Closing Market Summary: Wall Street Mounts Late Inning RallyThursday's stock market featured another tale of two sessions. The bulk of the trading day was marred by an inclination to sell into strength, which fed into worries that this market had more downside to come. The last part of the trading day, however, featured a huge rally from session lows that eviscerated the downbeat sentiment seen in the first part of the day.
The S&P 500, down as much as 2.8% at its low for the day, ended the session up 0.9% with all of its gains recorded within the last two hours of trading.
The Dow Jones Industrial Average (+1.1%), the Nasdaq Composite (+0.4%), and the Russell 2000 (+0.2%) also surged late in the day after being down as much as 2.7%, 3.3%, and 3.0%, respectively.
For most of the session, investor sentiment was hurt by the absence of any sector leadership, lingering growth concerns, the underperformance of cyclical groups, and the flight-to-safety to bonds. Furthermore, there was an acute sense of disappointment that there was no follow through on Wednesday's historic rally.
Every sector was down and every major index was down.
There wasn't much news really to account for the negative disposition, although growth concerns were a factor following the release of a weaker than expected Consumer Confidence report for December, an ECB economic bulletin that pointed to slower global growth in 2019, and the first decline in China's industrial profits (-1.8% yr/yr in November) in three years.
While those items made news, the disappointing price action was the main piece of news and the primary catalyst for the losses seen earlier in the day.
Everything turned on a dime, however, around 2:15 p.m. ET. That's when the S&P 500 briefly dipped below 2400 and when buyers showed up again in droves.
Everything lifted at that point -- and quickly. Just as before, the price action became the news, as the rebound seemingly came out of nowhere and lacked a headline driver.
The reversal in fortune was spurred in part by short-covering activity, although pension fund rebalancing activity garnered a good bit of attribution for the late-day spike that saw all 11 sectors end higher.
The materials (+1.8%), industrials (+1.2%), financials (+1.1%), and health care (+1.1%) groups led the broad market advance.
U.S. Treasuries closed on a higher note, pushing yields lower, before stocks mounted their late-inning rally. The 2-yr yield declined seven basis points to 2.53%, and the 10-yr yield declined five basis points to 2.74%. The U.S. Dollar Index lost 0.5% to 96.52.
Reviewing Thursday's economic data, which included the weekly Initial and Continuing Claims report, the Conference Board's Consumer Confidence Index for December, and the FHFA Housing Price Index for October:
- Initial claims for the week ending December 22 decreased by 1,000 to 216,000 (consensus 225,000) while continuing claims for the week ending December 15 decreased by 4,000 to 1.701 million.
- The key takeaway from the report is that initial claims continue to print at low levels that don't suggest any meaningful softening has occurred in the labor market despite the concerns about a slower growth outlook.
- The Conference Board's Consumer Confidence Index decreased to 128.1 in December consensus 133.7) from a revised 136.4 (from 135.7) in November.
- The key takeaway from the report is that consecutive declines in the Expectations Index point to a growing belief that the pace of economic growth will decelerate in the first half of 2019.
- The FHFA Housing Price Index increased 0.3%, up from an unrevised September increase of 0.2%.
Looking ahead, investors will receive Pending Home Sales for November on Friday.
- Nasdaq Composite -4.7% YTD
- Dow Jones Industrial Average -6.4% YTD
- S&P 500 -6.9% YTD
- Russell 2000 -13.3% YTD
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China’s middle class hit by shadow banking defaults
Scale of problem underestimated as investors keep losses under wraps
Shanghai office worker Jin Linglan had just put a downpayment on a car when she realised her savings were gone. Like many prosperous Chinese, Ms Jin invested in financial products that promised a high rate of return. And, like many of her fellow investors, she has made the painful discovery that her money has been swallowed up by the recurring defaults in China’s shadow banking market.
The losses absorbed by middle class families in a nation famous for its diligent savers have taken a quiet financial and emotional toll.
Many of the failures have been peer-to-peer lending platforms. Outstanding peer-to-peer loans in China topped Rmb1.2tn ($174bn) in the first quarter this year, before sliding to about Rmb800bn as hundreds of peer-to-peer platforms shut, according to a report on the sector by Moody’s.
It all means that Ms Jin will not be able to buy that car. An online consumer lending company that went bust in July took with it about $90,000 of her money. “It was everything I had saved since college,” she said. “I told my dad about this but we decided not to tell my mum. We were afraid she could not accept it.”
