>>> Asian Update

sia Market Update: Equities remain lower, USD fails to make ground on US political shake up; US may implement stronger tariffs on China


***Headlines/Economic Data***
General Trend: Asian equity markets trade generally lower: Trade concerns being cited according to press reports
-Financials decline amid drop in bond yields
-Toyota to offer workers total pay increase of 3.3% amid calls for 3% wage hikes by Japan’s government
-China issues Jan-Feb Industrial Production, Lunar New Year impact unclear
- Yesterday saw the first time 10-yr JGBs failed to trade since June 2017
- President Trump fires Sec State Tillerson, replacing him with CIA director Pompeo

Japan
-Nikkei 225 opened -0.9%; closed -0.9%
- Toyota Motor, 7203.JP Planning to raise pay by 3.3% this year – Asahi
-Nikkei-weighted Fast Retailing declines over 2% on below avg volume
- (JP) Participants in the QUICK survey see USD/JPY at ¥106.39 at the end of March v ¥109.99 seen in poll taken in late Feb – Nikkei
- (JP) Japan Jan Core Machine Orders M/M: 8.2% v +5.2%e (fastest pace in 2-yrs); Y/Y: +2.9% v -0.7%e
- (JP) Bank of Japan (BOJ) Jan 22-23rd Policy Meeting Minutes: Markets have become more sensitive to BOJ policy
- (JP) Japan PM Abe: Did not order doctoring of Moritomo documents; Want Fin Min Aso to rebuild ministry of finance
-Nissan, 7201.JP Approves 2.4% wage raise, ¥3,000/month base pay raise - Japan press
- (JP) According to analysts international investors are worried about "Abexit" with $2.1B in funds flowing out of 70 Japan focused funds so far this month – Nikkei
- Honda, 7267.JP Said to tell union that it plans to raise base pay by ¥1,700/month
-(JP) BoJ Gov Kuroda: Reiterates BoJ should not discuss timing and details of stimulus exit at the moment

Korea
-Kospi opened -0.7%
- (KR) According to OECD South Korea likely to maintain 3% GDP through 2018 and 2019 - Korean press
- (KR) South Korea Feb Export Price Index M/M: +1.0% v -0.4% prior; Y/Y: -1.3% v -3.5% prior; Import Price Index M/M: +0.7% v +0.7% prior; Y/Y: +0.4% v -2.4% prior
- (KR) South Korea President Moon: Urges govt to quickly come up with measures to help small and medium-sized enterprises, as well as people and businesses in Gunsan, the region hit by the planned shutdown of the GM Korea plant
- (KR) Pres Trump: something positive will come out of Korea situation
- (KR) South Korea President Moon and North Korea leader Kim may discuss declaring an end to Korean war - Korean press

China/Hong Kong
-Hang Seng opened %, Shanghai Composite %
-Hang Seng Financials Index -1.5%, Information Technology -1.3%
- (CN) Trump admin reportedly considering imposing $60B in tariffs on Chinese goods - press (earlier reports said Trump wanted over $30B in tariffs)
- (CN) China monetary policy must serve high quality economy - China Daily
- (CN) Shanghai plans to encourage state-owned enterprises (SOEs) to list shares - Chinese Press
- (CN) China PBoC Open Market Operation (OMO): Injects CNY50B v CNY60B prior in 7 and 28-day reverse repos; Net injection CNY50B v CNY60B prior
- (CN) PBOC sets yuan reference rate at 6.3205 v 6.3218 prior
- (HK) Hong Kong Finance Sec Chan: Hong Kong will subsidize cost of bond issues up to HK$2.5M
- (CN) China Feb Fixed Assets Ex Rural YTD Y/Y: 7.9% v 7.0%e
- (CN) CHINA FEB INDUSTRIAL PRODUCTION YTD Y/Y: 7.2% V 6.2%E
- (CN) CHINA FEB RETAIL SALES YTD: 9.7% V 10.0%E
- (CN) China NBS: External and domestic demand remains solid; have the conditions to reach 6.5% GDP target
-(CN) China to announce PBOC Gov Zhou replacement Monday March 19th; front runners include Politburo member Liu He or economist Xie Fuzhan - SCMP
-Cathay Pacific, 293.HK Reports FY17 (HK$) Net loss 1.3B v loss 2.3Be; Rev 97.3B v 94Be (2nd consecutive yearly loss, 1st time in history of company)

