Asia Market Update: North and South Korea hold first talks since 2015; broad dollar weakness across the region
***Headlines/Economic Data***
General Trend: Asian equities are generally higher as US indices ended mostly positive
-Nikkei and USD/JPY pare gains amid BoJ reduction of purchases of longer dated JGBs in daily operation
-Analysts ponder if BoJ move at daily operation has broader implications for monetary policy
-Japan Nov inflation adjusted real wages see first rise in 11-months (*Note: Wages are seen as key to BoJ policy to help maintain the ‘virtuous’ cycle. On Jan 5th, Japan PM Abe reiterated his call for companies to raise wages by 3% to put the economy on a ‘virtuous’ cycle)
-Japan Finance Min Aso said equities are rising at fast pace on global economic recovery
-Samsung Electronics declines as Q4 guidance below consensus
-In talks, North Korea and South Korea said to reach agreement on Winter Olympics, but other areas less clear
Japan
-Nikkei 225 opened +1% (closed during prior session): close +0.6%
-TOPIX Real Estate Index +2.2%, Securities +0.8%
-Sony +2.6% (released 2017 holiday sales for PS4)
-Fast Retailing +1.4% (Dec SSS +18.1% y/y)
- USD/JPY down over 0.4%, BOJ bond buying adjustment triggering the yen and hitting stops
- (JP) JAPAN NOV LABOR CASH EARNINGS Y/Y: 0.9% V 0.6%E; REAL CASH EARNINGS Y/Y: +0.1% V -0.1%E (1st rise in 11-months)
- (JP) Japan Fin Min Aso: Equities are rising at a fast pace
- (JP) BOJ announcement related to daily bond buying operation: reduces planned daily purchases of 10-25 year and over 25-year JGBs each by ¥10B
-(JP) Analysts look at tonight's announcement by the BOJ reducing bond buying and how it could be the first indication that tightening is on the way, despite its commitment to ultra easy monetary policy
- 6758.JP Reports 2017 holiday period PS4 sales of 5.9M units v 6.2M units in 2016
Korea
-Kospi opened -0.1%
- Samsung -2.8%: Reported prelim Q4 below expectations, 005930.KR Reports prelim Q4 (KRW) Op profit 15.1T v 15.9Te; Rev 66.0T v 66.8Te; opened slightly lower
-Steelmakers track gains seen in the US: Hyundai Steel +1.7%, Posco +1.7%
-LG Innotek: +10.5%: Apple said to be funding LG Innotek's 3D camera factory - Korean press
-LG Electronics +2.3% (reported prelim Q4 results; declined over 5% on prior session)
-Samsung C&T +3.5% (announced management changes)
- (KR) South Korea trade officials see 4% growth in exports in 2018 - Korean press
-(KR) North and South Korea hold first talks since 2015: North Korea expressed will to jointly enter winter Olympics
China/Hong Kong
-Hang Seng opened +0.1%, Shanghai Composite -0.1%
-Hang Seng Info Tech Index +0.9%, Services Index +1.1% (strength in gaming names)
-Hang Seng Materials Index -1.8%: Aluminum Corp of China -4.5% (broker commentary)
-(CN) China Ministry of Industry: To allow 1 tonne of new steel capacity to be built for each 1.25 tonnes closed in key regions – press
-(CN) Commerzbank economist Zhou Hao: Possibility very low for China lending rate hike
-(CN) China said to have stopped approving some kinds of consumer loan ABS, including micro loans - press
- USD/CNY (CN) Yuan is likely to keep strengthening, China may accelerate yuan exchange rate reform - China Securities Journal
- USD/CNY China's stable FX reserves will support yuan value in 2018 - Chinese press
- (CN) China PBoC: Skips OMO for 12th straight session; Net drains CNY130B v CNY40B prior; Current bank liquidity is moderate (prior banking liquidity at relatively high level)
- (CN) China PBoC sets yuan reference rate at 6.4968 v 6.4832 prior
-(CN) China Dec Retail Auto Sales y/y: 0.6% v 3.2% prior; 2017 24.2M units, 1.5% y/y (record sales for 27th consecutive year) - PCA
Looking Ahead: China Dec CPI and PPI due for release on Wednesday
Australia/New Zealand
-ASX 200 opens +0.1%; closed %
-ASX 200 Resources Index +0.7%, Financials +0.2%; Consumer Discretionary -0.5%
- (AU) AUSTRALIA NOV BUILDING APPROVALS M/M: 11.7% V -1.3%E; Y/Y: 17.1% V 4.6%E
