>>> Asian Update

Asia Market Update: Japan yields rise as BOJ implements new policy; China remains mum on trade issues as US confirms considering higher tariffs

General Trend:
- Asian equity markets trade generally lower
- Shanghai Property index extends decline amid speculation regarding higher mortgage rates
- Kobe Steel declines over 8% post earnings
- Nikkei weighted Fast Retailing may report monthly sales after the close
- Singapore bank DBS declines on weaker than expected profits
- China PBoC skipped its operation market operations (OMOs) for the 10th straight session
- Japan sold 10-yr JGBs at higher yield and lower bid to cover
- Japanese companies expected to report earnings today include Mitsubishi UFJ, Nippon Steel, DoCoMo, Suzuki, Yamada Denki, Asahi Group, Kakaku.com and Ibiden.
- Bank of England (BoE) rate decision due later today

***Headlines/Economic Data***
Japan
-Nikkei 225 opened -0.3%
- TOPIX Marine Transportation index -2%, Iron & Steel -1.8%, Information & Communication -1.6%, Real Estate -1%, Retail Trade -1%, Securities -0.9%
- Japanese automakers underperform
- (JP) For FY2018, the capital spending plans of companies in Japan hit 38-year high, according to survey by the Development Bank of Japan (DBJ) - Nikkei
- (JP) Japan Investors Net Buying of Foreign Bonds: +¥526.5B v -¥201.3B prior; Foreign Buying of Japan Stocks: -¥63.4B v +¥173.6B prior
- (JP) Japan July Monetary Base at end of period: ¥503.0T v ¥499.5Te; y/y: 7.0% v 7.4% prior
- (JP) Bank of Japan (BOJ) Deputy Gov Amamiya: Reiterates prices have continued to show relative weakness
- (JP) Japan Chief Cabinet Sec Suga: Japan is closely watching US/China trade tariff situation and impact
-(JP) Japan MoF sells ¥2.2T v ¥2.2T indicated in 0.1% (prior 0.1%) 10-yr JGB; avg yield 0.126% v 0.037% prior; bid to cover 4.17x v 4.37x prior
- Looking ahead: Tomorrow Toyota Motors reports Q1 results

Korea
-Kospi opened -0.1%
- (KR) South Korea Land Ministry: Closely watching housing market, will take steps if any overheating is seen

China/Hong Kong
-Hang Seng opened -0.6%, Shanghai Composite -0.3%
- Hang Seng Services index -4.1%, Industrial Goods -3.4%, Info Tech -3.3%, Financials -2%, Property/Construction -2%
- (CN) Follow Up: conference call was held on China trade without President Trump; call addressed extending comment period to Sept 5th (from Aug 30th); confirms considering implementing 25% tariffs on $200B of Chinese goods (prior 10%); no current talks with China, remain open to talks
- (CN) China mortgage rates expected to rise in H2 according to analysts - China Securities Journal
- (CN) China said to be planning to limit steel production in more cities over the winter - China News
- (CN) China PBOC: To continue to implement the prudent monetary policy in the latter half of 2018 to ensure economic and financial stability – Xinhua
- (CN) China PBoC Open Market Operation (OMO): Skips OMO for the 10th consecutive session; Net drains CNY30B v drains CNY20B prior
- (CN) China PBoC sets yuan reference rate at 6.7942 v 6.8293 prior
- (CN) China State Planner (NDRC): Consumption data does not fully reflect services spending

Australia/New Zealand
-ASX 200 opened -0.1%
- ASX 200 Resources index -1.8%, REIT -0.6% Telecom -0.5%, Energy -0.4%, Consumer Discretionary -0.4%, Financials -0.1%
- (AU) Australia ACCC issues gas inquiry interim report: Says the east coast of Australia needs additional gas supply in order to lower prices
- (AU) Australia sells A$500M v A$500M indicated in Oct 2018 notes, avg yield 1.9438%, bid to cover 4.8x
- (AU) AUSTRALIA JUN TRADE BALANCE (A$): 1.87B V 0.9BE; Exports m/m: +3% v +4% prior; Imports m/m: -1% v +3% prior
- NetComm Wireless, [+9%], NTC.AU Said to have attracted interest from overseas buyers – Australian
- (NZ) New Zealand sells NZ$100M in 2.5% Sept 2040 inflation indexed bonds; avg yield 1.9518%; bid to cover 2.45x