Australia/New Zealand
-ASX 200 opened -0.1%; closed -0.6%
- ASX 200 Telecom Index -2.4%, REIT -1%, Financials -0.8%
- National Australia Bank, NAB.AU Staff were approving loans they knew that were fake in order to meet sales targets and trigger incentive payments - AFR
- (NZ) New Zealand Q4 Current Account (NZ$): -2.77B v -2.5Be; Current Account GDP Ratio YTD: -2.7% v -2.6%e
- (AU) Reserve Bank of Australia (RBA) Kent: Mortgage bond issuance has stayed at post crisis high; Accommodative monetary policies and generally low levels of inflation are contributing to easy financial conditions for issuers. No reason RBA moves have to be in 25bps increments
Looking Ahead: New Zealand Q4 GDP data due for release on Thursday

Other Asia
- (ID) Indonesia Central Bank (BI): Rupiah has been stable since last week; we have consistently maintained rupiah level
-(SG) Singapore Monetary Authority (MAS) Survey: 2018 GDP growth seen at 3.2% v 3.0% estimated in Dec

North America
- US equity markets ended lower: Dow -0.7%, S&P500 -0.6%, Nasdaq -1.0%, Russell 2000 -0.6%
- S&P500 Technology -1.2%, Financials -1.1%
- (US) Pres Trump has removed US Secretary of State Rex Tillerson; nominates current CIA Director Mike Pompeo to be new Secretary of State
- (US) Trump says he and Tillerson disagreed on the Iran deal; Pompeo agrees with him that Iran nuclear deal is terrible
- (US) Reportedly Tillerson wanted to remain in the job; Trump wanted to reshuffle his foreign relations team ahead of potential talks with North Korea – press(US) Weekly API Oil Inventories: Crude: +1.2M v +5.7M prior
- QCOM Following opposition from the US government Broadcom is expected to abandon bid - US financial press
- (US) Pennsylvania Special Election Results: Conor Lamb (D) leads by 95 votes with 109,945 vote v Rick Saccone (R) with 109,850 votes; 99% of votes counted
-(US) Weekly API Oil Inventories: Crude: +1.2M v +5.7M prior
Looking Ahead: US Feb Retail Sales to be released, along with the weekly DOE Crude Oil Inventories

Europe
-(UK) UK PM May Brexit Committee said to agree to open borders until 2021 - UK Press
-(EU) EU Commission draft proposal: banks to be required to have higher prudential backstops for new loans originating after March 14th that go bad – press
-G20 Leaders March 20th draft communique: plan to reiterate summit conclusions on trade from July 2017; To say they are working to strengthen trade contribution to their economies; Will refrain from competitive devaluations and not target exchange rates for competitive purposes; to say flexible exchange rates where feasible can serve as a shock absorber - press
Looking Ahead: OPEC monthly report due to be released

***Levels as of 01:00ET***
- Hang Seng -1.4%; Shanghai Composite -0.4%; Kospi -0.5%
- Equity Futures: S&P500 -0.2%; Nasdaq100 -0.3%, Dax 0.0%; FTSE100 -0.1%
- EUR 1.2412-1.2389; JPY 106.75-106.39; AUD 0.7878-0.7852;NZD 0.7354-0.7322
- Apr Gold +0.3% at $1,330/oz; Apr Crude Oil +0.1%at $60.77/brl; May Copper +0.9% at $3.16/lb

>>> After Hours Summary: CAL +10%, PETQ +7%, MDB +4.3% following ea


After Hours Summary: CAL +10%, PETQ +7%, MDB +4.3% following earnings/guidance, tech names extending move lower

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: RFIL +33.3% (thinly traded), CAL +10%, PETQ +7%, MDB +4.3%