- (AU) Australia Dec ANZ Job Advertisements M/M: -2.3% v 1.1% prior
Looking Ahead: Australia Dec NAB Business Confidence due for release on Wednesday
Other Asia
-(ID) Indonesia Fin Min Indrawati: 2017 GDP growth to fall short of target; ready to use all instruments to maintain growth momentum
-(TW) Taiwan 2018 machinery exports seen up over 10% - Taiwanese Press
North America
-US equity markets ended mostly higher: Dow -0.1%, S&P500 +0.2%, Nasdaq +0.3%, Russell 2000 +0.1%
-S&P500 Sectors: Utilities +0.9%, Real Estate +0.7%; Health Care -0.4%, Financials -0.1%
-(US) Fed's Bostic (2018 voter, dove): Fed may not need 3 or 4 rate hikes a year; policy is approaching a more neutral stance that could be close to 2%; Personal base case is for 2 or 3 rate hikes this year; Wants to see inflation higher to justify 3-4 rate hikes
-(US) Fed's Williams (moderate, 2018 voter): central banks have less room to cut rates in the next crisis
-(US) Fed's Rosengren (moderate, non-voter): Optimal rate of inflation may move around just as the natural rate of unemployment does
-(US) White House reportedly near to a decision on Fed vice chair nomination - press
-(US) Special Counsel Mueller reportedly likely to interview Pres Trump as part of Russia investigation in next few weeks - Wash Post
Looking Ahead: US Weekly API Crude Oil Inventories due for release
Europe
-(UK) Brexit Min Davis: sees EU's no-deal Brexit planning as 'damaging' to the process - FT
-(UK) DEC BRC SALES LFL Y/Y: 0.6% V 0.3%E
- (IE) Ireland Dec Consumer Confidence Index: 103.2 v 103.6 prior
Looking Ahead: Germany Nov Trade Balance and Industrial production due to be released
***Levels as of 01:00ET***
- Nikkei225 %, Hang Seng +0.3%; Shanghai Composite +0.0%; ASX200 +0.1%, Kospi -0.3%
- Equity Futures: S&P500 +0.2%; Nasdaq100 +0.2%, Dax +0.2%; FTSE100 +0.1%
- EUR 1.1975-1.1958; JPY 113.18-112.50; AUD 0.7865-0.7839;NZD 0.7197-0.7167
- Feb Gold -0.0% at $1,320/oz; Feb Crude Oil +0.8% at $62.22/brl; Mar Copper +0.0% at $3.23/lb
After Hours Summary: BGFV -18.5%, SHLM +5.7%, STX +2.2% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: SHLM +5.7%, STX +2.2% (expects to report Q2 revenue of ~$2.9 bln vs $2.74 bln consensus), CFMS +2%, LMNR +0.8%, AGN +0.8% (issues prelim 2018 guidance ahead of J.P. Morgan Healthcare Conference and provides tax/jobs update)
Companies trading higher in after hours in reaction to news: ADMS +4.8% (announced full commercial launch of GOCOVRI extended release capsules for the treatment of dyskinesia in patients with Parkinson's disease receiving levodopa-based therapy), ALKS +3.3% (still checking), TNDM +3.2% (continued strength after reporting successful completion of first pilot study using t:slim X2 insulin pump), BPT +3% (increases Q4 dividend payment to $1.2301519/unit from $0.6758286/unit), ATUS +1.9% (ticking higher; Altice N.V. approved plans for the separation of Altice USA from Altice NV ), FHN +1.7% (light volume; details Tax Cuts and Jobs Act impact - estimates reduction to fourth quarter earnings of ~$95 million), INCY +1.2% (higher on light volume following JPM presentation), BLDP +0.5% (Ballard Power will discuss strategic direction and recent progress within the 'rapidly expanding' fuel cell and clean energy area at Needham conference on Jan 17), ROKU +0.5% (reported active accounts exceeded 19 million at December 31, 2017 ), QCOM +0.3% (releases several updates for CES conference)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: BGFV -18.5% (Big 5 Sports reports 4Q17 revs of $243.2 mln (-8.% y/y); same store sales -9.4% y/y), ELF -8.2%, (guides FY17 in-line), URBN -5.2% ( holiday comparable retail segment net sales increased 2%, driven by double-digit growth in the direct-to-consumer channel, partially offset by negative retail store sales) CTRN -4.3%, (light volume; sees Q4 EPS below consensus)
Companies trading lower in after hours in reaction to news: DKS -1.5% and FL -0.3% (following BGFV guidance), NETE -0.6% (files for 1,079,136 share common stock offering by Esousa holdings.