North America
- US equity markets ended mixed: Dow -0.3%, S&P500 -0.1%, Nasdaq +0.5%, Russell 2000 -0.1%
- S&P500 Energy -1.4%, Industrials -1.4%; Tech +0.9%
- TSLA Reports Q2 -$3.06 v -$2.76e, Rev $4.0B v $3.79Be; CEO: have no plans to raise equity; focused on paying off debts - earnings call comments (+9.2% after hours)
- IO Reports Q2 -$1.86 v -$0.88 y/y, Rev $24.7M v $46.0M y/y (-19% afterhours)

Europe
- (DE) German Lawmakers approve payment on last bailout installment of €15B for Greece
-(UK) UK Gove said to have discussed a backstop plan related to the Single Market - FT

***Levels as of 01:30ET***
- Hang Seng -2.7%; Shanghai Composite -3.1%; Kospi -1.6%; Nikkei225 -1.2%; ASX 200 -0.4%
- Equity Futures: S&P500 -0.1%; Nasdaq100 -0.2%, Dax -0.4%; FTSE100 -0.4%
- EUR 1.1646-1.1667; JPY 111.40-112.15; AUD 0.7379-0.7411;NZD 0.6774-0.6799
- Dec Gold -0.0% at $1,227/oz; Sept Crude Oil +0.1% at $67.72/brl; Sept Copper -0.7% at $2.72/lb

>>> T-Mobile US beats by $0.06, reports revs in-line


T-Mobile US beats by $0.06, reports revs in-line (59.36   -0.64)

  • Reports Q2 (Jun) earnings of $0.92 per share, $0.06 better than the Capital IQ Consensus of $0.86; revenues rose 3.5% year/year to $10.57 bln vs the $10.65 bln Capital IQ Consensus.
  • Adjusted EBITDA rose 7% to $3.2 billion.
  • Co had 1.6 million total net additions, the 21st consecutive quarter with more than 1 million net additions. Co reports 1.0 million total branded postpaid net additions.
  • 2018 Outlook: Adjusted EBITDA is expected to be between $11.5-11.9 bln, up from prior guidance of $11.4-11.8 bln. 
  • Note: Co is in process of merging with Sprint (S).

>>> Marathon Oil misses by $0.06, misses on revs; increases 2018 pro


Marathon Oil misses by $0.06, misses on revs; increases 2018 production guidance (20.31   -0.81)

  • Reports Q2 (Jun) earnings of $0.15 per share, excluding non-recurring items, $0.06 worse than the Capital IQ Consensus of $0.21; revenues rose 33.8% year/year to $1.42 bln vs the $1.48 bln Capital IQ Consensus.
  • Total production averaged 419,000 net boed; U.S. production averaged 298,000 net boed, both up 5% (ex-Libya) compared to the prior quarter
  • Marathon Oil expects third quarter 2018 U.S. production to average 290,000 to 300,000 net barrels of oil equivalent per day (boed), which is adjusted for the sale of non-core, non-operated conventional U.S. assets that produced 4,200 net boed in the second quarter and averaged 5,000 net boed in the first half of the year (76% oil). The Company expects third quarter 2018 U.S. resource play production to average 280,000 to 290,000 net boed, consistent with planned timing of wells to sales and with sequential growth resuming in the fourth quarter. Third quarter 2018 International production is expected to average 105,000 to 115,000 net boed, lower than second quarter due to planned maintenance activity in E.G. and the U.K.
  • The Company increased its annual 2018 total Company production guidance to 400,000 to 415,000 net boed, up from 390,000 to 410,000 net boed. The Company also raised its guidance for annual resource play oil and barrel of oil equivalent (boe) growth to 28 - 32 percent, up from 25 - 30 percent previously.

>>> US After Hours Summary: DXCM +20%, TSLA / FTNT +9% are higher, whi


After Hours Summary: DXCM +20%, TSLA / FTNT +9% are higher, while RRD -14%, TRIP -12%, FEYE -4% are lower following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: DXCM +20.2% (also announces retirement of Executive Chairman Terry Gregg; appoints Kevin Sayer Chairman of the Board), ESIO +16.9%, STAA +16%, RUBI +13.3%, HABT +10%, TSLA +9.2%, FTNT +8.7%, PS +7.5%, HUBG +6.7%, NTR +5.9%, LSI +5% (ticking higher), GMED +4.6% (ticking higher), WTI +4.6%, CF +4.5%, HLF +4.2%, HIIQ +3.8%, ZNGA +3.6%, WIFI +3.4%, STMP +3%, MOD +2.9% (ticking higher), APTI +2.8%, FIT +2.5%, TDOC +2.3%, EXEL +1.6%, TMUS +1.4%, X +1.2%, CENX +1.1%,

