Gapping down
In reaction to disappointing earnings/guidance:
- RECN -15%, LNDC -14.8%, ODP -11.4%, TSLA -9.9% (Q1 deliveries; expects Q1 net income to be negatively impacted) SECO -2.8%, ISCA -0.6%
Other news:
- AVEO -29.8% (prices public offering of 21,739,131 shares of common stock and short-term warrants to purchase up to 21,739,131 shares of common stock at a price to the public of $1.15)
- RWLK -7.4% (prices direct offering of ordinary shares for $4.25 mln)
- SGMO -6.5% (proposed public offering of common stock)
- BZUN -6.1% (proposed offering of up to $225 mln in aggregate principal amount of convertible senior notes due 2024)
- DBVT -5.6% (prices global offering of an aggregate of 5,217,392 ordinary shares, including 3,329,784 American Depositary Shares which priced at $6.75/share)
- RRGB -2.7% (announces retirement of CEO Denny Marie Post; Board of Directors forms search committee; Board Chair Pattye Moore to serve as Interim CEO; provides QTD comps update)
- TCDA -2.2% (prices public offering of 5.6 mln shares of its common stock at a public offering price of $36.00 per share)
Analyst comments:
- MU -3.6% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- ROKU -2.6% (downgraded to Neutral from Buy at Guggenheim)
- BHF -2.1% (downgraded to Sell from Neutral at Citigroup)
- AABA -1.3% (downgraded to Neutral from Overweight at JP Morgan)
- LYV -0.9% (downgraded to In-line from Outperform at Evercore ISI)
- CMA -0.8% (downgraded to Neutral from Overweight at JP Morgan; downgraded to Neutral from Buy at Goldman)
Gapping up
In to disappointing earnings/guidance:
- REPH +15% (to restructure Acute Care segment to reduce the operating expenses; increases FY19 guidance), RPM +3.5%, STZ +3%, SMPL +1.8%
Other news:
- TST +8.7% (declared special cash distribution of approximately $94.3 mln or $1.77 per share; Board approves 1-for-10 reverse stock split effective April 26)
- GPOR +2.9% (rebounding from yesterday's 7% decline)
- SPR +2.7% (Boeing supplier rebounding from today's 5% decline -- moving higher in sympathy with BA),
- NMR +2.6% (investor day announces $1 bln wholesale cost cut reduction plan; over 60% to be completed by end of FY20; sees $300-400 mln in revenue updside)
- ZYNE +2.4% (continued strength)
- VKTX +2.4% (presents data from the company's 12-week Phase 2 study of VK2809 in patients with non-alcoholic fatty liver disease and elevated low-density lipoprotein cholesterol)
- CPRI +1.9% (following CNBC Fast Money comments)
- LUV +1.6% (following CNBC Fast Money comments)
- ZAYO +1.4% (after closing near highs on M&A related speculation)
- QTT +1% (prices upsized offering of 3,327,868 ADSs by the company and 6,672,132 ADSs by several shareholders at $10 / ADS)
- DAL +0.9% (continued strength - up more than 10% on the week)
- BA +0.9% (rebounding on reports of successful testing and the creation of a joint task force to review 737 fix)
Analyst comments:
- CBLK +7.1% (initiated with Outperform at Robert W Baird)
- NIO +3.4% (upgraded to Neutral from Underperform at BofA/Merrill; upgraded to Buy from Neutral at Citigroup)
- SMAR +1.3% (initiated with Outperform at Oppenheimer)
- FB +1.2% (upgraded to Buy from Neutral at Guggenheim)
Early premarket gappersGapping up:
- REPH +22.7%, TST +10.9%, CBLK +7.3%, CPRI +3.3%, SPR +2.7%, NMR +2.6%, GPOR +1.9%, SMAR +1.3%, VALE +1.2%, AAL +1.1%, SONO +1.1%, QTT +1%, AMD +0.8%, DAL +0.7%
Gapping down:
- AVEO -26.7%, LNDC -14.8%, RECN -12.7%, SGMO -8.3%, TSLA -8.2%, DBVT -4.7%, RRGB -2.7%, LYV -0.9%, STZ -0.6%, BA -0.5%
China stimulus efforts show signs of stabilising economy
Concerns remain that recovery is fragile with trade war and weak credit supply curbing growth
Beijing had a clear message to local authorities at the end of last year: hurry up and build.
The flurry of government debt issuance and a boom in infrastructure projects that followed in early 2019 have started to deliver a boost to the economy, lifting sentiment after months of gloomy economic data.
