>>> Accenture beats by $0.12, beats on revs; guides Q2 revs above consensus; rai

Accenture beats by $0.12, beats on revs; guides Q2 revs above consensus; raises FY18 outlook (151.75)
  • Reports Q1 (Nov) earnings of $1.79 per share, $0.12 better than the Capital IQ Consensus of $1.67; revenues rose 11.8% year/year to $9.52 bln vs the $9.25 bln Capital IQ Consensus.
  • New bookings for the first quarter were $10.0 billion and reflect a positive 1 percent foreign-currency impact compared with new bookings in the first quarter last year.
  • Co issues upside guidance for Q2, sees Q2 revs of $9.15-9.4 bln vs. $9.13 bln Capital IQ Consensus Estimate.
  • Co raises guidance for FY18, sees EPS of $6.48-6.66 (Prior $6.36-6.60) vs. $6.56 Capital IQ Consensus Estimate, sees net revenues +6-8% in local currency (Prior +5-8%); Accenture's business outlook for the full 2018 fiscal year now assumes that the foreign-exchange impact on its results in U.S. dollars will be positive 2.5 percent compared with fiscal 2017; the previous foreign-exchange assumption was positive 3 percent.
    • For fiscal 2018, the company continues to expect operating cash flow to be in the range of $5.0 billion to $5.3 billion; property and equipment additions to be $600 million; and free cash flow to be in the range of $4.4 billion to $4.7 billion.

>>> What to look at today - 21st of December 2017

US EQUITIES – ENDED MIXED with the Dow, S&P, and Nasdaq falling and the Russell 2000 higher. Sector performance was mixed. Energy was the best performing sector, while REITs and Utilities were the the worst performers. Treasuries were mixed, with the yield curve steepening. The dollar was mixed against the major currencies. Gold gained 0.4%. WTI rallied 0.9%. ASIAN MARKETS – ARE MIXED on Thursday. THE BoJ left policy unchanged as widely expected, also making minor changes to its economic assessment. Markets shrugged off the decision, with the yen holding bear recent lows against the dollar and JGB yields bear flattening. THE NIKKEI erased earlier declines to be trading flat. CHINESE EQUITIES are trading higher, with the yuan rising to its highest against the dollar since mid-September. The annual economic work conference wrapped up on Wednesday with a goal of achieving balanced growth. Leaders vowed further supply-side structural reforms, a prudent and neutral monetary policy, and a focus on financial risk prevention that omitted language on outright deleveraging. In FX markets, THE DOLLAR has recorded widespread - albeit very modest - gains against other currencies. COPPER is on track for its best year since 2010, while bullish inventory data has helped OIL remain just below multi-year highs.

