FT : US/China currency war: beggar my neighbour

US/China currency war: beggar my neighbour
Investors must now guess how much pain the two countries will inflict on each other

Patriotic parades showcasing Chinese power lack the country’s most potent weapon: its currency. Throughout the trade war with the US, China has mostly played nice on this front. New US tariffs, affecting $300bn of Chinese goods, put an end to this. The Chinese central bank has let the yuan fall below seven to the dollar. Investors must now guess how much pain China and the US will inflict on each other.

The US has designated China as a currency manipulator for the first time since 1994. This looks political. China met just one of the three US Treasury criteria of a currency manipulator. Even so, the US may impose penalties.

A weaker yuan should help Chinese business cope with US tariffs and a manufacturing slowdown. Exporters should be able to bolster weakening profit margins. Smartphone makers including Huawei — a US security bugbear — and Xiaomi are among the electronics groups that would benefit.

China has not actively sought to weaken the yuan so far. Over the past two decades, the yuan has priced stronger against its currency basket in more cases than not. A stronger yuan means more spending power for its companies and citizens overseas.

China will be reluctant to shift its stance permanently. Longer term, a weaker yuan would hurt confidence and trigger capital outflows.

Moreover, a weak yuan is bad for many other Chinese businesses. Corporates with large amounts of US dollar-denominated borrowings, such as Chinese airlines, would be exposed to higher debt service costs. China Southern Airlines, Air China and China Eastern have fallen more than 6 per cent in the past two trading days, underperforming broader markets that are already weak.

Those enterprises that import raw materials are also at risk. Shares of steelmakers such as Angang Steel and Baoshan Iron and Steel have continued their slide since Monday. 

China cannot outgun the US on tariffs: exports to the US are more than double US imports to China. China has so far retaliated to US trade hostility with symmetrical force. Its use of the currency is true to that playbook.

That suggests China will pursue more aggressive devaluation only as US hostility deepens. That would skew trade in favour of China and against the US in countries that remain open to both. An old aphorism applies to both combatants: “Before you embark on a journey of revenge, dig two graves.”

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:

  • DF -28.1%, GSKY -19.6%, AVID -16.3%, EVBG -15.6%, STRL -10.8%, IFF -9.6%, CAR -5.9%, MOS -5.1%, IPAR -5%, WWD -5%, SSTK -5%, NSPR -4.8%, ALNY -4.8%, AEIS -4.5%, KMT -3.3%, CAMT -3.2%, MAR -2.8%, ENR -2.8%, ARMK -2.5%, CZR -2.4%, FBM -2.1%, HSIC -1.8%, APRN -1.4%, CLR -1.1%, DOOR -1%, SAGE -1%, KRG -0.8%, UGI -0.8%

Other news:

  • ALNY -4.8% (FDA has accepted the Company's New Drug Application for givosiran for the treatment of acute hepatic porphyria)
  • KODK -3.3% (Eastman Kodak announces strategic relationship with Lucky HuaGang Graphics Co)
  • SNAP -2.5% (proposes private offering of $1.0 bln principal amount of convertible senior notes due 2026)
  • AMD -1.6% (wccftech reports that CEO Lisa Su is planning to leave AMD for the number two spot at IBM (IBM) this fall)
  • AEE -1% (prices offering of 7,549,205 shares of its common stock at $74.30 per share)

Analyst comments:

  • HCC -1.8% (downgraded to Hold from Buy at Jefferies)
  • CXO -1.1% (downgraded to Underweight from Overweight at Morgan Stanley)

WSJ : Stocks Regain Ground, Yuan Stabilizes European stocks, U.S. futures reboun

Stocks Regain Ground, Yuan Stabilizes
European stocks, U.S. futures rebound as investors bet on further rate cuts

• Chinese currency trades above 7 yuan to the dollar

• U.S. Treasury yields rise after hitting lowest since 2016

Stocks regained ground around the world and U.S. futures ticked higher after China’s central bank signaled it wouldn’t let the yuan fall much further, a day after escalating trade tensions triggered sharp declines on Wall Street.