But it is unclear how far the uplift will carry through this year. The flow of credit to businesses in China remains weak and demand for exports feeble even as a trade war with the US inches closer to resolution.
Some economists worry that positive signals from March are a seasonal fluke, and that China’s frothy stock market will eventually experience a deep correction as economic growth slows to a three-decade low.
In its strongest reading since June, China’s official manufacturing purchasing managers’ index on Sunday marked a return to growth: it rose to 50.5 in March from 49.2 in February, outpacing even the highest expectations for the index.
A PMI reading above 50 signals expansion while a reading below 50 indicates contraction.
The survey results offer an early peek at the activity at the heart of the economy — such as factory output and demand for raw materials — but are considered less robust indicators compared with industrial profits, which a week earlier notched the fastest rate of decline in almost a decade.
The leading source of fresh growth for March was manufacturing production, a sign that government spending on infrastructure projects was having a noticeable impact on the economy, according to Robin Xing, chief China economist at Morgan Stanley.
“This is a policy-driven rebound,” he said. “It’s better than in previous easing cycles because it’s not relying on shadow banking. They are more focused on fiscal policy easing.”
The impact has been felt in infrastructure spending, with the number of power plants under construction increasing according to Global Energy Monitor, a non-governmental organisation that tracks fossil-fuel use.
Approvals for local debt issuance usually come after the week-long lunar new year holiday that lands between late January and late February. But this year, facing a serious economic slowdown, regulators front-loaded those approvals to expedite the building of infrastructure.
In the first two months of the year, gross local bond issuance hit Rmb782.1bn ($116.5bn), up from just Rmb28.5bn for the first two months of last year. Several other new fiscal policies are coming down the line, Mr Xing said. A value added tax relief programme came into effect on Monday, with the potential to deliver Rmb2tn in tax cuts this year.
The fiscal spur represents a change in approach for China.
Policymakers have often attacked economic problems with a flood of credit and a command to banks to lend more, often leading to a spurt of growth but high leverage for companies. Regulators this year are still pushing for more lending but they have not fully opened the credit taps and are focused on helping smaller companies borrow.
“The previous one-size-fits-all deleveraging has now become structural deleveraging and stable leveraging,” said Zhao Xijun, head of the Financial and Securities Institute at Renmin University of China.
Some economists worry the credit supply could still be growing too slowly to support a continued turnround in other areas of the economy. Total social financing, China’s broadest measure of credit growth, increased by just 10.6 per cent year on year in February, down from 13.3 per cent a year ago.
Conditions in March for small and medium-sized companies improved from a month earlier but were still contracting, according to the PMI data. Conditions worsened for large enterprises last month.
“We’re a bit cautious about calling this the bottom [for credit growth],” said Julian Evans-Pritchard, senior China economist at Capital Economics. “This still points to a further slowdown.”
But challenges to growth remain beyond China’s borders.
While Beijing and Washington are closer to an agreement in their trade war the PMI survey has showed export demand remains weak.
“I don’t think there is any clear sign of external demand stabilising yet,” said Charles Yuan, a China economist at CICC, the Beijing-based investment bank. “The market was expecting a temporary trade resolution at the end of March but we didn’t get that.”
Many economists, including Mr Yuan, have warned that the lunar new year gave March a seasonal boost. By landing in early February, the holiday pushed some economic activity into the third month of the year.
China’s stock market has traditionally been sensitive to signs of an economic slowdown. However, a barrage of gloomy data in January and February did not discourage investors from moving into equities. Chinese stocks have rallied during that time and climbed to their highest level in a year on Monday following the positive PMI news.
Part of the rally has been driven by margin lending, where large shareholders pledge stock for loans and often reinvest. The government is likely to crack down on the activity in the hope of bringing back healthy investment to the market, said Chi Lo, senior strategist for greater China at BNP Paribas Asset Management.
“Froth has come back to the market and that has caught Beijing’s eye because they want to keep it stable,” said Mr Lo. “A lot of investors are waiting for that correction to get back into the market.”
China Commerce Ministry (MOFCOM) spokesperson Geo Feng: VAT cuts to benefit auto consumption in general
- Ministry to take measures to increase auto consumption
German factory orders slump most in two years
Manufacturing orders fell 4.2% from the previous month amid drop in foreign demand
German manufacturing orders fell at their fastest pace in two years in February, a new warning over the sign over the health of the eurozone’s largest economy.
New factory orders fell 4.2% from the previous month as foreign orders slumped, according to provisional data from Germany’s statistics office released on Thursday. The drop was the biggest fall since January 2017, according to Factset. Analysts polled by Reuters had expected a small month-on-month rise.
