FT : Renault: perpetual commotion

Renault: perpetual commotion
FCA cannot wait long for French carmaker to sort itself out

With its sprawling cast and intricate plot twists, the Renault saga is a page-turner. The arrest of charismatic boss Carlos Ghosn last November was followed by a tense stand-off with alliance partner Nissan. France’s government then thwarted a mooted €33bn merger with Italian-American rival FCA. Last week, chief executive Thierry Bolloré was “brutally” ousted. On Friday, shares fell 12 per cent after a profit warning, blamed on weakening markets and ever-increasing regulatory costs. Its shares have more than halved in the past 18 months.

The scale of the downgrade contrasted with Mr Bolloré’s defence of his record last week. But executives may well have had too many distractions. There could be more bad news to come. Clotilde Delbos, the former finance chief who is the interim chief executive, plans to revisit mid-term targets. Renault foresees a risk of negative automotive operating cash flow in the full year. It might have to sell some of its 43 per cent stake in Nissan - currently worth €10.4bn - to bolster its balance sheet.

Could that be a twist that leads towards a satisfying conclusion? Reducing the Nissan stake could help reset the troubled relationship. The lopsided capital structure - Nissan only has a 15 per cent non-voting stake in Renault - is a source of tension. Management changes should help too. The departure of Mr Bolloré draws a line under the Ghosn era, while some of the new team running Nissan are reportedly to Renault’s liking.

A healthier Franco-Japanese alliance could create the conditions for a successful tie-up with FCA. That deal is as attractive as ever, according to Ms Delbos. Industrial consolidation makes sense at a time of intense competition and soaring product development costs. But FCA itself needs to make big strategic decisions. It cannot wait long for Renault to sort itself out. A happy ending is possible. But too many plot holes need to be fixed first. Renault is not yet a best-seller.

>>> Fed's Kashkari (dove; non-voter): US economy is sending mixed signals; consu

Fed's Kashkari (dove; non-voter): US economy is sending mixed signals; consumers remain strong while businesses appear nervous and are pulling back on spending
- Not forecasting a recession but risks to the downside have increased in the last six months; monetary policy should be somewhat accommodative in light of risks that we see
- Europe, Germany, and China are slowing; the US will feel that
- The yield curve is signalling Fed policy may be slightly contractionary
- Expects to undershoot 2% target into foreseeable future
- Tariffs don't lead to higher inflation; they could shock confidence and lead to lower inflation

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • GIL -27.9%, CVTI -13.4%, BDN -10.9%, WDFC -5.3%, EXPO -4%, OZK -2.7%, SXT -2.3%, MAN -2.1%, IHG -1.8%

Other news:

  • NNA -15.7% (proposes registered direct offering of common stock)
  • HBI -5.3% (following GIL guidance)
  • TW -0.6% (upsizes and prices offering of 17,287,878 shares of its Class A common stock at $42.00 per share)

Analyst comments:

  • GPS -5.6% (downgraded to Underperform from Neutral at Credit Suisse)
  • LB -5.6% (downgraded to Underperform from Neutral at Credit Suisse)
  • M -4.7% (downgraded to Underperform from Neutral at Credit Suisse)
  • A -2% (downgraded to Neutral from Buy at UBS)
  • ACHN -1.3% (downgraded to Mkt Perform from Outperform at SVB Leerink)
  • WM -1.3% (downgraded to Neutral from Buy at BofA/Merrill)
  • CAT -0.8% (downgraded to Equal-Weight from Overweight at Morgan Stanley)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • MRTN +4.2%, ETFC +3.5%, ISRG +3.3%, INDB +2.8%, KO +2.2%, STT +2.2%, SYF +1.9%, AXP +1.9%, QTNT +1.6% (announces positive Verification & Validation results for Extended Immunohematology Microarray; says prelim quarterly results reflect revenue higher than prior guidance), TEAM +0.8%, SLB +0.8%, .