Markets across Asia fell sharply early Tuesday after the U.S. Treasury labeled China a currency manipulator. But stocks pared losses and the yuan stabilized after the People’s Bank of China’s moves.

The Stoxx Europe 600 gauge was up 0.6%. Futures tied to the Dow Jones Industrial Average and S&P 500 were each 1% higher, a day after both indexes shed around 3%.

The trade tensions between the U.S. and China may prompt the Federal Reserve to step up interest-rate cuts to bolster economic growth in the world’s largest economy, some investors and analysts said.

“Across currencies and bond markets there’s clearly a greater anticipation for a Fed rate cut given recent developments,” said Geoffrey Yu, head of the U.K. investment office at UBS Wealth Management.

A speech by the Fed’s James Bullard later Tuesday is likely to be scrutinized closely for any further signals on likely actions by the central bank. Investors will also have a close eye on June data on U.S. jobs, an important indicator for the robustness of the labor market, later Tuesday.

The yield on U.S. 10-year Treasurys edged up to about 1.758% after earlier hitting its lowest since 2016. Bond yields fall as prices rise.

The rebound in some markets suggests a “temporary lull” in trade tensions, according to Oliver Jones, a senior markets economist at Capital Economics. “The prospects are only for more tensions and tariffs.”


Markets were roiled in the previous session as the yuan became the latest flashpoint in U.S.-China trade relations. President Trump took the devaluation as a deliberate shot at the U.S. after Beijing let the yuan depreciate beyond 7 to the dollar for the first time since 2008. A weaker yuan makes Chinese goods more competitive abroad, and U.S. products and other imports into China more expensive.

“Looking for a silver lining, it is worth bearing in mind that President Trump still pays attention to the stock market,” said Tai Hui, chief Asian market strategist at J.P. Morgan Asset Management. “The latest correction may persuade him to be more moderate on the protectionist rhetoric in the near future.”

In Asia, major benchmarks in Japan, Hong Kong and South Korea all posted declines.

However, the yuan stabilized after China’s central bank set the daily midpoint for onshore yuan trading at 6.9683, 0.7% weaker than the previous day. The People’s Bank of China also said it would issue 30 billion yuan ($4.25 billion) of central bank bills in Hong Kong—an act seen as limiting possible short selling of the currency—and Governor Yi Gang said China won’t engage in competitive devaluation.

With those two moves, the central bank “is sending signals that it would like to mitigate the yuan depreciation,” said Frances Cheung, head of macro strategy for Asia at Westpac Banking Corp.

The offshore yuan, which trades more freely, was trading at 7.0506 to the dollar.

Beijing has signaled willingness to tolerate a lingering trade battle, but letting the yuan drop below seven to the dollar was more a negotiation tactic than the precursor to a huge devaluation, according to Alex Wong, a director at Hong Kong-based hedge fund Ample Capital. He said stock prices had been buoyed partly by bargain hunting.

The Japanese yen, considered a haven currency, declined 0.6% and traded at 106.573 to the dollar.

The Hang Seng’s decline set it on course to turn negative for the year, joining South Korea’s Kospi.

WSJ : America’s Pension Funds Fell Short in 2019

America’s Pension Funds Fell Short in 2019
Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016

Public pension plans fell short of their projected returns this year, adding to the burden on governments struggling to fund promised benefits to retired workers.

Public plans with more than $1 billion in assets earned a median return of 6.79% for the year ended June 30, the lowest since 2016, according to Wilshire Trust Universe Comparison Service data released Tuesday. Public pension plans project a median long-term return of 7.25%, according to data collected by Wilshire Associates in 2018.

Each year, pension funds must make this estimate on how much they expect to earn on investments. The projection determines the amount the government that is affiliated with the pension fund must pay into it.

Robust returns reduce the need for government support. When returns fall short, however, the amount the government must contribute increases, potentially diverting money from other public services.

“I think a lot of plans fell a little bit short,” said Becky Sielman, principal and consulting actuary at Milliman. “Bonds generally did well, but there are other asset classes that didn’t do as well.”

