>>> Europe : Brokers Upgrades & Downgrades - 6th of November 201

>>> Up
* ADUX Upgraded to Buy at Portzamparc; PT 3.40 Euros
* Brunel Upgraded to Buy at Kepler Cheuvreux; PT 15.40 Euros
* Dufry Upgraded to Neutral at Citi
* Flybe Upgraded to Buy at HSBC; Price Target 20 Pence
* GEA Group Upgraded to Hold at Bankhaus Lampe
* Hikma Upgraded to Equal-weight at Barclays; PT 18 Pounds
* Keller Upgraded to Buy at Peel Hunt; Price Target 10.40 Pounds
* KPN Upgraded to Buy at BofAML
* NEL Upgraded to Buy at SpareBank; PT 6.50 Kroner
* Schoeller-Bleckmann Raised to Buy at Kepler Cheuvreux
* Signify Upgraded to Hold at Jefferies; Price Target 21 Euros

>>> Down
* Chr. Hansen Downgraded to Hold at Carnegie; PT 680 Kroner
* DIA Downgraded to Hold at Deutsche Bank
* EON Downgraded to Underweight at Morgan Stanley; PT 8 Euros
* Kuka Downgraded to Reduce at HSBC; PT 56 Euros
* Siemens Healthineers Cut to Hold at Jefferies; PT 38 Euros
* Sligro Cut to Hold at Kepler Cheuvreux; Price Target 42 Euros
* VW Downgraded to Sell at AlphaValue

>>> Initiation
* Nibe Rated New Buy at SEB Equities; PT 106 Kronor
* OCI Reinstated at Goldman With Buy; PT 33 Euros

>>> Call

>>> Asian Update

Asia Market Update: Asian equity markets trade mixed, Shanghai lags; Tuesday’s US midterm elections in focus, along with Wednesday’s PBoC bill sale

General Trend:
- Nikkei outperforms amid earnings from Toyota
- Toyota raises FY outlook on FX factors
- RBA comments on economic forecasts ahead of Friday’s Quarterly Statement on Monetary Policy
- Japan Sept Household spending unexpectedly declined amid earthquake
- China PBoC expected to sell yuan-denominated bills in Hong Kong on Wednesday’s session

***Headlines/Economic Data***
Japan
-Nikkei 225 opened +0.6%
- (JP) Japan Sept Household Spending y/y: -1.6% v +1.5%e (weakest since May)
- Toyota Motors, 7203.JP Reports H1 Net ¥1.24T v ¥1.07T y/y, Op ¥1.26T v ¥1.1T y/y; Rev ¥14.67T v ¥14.2T y/y; To buyback 1.44% of shares for ¥250B, Raises guidance
- 7203.JP Considering JV with Mazda on parts at Alabama plant - Japan press
- Softbank, 9984.JP Reports H1 Net ¥840.1B v ¥102.6B y/y; Op ¥1.42T v ¥874.8B y/y; Rev ¥4.65T v ¥4.41T y/y (yesterday after the close)
- (JP) Japan Finance Min Aso: Japan reduced its oil buying from Iran in order to gain exemption from the US government, to continue talks on Iran exemption
- (JP) Japan Trade Min Seko: US took into account stable energy supply and impact to Japan firms in granting waiver from Iran sanctions
- LINE, 3938.JP To suspend 8 mobile games for 1-month for repair work - Nikkei

Korea
-Kospi opened +0.4%
- (KR) South Korea Sept Current Account Balance: $10.8B v $8.4B prior; Good Balance: $13.2B v $11.2B prior
- (KR) Economist warn that the slowing South Korea economy, investment declining and employment worsening, a simultaneous fall in stock and real estate prices could see the country go through something similar to Japan’s “two lost decades” spanning the 1990s and 2000s - Korean press
- Posco, 005490.KR Chairman: Will expand sales volume of auto steel up to 120Mt/yr by the 2025 to ultimately reach revenue of over KRW100T and Op profit of KRW13T by 2030 - Korean press
- (KR) South Korea targeting to attract KRW80T in investment from domestic and foreign companies at free economic zones by 2027 - Korean press
- (KR) US Sec of State Pompeo to meet with North Korea Kim Yong Chol in New York City on Nov 8th

