After Hours Summary: KFY -7%, FWRD -1.5% following earnings/guidance, LKSD -20% on DOJ merger oppositionAfter Hours Gainers:
Companies trading higher in after hours in reaction to news: MBIO +12.2% (initiated with Overweight rating and $7 tgt at Cantor Fitzgerald), MEET +4.9% (initiated with Outperform at Oppenheimer), CGC +1.8% (earnings expected tonight), FNKO +1% (initiated with Buy rating at DA Davidson)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: KFY -6.7%, FWRD -1.5%
Companies trading lower in after hours in reaction to news: LKSD -20.1% (DOJ sues to block Quad's [QUAD] acquisition of LSC Comm), SEE -7.2% (ticking lower; terminates CFO William Stiehl for cause effective immediately and appoints James Sullivan as new CFO effective June 24; reaffirms outlook), BYND -4.6% (ongoing volatility), ARE -1.9% (commences 3.5 mln share common stock offering in connection with the forward sale agreements), EXEL -1.8% (Exelixis was informed by its collaboration partner Roche's [RHHBY] Genentech that IMspire170 did not meet its primary endpoint), PYPL -1.3% (announces planned departure of COO Bill Ready), BXMT -1.3% (announces public offering of 7.5 mln shares of common stock), INVH -1.3% (announces secondary offering of 37.5 mln shares of common stock by selling stockholders affiliated with Blackstone), TLRY -1% (after closing 10% higher on the day)
Closing Stock Market SummaryThe S&P 500 advanced 1.0% on Thursday, setting a new intraday high and new record close, bolstered by expectations for easier monetary policy and lower sovereign bond yields.
The Dow Jones Industrial Average gained 0.9%, the Nasdaq Composite gained 0.8%, and the Russell 2000 gained 0.5%.
The Fed captured the headlines yesterday and received plenty of attention today, but the market has also been paying attention to global developments. Monetary policy is getting more dovish and sovereign bond yields continue to decline around the world. The Bank of England and the Bank of Japan both left rates unchanged on Thursday with Japan indicating its key policy rate could stay at its current level until spring 2020.
Expectations for lower rates remained the biggest driver in the equity and bond markets. The 10-yr note yield and the 2-yr note yield declined three basis points each to 1.72% and 2.00%, respectively. The lower yields put some pressure on the U.S. dollar (96.65, -0.47, -0.5%) and continued to favor risk assets.
Leading equities higher were the energy stocks as oil prices ($57.12/bbl, +$3.13, +5.8%) climbed amid the weaker dollar and escalated tensions in the Middle East. Iran shot down a U.S. military drone, which President Trump said was a "very big mistake" but later said it could have been a mistake. Geopolitical tensions briefly unnerved the market before the influence of the Fed pushed stocks higher during the afternoon.
The S&P 500 energy sector led all sectors higher with a gain of 2.2%. The other ten sectors finished with gains between 0.4% (health care) and 1.6% (industrials). The turnaround in the S&P 500 financials sector (+0.5%), which was down as much as 0.6% during the day, contributed to the strong finish in the broader market.
In corporate news, Slack (WORK 38.62, +12.62, +48.5%) made its public debut, opening at $38.50 per share after setting its reference price at $26 per share. Oracle (ORCL 56.99, +4.31, +8.2%) pleased investors with solid earnings results, while Carnival (CCL 48.80, -4.04, -7.7%) disappointed investors with weak full-year guidance.
Separately, gold futures also made a big move, settling 3.4% higher at $1393.95/oz on expectations that interest rates will continue to decline.
Reviewing Thursday's economic data:
- Initial claims for the week ending June 15 decreased by 6,000 to 216,000 (consensus 220,000). Continuing claims for the week ending June 8 decreased by 37,000 to 1.662 million.
- The key takeaway from the report is that it covers the period in which the survey for the June employment report was conducted. Accordingly, the low level of initial claims should set an expectation for a solid gain in nonfarm payrolls for June.
- The Conference Board's Leading Economic Index was unchanged in May (consensus +0.1%) following a downwardly revised 0.1% increase (from 0.4%) in April.
- The key takeaway from the report is that it reflects an environment of slower economic growth unfolding in the second quarter. According to the Conference Board, the Leading Economic Index increased 0.3% for the six-month period ending May 2019, versus 2.2% growth during the previous six months.
- The Q1 Current Account Deficit was $130.4 billion (Briefing.com consensus -$125.0 billion) versus a downardly revised $143.9 billion (from -$134.4 billion) for the fourth quarter.
- The Philadelphia Fed Index fell to 0.3 (Briefing.com consensus 11.5) from 16.6 in May.
Looking ahead, investors will receive Existing Home Sales for May on Friday.
- Nasdaq Composite +21.3% YT
- S&P 500 +17.8% YTD
- Russell 2000 +15.9% YTD
- Dow Jones Industrial Average +14.7% YTD
Iran Foreign Min Zarif: Iran doesn't seek war but will defend its skies; will take 'US aggression' to the UN
Falling down: hedge fund Lansdowne suffers string of bad bets
Flagship fund of one of Europe’s biggest managers has lost money over the past 3 years
At the end of 2004 equity analyst George Michelakis left Lansdowne Partners, once viewed as the gold standard of equity hedge funds, to set up shop on his own.
