After Hours Summary: CVGI -18%, TLYS -13% following earnings/guidance, QCOM -4.5% / AVGO -1.1% after exec order issued blocking mergerAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: VNET +5.1% (light volume), AMPH +2%, COUP +1.9%, TTEC +1.9% (thinly traded), KRO +1.5%, X +0.5% (provides 2018 guidance with EBITDA of ~$1.7 bln and reaffirms Q1 EBITDA guidance of ~$250 mln)
Companies trading higher in after hours in reaction to news: PTI +40.1% (announces that the FDA has granted Breakthrough Therapy Designation for PTI-428, the Co's cystic fibrosis transmembrane conductance regulator amplifier), ALT +16.1% (Altimmune announces data from a pre-clinical study comparing SparVax-L and BioThrax against anthrax infection; data from the study showed a 67% survival rate in animals challenged with a lethal dose of anthrax after a single dose of SparVax-L), WTI +5.8% (entered into joint exploration and development agreements with a group of investors with initial capital commitment of $230.5 million), AMRN +3.5% (Vascepa showed reductions in potentially atherogenic lipids and inflammatory markers), DRYS +2.4% (modestly higher after releasing investor presentation), INTC +1.3% (following QCOM/AVGO news; also mentioned positively on MadMoney), MU +1.1% (extending today's move higher in after hours -- tgt being raised to $66 from $55 at Mizuho as checks from Asia trip point to continued DRAM/NAND demand and price momentum into the JunQ)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: CVGI -17.7%, TLYS -13.2%, LBRT -13.1%, NCMI -11.2%, FENG -10.8% (ticking lower), KURA -7.5%, SFIX -5.1%
Companies trading lower in after hours in reaction to news: ADXS -22.6% (announces clinical hold in Axalimogene Filolisbac Phase 1/2 combination study with AstraZeneca's IMFINZI; reprots Q1 results), BL -5.2% (commences an underwritten public offering of 8 mln shares of its common stock by selling shareholders; BlackLine will not receive any proceeds from this offering), QCOM -4.5% / AVGO -1.8% (Qualcomm acquisition by Broadcom blocked by President Trump), MYGN -4.7% (recently received a Subpoena from the Department of Health and Human Services, Office of Inspector General, in connection with an investigation into possible false or otherwise improper claims submitted for payment under Medicare and Medicaid), EDIT -3.5% (files mixed securities shelf offering and files for $150 mln common stock shelf offering), FINL -3.3% (light volume; initiated with Underperform at Credit Suisse), AQUA -2.7% (acquires Pacific Ozone Technology to expand industrial disinfection treatment solutions; launches secondary public offering of 17,500,000 shares of common stock by certain stockholders), MC -2% (commences offering of 5,000,000 shares of Class A common stock), SABR -1.4% (announces the secondary public offering of 15,000,000 shares of common stock by existing shareholders), AWI -1.4% (attributed to block trade pricing), JCP -1.2% (initiated with Underperform at Credit Suisse)
Asia Market Update: Markets muted ahead of US CPI; PBOC shuffles Cabinet, combines regulators and proposes creating new agencies
***Headlines/Economic Data***
General Trend:
- Asian equities trade directionless after mixed US session
-Japanese equities pare losses
-China shakes up structure of its ministries and government departments: Move seen as attempt to limit bureaucracy and strengthen the leadership of Communist Party
-National Australia Bank (NAB) suggests Feb Australia business confidence weighed down by financial market turbulence
-South Korea Finance Ministry puts size on planned 50-year bond sale
-Volatility in currency market subdued ahead of US Feb CPI data
-China Feb Fixed Asset Investment, Industrial Production and Retail Sales due on Wednesday
Japan
-Nikkei 225 opened -0.4%; closed +0.7%
-TOPIX Iron & Steel Index -0.7%; Electric Appliances
- (JP) Japan Fin Min Aso may skip G20 finance minister meeting in Buenos Aires this month – press
- (JP) Japan Fin Min Aso: Documents seem to be falsified to fit Sagawa's testimony; will depend on Parliament situation if I will attend G20
- (JP) Japan Feb PPI (CGPI) M/M: 0.0% v 0.2%e; Y/Y: 2.5% v 2.5%e
- (JP) According to NHK poll PM Abe cabinet approval rating fell to 44% v 46% in Feb