Companies trading higher in after hours in reaction to news: QTRH +20.4% (attributed to favorable patent decision in suit vs. Apple), DNLI +6% (announces 'positive' clinical results from Phase 1 LRRK2 inhibitor program for Parkinson's disease ), HEAR +3.7% (following CNBC MadMoney mention), ETP +3.7% (Energy Transfer Equity to acquire Energy Transfer Partners in unit-for-unit simplification transaction), PANW +2.5% (following FTNT results), DWDP +1.1% / MOS +0.8% (following NTR results), ESRX +0.9% (after seeing late move lower on reports of Icahn activist CIGNA stake and plans to vote against the Express Scripts merger), CI +0.4% (after seeing late move higher on reports of a stake by activist Carl Icahn and his plans to vote against the Express Scripts merger)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: EXAS -21.4%, AXGN -20.1%, RRGB -19.3%, IO -15.3%, RRD -14.4%, LPSN -12.6%, TRIP -11.6%, PPC -7.4%, HUBS -6.7%, ARRS -5%, FEYE -3.8%, CXO -3.6%, KGC -3.6%, YUMC -3.3%, CLVS -3.2% (light volume), WYNN -3.2%, QRVO -3.1%, FMC -2.6%, PRU -2.5%, XPO -1.8% (also CFO John Hardig to step down August 15, 2018), CBL -1.6%, MRO -1%

Companies trading lower in after hours in reaction to news: ADMP -7.6% (announces proposed public offering of common stock), BCRX -4% (commences $50 mln public offering of common stock), MC -1.9% (commences public offering of 5 mln shares of Class A common stock), MLCO -1.9% (following WYNN results), ETE -1.8% (Energy Transfer Equity to acquire Energy Transfer Partners in unit-for-unit simplification transaction), FL -1.6% (initiated with Underweight at Morgan Stanley)

>>> US Close Dow-0.32% S&P -0.10% Nasdaq +0.46% Russell -0.09%


Closing Market Summary: Apple Soars On Earnings; Fed Leaves Rates Unchanged

Equities had a mixed outing on Wednesday as investors took in the latest batch of corporate earnings and digested the Fed's latest policy directive. The S&P 500 and the Dow Jones Industrial Average finished with modest losses, shedding 0.1% and 0.3%, respectively, while the tech-heavy Nasdaq Composite climbed 0.5%.

The Fed left interest rates unchanged as expected, keeping its target range at 1.75% to 2.00%, and characterized the economy as strong, signaling that the central bank is still on track to raise rates two more times this year. The next rate hike will likely come in September, with the CME FedWatch Tool placing the chances at 91.2%.

On the corporate front, Apple (AAPL 201.50, +11.21) gobbled up all the attention after releasing its fiscal Q3 results on Tuesday evening. The world's largest tech company beat earnings and revenue estimates and issued positive guidance for Q4, helping to restore faith in FAANG names after a disappointing report from Facebook (FB 171.65, -0.93) last week.

Apple shares rallied 5.9%, hitting a new record high and pushing the company's market cap to $990 billion -- within striking distance of the unprecedented $1 trillion mark. Underpinned by Apple, the information technology sector finished atop the sector standings, adding 1.0%. Only two other groups -- real estate (+0.7%) and health care (+0.1%) -- finished in the green.

The financial sector (unch) got off to a good start, rising as much as 1.1%, but tumbled back to its flat line following news that Fidelity will be offering new index funds with zero fees, creating concerns over the future profitability of competitors like BlackRock (BLK 479.45, -23.31, -4.6%) and T. Row Price (TROW 117.27, -1.81, -1.5%).

Meanwhile, the trade-sensitive industrial sector (-1.3%) slid following reports that the White House is considering upping planned tariffs on $200 billion worth of Chinese goods to 25% from 10%, and the energy sector (-1.3%) tumbled amid a drop in oil prices; WTI crude declined 1.5% to $67.68/bbl, a six-week low, after the weekly EIA inventory report showed an unexpected build of 3.8 million barrels.

In other news, Cigna (CI 182.93, +3.51) climbed 2.0% and Express Scripts (ESRX 74.44, -5.02) lost 6.3% following reports that activist investor Carl Icahn has built a sizable stake in Cigna and plans to vote against its planned purchase of Express Scripts. Also of note, Pandora Media (P 7.73, +0.99) spiked 14.7% on earnings.

Elsewhere, Treasuries sold off on Wednesday, even before the Fed's rate decision, with longer-dated issues showing relative weakness. The yield on the benchmark 10-yr Treasury note climbed four basis points to 3.00%, and the 2-yr yield ticked up one basis point to 2.68%. Yields move inversely to prices.