Investors interviewed by the Financial Times revealed tales of damage to personal relationships as well as pocketbooks. One retiree of modest means lost about Rmb200,000 she had hoped to give her daughter and British son-in-law to renovate their new home abroad.
Another woman made a decision not to be angry at her husband, after he lost the equivalent of two of her past seven years’ salary.
A senior manager at the Beijing office of a large US tech company did not want his boss to know he spent his vacation days protesting outside government offices.
It is difficult to put exact figures on the size China’s shadow banking sector, which attracts individual and corporate savings with interest rates above the savings deposit rate and lends the money on at even higher rates. Shadow banking institutions involve not just peer-to-peer platforms, but trust companies selling wealth management products, online fintech companies, pawnshops and a large variety of informal money lenders. What is certain is that the sector has seen a lot of growth.
About 169m Chinese, or about 12 per cent of the population, have invested in wealth management products online, a rise of 66 per cent from two years ago, according to a Moody’s report published this month. Essentially, they are putting money into the shadow banking system.
Other statistics cited by Moody’s also indicate that money under management by peer-to-peer platforms has doubled in the past two to three years. The sharp rise in online investing reflects “a desire to generate returns above cash-deposit rates”, it said.
Individuals and companies with savings — including state-owned enterprises and some foreign invested businesses — lend into the non-bank financing market. On the borrowing side are small businesses that are poorly served by the formal banks, individuals without credit cards and larger enterprises that have exhausted their ability to borrow from state-owned banks.
Not all borrowers are small. Finance-to-aviation conglomerate HNA raised billions through peer-to-peer platforms and other non-bank funding channels, a Financial Times analysis showed. In August, amid a rise in peer-to-peer shutdowns, it failed to make payments to a swath of individual investors, including some of its own employees.
The Chinese government was first alerted to the risks posed by shadow banking during a spate of failures in 2015, following a series of noisy protests and even citizen arrests by middle class investors. In April 2017, Chinese president Xi Jinping declared that “financial security is an important part of national security”. The government became more wary about protests after that. Police even locked down Beijing’s financial district in August after the rise in peer-to-peer shutdowns in July.
Most of China’s more comfortable middle class citizens would rather swallow their losses than risk arrest. Instead of protests, the reckoning this year has taken the form of belt-tightening and painful family conversations.
He Weitao, a 25-year-old employee at a respected high-tech company in Shenzhen, discovered his parents were surprisingly understanding when he confessed that he had lost one-third of his annual salary after he invested it in an online lending company to get better returns. He was still young, they said, and could earn the money again.
“At first I was very passionate about chasing down my money but there has been no progress for months,” said Mr He. “What can I do? I have to focus on my life, work hard and not let it get to me too much.”
AT&T: director’s cut
Best and worst deals of 2018: telecoms group eludes reinvention
A bad film often dooms a director’s next project. Luckily for Randall Stephenson, the AT&T boardroom is a more forgiving place than Hollywood. Mr Stephenson orchestrated the audacious $86bn purchase of Time Warner that finally closed in 2018, two years after it was announced.
The legacy telecoms group is now supposed to be an integrated powerhouse of entertainment and content delivery. And yet its shares have fallen 28 per cent in the last year. A lasting verdict on the Time Warner bet is years away. But the skittishness among its shareholders can be traced to its 2015 $49bn purchase of satellite TV group, DirecTV.
At a recent shareholder gathering, Mr Stephenson tried to play down the heft of the DirecTV segment, pointing out that it accounted for only 15 per cent of the company’s profits. One reason its profits are a fraction of group results is that the business has declined steeply in 2018, with more than 1m customers cancelling subscriptions.
The irony is that AT&T’s core mobile phone unit is prospering after years of disappointment. But the loss of TV customers has soured sentiment on the stock now trading at less than 8 times 2019 estimated earnings. Its dividend yield has risen to 7 per cent.
Unease surrounds the dividend. AT&T’s debt total has jumped to $185bn, higher if leases and pensions are included. The group says it will earn $26bn in free cash flow next year. About $14bn will go to the dividend with the rest paying down debt.
With highly leveraged companies, just a modest uptick in performance can lead shares to snap back hard. But for now AT&T resembles a lumbering titan extremely vulnerable to an economic slowdown. The mountain of debt ensures that Mr Stephenson does not have the wherewithal for a third deal to create a trilogy.