China/Hong Kong
-Hang Seng opened +0.5%, Shanghai Composite -0.2%
- (CN) China and Singapore complete talks to increase free trade agreement (FTA) – Caixin
- (CN) China to launch a Nasdaq style board in Shanghai and play with registration based IPOs – Caixin
- (CN) China Shanghai Stock Exchange to allow delisted state owned Nanjing Tanker Corp to re-list (1st time to allow a re-listing) – Caixin
-(CN) China PBoC Adviser Ma Jun: USD/CNY rate of '7' is NOT a key level
-(CN) China Securities Regulatory Commission (CSRC) said to have urged mutual funds to support certain companies and limit risks related to share pledge agreements - financial press
- (CN) China VP Wang Qishan: Reiterates unilateralism threatens the global economy, global economy faces biggest change since Cold War
- (CN) China PBoC Open Market Operations (OMO): Skips OMO v skipped prior; Keeps neutral position
- (CN) China PBoC sets Yuan reference rate at: 6.9075 v 6.8976 prior
- (CN) China PBOC Official Pan: Reiterates internationalization of yuan is market driven; see big potential for foreign investment in China financial markets

Australia/New Zealand
-ASX 200 opened +0.1%
- (NZ) New Zealand shadow board continues to recommend no change in the Official Cash Rate (OCR)
- SPK.NZ Pleads guilty to Commerce Commission proceedings on two operational and billing issues; Affirms FY19 guidance
- (AU) Australia ANZ Roy Morgan Weekly Consumer Confidence: 116.8 v 114.6 prior
- LNK.AU PEXA accepts Link consortium takeover offer at enterprise value of up to ~A$1.6B
- (AU) RESERVE BANK OF AUSTRALIA (RBA) LEAVES CASH TARGET RATE UNCHANGED AT 1.50% (AS EXPECTED): Reiterate low rates supporting the economy

Other Asia
- (PH) Philippines Oct CPI m/m: 0.3% v 0.8% prior; y/y: 6.7% v 6.6%e
-(PH) Philippines sells PHP15B v PHP15B indicated in 10-year Bonds; Avg Yield: 8.035% v 6.350% prior; bid to cover 1.89x (1st successful sale since May)

North America
- (US) President Trump: Think will make a deal with China President Xi
- AMZN One of the company's second headquarters’ locations said to be Long Island City (NY)and Arlington, VA - NYT
- (US) Former Fed Chair Yellen: Discontent with capitalism in US is due to inequality; US economy at full employment shows benefits

Europe
- (UK) Cabinet Ministers to tell PM May that she needs to stand firm on Ireland border issue or face Brexit deal failing - UK press
- (EU) EU reportedly to offer compromise on the Irish border - UK's Times
- (UK) Brexit Min Raab and Foreign Min Hunt said to insist on control of any Brexit backstop - UK's Sun
- (IE) Ireland PM Varadkar: Ireland is willing to examine ways in which a “backstop” to keep the Irish border open after Brexit could be reviewed so long as it does not permit Britain to unilaterally walk away from it – press
- (UK) UK citizens would support remaining in the EU if there were another vote by a 54% to 46% margin, according to a study by Survation – UK Media

***Levels as of 01:30ET***
- Hang Seng -0.2%; Shanghai Composite -0.9%; Kospi -0.4%; Nikkei225 +1.2%; ASX 200 +1.0%
- Equity Futures: S&P500 +0.1%; Nasdaq100 -0.0%, Dax +0.1%; FTSE100 +0.1%
- EUR 1.1357-1.1424; JPY 113.17-113.36 ; AUD 0.7205-0.7220; NZD 0.6645-0.6669
- Dec Gold -0.1% at $1,231/oz; Dec Crude Oil -0.2% at $62.98/brl; Dec Copper +0.3% at $2.76/lb

>>> US After Hours Summary: ELF +20%, ATUS +10%, MYL / BKNG +7% are not


After Hours Summary: ELF +20%, ATUS +10%, MYL / BKNG +7% are notably higher, while FTDR -20%, MAR / CAR -5% are lower following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: ELF +20.1%, CVGI +12.8%, ATUS +9.9%, FN +8.8%, APPS +8.6%, MTW +8% (light volume), LASR +7.5%, MYL +7.1%, BKNG +6.5%, RNG +6%, MOS +5.5%, NTR +3.3% (also increases quarterly dividend; decided to permanently close New Brunswick potash facility), CRZO +2.3%, P +2.3%