Other news:

  • VRCA +11.9% (presents positive data from three abstracts evaluating the efficacy and safety of VP-102 at the 2019 39th Annual Fall Clinical Dermatology Conference)
  • ENDP +7.5% (continued strength)
  • RIGL +7.5% (receives positive trend vote from CHMP for fostamatinib disodium hexahydrate (fostamatinib) for the treatment of chronic immune thrombocytopenia in adults) RDHL +7% (enters into strategic collaboration with Cosmo Pharmaceuticals -- includes private investment by Cosmo of $36.3 mln in RedHill at $7.00 per American Depositary Share)
  • CSTL +5.7% (presents data supporting the ability of the DecisionDx-Melanoma gene expression profile test to identify T1 (tumor depth of 1 mm or less) melanoma patients at low risk for a positive sentinel lymph node)
  • HEP +4.9% (expects to maintain its current distribution through 2020)
  • PRTK +2.9% (withdraws MAA submission for NUZYRA)
  • T +0.7% (AT&T lifting on possible Elliott Management resolution that includes strategic review)

Analyst comments:

  • SNAP +3.2% (upgraded to Buy from Neutral at BofA/Merrill)
  • NMRK +2.9% (resumed with a Buy at BofA/Merrill)
  • RCL +1.7% (upgraded to Outperform from Neutral at Macquarie)
  • TNDM +1.5% (initiated with a Buy at Guggenheim; tgt $76)
  • APA +0.8% (upgraded to Neutral from Underperform at BofA/Merrill)

>>> US Early premarket gappers



Early premarket gappers

  • Gapping up:
    • RDHL +9.7%, QTNT +8.8%, ENDP +6.6%, MRTN +4.2%, ETFC +3.2%, ISRG +3%, PRTK +2.9%, INDB +2.8%, KO +1.9%, SLB +1.9%, SYF +1.5%, TNDM +1.4%, KEYS +1%, T +0.9%
  • Gapping down:
    • GIL -17.9%, NNA -16.7%, CVTI -13.4%, BDN -10.9%, HBI -5.3%, WDFC -5.3%, EXPO -4%, ASMB -3%, OZK -2.7%, HEP -1.6%, IHG -1.6%, TW -1.3%, TEAM -0.5%

>>>Asia Market Update: Equities trade mostly lower amid



Asia Market Update: Equities trade mostly lower amid key data; China Q3 GDP misses ests and hits lower end of growth target range, Sept IP rebounds; CPI slows further in Japan


General Trend:
- Property shares and financials weigh on Shanghai market in early trading
- Real estate firms also weigh on Hang Seng; Sportswear company XTEP declines over 9%, said sales growth moderated in Sept
- Iron/Steel firms are among the gainers in Japan
- Declines in consumer stocks weigh on Australian equity market
- China Stats Bureau official: Able to keep growth steady and ensure stable trend in Q4, to front-load some 2020 special local government bond issuance to this year
- Japan CPI slows further in Sept, some are expecting BoJ to ease policy at Oct meeting [Oct 30-31st]


***Headlines/Economic Data***
Australia/New Zealand
-ASX 200 opened flat
- (AU) Reserve Bank of Australia (RBA) Gov Lowe: Do not agree that RBA has a lot of work to do to reach its inflation target

China/Hong Kong
-Shanghai opened +0.2%, Hang Seng +0.2%
- (CN) CHINA Q3 GDP Q/Q: 1.5% V 1.5%E; Y/Y: 6.0% V 6.1%E (lowest annual reading since 1992)
- (CN) CHINA SEPT INDUSTRIAL PRODUCTION Y/Y: 5.8% V 4.9%E
- (CN) CHINA SEPT RETAIL SALES Y/Y: 7.8% V 7.8%E; YTD Y/Y: 8.2% V 8.1%E
- (CN) CHINA SEPT FIXED URBAN ASSETS Y/Y: 5.4% V 5.5%E
- (CN) China PBoC Gov Yi Gang met with US Fed Chairman Powell, discussed China and US economy and monetary policy
- (CN) China PBoC Open Market Operation (OMO): Injects CNY30B v skip prior in 7-day; Net injects CNY30B v skip prior
- (CN) China PBOC sets Yuan Reference Rate: 7.0690 v 7.0789 prior
- (CN) China Finance Ministry sells 30-year upsized government bonds: yield 3.7991% v 3.6862% prior, bid to cover: 2.11x