Allergan issues prelim 2018 guidance ahead of J.P. Morgan Healthcare Conference and provides tax/jobs update (170.56 -1.73)
- Co sees FY18 (Dec) non GAAP EPS of =$15.25 vs. $15.85 Capital IQ Consensus Estimate; sees FY18 (Dec) revs of ~$15.0-15.3 billion vs. $15.65 bln Capital IQ Consensus Estimate. Ongoing cost reductions of $300 million -- $400 million from Fiscal Year 2017 non-GAAP operating expenses. Expected 2018 non-GAAP tax rate of no more than ~15%.
- No generic entry for RESTASIS prior to the second quarter of 2018....Additional impact of generic entries: ESTRACE (generic already in market); NAMENDA XR (early first quarter of 2018); DELZICOL (early second quarter of 2018); ACZONE (highly genericized market).
- 2017 Tax Cut and Jobs Act Impact - On December 22, 2017 the Tax Cut and Jobs Act was enacted - Overall, Allergan anticipates the future impact of the TCJA will be broadly neutral to the Company's non-GAAP effective tax rate over time, with a moderate increase for 2018 as compared to full year 2017. The Company will provide further information on its expected effective tax rate as determined under GAAP and our non-GAAP effective tax rate as part of our fourth quarter and full-year 2017 earnings report.
- Teva (TEVA) Securities Divestiture - Allergan continues to prudently divest its remaining holding in securities of Teva Pharmaceuticals International Ltd. including, as previously disclosed, through its Forward Sale Agreement with J.P. Morgan for 25 million of the 100 million Teva securities with a February 2018 maturity date. Allergan plans to sell its remaining position in 2018 through Forward Sale Agreements and/or open market sales.
Closing Market Summary: Stocks Hit Records for Fifth Consecutive SessionEquities ticked higher on Monday, settling in record territory for the fifth session in a row.
The Nasdaq Composite jumped 0.3% to 7157.39 and the S&P 500 advanced 0.2% to 2747.71. The Dow Jones Industrial Average underperformed, finishing lower by 0.1% at 25283.00.
The market struggled for direction following a quiet weekend and ahead of the fourth quarter earnings season, which will kick off on Friday with reports from JPMorgan Chase (JPM 108.50, +0.16) and Wells Fargo (WFC 62.04, -0.71). Stocks opened the session slightly lower and then rose slowly throughout the day.
Nine of eleven sectors finished in positive territory. The lightly-weighted utilities (+0.9%) and real estate (+0.6%) sectors were the top performers, bouncing back from poor showings last week, while the top-weighted technology group (+0.4%) extended its lead for the year; the tech space is up 4.6% year to date.
The energy sector (+0.6%) rallied in the afternoon, helped by an increase in the price of crude oil; West Texas Intermediate crude futures climbed 0.4% to $61.69 per barrel. The industrial sector (+0.4%) also had a positive showing, thanks in part to transports, which pushed the Dow Jones Transportation Average (+0.8%) to a new record high.
On the downside, the heavily-weighted health care (-0.4%) and financials (-0.1%) spaces declined. Within the health care group, biotech shares showed particular weakness, sending the iShares Nasdaq Biotechnology ETF (IBB 108.37, -1.46) lower by 1.3%.
In corporate news, GoPro (GPRO 6.56, -0.96) faced heavy selling after slashing its revenue guidance for the holiday season and announcing its exit from the drone business. GPRO shares held losses of around 30% at the opening bell, but ended the session lower by 12.8%.
Kohl's (KSS 56.90, +2.54) jumped 4.7% after reporting a 6.9% year-over-year increase in same-store sales for November and December while Crocs (CROX 13.23, +1.03) climbed 8.4% after raising its revenue guidance for the fourth quarter.