Companies trading higher in after hours in reaction to news: AVEO +8.3% (announces 'positive' top line results from the primary analysis of the TIVO-3 trial), EYPT +4.8% (EyePoint Pharmaceuticals and Ocumension Therapeutics announce exclusive license agreement for the development and commercialization of EyePoint's three-year micro insert using Durasert technology), SYMC +3.9% (extending today's move higher), AXL +3.5% (Chairman/CEO disclosed the purchase of ~88K shares worth ~$1 mln), EXPE +2.1% (following BKNG results)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: FTDR -20.3%, RYAM -15%, COHU -11.5%, TWOU -11.5%, IIN -9.9%, CDEV -9.8%, BE -6.6%, NVRO -6.3% (light volume), NBIX -5.9%, PTCT -5.8%, MAR -5.4%, INSY -4.8% (also announces that it has commenced a process to review strategic alternatives for its portfolio of opioid-related assets), CAR -4.6%, SBRA -4.2%, OAS -3.5%, ANDE -2.7% (light volume), THC -2.7%, APLE -2%

Companies trading lower in after hours in reaction to news: NEOS -10.4% (announces proposed underwritten public offering of common stock), HTZ -1.3% (following CAR results)

>>> US Close Dow +0.76% S&P +0,56% Nasdaq -0.38% Russell -0.03%

Closing Market Summary: S&P 500 Gains in Subdued Session on Monday

The S&P 500 gained 0.6% on a subdued Monday, as investors remained cautious ahead the U.S. congressional midterms elections on Tuesday. Technology stocks largely underperformed, but a strong showing from financial companies helped offset tech losses.

Meanwhile, the tech-sensitive Nasdaq Composite lost 0.4%, though finished well off its session lows, the Dow Jones Industrial Average gained 0.8%, and the Russell 2000 was unchanged.

The S&P 500 opened flat but ticked higher throughout the day, especially in the last couple hours of trading. Nevertheless, weakness from the consumer discretionary (-0.2%), information technology (-0.2%), and communication services (-0.3%) sectors kept gains in check.

Apple (AAPL 201.59, -5.89, -2.8%)resumed its post-earnings Friday decline after a report from Japan's Nikkei Asian Review corroborated fears over the company reaching peak iPhone sales. The newspaper indicated that Apple decided to cancel a production increase in its newest low-end iPhone XR; however, the Nikkei also said that demand for the older generation iPhone 8 and iPhone 8 Plus has been higher than expected.

Also, U.S. President Trump said in an interview with Axios that his administration is looking into antitrust violations by Facebook (FB 148.68, -1.67, -1.1%), Alphabet (GOOG 1040.49, -17.70, -1.7%), and Amazon (AMZN 1627.80, -37.73, -2.3%). Likewise, Facebook and Alphabet weighed on the communication sector, while Amazon dragged on the consumer discretionary sector. Of note, a WSJ report stated that Amazon has decided to split its second headquarters into two locations, as its sources stated the decision was rooted in allowing the company to recruit enough tech talent.

Conversely, leadership from the financials sector (+1.4%) helped underpin Monday's advance. Heavily-weighted Berkshire Hathaway (BRK.B 216.24, +9.67) climbed 4.7% after the conglomerate holding company nearly doubled its Q3 operating earnings to $6.88 billion from $3.44 billion in the same quarter last year. 

Other top-performing sectors on Monday were real estate (+1.7%), energy (+1.6%), utilities (+1.4%), and consumer staples (+1.2%). 

Elsewhere, U.S. energy and financial sanctions on Iran were officially reimposed at midnight, though the U.S. issued temporary waivers to eight countries on Monday. The waivers are meant to provide the countries time to seek alternatives to Iranian oil and help prevent oil prices from de-stabilizing. WTI crude fell 1.0% to $63.12/bbl.

In China, President Xi reiterated his plans to continue to open China's markets to the world in a keynote speech at the China International Import Expo in Shanghai.

Reviewing Monday's only piece of economic data, the ISM Non-Manufacturing Index for October:

  • The ISM Non-Manufacturing Index for October checked in at 60.3% (consensus 58.8%). That was down slightly from 61.6% in September, which was the highest reading for the composite index since its inception in 2008.
    • The key takeaway from the report is that business activity in the non-manufacturing sector is still strong, as the October deceleration can be interpreted at this juncture as a natural slowing following some solid acceleration since July when the index registered 55.7%.