Reviewing Wednesday's economic data, which included the ADP Employment Change report for July, the Construction Spending report for June, the ISM Index for July, and the weekly MBA Mortgage Applications Index:

  • The ADP National Employment Report showed an increase of 219,000 in July (consensus 175,000), and the June reading was revised to 181,000 from 177,000.
    • The ADP reading is seen as a prelude to the BLS's nonfarm payrolls figure (consensus 190,000), which will be released on Friday.
  • The ISM Index for July decreased to 58.1 from an unrevised reading of 60.2 in June, while the Briefing.com consensus expected a reading of 59.4.
    • The key takeaway from the report is that manufacturing demand is strong, evidenced by the 15th straight month the New Orders Index has been 60% or higher.
  • Construction spending declined 1.1% in June (consensus +0.2%), and the May reading was revised to +1.3% from +0.4%.
    • The key takeaway from the report is that the upward revision to spending in May mitigated most of the headline disappointment for June, which implies the June downturn is not as bad as it appears at first blush.
  • The weekly MBA Mortgage Applications Index decreased 2.6% to follows last week's downtick of 0.2%.

Looking ahead, investors will receive the weekly Initial Claims report and the Factory Orders report for June on Thursday.

  • Nasdaq Composite +11.6% YTD
  • Russell 2000 +8.7% YTD
  • S&P 500 +5.2% YTD
  • Dow Jones Industrial Average +2.5% YTD

>>> Hill-Rom Holdings actively seeking M&A; 'larger transactions' possible

Hill-Rom Holdings actively seeking M&A; 'larger transactions' possible

Hill-Rom Holdings [HRC], the Chicago-based medical technology company, is looking at acquisition opportunities and could pursue more sizeable deals, according to CEO John Groetelaars.
On the 3Q18 earnings call held 27 July, he shared his initial observations as the new CEO. He said his primary objective is to enhance Hill-Rom’s global leadership position and drive topline growth via its diversified portfolio. Groetelaars said this will be supported by three strategic priorities: driving new product growth; increasing the focus on international growth, especially in emerging markets; and strategic M&A.
“We are successfully delevering the balance sheet, creating incremental capacity for larger transactions,” the CEO said. “We're actively looking for targets that support our category leadership positions through both tuck-in acquisitions and larger deals. Importantly, our M&A activities must be accretive to top line growth and provide attractive financial returns.”
In the Q&A session, Morgan Stanley’s David Lewis asked how active Hill-Rom will need to be to deliver mid-single-digit growth through external efforts.
Groetelaars said the company recently performed an internal research and development review of its projects in all three business units and it feels positive about the organic opportunities available to support category leadership.
“We are actively assessing M&A opportunities that would further enhance and support that category leadership in each of our businesses,” he said. “That pipeline is building, and we've recently increased our business development resources across each business unit by a significant amount, a multiple over what we have today.”
Later on the call, Stifel’s Rick Wise asked about the size of a potential larger acquisition. The CEO said Hill-Rom is pleased with its debt reduction efforts and expects leverage to approach 3.2x by year-end, which allows the company additional capacity to evaluate more sizeable deals.
He noted that the key consideration is to achieve or remain in number one or two position in its categories.
“We actually see a pretty rich environment of M&A opportunities that spans the scale,” Groetelaars added. “I won't be specific in terms of what size deal we would look at, but we do have increasing flexibility financially. And if the right strategic deal that fit our profile of financial returns and accretion were to come along that were across that spectrum of tuck-in to a larger scale, we feel ready to do it.”
Asked how high the company could stretch its leverage for the right deal, the CEO declined to provide an estimate, though he said it will consider reaching historic levels for the right returns and strategic fit. Groetelaars said the company can move the topline growth needle with small- to medium-sized transactions. He added that while Hill-Rom always looks at larger targets, it’s more difficult to determine their actionability and whether the right financial conditions exist to pursue sizeable deals.
Hill-Rom has three reporting segments: Patient Support Systems, Front Line Care, and Surgical Solutions.
Patient Support Systems provides specialty bed frames and surfaces and mobility solutions. Front Line Care includes respiratory care products and medical diagnostic monitoring equipment. The Surgical Solutions segment includes surgical tables, lights, and pendants used in operating rooms.
Hill-Rom announced in April the appointment of Groetelaars as CEO effective 14 May. The company said on 26 January that John Greisch, CEO at that time, had informed the board of his intention to retire during fiscal 3Q18.
The company’s last notable acquisition was the January 2017 purchase of Mortara Instrument, a Wisconsin-based provider of diagnostic cardiology and patient monitoring solutions, for USD 330m.
Jones Day was used for that deal. For the 2015 acquisition of Welch Allyn for USD 2.1bn, Hill-Rom used Goldman Sachs and Winston & Strawn.
Hill-Rom has a market capitalization of USD 6.6bn.