Nikkei -0.11% Hang Seng +0.47% CSI +0.89% Shanghai +0.35% Shenzen +0.67%

Eur$ 1.1873 CNH 6.5673 CNY 6.5722 JPY 113.46 GBP 1.3365 CHF 0.9857 RUB 58.5998 WTI$ 58.13 +0.07%

S&P +0.03% EuroStoxx -0.11% Dax -0.04% SMI -0.09% FTSE +0.09%

Macro :
- EU Set to Grant MiFID Equivalence to Swiss Stock Exchanges

Keep an eye on :
- AGL IM : Autogrill in Excl. Talks to Buy Crobag Activities in Germany
- AGN US : Allergan: FDA Accepts NDA for Seysara for Acne Treatment
- BAYTN GY : MON/Bayer Review at DOJ Said to Seek Farmers’ Views: Cap. Forum
- BMW |GY : BMW, Alibaba Team up for Connected-Car Services From 1H 2018
- BSLN SW : Basilea’s Ceftobiprole Given QIDP Designation By FDA
- CBK GY : UniCredit’s Mustier Excludes Commerzbank Takeover: Handelsblatt
- DBK GY : Deutsche Bank Is Said to Seek Voluntary Exit of 1,000 Staff: HB
- ISP IM : Banca Intesa Plans to Combine Eurizon Capital, Fideuram: Sole
- HBH GY : Hornbach Holding Nine Month Ebit EU205.0 Mln
- NHH SM : NH Hotel Group Says No Decision Taken on Grupo Barcelo Offer
- RNO FP : Renault May Name Successor to CEO Carlos Ghosn in Feb.: Echos
- ROG SW : Roche Gets EU Approval for Alecensa as First-Line Treatment
- SGO FP : Saint-Gobain Extends Maturity of EU4B Undrawn Bank Facilities
- STL NO : Statoil to Award Up to NOK9B in Contracts for Snorre Expansion
- SNH GY : Steinhoff: Amsterdam Court Not in Position to Issue Decision
- SUBC NO : Subsea 7 Awarded ‘Substantial’ Contract Offshore Norway
- TSLA US : Tesla’s Giant Battery Dispatches 100MW in 140 Milliseconds

>>> Europe : Brokers Upgrades & Downgrades - 21st of December 2017

>>> Up
* Ferrovial Upgraded to Buy at Santander; PT 22 Euros
* Norsk Hydro Upgraded to Hold at DNB Markets; PT 58 Kroner
* Visiativ Upgraded to Buy at Euroland Corporate; PT 48.50 Euros

>>> Down
* Norwegian Air Downgraded to Sell at SpareBank; PT 100 Kroner
* United Internet Downgraded to Hold at Bankhaus Lampe

>>> Initiation
* Bakkavor Group Rated New Overweight at Barclays; PT 2.12 Pounds
* Bakkavor Group Rated New Equal-weight at Morgan Stanley

>>> Call

>>> US After Hours Summary: BBBY -5.4%, ADXS -2.9% following earnings/


After Hours Summary: BBBY -5.4%, ADXS -2.9% following earnings/guidance, VERI +9% on Atigeo acquisition news, PCG -9% on dividend suspension amid wildfire uncertainties, CORT +7.2% and ALRM +4.2% joining S&P SmallCap 600

After Hours Gainers:

Companies trading higher in after hours in reaction to guidance: TNAV +5.2% (light volume; reaffirms prior Q2 guidance and updates Q2 billings, deferred revenue and differed cost guidance)

Companies trading higher in after hours in reaction to news: AEZS +58.7% (received FDA approval of Macrilen for diagnosis of adult growth hormone deficiency), GNRT +16.7% (WSJ reporting EURN) / GNRT nearing merger deal), PYDS +10.8% (continued strength), VERI +9.2% (acquires the advanced data analytics software and related intellectual property assets of Atigeo Corporation; terms not disclosed), CORT +7.2% and ALRM +4.2%(to join S&P SmallCap 600), VKTX +6% (files for 2,552,337 share offering by holders), APEN +5.4% (higher on light volume after filing 424B5 with $16 mln Cantor Sales Agreement), FNKO +3% (ticking higher; Funko confirms PEZ Candy licensing partnership; estimate dispensers will arrive in retail during the first half of 2018), AIMT +2.5% (initiated with Outperform and $64 tgt at Robert W Baird), HZN +1.6% (receives full payment for license following patent dispute), ETSY +1.4% (initiated with Overweight/$26 tgt at KeyBanc Capital Mkts after the close), ACN +1% (ahead of earnings; also Accenture and Roche entered exclusive multi-year agreement), IBKR +0.8% (to join S&P MidCap 400)

Select Bitcoin/Crypto names are seeing modest strength in after hours trade: FTFT +4.8%, INTV +3.4%, SSC +3.2%, CCIH +2.6%, DSS +2.3%, LFIN +2.2%, SRAX +1.7%, GROW +1.5%, RIOT+1.2%, XNET +1.1%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BBBY -5.4%, ADXS -2.9%