Today his Gladstone Capital Management has built up an enviable record, making large double-digit gains in each of the last three years, and also profiting during the sell-off in May.
The firm he left behind, however, is not faring so well. One of London’s oldest and most secretive hedge funds — and still one of the biggest with $20bn in assets — Lansdowne is struggling after a string of bad bets.
Its flagship Developed Markets hedge fund, known for profitable bets against Northern Rock during the last financial crisis, lost nearly 15 per cent in 2016 and 7.4 per cent last year. Even in this year’s rally the fund was down 4.4 per cent to the end of May, according to numbers sent to investors and seen by the Financial Times.
Some in the industry say the problem with the fund — run by Peter Davies, the best man at former chancellor George Osborne’s wedding, and co-manager Jonathon Regis — is its scale.
“Size is the main issue,” said one senior hedge fund investor. “If you run $20bn it’s very difficult to make money.”
The complaint is a familiar one: large funds cannot invest in some smaller assets and it can take them much longer to sell out of positions. But it fails to explain why some bigger funds than Lansdowne are regularly putting up better numbers. New York’s Millennium Management, for example, with some $39bn in assets, has delivered positive returns for years.
Lansdowne declined to comment for this story.
The firm, based just off Mayfair’s Berkeley Square, was founded in 1998 by Steven Heinz and Sir Paul Ruddock, who is known for the philanthropic donations he has made to institutes, including the Victoria and Albert Museum’s Medieval & Renaissance Galleries.
Lansdowne’s flagship strategy was launched in 2001 under Mr Davies and Stuart Roden, former colleagues at Mercury Asset Management, a former top funds house sold a few years earlier to Merrill Lynch. Now holding $13bn in assets, the strategy includes a $6bn hedge fund and a more-than-$6bn long-only fund that has made money this year.
It is the hedge fund, for which Lansdowne is best known, that has found the going tough. It still boasts an annualised return of more than 10 per cent, based on profits being reinvested, since its 2001 launch — a record that had led to investors queueing up to get in.
But the picture has changed. Its latest update to investors, seen by the FT, shows a compound annual loss of close to 3 per cent over the three years to May 2019. The S&P 500 is up 31 per cent over that period, equivalent to an annual gain of 9.5 per cent.
Its “short” bets on falling stock prices have not beaten the market in aggregate since 2008, according to a letter to investors.
The firm is notoriously secretive. Mr Davies shuns the limelight, while its letters to investors do not identify the funds’ biggest long positions or any of its shorts.
However, among bad calls in recent years have been underestimating the impact of Brexit on UK stocks, and a painful bet against a resurgent Glencore in 2016 (which was above regulatory levels for disclosure). Last year the fund lost money on positions in Lloyds Banking Group and Lufthansa, according to letters to investors.
“Our description of 2018 in September as ‘frustrating’ proved generous as a brutal final quarter left the year one that many, including us, were pleased to see end,” wrote Messrs Davies and Regis in a January letter.
Amin Rajan, chief executive of CREATE-Research, an asset management consultancy, said: “Maybe [Lansdowne has] reached a scale where they can’t deliver good performance any more.”
Lansdowne’s losses this year come as many other funds are thriving.
Gladstone gained 5.8 per cent in May’s sell-off and is up 11.4 per cent this year, according to a letter to investors seen by the FT. Pelham, run by another Lansdowne alumnus, Ross Turner, lost 6 per cent last month but is still up 4 per cent this year.
“Market strength just overwhelmed negative newsflow,” wrote the Lansdowne duo in their latest letter, about some short positions this year.
Lansdowne has been trying to shrink the Developed Markets fund, which has fallen in assets from more than $10bn, and has not been taking in new money when investors redeem, say people with close knowledge of the fund.
Some investors also point to the fund’s change of management as a possible problem. Mr Roden, who stepped off the fund at the end of 2014, was co-manager with Mr Davies. Mr Regis, 43, co-manages the fund but is technically deputy to Mr Davies. Some investors have queried whether this structure allows Mr Regis to challenge Mr Davies, 47, on his trade ideas.
“It’s a very flat structure,” said a person close to Lansdowne. “Both managers have authority to put on a position in the fund.”
Lansdowne is looking at ways to improve, for instance in how it uses data or market intelligence, the person said.
“It would be crazy to sit with heads in the sand and say everything is fine,” the person added.
