>>> Asian Update

Asia Market Update: China NDRC expects macroeconomic policies to be more flexible in H2, pledges targeted support to trade war impacted cos; Rio Tinto guides upwards


General Trend:
- Asian equity markets trade mostly lower after mixed US session, Nikkei outperforms after being closed on Monday
- Netflix declines over 14% in afterhours trading, Q2 subscriber adds and Q3 guidance below ests
- Shanghai Composite trades lower for 3rd straight session
- Rio Tinto Q2 iron ore production rises y/y, targets FY production at upper end of prior range
- Japanese automakers higher on a weaker yen
- Tokyo Steel leaves prices unchanged for the 6th straight month
- RBA plays down impact of higher funding costs on banks, noted higher downside risks to global growth (minutes)
- A$ falls to session lows 0.7402 after RBA meeting minutes
- NZ Q2 CPI remains below the mid-point of the RBNZ’s targeted range (1-3%)
- Kiwi (NZD) later rises on acceleration in the RBNZ’s own inflation measure; NZ bond yields rise
- China new home prices accelerate in June
- Analysts begin to update China GDP forecasts amid trade concerns
- Fed’s Powell to hold first day of Congressional testimony (July 17th-18th)
- BHP due to report its Q4 production update tomorrow (July 18th)
- US companies expected to report earnings on Tuesday include: CSX. JNJ, UnitedHealth, UAL, Goldman Sachs

***Headlines/Economic Data***
Japan
-Nikkei 225 opened flat
- TOPIX Securities index +2.1%, Marine Transportation +2%, Retail Trade +1.5%, Iron & Steel +1.5%, Real Estate +1.3%, Info & Communications +1%
- Automakers and megabanks trade generally higher
- Line, 3938.JP Cryptocurrency exchange BitBox starts operation
- (JP) Japan Fin Min Aso: High chance of US and China trade tensions impacting others

Korea
-Kospi opened flat
- (KR) South Korea govt considering increased cash subsidies for smaller businesses in order to help ease the burden of higher payroll costs following 11% minimum wage increase for 2019 - Korean press
- (US) President Trump: Relationship with North Korea is "very good"

China/Hong Kong
-Hang Seng opened -0.3%, Shanghai Composite -0.3%
- Hang Seng Consumer Goods index -1.5%,Energy -1.5%, Info Tech -1.4%, Services -1.3%, Financials -0.8%, Property/Construction -0.6%
- (CN) China yuan currency is unlikely to further fall 'significantly' - China Securities Journal
- (CN) China outbound foreign direct investment (OFDI) has shifted towards Europe from North America in H1 – Xinhua
- (CN) China PBoC Open Market Operation (OMO): Injects CNY100B in 7-day and 14-day reverse repos v CNY300B prior; Net: CNY90B injects v CNY300B injection prior
- (CN) China PBoC set yuan reference rate at 6.6821 v 6.6758 prior (weakest setting since Aug 2017)
- (CN) China Jun New Home Prices m/m: +1.0% v 0.8% prior; y/y: 5.0% v 4.7% prior
-(CN) China Q2 Industrial Capacity Utilization q/q: 76.8% v 76.5% prior
-(CN) UBS sees China 2018 GDP growth forecast at 6.5% v 6.6% prior, revises 2019 GDP growth forecast to 6.2% v 6.4% prior – US financial press
-(CN) China NDRC: Expects prices and economy to remain stable in H2; In H1 approved 102 fixed asset investment projects worth CNY260.3B

Australia/New Zealand
-ASX 200 opened -0.1%
- ASX 200 Energy index -2.2%, Resources -1.4%, Utilities -1.4%, Consumer Discretionary -0.7%, Telecom -0.5%; Financials flat
- RIO.AU Reports Q2 Pilbara Iron ore production 85.5Mt v 79.8Mt y/y; Shipments 88.5Mt v 88.4Me v 77.7Mt y/y; Guides FY18 Pilbara iron ore shipments higher end of prior 330-340Mt
- (NZ) New Zealand Jun Performance Service Index: 52.8 v 57.3 prior
- (NZ) NEW ZEALAND Q2 CPI Q/Q: 0.4% V 0.5%E; Y/Y: 1.5% V 1.6%E
-(NZ) New Zealand RBNZ Q2 Sectoral Factor Model Inflation y/y: 1.7% v 1.6% prior
- (AU) RESERVE BANK OF AUSTRALIA (RBA) JULY MEETING MINUTES: REITERATES NO STRONG CASE FOR NEAR-TERM ADJUSTMENT IN MONETARY POLICY, NEXT MOVE LIKELY TO BE UP RATHER THAN DOWN

Other Asia
- (SG) Singapore Jun Non-Oil Domestic Exports M/M: -10.8% v -8.7%e; Y/Y: +1.1% v +7.8%e; Electronic Exports Y/Y: -7.9% v -7.8% prior

North America
- NFLX Reports Q2 $0.85 v $0.79e, Rev $3.91B v $3.94Be; Guides Q3 $0.68 v $0.71e, total Rev $3.99B v $4.14Be, total streaming Rev $3.90B, domestic streaming Rev $1.93B, international streaming Rev $1.97B; net operating margin 10.5% (-14% afterhours)
- ACET Subsidiary Acetris Health receives favorable ruling regarding certain government contracts (+12% afterhours)
-AMZN Reports 1st 3-hrs of Prime Day sales +54% y/y even with tech issues

