sells its 1.9% Stake in Implenia
- IMPN SW : *NORBERT KETTERER HOLDS 3.03% IN IMPLENIA: SIX
- ISP IM : Intesa CEO Backs Salini’s Construction Hub Plan to Boost Economy
- JE/ LN : Just Eat 3Q Rev. Up 25% to GBP247.5M; Confirms FY19 Guidance (1)
- LHA GY : Lufthansa Units Face Six-Hour Cabin-Crew Strike on Sunday
- HOFI SS : Dagens Industri Recommends Readers to Buy Hoist Finance Shares
- IAM MC : Maroc Telecom Third Quarter Adjusted Net MAD3.13 Bln
- MCRO LN : Open Text Isn’t Considering Potential Acquisition of Micro Focus
- MRW LN : Morrisons Expands One-Hour Delivery Through Amazon, Times Says
- NMC LN : NMC Health Reiterates 2019 Views, Expects 2H Stronger Than 1H
- PDL LN : Petra Diamonds First Quarter Revenue $61.6 Mln
- POG LN : Petropavlovsk 3Q Gold Sales Volume 126,400 Oz, +53% Y/y
- RBS LN : RBS Retail Chief Les Matheson to Step Down in Coming Months: Sky
- SAP GY : SAP Confirms 2019, Mid-Term Ambitions After 3Q Profit Increases
- SRT GY : Sartorius Sees Full Year Sales High End Of +10% To +14%
- SGRE SM : Siemens Gamesa Agrees to Buy Senvion Deutschland, Ria Blades
- SN/ LN : Smith & Nephew Names Diggelmann CEO as Nawana to Step Down
- STAN LN : StanChart CEO Set to Take Pay Cut to End Pension Dispute: FT
- TELIA SS : Sweden Called Telia EGM as New Chair Should Start Immediately
- UBSG SW : UBS Plans to Cut 40 Trading, Investment Banking Jobs in Asia
- VIB3 GY : Villeroy & Boch Nine Month Ebit EU22.3 Mln
- WDI GY : Wirecard Hires KPMG for Independent Audit Amid Accounting Doubts