Companies trading higher in after hours in reaction to news: CWH +5.2% (files amended 10-Q with restatements and files previously delayed 10-K), CDMO +3.9% (initiated with Overweight and $4 tgt at First Analysis after the close), VRX +1.3% (CEO / CFO disclosed insider buys), PDCO +1.2% (light volume -- authorizes a new $500 mln share repurchase program through March 13, 2021; this new program replaces the remaining authorization under the previous program), AMR +0.6% (Point72 Asset Management unveils 5% passive stake)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: CLNE -7.4%, HTHT -6.4%, AXAS -5.1% (light volume), GSVC -3.6%, EVRI -3.4%

Companies trading lower in after hours in reaction to news: SILC -14.1% (continued weakness weakness after customer decided to abort the new cloud infrastructure architecture), HLX -8.1% (to offer $125 mln principal amount of Convertible Senior Notes due 2023), CTT -6.7% (commenced 4.5 mln share offering of Class A common stock), RPD -3.7% (launches offering of 2 mln shares of common stock by shareholders), HMLP -2.3% (attributed to block trade pricing), ARI -2.2% (commenced offering of 13.5 mln shares of common stock), SIG -1.9% (ahead of earnings), HGV -1.7% (affiliate of HNA Tourism Group commenced secondary offering of 24.75 mln shares of common stock), ADC -1.6% (commences public offering of 3 mln shares of common stock in connection with the forward sale agreement)

A few technology / China exposed names extending lower after midday reports of potential 'steep' tariffs / investment restrictions (ETFs SOXX -0.9% XLK -0.4%): MU -1.4% (also Director filed amended Form 4 for the sale of 50K shares -- had erroneously filed as purchase), CY -1.1%, INTC -1%, LRCX -0.8%, AMAT -0.6%, ADI -0.5%, SWKS -0.5%

>>> US Close Dow -0.66% S&P -0.64% Nasdaq -0.97%Russell -0.56%


Closing Market Summary: Technology and Financials Lead Tuesday Tumble

U.S. equities got off to a good start on Tuesday, but began declining soon thereafter, finishing the session on a broadly lower note. The S&P 500 and the Dow Jones Industrial Average ended with losses of 0.6% and 0.7%, respectively, while the Nasdaq Composite, which hit new all-time highs in the two prior sessions, dropped 1.0%.

The top-weighted technology and financials sectors, which comprise around 40% of the broader market combined, led Tuesday's tumble, dropping 1.2% and 1.1%, respectively. Cyclical sectors underperformed in general, while some countercyclical groups, like health care (+0.2%) and utilities (+0.2%), actually finished in the green.

Qualcomm (QCOM 59.70, -3.11) was the worst-performing component in the S&P 500 with a loss of 5.0%. The semiconductor giant sold off after President Trump blocked Broadcom's (AVGO 261.22, -1.62) takeover effort, citing risks to national security. Dow component General Electric (GE 14.43, -0.67) also had a disappointing performance, dropping 4.4%, after JP Morgan slashed its price target from $14 to $11, which is the lowest price forecast among the 16 research firms that cover GE.

The major averages were either at, or below, their flat lines by midday, but selling accelerated in the afternoon following a Politico headline that the White House could announce "steep" tariffs and investment restrictions on China as soon as next week. The threat of such action against China has been present for some time, so the headline wasn't unexpected per se. However, it did serve as a sobering reminder that the trade war issue is still simmering and could soon hit a boiling point if China decides to retaliate.

Separately, President Trump ousted Secretary of State Rex Tillerson on Tuesday and nominated CIA Director Mike Pompeo to replace him.

Investors received some key inflation data on Tuesday, the Consumer Price Index for February, and breathed a sigh of relief after it showed that consumer inflation is not accelerating in a worrisome fashion. The CPI increased 0.2% last month, as expected, after rising 0.5% in January. Meanwhile, the core CPI, which is seen as a better long-term gauge of inflation as it excludes the volatile categories of food and energy, also met expectations with a 0.2% month-over-month increase, down from 0.3% in January.

With those monthly changes, total CPI was up 2.2% year over year, which is more than the 2.1% reading registered in January, and core CPI was up 1.8%, unchanged from the 12 months ending January. The Fed aims for a year-over-year increase of 2.0% in core inflation, but prefers to use the PCE Price Index over the CPI.