Looking ahead, investors will receive the JOLTS - Job Openings report on Tuesday.

  • Nasdaq Composite +6.2% YTD
  • Dow Jones Industrial Average +3.0% YTD
  • S&P 500 +2.4% YTD
  • Russell 2000 +0.8% YTD

WSJ : New Funds Take Pay Cut If They Can’t Beat the Market

New Funds Take Pay Cut If They Can’t Beat the Market
Money managers are offering new fulcrum funds where pay is based on performance

A wave of stock-picking firms are stepping up their fight against cheap exchange-traded and index funds with new offerings that dial back fees if they can’t beat the market.

AllianceBernstein Holding AB -0.25% LP, Allianz Global Investors and a handful of other managers have debuted new funds in the past year featuring fees that rise with returns—and tumble to ETF levels when they fall short of their benchmarks.

While so-called fulcrum funds have been around for years, the new ones have other characteristics. For one, they start with a lower base fee that can rise and fall more sharply, depending on performance. Second, the fee structure is a central selling point of the fund itself.

The managers say the new fee structure more closely aligns their interests with those of their clients, and caters to cost-conscious investors who still crave funds that don’t track indexes. The concept, and other new tactics, also offer hope for the industry’s future; even some of the most ardent supporters of active managers have struggled to justify paying higher fees for funds that can’t beat the market.

It is hard to tell if this new flavor of fulcrum funds will succeed in winning back skeptical investors. Would-be clients say their structures are more complicated than meets the eye.


Some of the new funds, including AllianceBernstein’s offerings, reset to their starting-point fees after one year no matter how they’ve performed. And there is no high-water mark, which is a return hurdle many hedge funds must clear before they can start charging clients performance fees again after they’ve underperformed for a stretch.

These features might even tempt managers to take too many chances once they slip below their benchmarks, in a bid to chase higher returns—and higher fees.

“What are the unintended consequences?” asks David Bailin, global head of investments at Citigroup Inc.’s private bank. “Does the manager take on more risk seeking higher fees? You wouldn’t want the manager to have a different incentive than investors.”

Allianz executives said they sought to address this concern by basing their fulcrum funds’ fees on a rolling, 12-month period. Hedge funds may have a high-water mark, but they also won’t slash fees below their base cost when they underperform, they argue.

For decades, asset managers occupied one of the cushiest enclaves on Wall Street. Managing other people’s money produced thick profit margins and came with few balance-sheet risks. That world is now under siege. Trillions of dollars have left stock- and bond-picking firms in the past decade, as investors have become more drawn to less-expensive and often better-performing ETFs and index funds.

As managers came to accept that the passive-investing wave was here to say, many initially turned toward businesses under less pressure from index funds and ETFs, like emerging-market stocks or privately held debt.

The new fulcrum funds are a bid to take on passive funds on their own turf: price competition. In addition to industry leaders, former AllianceBernstein Chief Executive Peter Kraus’s recently launched management firm will also have a fulcrum-fee structure.

Financial advisers, the gatekeepers to individual investors, say they like the concept—even if they don’t know quite what to make of the new funds yet.

“Creativity is necessary now,” said Brian Johnson, chief investment officer of Viridian Advisors, a $500 million wealth-management firm. “The low-cost options aren’t going away, and the math isn’t in favor of the active managers. It is good that change is afoot, but you need to be convinced that the fee deal is meaningful enough.”

While Mr. Johnson and other wealth advisers are intrigued, they say understanding how and when fees change, and then explaining those nuances to clients, takes time.

AllianceBernstein’s AB FlexFee Large Cap Growth Advisor Fund, the largest of the firm’s six fulcrum funds, has drawn $106 million in assets since its June 2017 launch. Fred Alger Management Inc.’s Alger 25 Fund, launched in December, now manages $11.4 million. Allianz’s Structured U.S. Equity Fund, which started that same month, has $78 million.

By comparison, Fidelity’s new zero-fee stock-market index fund has lured more than $1 billion since its Aug. 2 launch.

Persuading advisers and their clients will take time, said Chris Thompson, head of the Americas client group for AllianceBernstein. Mr. Thompson said that 10 large wealth-management firms had already added at least one AllianceBernstein FlexFee fund to their platforms.