-(JP) Japan MoF sells ¥2.2T v ¥2.2T indicated in 0.10% (prior 0.1%) 5-yr bonds; avg yield -0.108% v -0.093% prior; bid to cover 4.18x v 4.67x prior
Looking Ahead: Bank of Japan Jan Policy Meeting Minutes due for release on Wednesday
Korea
-Kospi opened flat
- (KR) North Korea leader Kim Jung-un would like to sign peace treaty with US and establish diplomatic relations including a US embassy in Pyongyang - financial press
-(KR) South Korea Deputy PM Kim: Concerning the US tariffs on steel imports, the Govt will devote all its energy through every available channel in order to get them lifted - Korean press
- (KR) South Korea to offer KRW300B in 50-yr bonds on March 15th
China/Hong Kong
-Hang Seng opened -0.1%, Shanghai Composite -0.1%
- Hang Seng Telecom Index -1.4%, Energy -1.4%, Property/Construction -0.5%; Financials +0.2%
- (CN) China proposes to give PBOC some functions currently held by CBRC and CIRC and merge the insurance and banking regulators
- (CN) China PBoC Open Market Operation (OMO): Injects CNY60B v CNY90B prior in 7 and 28-day reverse repos; Net injection CNY60B v CNY90B prior
- (CN) PBOC sets yuan reference rate at 6.3218 v 6.3333 prior
- (HK) Hong Kong new home supply expected to reach 20K units (15-yr high) - HK press
- (CN) Shanghai and Shenzhen stock exchanges considering delisting companies for serious law violations – Xinhua
- (CN) China Banking Regulatory Commission (CBRC) and four other regulators planning to expand capital tools for commercial banks to replenish their capital in order to boost their support for the real economy – Xinhua
- (CN) China National Development and Reform Commission (NDRC) approves 3 coal projects: Approves CNY3.4B coal mine project in Inner Mongolia, capacity of 6Mt/yr
- (CN) China State Assets Supervision and Administration Commission (SASAC) official Xiao: China seeks to ensure and increase value of state assets
-Looking Ahead: China Feb Fixed Asset Investment, Industrial Production and Retail Sales due for release on Wednesday
Australia/New Zealand
-ASX 200 opened +0.5%; closed -0.5%
- ASX 200 Resources Index -1.2%, Telecom -1%, Energy -0.7%, Financials -0.4%
- (NZ) RBNZ Acting Gov Spencer: Macro-prudential policy ultimately can't control the housing cycle
- (NZ) New Zealand sells NZ$2.0B in 3.0% April 2029 bonds, avg yield 3.135%
- (AU) Australia sells A$150M in 2027 indexed bonds, avg yield 0.8208%, bid to cover 3.07x
- (AU) AUSTRALIA JAN HOME LOANS M/M: -1.1% V -0.2%E; INVESTMENT LENDING: +1.1% V -2.6% PRIOR; Owner occupier home loan value m/m: +1.1% v -1.0% prior
- (AU) Australia Feb NAB Business Confidence: 9 v 11 prior; Conditions: 21 v 18 prior
Other Asia
- (ID) Indonesia Energy Ministry: Revises effective date for new coal price to March 12th (prior Jan 1st)
- (ID) S&P: Reiterates sees no sovereign ratings upgrade for Indonesia in the next 12-24 months, reminder May of 2017 S&P raised the rating to B from BBB-, Outlook stable
North America
-US equity markets ended mixed: Dow -0.6%, S&P500 -0.1%, Nasdaq +0.4%, Russell 2000 +0.3%
-S&P500 Industrials -1.2%; Real Estate +0.5%
- (US) House Intel member Conaway: House panel finds no Russia collusion with Trump
-QCOM, [-4.2% after hours], White House announces President Trump will not allow Broadcom takeover of Qualcomm - press
Looking Ahead: US Feb CPI data due for release, along with Weekly API Crude Oil Inventories
Europe
-(US) Sec of State Tillerson: Extremely concerned about Russia, UK poisoning an egregious act and will trigger a response, not sure if Russia was involved
Looking Ahead: UK OBR expected to issue Spring Forecasts, while Chancellor Hammond is expected to issue the Spring Statement
***Levels as of 01:00ET***
- Hang Seng -0.0%; Shanghai Composite -0.2%; Kospi +0.1%
- Equity Futures: S&P500 +0.1%; Nasdaq100 +0.0%, Dax +0.1%; FTSE100 +0.1%
- EUR 1.2345-1.2325; JPY 106.85-106.26; AUD 0.7884-0.7866;NZD 0.7323-0.7292
- Apr Gold -0.04% at $1,320/oz; Apr Crude Oil -0.2% at $61.27/brl; May Copper -0.1% at $3.12/lb
Closing Market Summary: Mixed Finish to Monday's SessionStocks kicked off the week with a quiet performance on Monday that left the broad-based S&P 500 a tick below its unchanged mark (-0.1%). The Dow Jones Industrial Average took a more substantial hit (-0.6%), while the Nasdaq Composite outperformed (+0.4%), climbing to a new all-time high for the second consecutive session.