In the bond market, U.S. Treasuries ended Tuesday on a mostly higher note, with longer-dated issues pacing the advance. The benchmark 10-yr yield, which moves inversely to the price of the 10-yr Treasury note, slipped two basis points to 2.85%. Meanwhile, the 2-yr yield finished flat at 2.26%.

Looking ahead, investors will receive a sizable batch of economic data on Wednesday: Retail Sales for February (consensus +0.3%) and the Producer Price Index for February ( consensus +0.1%) will both be released at 8:30 AM ET, while the less influential Business Inventories report for January (consensus +0.6%) will cross the wires at 10:00 AM ET. Also of note, the Energy Information Administration will release its weekly crude inventory report at 10:30 AM ET.

  • Nasdaq Composite: +8.8% YTD
  • S&P 500: +3.4% YTD
  • Dow Jones Industrial Average: +1.2% YTD
  • Russell 2000: +3.7% YTD

(GS) ALtice USA - Attractive valuation heading into spin-off; adding to the Conv

Attractive valuation heading into spin-off; adding to the Conviction List;
buy calls

We are adding Buy-rated Altice USA (ATUS) to our Americas Conviction List. Our call is based on three key factors: (1) solid fundamentals and attractive valuation vs. CHTR and other high FCF/share growth stories, (2) the planned spin-off from Altice NV, which we see as a potential positive catalyst as it kicks-off a material capital return program, and (3) concerns about the impact of rising interest rates appear overstated based on our capital structure analysis. We maintain our 12-month price target of $28, which implies 41% upside potential. Our Options Strategist recommends buying calls ahead of Spin catalysts.

Three reasons we add ATUS to the CL
1) Solid fundamentals and attractive valuation.We expect ATUS to grow FCF/share at an 18% CAGR through 2022, driven by broadband revenue growth, margin expansion and buybacks. Despite this outlook, ATUS trades at a steep discount to CHTR and other high FCF/share growth peers: 8.0x 2018E EBITDA (comps mostly >9x) and 9.8x taxed FCF/share (comps >20x).

2) Planned spin-off from Altice NV a potential near-term catalyst.We believe concerns about post-spin “flowback” are a
temporary overhang. We see the spin-off (which will increase the float 4x) as a potential catalyst for material capital returns, which could exceed 70% of ATUS’s market cap over the next 5 years.

3) Concerns about the impact of rising interest rates look overstated. Despite having the highest leverage in the US cable sector, ATUS could potentially see its borrowing costs decrease, even if interest rates continue to increase, as it refinances/calls over 1/3rd of its high-cost notes in 2018-2019.

FT : Nokia/Solidium: solid state device

Nokia/Solidium: solid state device
Other countries may wish they also had a state-owned investment company

The Germans are worried about Geely acquiring a tenth of Daimler. French incursions into corporate Italy are increasingly resented. UK lawmakers are fretting about the fate of GKN. All might wish they had a Solidium.

On Tuesday, Finland’s government-owned investment company said it had acquired an €844m stake in telecoms equipment maker Nokia to “strengthen and stabilise the domestic ownership in this nationally very important company”.

Countries that wanted to defend important companies without owning large positions in them once used “golden shares”. But these have been largely outlawed and live on only in specific cases where national security is involved. The Committee on Foreign Investment in the United States also makes decisions primarily on national security considerations — or should do.

In France, Agence des Participations de l’etat owns stakes in listed groups deemed strategically important, like Engie, EDF and Aéroports de Paris. It has not hesitated to make its presence felt, publicly criticising the pay of Renault chief Carlos Ghosn.

The danger that “strategic” could be confused with “political” is partly mitigated at Solidium by a mandate that puts investment considerations above nationalistic ones. There is no magic money tree; it had to finance the purchase of the Nokia stake by selling shares in mobile operator Telia. It has representatives on the boards of half its investee companies. In this sense it is more like Investor or Industrivarden, the holding companies controlled by Swedish families.

Solidium’s largest stake is in paper maker Stora Enso, where it has a quarter of the votes. Its initial stake in Nokia is just 3.3 per cent; other Finland-based investors own 15 per cent, according to Bloomberg.