Gapping down
In reaction to disappointing earnings/guidance:
- CCL -7.6%, MEI -5.5%, SCS -5%, DRI -4.2%
Other news:
- SRRK -11.3% (prices offering of 3 mln shares of its common stock at $15.00 per share)
- CYRX -6.6% (announces public offering of common stock; size not disclosed)
- LAND -5% (to sell shares of common stock in underwritten public offering)
- ELOX -2.7% (files preliminary prospectus supplement for common stock offering)
- PZZA -0.7% (to increase marketing/brand investment initiatives and provide scheduled financial assistance for domestic franchisees ending in 2020)
Analyst comments:
- ENPH -1.8% (downgraded to Neutral at H.C. Wainwright)
- TSLA -0.9% (target lowered to $158 from $200 at Goldman; maintain Sell)
Gapping up
In reaction to strong earnings/guidance:
- KR +10%, AOBC +9.1%, ORCL +6.2%, CMC +1.7%
Select metals/mining stocks trading higher:
- GFI +4.8%, GOLD +3.2%, FCX +3.2%, BHP +2.5%, GLD +1.9%, SLV +1.6%, RIO +1.1%
Select oil/gas related names showing strength:
- TOT +2.2%, MRO +2.1%, COP +1.9%, RDS.A +1.7%, BP +1.5%, MPC +1.3%, VLO +1.2%, XOM +0.8%
Other news:
- CGC +3.2% (announces shareholder approval in connection with proposed Acreage acquisition; provides update on American hemp and CBD operations)
- YY +2.4% (priced of its previously announced offering of $425 mln in aggregate principal amount of convertible senior notes due 2025)
- BYND +2.2% (Del Taco (TACO) expands its partnership with Beyond Meat)
- TACO +2% (Del Taco (TACO) expands its partnership with Beyond Meat)
- JKS +1.1% (announced it has supplied Power Construction Corporation of China with 351MW of solar modules)
- OGI +1.1% (announce that it has now shipped its first cannabis products to the province of Quebec)
- VSTM +0.5% (CEO steps down, among other leadership changes)
Analyst comments:
- BE +2.7% (upgraded to Neutral from Underperform at BofA/Merrill)
- DELL +2.3% (initiated with a Buy at Deutsche Bank)
- JWN +1.6% (upgraded to Hold from Reduce at Gordon Haskett)
Early premarket gappersGapping up:
- AOBC +10%, ORCL +5.7%, GFI +5%, GOLD +3.6%, YY +2.7%, FCX +2.1%, GLD +1.9%, BHP +1.9%, OGI +1.4%, SLV +1.4%, DB +1.3%, JKS +1.1%, CGC +0.8%, MRK +0.5%
Gapping down:
- SCS -10%, CYRX -8.4%, SRRK -8.3%, LAND -4.5%,
CFTC chair complains to European Commission over regulation jibe
Christopher Giancarlo writes to Valdis Dombrovskis over official’s ‘you fell for it’ speech
A top US financial regulator has taken an unusual swipe at his EU counterparts in a deepening row over how to supervise international trading.
Christopher Giancarlo, chair of the Commodity Futures Trading Commission, wrote last week to Valdis Dombrovskis, the European Commission vice-president responsible for financial services, to publicly criticise comments made by an EU official at a conference this month.
The letter, seen by the Financial Times, hits out at comments made by Patrick Pearson, head of unit, financial markets infrastructure at the commission, at an event run by derivatives trade association the FIA in London.
Mr Pearson had said the US “fell for” an agreement it had struck with the EU in March in which they emphasised the need to trust local regulators and for sustained dialogue. Alongside other comments by Mr Pearson, Washington has concerns Brussels will not adhere to the spirit of the accord. The CFTC declined to comment.
The disagreement threatens to undermine fragile relations on financial regulation between the US and EU, which have been fractious in recent years as both sides work out how to oversee London’s clearing houses after Brexit.
Clearing houses have become a critical tool for global financial stability, as they act as central counterparties between sellers and buyers of shares or derivatives. London dominates the market for clearing both dollar and euro-denominated trades, turning it into a flashpoint for both sides.
Generally the EU has sought to prevent an escalating war of words with the US over the international implications of each side’s regulations, and to engage in talks about how to ease the concerns.
The EU’s plans for tougher regulation — designed with post-Brexit Britain in mind — endured sustained criticism in Washington after they were published in 2017, with the CFTC warning that the draft law would have allowed Brussels to pressure US clearinghouses to move activities into the EU. Mr Giancarlo has previously warned that any such moves would breach transatlantic trust.
Mr Giancarlo said he had been “surprised to hear Mr Pearson speak negatively” about the March agreement. “I was not pleased to listen to Mr Pearson publicly suggest that you or I had been manipulated in our agreement on an important policy statement,” he told Mr Dombrovskis in his letter.
“His comments — capped by the taunt ‘You fell for it’ — suggests the joint statement did not represent a mutual understanding that each authority would seek to increase the use of deference to each other,” he wrote.
Mr Giancarlo asked Mr Dombrovskis to clarify whether Mr Pearson’s comments accurately represented the official position of the commission, or to “please publicly disavow his comments”.
Asked about Mr Pearson’s comments, an EU official told the FT that “deeds speak louder than words” and pointed to agreements reached with the CFTC during Mr Dombrovskis’ mandate that have improved international supervisory co-operation. “We have received the letter and we are currently preparing a reply,” a spokesperson said.