In the bond market, U.S. Treasuries began the week on a quiet note with the benchmark 10-yr yield closing flat at 2.48%.
Elsewhere, the Euro Stoxx 50 (+0.3%) advanced to a four-month high on Monday, climbing for the fourth session in a row. German Chancellor Angela Merkel's CDU/CSU restarted talks with SPD over the weekend in a last-ditch effort to form a coalition government following months of deadlock.
In the Asia-Pacific region, the major stock indices also moved modestly higher, but Japan's Nikkei was closed for Coming of Age Day.
Monday's lone economic report--the Consumer Credit report for November--showed an increase of 27.9 billion (consensus $18.0 billion). October credit growth was revised to $20.6 billion from $20.5 billion.
On Tuesday, investors will receive the NFIB Small Business Optimism Index and the November Job Openings and Labor Turnover Survey at 6:00 AM ET and 10:00 AM ET, respectively.
Online shoe retailer Spartoo set to buy Vivarte's Andre: source
PARIS (Reuters) - French online shoe and fashion retailer Spartoo plans to buy rival shoe brand Andre from debt-laden clothing retailer Vivarte, a source close to the matter said on Monday.
“The sale will be announced on Tuesday,” the source told Reuters.
Spartoo, founded in 2006, generates annual sales of 150 million euros ($179 million) and competes with online fashion retailer Zalando (ZALG.DE) among others in Europe.
It would nearly double its annual sales by acquiring Andre, which generates sales of over 100 million euros a year, and has a network of around 100 stores and employs around 750 people.
Vivarte, which faces competition from larger clothing retail chains such as H&M (HMb.ST), Kiabi and Primark, is restructuring its business to improve its financial situation.
It sold its Kookai fashion brand, Pataugas shoes and Spanish shoes brand Merkal last year.
Spartoo was founded by Boris Saragaglia, Paul Lorne and Jérémie Touchard and is active in 20 European countries.
Its main shareholders are the co-founders, the funds A Plus Finance, CIC, Belgium’s Sofina, and Highland Capital Partners from the United States.
Vivarte declined to comment.
ECB takes multimillion hit to offload Steinhoff debt
Central bank ditches entire holding of bonds from scandal-hit South African retailer
The European Central Bank has sold its entire holding of bonds from scandal-hit retail conglomerate Steinhoff International, booking steep losses to offload debt from the South African company that is facing multiple probes into its accounting practices.
Disclosure of the bond sale comes days after Steinhoff’s chief financial officer stepped down from his role last week, and marks the latest blow for the group since it had to postpone publication of its 2017 annual report in December because of accounting irregularities.
The central bank bought into the €800m bond issue by Steinhoff’s European subsidiary in July last year, when the debt carried an investment grade rating. That meant the ECB was able to buy the bonds under its corporate sector purchase programme, in which it buys debt from euro-area companies as part of its quantitative easing initiative.
While the ECB does not disclose the size of its holdings of debt from different companies, every week the central bank publishes a list of unique identifiers for the different bonds that it holds. Data published on Monday showed that it no longer owns debt from Steinhoff and an ECB spokesman confirmed that it had sold its position.
A person familiar with the matter said that the ECB previously held about €100m of the Steinhoff bonds. These notes have traded between 49 cents and 59 cents on the euro in the past week, according to data from Tradeweb, suggesting that the central bank could have booked losses in the region of €50m on the debt sale.
While the ECB has previously announced that it would not be forced to sell bonds if a company’s rating fell below investment grade — which Steinhoff’s did in December — the retail conglomerate is facing a messy debt restructuring that could have proved highly contentious for the central bank to participate in.
Steinhoff has raised debt at several different entities in a complex web of holding companies, leading analysts at credit research firm CreditSights to describe its corporate structure as “chaotic” in a recent report.
“The risk of skeletons in closets is high and the quality of bond structures and asset protection is low,” the analysts said.
Steinhoff, which owns the UK’s Poundland and Mattress Firm in the US, last week said it wanted to hire an external independent debt restructuring expert to act as its chief restructuring officer. Moelis & Company and AlixPartners are already advising the company, which has declared that it wants to raise €3bn in cash through asset sales.
This is not the first time in recent months the central bank has sold its entire holdings of debt from a single company. In November, the ECB disposed of all of its bonds from Glencore after the commodities giant relocated a finance entity from Luxembourg to Jersey.