Japan
-Nikkei opened +0.3%
- (JP) JAPAN SEPT NATIONAL CPI Y/Y: 0.2% V 0.2%E; CPI EX-FRESH FOOD (CORE) Y/Y: 0.3% V 0.3%E (lowest core y/y rise since 2017)
- (JP) Bank of Japan (BOJ) Gov Kuroda: Japan exports are weakening through domestic demand remains firm
- (JP) Japan Fin Min Aso: No discussion now among G20 nations to take coordinated and immediate action to fend off shock - comments from Washington D.C.
- (JP) Japan Government: Previously announced US/Japan trade deal to increase Japan's GDP by ~0.8%, contribution to Japan GDP estimated at about ¥4.0T based on FY18 GDP
- (JP) Japan MOF confirms exemptions related to foreign investment law: foreign securities companies trading on their own account will be exempted from the law

Korea
-Kospi opened +0.2%
- (KR) Treasury Sec Mnuchin: will consider South Korea's position on auto tariffs
- (KR) South Korea reportedly willing to enter talks with Japan to settle bilateral tensions over wartime labor issues - Nikkei

North America
- (US) Fed’s Williams (moderate, voter): open market operations have stabilized the markets; balance sheet actions don't change monetary policy stance

Europe
- (US) USTR Official: [Previously announced] tariffs of 10-25% on EU goods to take effect on Oct 18 (as expected)
- (TR) US VP PENCE: WE REACHED A DEAL WITH TURKEY FOR A CEASEFIRE IN NORTHERN SYRIA
- (EU) ECB Visco (Italy): Starting to see spillovers to service sector; would have been better to name dissenters in ECB account
- (FR) ECB's Villeroy (France): we must be vigilant about the evolution of global debt - comments in DC
- (EU) ECB's Knot (Netherlands): on balance the effects of negative rates have been positive
- (UK) Scotland court will hear a legal bid to halt Brexit deal - UK Press

***Levels as of 1:20 ET***
- Nikkei 225, +0.2%, ASX 200 -0.5%, Hang Seng -0.2%; Shanghai Composite -0.7%; Kospi -0.4%
- Equity Futures: S&P500 -0.2%; Nasdaq100 -0.2%, Dax -0.2%; FTSE100 -0.4%
- EUR 1.1131-1.1121 ; JPY 108.68-108.52 ; AUD 0.6839-0.6820 ;NZD 0.6377-0.6342
- Gold -0.2% at $1,495/oz; Crude Oil -0.2% at $53.81/brl; Copper -0.2% at $2.595/lb

FT : German government slashes growth forecast

German government slashes growth forecast
Economy expected to expand by just 1 per cent next year as trade war bites

The German government has revised down its forecast for economic growth next year from 1.5 per cent to 1 per cent, in a further sign of the slowdown that is clouding the prospects for the eurozone’s largest economy.

The economics ministry did not change its projection of 0.5 per cent growth in gross domestic product in 2019.

Germany’s economy has been roiled by global trade tensions, Brexit-related uncertainty and upheaval in the auto industry. It shrank by 0.1 per cent in the second quarter and is widely expected to suffer a further decline in the third, tipping it into recession.

But the overall picture is mixed. While the weakness in global trade is hurting German exporters, domestic demand “remains intact”, and is boosted by higher government spending, economics minister Peter Altmaier said.

“Even if the current prospects have dimmed, there is no threat of an economic crisis,” he said. Employment and incomes are rising and the construction sector is still booming.

Germany will have 45.4m people in work by the end of 2020, Mr Altmaier said, up from 44.8m in 2018.

But he added that German companies needed a “tailwind” from the government, stressing the need for tax cuts, a reduction in red tape and investment in future technologies.

The economics ministry said that although uncertainty over Brexit and international trade conflicts were clouding the picture for German exporters, the trade-related downturn would soon reach its “lowest point”. After that, foreign demand will pick up again and “Germany’s export economy will get back on its feet”, he said.

The ministry also forecast that Germany’s current account surplus, which reflects the balance of trade between exports and imports, will fall to 6.2 per cent of GDP in 2020, down from 7.25 per cent in 2018. It said that while imports will decline next year, they would not drop as fast as exports.