Europe
- (UK) PM May wins Brexit amendment vote in House of Commons; vote 305 to 302; passes VAT amendment proposed by Brexiteer Conservatives and supported by PM May; vote was 303 to 300
- (RU) Russia President Putin: Told Trump that Russia is ready to extend the start of nuclear treaty but we have to agree on specifics - Fox News

***Levels as of 01:30ET***
- Hang Seng -1.1%; Shanghai Composite -1.0%; Kospi 0.0%; Nikkei225 +0.8%; ASX 200 -0.6%
- Equity Futures: S&P500 +0.0%; Nasdaq100 -0.1%, Dax 0.0%; FTSE100 0.0%
- EUR 1.1613-1.1726; JPY 112.23-112.57; AUD 0.7402-0.7438;NZD 0.6757-0.6841
- Aug Gold +0.1% at $1,241/oz; Sept Crude Oil 0.0% at $67.08/brl; Sept Copper +1.0% at $2.79/lb

>>> Netflix beats by $0.06, reports rev and subscribers below gui

Netflix beats by $0.06, reports rev and subscribers below guidance; guides Q3 EPS, rev and subs below consensus (400.48   +4.68)

  • Reports Q2 (Jun) earnings of $0.85 per share, $0.06 better than the Capital IQ Consensus of $0.79; revenues rose 40.3% year/year to $3.91 bln vs the $3.94 bln Capital IQ Consensus. 
  • "This Q2, we over-forecasted global net additions which amounted to 5.2m vs. a forecast of 6.2m and flat compared to Q2 a year ago, as acquisition growth was slightly lower than we projected. Paid net adds totaled 5.5m in Q2, compared with 4.7m last year and forecast of 6.1m. US net adds of 0.7m (vs. guidance of 1.2m) were down vs. last year's Q2-record 1.1m, but consistent with previous Q2 performance (0.5m in Q2'12, 0.6m in Q2'13, 0.6m in Q2'14, 0.9m in Q2'15, and 0.2m in Q2'16). Through the first six months of the year, our US net adds are slightly ahead of last year."
  • Internationally, 4.5m net additions grew 8% year over year on broad market growth, below 5m guidance. 
  • Operating margin of 11.8% (vs. 12% guidance) expanded 720 bps year over year, resulting in 262% growth in operating income
  • Co issues downside guidance for Q3, sees EPS of $0.68 vs. $0.71 Capital IQ Consensus; sees Q3 revs of $3.988 bln vs. $4.12 bln Capital IQ Consensus Estimate. 
  • For Q3, we forecast global net adds of 5.0m vs. ~5.6M estimates (compared with 5.3m in Q3'17), with 0.65m and 4.35m in the US and international segment, respectively. Paid net adds are forecast to be 5.2m, up from 5.0m in Q3'17.
  • "For the full year 2018, current F/X rates have pushed our expectations on operating margin to be near the lower end of 10-11% target range. We continue to expect steady growth in operating margin in 2019 and beyond... We continue to anticipate FCF of -$3 to -$4 billion for the full year 2018, which implies that our content cash spending will be weighted to the second half of 2018"

>>> Virgin Money Buyer CyBG May need to improve offer after BOE

Virgin Money buyer CYBG may need to improve offer after Virgin’s core capital ratio upgraded by Bank of England - analytical report


CYBG [LON:CYBG], a UK-based bank, may need to improve its GBP 1.7bn (EUR 1.92bn) agreed takeover bid for UK-based rival Virgin Money Holdings [LON:VM], according to analysts cited by a Sunday Telegraph report. The newspaper cited Keefe, Bruyett & Woods analysts who thought that shareholders might put pressure on CYBG to improve its all-share offer after the Bank of England upgraded Virgin Money’s core capital ratio by over 250 basis points to about 16% this month.

The upgrade followed a new assessment of the robustness of Virgin Money’s mortgages, the item said. The analysts said the upgrade means that CYBG may need to improve its offer and the upgrade improved the prospects of the acquisition for CYBG.

One of Virgin Money’s ten biggest shareholders said they agreed with the reasoning behind the suggestion that CYBG should improve its offer, the report continued. However, the shareholder added that the update’s timing was “unfortunate,” coming as it did after Virgin Money and CYBG had agreed a deal.

The shareholder added that the strategic merits of the proposed takeover are strong enough to warrant the deal proceeding anyway. The shareholder added that the deal will depend on Virgin Money’s biggest shareholder Virgin Group, which holds a stake of about 33%. Virgin Group has already agreed to the takeover and to the enlarged group using Virgin’s brand, the item added.

CYBG will rebrand its retail banking operations to Virgin Money over a three-year period and will pay Virgin Group owner Richard Branson a GBP 15m per year fee for the brand, the report said.

Virgin Money Holdings’ share price closed 7.7p down at 378.8p in London on Friday, 13 July, giving the company a market capitalisation of GBP 1.68bn.