“The big impact of this will be if we can take money from passive, or money that would’ve gone there,” said Mr. Thompson. “That’s the ultimate goal here.”

That goal isn’t lost on anyone in the industry.

A number of active managers are exploring the concept, industry executives said. Even BlackRock Inc., the biggest passive manager, is studying adding a performance-fee dial to ETFs, a person familiar with the firm’s plans said.

Mr. Bailin, whose private bank serves wealthy individual investors, said fulcrum funds aren’t an antidote for what ails active managers.

A variable fee, no matter how low it goes, is no substitute for good performance.

“We pay the manager all the fees we need to, and if they outperform, I’m thrilled,” Mr. Bailin said. “If the fund underperforms, I’m not thrilled.”

WSJ : U.S. Issues Eight Waivers From Iran Oil Sanctions (China, India, Italy, Gr

U.S. Issues Eight Waivers From Iran Oil Sanctions
China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey get waivers to allow continued ‘temporary’ oil imports

WASHINGTON—The Trump administration issued waivers on Monday to eight governments, exempting them from sanctions on Iranian oil that took effect at midnight.

China, India, Italy, Greece, Japan, South Korea, Taiwan and Turkey received waivers that would allow them to continue “temporary” imports of Iranian crude without facing penalties, Secretary of State Mike Pompeo said Monday morning.

Washington imposed a ban on Iranian oil imports and sanctioned more than 700 Iranian banks, companies and individuals, officially launching the second phase of its maximum pressure campaign.

Treasury Secretary Steven Mnuchin said Monday morning that the Iranian regime “will face mounting financial isolation until they fundamentally change their destabilizing behavior.”

Asked about the reaction from European countries—particularly those not granted waivers—Mr. Pompeo cited broad support for the administration’s approach. “There are more than three” countries in Europe, the secretary said, a reference to the “E3”: France, Germany and the U.K., which didn’t receive waivers. The E3 countries have worked to preserve the Iran nuclear deal following the U.S. exit.

Mr. Mnuchin said, “There are certain transactions that they can continue to do, whether they’re humanitarian transactions or certain trade in the restricted accounts.”

Iran has said it would resist the sanctions and defied Washington’s efforts to change its behavior.

Iran’s international sales have fallen by a third in the lead-up to the second round of economywide sanctions, but top Trump administration officials say they are seeking to cut Tehran’s exports to zero in the coming months, threatening to punish anyone caught violating its crude embargo.

In addition to targeting Iran’s core revenue generation, the Treasury Department blacklisted 70 Iranian banks and other financial institutions, including their foreign and domestic subsidiaries. Treasury also targeted hundreds of companies, individuals, aircraft and boats in an effort to isolate the country from global finance and commerce.

Some of the banks have been sanctioned for transactions allegedly linked to Iran’s missile program, human rights abuses and terror finance.

Seeking to replicate the success of the sanctions imposed by the Obama administration which led to the 2015 nuclear deal, the Trump administration wants to deprive Tehran of the cash it uses to finance U.S.-designated terror groups and regional conflicts, and coerce the theocratic government into signing a comprehensive nuclear, missile and security agreement.

The Trump administration, through the threat of sanctions, also forced the global financial messaging service Swift, which eases cross-border transactions for banks, to disconnect some Iranian banks from its service. That threat against the Belgium-based service further fueled tensions with Washington’s trans-Atlantic allies, who largely opposed the U.S. decision to exit the nuclear accord.

“In keeping with our mission of supporting the resilience and integrity of the global financial system as a global and neutral service provider, SWIFT is suspending certain Iranian banks’ access to the messaging system,” Swift said in a statement. “This step, while regrettable, has been taken in the interest of the stability and integrity of the wider global financial system,” it said.

Swift is only required by U.S. law to disconnect some of the 70 Iranian banks and financial institutions blacklisted by the Treasury, those that are connected to financing of weapons of mass destruction, financing of terror groups and those connected to human-rights abuses. Besides contributing to the political and financial isolation for Tehran, Swift’s decision will also raise Iran’s trade and finance costs and make international transactions far more difficult.

Top administration officials last week threatened to punish Swift if it failed to abide by U.S. sanctions law, with the firm’s board at risk of being blacklisted by the U.S. Treasury, having their assets frozen and causing major complications for their financing.