Companies trading lower in after hours in reaction to news: PCG -9% (to suspend the quarterly cash dividend on common stock beginning with Q4 2017, citing uncertainty related to liabilities associated with October 2017 Northern California wildfires), DFFN -6.1% (files for common stock offering with $14.95 mln proposed maximum aggregate offering price), EURN -4.3% (WSJ report of pending Euronav / Gener8 merger deal), EIX -3.7% (lower with PCG), LULU -0.5% (lower on reports of lawsuit with allegations related to supervisor misconduct)

>>> US Close Dow -0.15% S&P -0.32% Nasdaq -0.44% Russell -0.79%


Closing Market Summary: Tax Reform Bill Heads to the White House

U.S. equities ticked lower on Wednesday as investors contemplated their next move following the passage of tax reform.

The S&P 500 (-0.1%), the Nasdaq Composite (unch), and the Dow Jones Industrial Average (-0.1%) each finished a tick below their flat lines. Small caps outperformed, evidenced by the Russell 2000, which ended the day higher by 0.2%.

The Senate passed the GOP's tax reform bill shortly after midnight, giving equities a boost at Wednesday's opening bell. However, the early gains didn't last for long as the technology sector (-0.1%) began trending downwards, with Red Hat (RHT 122.00, -6.86) pacing the retreat. RHT finished lower by 5.3% despite reporting above-consensus earnings and revenues.

Technology shares eventually trimmed their losses a bit, thanks in large part to the outperformance of chipmakers, which pushed the PHLX Semiconductor Index higher by 0.7%. Micron (MU 45.75, +1.77) led the semiconductor rally, adding 4.0%, after beating both profit and sales estimates and issuing upbeat guidance for the current quarter.

Congress came back into focus in the early afternoon as the House of Representatives took up tax reform, once again, as procedural rules in the Senate forced minor changes to the bill, nullifying yesterday's passage in the House. The measure was approved, as expected, sending the bill to the White House for a final endorsement.

President Trump likely won't sign the bill into law before the new year as the White House's review process typically takes about seven business days to complete. Regardless, tax reform, which has been a significant factor in this year's equity rally, is essentially a done deal.

Back on Wall Street, the energy sector (+1.4%) had a positive showing, extending its week-to-date gain to 2.2%. West Texas Intermediate crude futures advanced 0.9% to $58.08 per barrel, helping to fuel the energy rally, after the Energy Information Administration reported a draw of 6.5 million barrels for the week ended December 15.

The energy space's advance more than doubled the gain of the second-best performing group--telecom services (+0.6%). AT&T (T 38.55, +0.50) carried the lightly-weighted telecom group, adding 1.3%, after reaffirming its plans to invest an additional $1 billion in the U.S. next year in light of the new tax code.

The industrial space (+0.3%) also outperformed, underpinned by transports, which rallied around FedEx's (FDX 251.07, +8.53) better-than-expected earnings report and upbeat guidance. FDX shares added 3.5%, settling at a new all-time high, while the Dow Jones Transportation Average advanced 0.9%--also finishing at a new record.

On the flip side, the utilities and real estate sectors were the weakest groups, losing 0.8% and 1.1%, respectively. No other sector lost more than 0.4%.

In the bond market, U.S. Treasuries finished mostly lower in a curve-steepening trade that pushed the 2yr-10yr spread higher by five basis points. The yield on the benchmark 10-yr Treasury note climbed four basis points to 2.50%, which marks a nine-month high, while the 2-yr yield slipped one basis point to 1.85%.

Elsewhere, equity indices in the Asia-Pacific region finished Wednesday little changed, while the Euro Stoxx 50 settled with a loss of 0.9%.

Reviewing Wednesday's economic data, which included November Existing Home Sales and the weekly MBA Mortgage Applications Index:

  • Existing home sales increased 5.6% in November to an annualized rate of 5.81 million units (consensus 5.56 million). The October reading was revised to 5.50 million from 5.48 million.
    • The key takeaway from the report is that notable supply constraints remain, which will continue to act as a drag on overall sales due to the limited inventory and the high prices on available inventory that is crimping affordability, particularly for first-time buyers.
  • The weekly MBA Mortgage Applications Index decreased 4.9% to follow last week's 2.3% decline.