Noteworthy news was in short supply on Monday, leading to lighter-than-usual trading volume. Investors continued to digest the February jobs report, which prompted a big rally on Friday, and started looking ahead to this week's batch of influential economic data--beginning with the Tuesday release of the Consumer Price Index for February (consensus +0.2%).
The 11 S&P sectors finished Monday pretty evenly mixed; six declined while five advanced.
Industrials (-1.2%) was the weakest sector by a considerable margin, with more than three quarters of its components finishing in the red. Dow components Boeing (BA 344.19, -10.33), Caterpillar (CAT 154.50, -3.75), and United Tech (UTX 131.50, -2.57) showed particular weakness, losing between 1.9% and 2.9%.
Conversely, technology (+0.3%) was among the top-performing sectors, with chipmakers setting the pace. Broadcom (AVGO 262.84, +9.06) advanced 3.6% following a Wall Street Journal report that Intel (INTC 51.52, -0.67) might look to acquire Broadcom, which is currently in pursuit of an acquisition itself; namely, the company is seeking to acquire Qualcomm (QCOM 62.81, -0.22). A combined Broadcom/Qualcomm would pose a serious competitive threat to Intel, hence Intel's desire to enter the mix.
Meanwhile, fellow chipmaker Micron (MU 59.37, +4.78) spiked 8.8% after its target price was raised to $100 from $55 at Nomura Instinet.
In the bond market, U.S. Treasuries moved modestly higher on Monday, pushing yields down across the curve; the benchmark 10-yr yield slipped two basis points to 2.87%. A $21 billion 10-yr note auction drew a high yield of 2.889% on a bid-to-cover of 2.50--slightly above the average of the prior 12 auctions.
Economic data was limited to the Treasury Budget for February, which showed a deficit of $215.2 billion (consensus -$216.0 billion) versus a deficit of $192.0 billion for February 2017. The Treasury Budget data is not seasonally adjusted, so the February deficit cannot be compared to the $49.2 billion surplus registered in January.
In Washington, reports indicated that longtime CNBC personality Larry Kudlow is the front runner to replace Gary Cohn as President Trump's top economic advisor. Mr. Kudlow is a proponent of free trade and served in the Office of Management and Budget during the Reagan administration.
- Nasdaq Composite: +9.9% YTD
- S&P 500: +4.1% YTD
- Dow Jones Industrial Average: +1.9% YTD
- Russell 2000: +4.3% YTD
Saudi Aramco: sand trap
Justifying a $2tn valuation for the state oil company requires hard persuasion
Some might say portfolio managers live in gilded cages. But plush surroundings offer little comfort given the pressures of performing, and the scraps of information fed to them from some companies.
The flotation of Saudi Aramco — now reportedly delayed into 2019 — will no doubt bring up this issue of disclosure. The kingdom believes its state oil company deserves a $2tn valuation. Achieving that high number requires some hard persuasion. Locking up senior portfolio managers in a luxury hotel might do the trick. A better way would be to improve profitability, not to mention the transparency of financial accounts.
Another way is to tweak the assumptions used in valuing the group. A key driver for Saudi Aramco’s future cash flows, and thereby its valuation, is the oil price. Assuming the Brent benchmark rises to $85 per barrel over the next five years, hardly unimaginable given oil’s history, helps the valuation considerably — though it is not enough on its own to get to $2tn. And controlling that factor seems tricky. Yes, the country could push Opec (with Russia) to withhold production — Saudi produces more than a tenth of the world’s crude. But that risks longer term demand effects, at a time when renewable energy looks a better investable prospect than ever.
Imagine an alternate universe where Saudi Aramco can raise production while energy prices rise, too. If it could increase its production at its historical yearly trend of about 1 per cent when crude prices rise, and keep it up over decades, then the kingdom could expect to come close to its own high valuation estimate. Big if.
Even better, give the new minority shareholders more of the cash flows, via dividends, rather than routing these back to the government via taxes. The corporate income tax rate is expected to be about 50 per cent. Dropping the relatively steep royalty rate, effectively a revenue tax, by half to 10 per cent would boost the valuation even more. But it is not in the plan. Raising a currently uneconomic natural gas price for industrial users would help, too, but nothing like as much as long-term growth does.
Without the prospect of decent long-term growth, not many investors will find Saudi Aramco palatable. Only, perhaps, when viewed as a high-yielding bond proxy can the high valuation be justified.