Overall, a decadelong bull market in stocks has been good for pensions. Large public plans had five years of double-digit returns and a 10-year annualized return of 9.7% for the year ended June 30, according to Wilshire.

But those returns still haven’t brought pension funding levels close to what is needed to pay for future benefits. State and local pension plans have about $4.4 trillion in assets according to the Federal Reserve, $4.2 trillion less than they need to pay for promised future benefits. Contributing factors include increasing lifespans, overoptimistic return assumptions, and government decisions to skimp on pension payments. Record losses in 2009, when pension funds fell by a median 19.19% according to Wilshire, also played a role.
In hopes of reducing their unfunded liabilities, pensions have pushed further into riskier, less traditional investments over the past decade. Large public pension plans had a median 11.47% of their assets in alternative investments such as private equity for the year ended June 30 and a median 4.45% of their investments in real estate.

Even so, some of the best-performing investments in the year ended 2019 were plain domestic stocks and bonds.

The roughly $2 billion Tampa Fire and Police Fund, which steers clear of alternatives, returned 8.7% for the year ended June 30, said Jay Bowen, president and CEO of Bowen, Hanes & Co.

“For a public defined-benefit plan, we just feel like if you can focus on high-quality stocks and bonds and take a long-term approach, you’ll be better off, especially after fees,” said Mr. Bowen, whose firm has been the pension fund’s sole manager for 45 years.

Wilshire calculated that a portfolio of 60% domestic stocks and 40% domestic bonds would have returned 9.13% for the year ended June 30.

“Global equities worked against you, alternatives or private equity probably worked against you, cash worked against you, and anything where you didn’t stay the course worked against you,” said Robert J. Waid, managing director at Wilshire Associates. For example, he said, a pension fund that sold equities or switched to lower-risk equities at the end of last year as stock prices fell missed first-quarter gains.

The nation’s two largest pension funds, which serve California public workers and California teachers, earned 6.7% and 6.8%, respectively. Both funds project long-term returns of 7%.

“It was a roller-coaster year and a very challenging environment in which to generate returns,” said Christopher Ailman, investment chief for the teacher fund, known as Calstrs.

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance:

  • EVER +25.1%, NPTN +16.7%, TEN +15%, KPTI +12%, PODD +11.2%, SWAV +9.2%, HIIQ +8.4%, TDG +8.4%, AVTR +7.7%, DISCA +7.2%, TTWO +6.8%, PBI +6.5%, WPX +6.4%, PLUG +6.1%, APPS +6%, SEAS +6%, ZTS +5.7%, IPI +5.6%, ENDP +5.3%, CHK +5.1%, ACB +4.8%, ITRI +4.4%, SHAK +3.6%, OUT +3.6%, MNK +3.4%, KLAC +3.2%, BHC +3.2%, KALA +3.2%, DIOD +2.9%, EPC +2.9%, EMR +2.2%, MIME +1.8%, O +1.7%, REGN +1.5%, VCEL +1.5%, THC +1.4%, USFD +1.4%, STE +1.3%, CXW +1.2%, APLE +1%, ENBL +0.9%, CECE +0.9%, LGIH +0.9%, .

Other news:

  • RMTI +8.8% (announces acceptance by FDA of NDA for I.V. TRIFERIC; PDUFA set for March 28)
  • NVAX +1.2% (Novavax reaches agreement with FDA on pivotal Phase 3 trial design for NanoFlu )
  • CLDR +1.2% (Carl Icahn increases active stake)

Analyst comments:

  • CI +2.5% (upgraded to Outperform from Mkt Perform at Bernstein)
  • F +2.1% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • FEYE +1.6% (initiated with a Buy at Nomura)
  • XOM +0.4% (upgraded to Hold from Sell at DZ Bank)