>>> InstaDose Pharma says ready to hit the market with 2 million liters of CBD
InstaDose Pharma says ready to hit the market with 2 million liters of CBD oil in 2019; brings down CBD Oil costs by 96.34%
InstaDose Pharma has over 200,000 farmers harvesting cannabis out of the Democratic Republic of the Congo on over 100,000 hectares of land. The main production facility is GMP certified and pharmaceutically accredited with EU Pharmacopeia standards.
“The cannabis companies of Canada need to understand that just because you are the biggest goldfish in the pond doesn’t mean you shouldn’t be concerned about the whales in the ocean. Everything in the Canadian cannabis industry is based off the cost being $2800 per litre for CBD oil. While international forces outside the Canadian bubble are able to produce 99.7% purity level at $102.50 USD per litre.” said Grant F Sanders, CEO, Instadose Pharma Corp., “We’ve kept our operations in the shadows due to concerns about the reaction of this news with licensed producers and the public investment sector. But now that our first crops are about to hit the markets in a few months, I think it’s about time the fish learned about the whale.”
To date, Grant has spent over $76 Million USD on building the current operation and is already in motion to expand production land to 250,000 hectares after the first 90,000 liters hit the Canadian market. IDP is currently in discussions with major pharmaceutical companies to assist with the release of the first batch imported into Canada.
Currently, the largest licensed producer of cannabis in Canada, Canopy, has approximately 40 hectares of production land. At 400 hectares, IDP has 10 times that amount of that in Colombia alone. According to Grant Sanders, Colombia was just not enough for them to be able to expand to their maximum potential. “We quickly realized that growing there was not the smartest option and the production capacity and price that we could achieve in the DRC was 99% more beneficial, to both us and the end user,” said Sanders. “What’s about to happen to the market isn’t a result of what we’re doing, it’s the result of what they’re not. You can’t blame Usain Bolt for being the fastest runner in the world just because you’re too slow”.
InstaDose Pharma says ready to hit the market with 2 million liters of CBD oil in 2019; brings down CBD Oil costs by 96.34%
InstaDose Pharma has over 200,000 farmers harvesting cannabis out of the Democratic Republic of the Congo on over 100,000 hectares of land. The main production facility is GMP certified and pharmaceutically accredited with EU Pharmacopeia standards.
“The cannabis companies of Canada need to understand that just because you are the biggest goldfish in the pond doesn’t mean you shouldn’t be concerned about the whales in the ocean. Everything in the Canadian cannabis industry is based off the cost being $2800 per litre for CBD oil. While international forces outside the Canadian bubble are able to produce 99.7% purity level at $102.50 USD per litre.” said Grant F Sanders, CEO, Instadose Pharma Corp., “We’ve kept our operations in the shadows due to concerns about the reaction of this news with licensed producers and the public investment sector. But now that our first crops are about to hit the markets in a few months, I think it’s about time the fish learned about the whale.”
To date, Grant has spent over $76 Million USD on building the current operation and is already in motion to expand production land to 250,000 hectares after the first 90,000 liters hit the Canadian market. IDP is currently in discussions with major pharmaceutical companies to assist with the release of the first batch imported into Canada.
Currently, the largest licensed producer of cannabis in Canada, Canopy, has approximately 40 hectares of production land. At 400 hectares, IDP has 10 times that amount of that in Colombia alone. According to Grant Sanders, Colombia was just not enough for them to be able to expand to their maximum potential. “We quickly realized that growing there was not the smartest option and the production capacity and price that we could achieve in the DRC was 99% more beneficial, to both us and the end user,” said Sanders. “What’s about to happen to the market isn’t a result of what we’re doing, it’s the result of what they’re not. You can’t blame Usain Bolt for being the fastest runner in the world just because you’re too slow”.
Faroe Petroleum : Response to DNO's announcement and intention to publish an Independent Expert's asset valuation
Notes the announcement made today by DNO ASA ("DNO") in relation to its unsolicited offer for the entire issued and to be issued share capital of Faroe not already owned by DNO at 152p per share in cash (the "Offer").
The Board believes that there is nothing substantially new in DNO's announcement and notes that DNO continues to seek to justify its Offer based on a premium referenced to Faroe's share price on 3 April 2018, which fails to recognise the significant achievements Faroe has delivered since then, including the Iris/Hades and Agar discoveries, and the recently announced Equinor asset swap. The reality is that the DNO Offer represents a premium of only:
• 1% to the undisturbed three month volume weighted average share price (VWAP)¹
• 21% to the closing share price prior to the Offer announcement - about half the average premium paid on all UK takeovers over the last 10 years²
The Board notes DNO's statement that if DNO does not receive sufficient acceptances by 1 pm London time on 2 January 2019 for its Offer to be unconditional, DNO has the choice either to lapse the Offer or to extend it. This choice is DNO's alone, as was the timing for the announcement of its unsolicited Offer.