Domestic orders decreased by 1.6 per cent and foreign orders fell by 6 per cent on the previous month.
February’s new orders were 8.4 per cent lower than the previous year, illustrating the German economy’s slowdown over the past 12 months. The country narrowly swerved recession in the second half of last year, and grew by 1.5 per cent in 2018, the weakest rate since 2013.
The data offer new insight into the country’s manufacturing slowdown, and confirm closely watched industry surveys which have painted a bleak picture of the country’s factory sector. Flash purchasing managers’ index data spooked global markets in March after showing the manufacturing industry shrunk at the quickest rate in more than six and a half years.
“Devastating new orders data just undermined any hopes for an industrial rebound. Instead, the order book deflation just reached a new standard,” said Carsten Brzeski, chief German economist at ING.
The European Central Bank has slashed its economic forecasts for the eurozone, and expects the currency area to grow at only 1.1 per cent this year. Concerns over the lower outlook led the bank to restart a crisis-era bank lending programme and to commit to keeping rates at record lows until next year at its most recent meeting.
Nearly half of GAM’s board to step down
Three members of troubled fund manager’s seven strong board will not stand for re-election
Almost half of GAM’s board of directors plan to step down at the Swiss fund manager’s annual general meeting next month.
The Zurich-based group said three members of its seven strong board, two of whom have been at the group for three years or less, would not stand for re-election at the meeting in early May.
No reasons were given for their decision. GAM is currently in the middle of a turnround effort following a tumultuous year in which it was rocked by a whistleblowing scandal and the sacking of a star bond trader.
Those standing down are Ezra Field, Monica Mächler and Diego du Monceau.
Mr Field joined GAM’s board in 2016. He is also co-chief investment officer and senior managing director at Roark Capital Group, a private equity firm based in Atlanta.
Ms Mächler joined GAM’s board a year ago. She is also a member of the boards of directors at Zurich Insurance Group and Zurich Insurance Company as well as Cembra Money Bank, a Swiss financial group.
Mr du Monceau has been a member of the board since 2010.
GAM’s three proposed replacements are women who, if elected, would mean more than half of GAM’s new board would be female.
They have put forward Katia Coudray, former chief executive of Syz Asset Management and a Swiss citizen, and Jacqui Irvine, formerly group general counsel and company secretary at Janus Henderson, roles she occupied until last year. Ms Irvine is British. They have also put forward Monika Machon, formerly a senior vice-president and treasurer at AIG and a German and UK citizen.
Chairman Hugh Scott-Barrett, “I would like to thank Diego for his strong support and commitment over the last nine years as well as Ezra and Monica for their active involvement and personal contributions as board members, particularly in the last 12 months.”
Saga warns insurance business overhaul to knock profits lower
Over 50s insurance and holiday group also slashes dividend amid ‘increasing challenges’
Insurance and holiday specialist Saga said profits in the coming financial year would drop and cut its dividend as it pivoted to a new insurance strategy in a bid to return to growth.
The group, which focuses on the over 50s market, said “increasing challenges” from the commoditisation of its markets meant it needed to fundamentally change its model. In insurance it said it was “moving the conversation from price to value” and launched a new three-year fixed price offering, which it said would knock margins.
Broking gross margins will fall from £80 to between £71-£74 per policy. As a result, underlying pre-tax profit in the year to January 2020 would be between £105m and £120m, down from £180.3m, Saga said.
It also proposed a final dividend per share of 1p for the 2018-2019 financial year and a full year dividend of 4p, down from 6p and 9p the previous year.
“As a result of lower margins in insurance, a change in approach to renewal pricing, lower reserve releases and investment in new products, underlying profit before tax for the 2019/20 financial year is expected to be between £105m-120m,” said Lance Batchelor, Saga chief executive said.
“Therefore, we have taken the difficult decision to reduce our final dividend and write down goodwill. The fundamental changes we are making are essential to address the long-term challenges facing our business. They will support future growth in customers and profits, and generate attractive cash flows for Saga.”
For the year to January 2018, underlying pre-tax profit, stripping out a goodwill impairment, was down 5 per cent at £180.3m. Saga said this reflected “strong reserve releases” and a “disappointing” retail broking performance, where profits contracted 19 per cent to £105.8m.
On a statutory basis, including the £310m impairment charge, Saga reported an overall pre-tax loss of £134.6m, down from a profit of £180.9m previously. Total revenue was down 2 per cent at £841.5m.