>>> Regeneron Pharma beats by $0.60, beats on revs; lowers top-end of GAAP Sanof

Regeneron Pharma beats by $0.60, beats on revs; lowers top-end of GAAP Sanofi collaboration revenue guidance (299.57)
  • Reports Q2 (Jun) earnings of $6.02 per share, excluding non-recurring items, $0.60 better than the S&P Capital IQ Consensus of $5.42; revenues rose 20.3% year/year to $1.93 bln vs the $1.8 bln S&P Capital IQ Consensus.
  • "We are further unlocking EYLEA's potential to help patients with the recent approval in diabetic retinopathy, and are advancing a high-dose formulation into the clinic later this year. Dupixent is growing rapidly in moderate-to-severe atopic dermatitis and asthma, and we continue to receive new indications in younger patients and additional Type 2 diseases, including the recent U.S. approval for chronic rhinosinusitis with nasal polyposis. Lastly, our immuno-oncology platform, which includes Libtayo and our portfolio of bispecific antibodies, is progressing well, with the most advanced bispecific program, REGN1979 (CD20xCD3), entering a potentially pivotal Phase 2 trial in follicular lymphoma."
  • Regeneron has 21 product candidates in clinical development, including five of the Company's U.S. Food and Drug Administration (FDA) approved products for which it is investigating additional indications.
  • Co sees GAAP Sanofi collaboration revenue of $500-530 mln (Prior $500-535 mln)

>>> Duke Energy beats by $0.14, beats on revs; reaffirms FY19 EPS guidance and l

Duke Energy beats by $0.14, beats on revs; reaffirms FY19 EPS guidance and long-term earnings growth target of 4 to 6% (86.96)
  • Reports Q2 (Jun) earnings of $1.12 per share, excluding non-recurring items, $0.14 better than the S&P Capital IQ Consensus of $0.98; revenues rose 4.1% year/year to $5.87 bln vs the $5.76 bln S&P Capital IQ Consensus.
  • Co reaffirms guidance for FY19, sees EPS of $4.80-5.20, excluding non-recurring items, vs. $4.91 S&P Capital IQ Consensus and long-term earnings growth target of 4 to 6 percent

>>> Dean Foods misses by $0.19, misses on revs (1.67) Reports Q2 (Jun) loss of

Dean Foods misses by $0.19, misses on revs
  • Reports Q2 (Jun) loss of $0.36 per share, excluding non-recurring items, $0.19 worse than the S&P Capital IQ Consensus of ($0.17); revenues fell 5.5% year/year to $1.84 bln vs the $1.88 bln S&P Capital IQ Consensus. The Company's second quarter results primarily reflect volume pressure associated with the overlap of certain customers exiting our system last year and an accelerated decline in the conventional white milk category. Dean Foods also experienced higher dairy commodity inflation, which it expects to significantly increase throughout the remainder of 2019.
  • The Company reported positive quarterly free cash flow in the second quarter driven by working capital management. However, given the Company's expectations for continued volume pressure and higher input costs, Dean Foods now expects to be a net user of cash for full year 2019.

>>> US Early premarket gappers

Early premarket gappers

Gapping up:

  • EVER +20.1%, NPTN +16.9%, HPR +11.7%, PODD +10.4%, WPX +8.6%, TTWO +8.1%, SWAV +7.7%, AVTR +7.7%, HIIQ +6.5%, APPS +5.3%, ITRI +4.4%, OUT +3.6%, DIOD +2.9%, SHAK +2.2%, NVAX +1.8%, MIME +1.8%, ENDP +1.8%, THC +1.4%, STE +1.3%, KLAC +1.2%, CXW +1.2%, APLE +1%, ENBL +0.9%

Gapping down:

  • AVID -16.3%, EVBG -15.6%, IFF -11.2%, STRL -10.8%, CAR -5.9%, IPAR -5%, WWD -5%, ALLK -4.9%, AEIS -4.5%, MOS -3.6%, KODK -3.3%, KMT -3.3%, MAR -2.8%, ARMK -2.5%, CZR -2.4%, CAMT -2.2%, FBM -2.1%, CLDR -1.1%, CLR -1.1%, TEN -1.1%, DOOR -1%, SAGE -1%