Using state equity participation to defend companies against takeover will always be controversial. But if it is to be done, then small stakes held by an arms-length vehicle that actually makes a return is a good way to do it.

FT : You’re not as rich as you think

You’re not as rich as you think
Beware of treating pseudo-wealth as the real thing

A recent online exchange between Steve Roth and my colleague Matthew Klein contains much food for thought. It started with a post by Roth titled “Why economists don’t know how to think about wealth”, which alleged, in simplified terms, that mainstream economists miss much of what goes on in the economy by focusing largely on flows of income, spending and saving rather than the stocks of wealth, assets and liabilities. Klein’s retort warned against “dangers in making capital gains and losses more central than they already are”. And Roth has replied to some of Klein’s comments.

Those interested would do well to read the whole exchange. Here I want to dwell on a particular point. Roth urges economists to take a wider view of saving, and uses the term “comprehensive saving” for the sum of, on the one hand, income that is, so to speak, put aside (the amount produced but not consumed in a given period of time), and on the other, the change in value of the stock of wealth. The former is what economists call just “saving” in national income account: it is just the amount of economic activity not consumed (but instead devoted to capital goods — investment — or serving users abroad — net exports). There is an analogous concept of comprehensive income, which includes not just the amount produced in a time period but the increase in the value of things already owned.

This may seem commonsensical: it is how an individual person, household or business experiences their financial situation. Adding it up for a whole economy gives a picture of something that undoubtedly has an effect on their individual economic behaviour and how it may change. But precisely because an economy behaves differently than the sum of its parts, this approach brings important pitfalls of its own.

One reason is pointed out by Klein. A focus on “net worth” and capital gains and losses draws our attention to assets — but liabilities, and the composition of each, matter hugely as well. When growing assets of fickle cash value — think houses or productive business capital — are matched with debt liabilities (which are designed so as to have a relatively stable value in monetary terms), large swings in perceived wealth are likely to occur. Klein, for example, gives the example of US housing wealth (charted below). This is why I and others have advocated better mechanisms for debt restructuring so as not to saddle an economy with unpayable debts.


Another reason is that while measured stocks of wealth (and liability) clearly play into the economic decisions of companies and households, economic activity is itself inherently a flow concept. “Saving” in the sense of valuation increases does not correspond to anything on the ground, as it were. The same is true of “comprehensive income”. An individual can “save” more or less depending on the revaluation of the assets they own, and can spend their “comprehensive income”. But an economy as a whole cannot spend out of its financial wealth without devoting more of its actual current production to consumption (we ignore foreign financial investments here). Nor can it spend its “comprehensive” income; it can only spend (consume) out of what it produces, and spending more means saving less.

This, indeed, is why stock measures of assets and liabilities are important. In a nutshell, the run-up to the financial crisis involved increased measured wealth due to the positive revaluation of assets driven by both money-printing and exuberant expectations. But that nominal wealth lost any relation to what was and would be available to spend out of actual current or future production. When that realisation sank in, the measured wealth plummeted as expectations of asset values readjusted. And as a result, people chose to save more in the only way they collectively can: by spending less. The result was the biggest recession in generations.

Finally, all this means that we should use different terms than income, saving and wealth when referring to stock measures and changes in their value. A better term is “pseudo-wealth”, the term pioneered by Martin Guzman and Joseph Stiglitz in an important paper. By pseudo-wealth they mean “individuals’ perceived wealth that is derived from heterogeneous beliefs and expectations of gains in a bet”. This captures two crucial facts: the “wealth” in question is a perception of wealth, and that this perception may well be unwarranted. In fact it is more likely to be wrong than not, since market values of assets (and liabilities, but perhaps not to the same extent) are not “real” in the sense that they can be realised for the economy as a whole.

Similarly, we should talk of pseudo-saving and pseudo-income when talking about valuation changes in asset (and liability) values. “Pseudo” does not mean it does not have real effects. It is precisely because stock measures of wealth are perceptions that they have unpredictable effects on real economic activity — and that these effects can be bigger the more unwarranted the perceptions are. But it is still real economic activity — as captured by conventional national income flow measures — that we should ultimately care about.