For the sake of clarity, the Board makes the following observations in relation to the Offer timetable, as established by the UK Takeover Code (the "Code"):
· DNO has until 10 February 2019 to achieve sufficient acceptances for its offer to become unconditional
· The Board of Faroe has until 20 January 2019 to announce material new information in relation to the Offer
· DNO has until 27 January 2019 to improve or otherwise change its Offer, should it wish to do so
· If the Offer at any time becomes or is declared unconditional, DNO must keep it open for acceptance for at least another 14 days
The Board of Faroe has engaged Gaffney, Cline & Associates ("GCA") to prepare an independent valuation of Faroe's assets in accordance with Rule 29 of the Code. For Code purposes, GCA's independent valuation report needs be a "current" valuation of the assets and therefore must reflect the latest available information on Faroe's assets as at the report date which will therefore include the latest Brasse East drilling results subject to completion of drilling operations. As noted above, under the Code timetable Faroe has until 20 January 2019 to announce material new information in relation to the Offer and the Board intends to publish GCA's independent valuation report ahead of this date.
The Board notes DNO's focus on recent uncertain oil and equities markets as a reason to justify its Offer. Faroe remains fully funded to pursue its near to medium term production growth target of 35,000boepd and its largest ever drilling campaign, while the additional financial flexibility created by the recent Equinor asset swap - adding £96 million³ of incremental cash flow in the next two years - would allow Faroe to exploit suitable opportunities that might arise from any short term weakness in the oil price.
The Board reaffirms its previous statements that the Offer is opportunistic and substantially undervalues Faroe, and encourages all shareholders to take no action.
The Board believes that there is nothing substantially new in DNO's announcement and notes that DNO continues to seek to justify its Offer based on a premium referenced to Faroe's share price on 3 April 2018, which fails to recognise the significant achievements Faroe has delivered since then, including the Iris/Hades and Agar discoveries, and the recently announced Equinor asset swap. The reality is that the DNO Offer represents a premium of only:
• 1% to the undisturbed three month volume weighted average share price (VWAP)¹
• 21% to the closing share price prior to the Offer announcement - about half the average premium paid on all UK takeovers over the last 10 years²
The Board notes DNO's statement that if DNO does not receive sufficient acceptances by 1 pm London time on 2 January 2019 for its Offer to be unconditional, DNO has the choice either to lapse the Offer or to extend it. This choice is DNO's alone, as was the timing for the announcement of its unsolicited Offer.
For the sake of clarity, the Board makes the following observations in relation to the Offer timetable, as established by the UK Takeover Code (the "Code"):
· DNO has until 10 February 2019 to achieve sufficient acceptances for its offer to become unconditional
· The Board of Faroe has until 20 January 2019 to announce material new information in relation to the Offer
· DNO has until 27 January 2019 to improve or otherwise change its Offer, should it wish to do so
· If the Offer at any time becomes or is declared unconditional, DNO must keep it open for acceptance for at least another 14 days
The Board of Faroe has engaged Gaffney, Cline & Associates ("GCA") to prepare an independent valuation of Faroe's assets in accordance with Rule 29 of the Code. For Code purposes, GCA's independent valuation report needs be a "current" valuation of the assets and therefore must reflect the latest available information on Faroe's assets as at the report date which will therefore include the latest Brasse East drilling results subject to completion of drilling operations. As noted above, under the Code timetable Faroe has until 20 January 2019 to announce material new information in relation to the Offer and the Board intends to publish GCA's independent valuation report ahead of this date.
The Board notes DNO's focus on recent uncertain oil and equities markets as a reason to justify its Offer. Faroe remains fully funded to pursue its near to medium term production growth target of 35,000boepd and its largest ever drilling campaign, while the additional financial flexibility created by the recent Equinor asset swap - adding £96 million³ of incremental cash flow in the next two years - would allow Faroe to exploit suitable opportunities that might arise from any short term weakness in the oil price.
The Board reaffirms its previous statements that the Offer is opportunistic and substantially undervalues Faroe, and encourages all shareholders to take no action.