On Thursday, investors will receive the third estimate of third quarter GDP (consensus +3.3%), the Philadelphia Fed Index for December (consensus 21.0), and weekly Initial Claims (consensus 236K) at 8:30 ET, followed by the October FHFA Housing Price Index (consensus +0.4%) and the November Leading Economic Index (consensus +0.4%), which will cross the wires at 9:00 ET and 10:00 ET, respectively.

  • Nasdaq Composite +29.3% YTD
  • Dow Jones Industrial Average +25.1% YTD
  • S&P 500 +19.7% YTD
  • Russell 2000 +13.5% YTD

(ZH) "It’s All One Single, Giant $22 Trillion Position": How Market Risk Became

As excerpted from Fasanara Capital’s “Positive Feedback Loops and Financial Instability: the blind spot of policymakers.” The next time a Fed chair or macroprudential regulator argues that “there is no leverage in the market”, send them this.
QE and NIRP have two predominant effects on markets: (i) relentless up-trend in stocks and bonds (the ‘Trend Factor’), dominated by the buy-the-dip mentality, which encapsulates the ‘moral hazard’ of investors knowing Central Banks are prompt to come to their rescue (otherwise known as ‘Bernanke/Yellen/Kuroda/Draghi put’), and (ii) the relentless down-trend in volatility (the ‘Volatility Factor’).
The most fashionable investment strategies these days are directly impacted by either one or both of these drivers. Such strategies make the bulk of the overall market, after leverage or turnover is taken into account: we will refer to them in the following as ‘passive’ or ‘quasi-passive’. The trend impacts the long-only community, crowning it as a sure winner, making the case for low-cost passive investing. The low volatility permeates everything else, making the case for full-investment and leverage. The vast majority of investors these days are not independent from the QE environment they operate within: ETFs and index funds, Risk Parity funds and Target Volatility vehicles, Low Volatility / Short Volatility vehicles, trend-chasing algos, Machine Learning-inspired funds, behavioral Alternative Risk Premia funds. They are the poster children of the QE world. We estimate combined assets under management of in excess of $8trn across the spectrum. They form a broad category of ‘passive’ or ‘quasi-passive’ investors, as are being mechanically driven by two main factors: trend and volatility.
* * *
How Market Risk became Systemic Risk
Let's give a cursory look at the main players involved. As markets trend higher, no matter what happens (ever against the shocked disbeliefs of Brexit, Trump, an Italian failed referendum and nuclear threats in North Korea), investors understand the outperformance that comes from pricing risks out of their portfolios entirely and going long-only and fully-invested. Whoever under-weighs positions in an attempt to be prudent ends up underperforming its benchmarks and is then penalized with redemptions. Passive investors who are long-only and fully invested are the winners, as they are designed to be bold and insensitive to risks. As Central Banks policies reduce the level of interest rates to zero or whereabouts, fees become ever more relevant, making the case for passive investing most compelling. The rise of ETF and passive index funds is then inevitable.

According to JP Morgan, in the last 10 years, $2trn left active managers in equities and $2trn entered passive managers. We may be excused for thinking they are the same $ 2trn of underlying investors progressively pricing risk provisions out of books, de facto, while chasing outperformance and lower fees.
To be sure, ETFs are a great financial innovation, helping reducing costs in an expensive industry and giving entry to markets previously un-accessible to most investors. Yet, what matters here is their impact on systemic risks, via positive feedback loops. In circular reference, beyond Central Banks flows, markets are helped rise by such classes of valuations-insensitive passive investors, which are then rewarded with further inflows, with which they can then buy more. The more expensive valuations get, the more they disconnect from fundamentals, the more divergence from equilibrium occurs, the larger fat-tail risks become.
In ever-rising markets, ‘buy-and-hold’ strategies may only possibly be outsmarted by ‘buy-the-dip’ strategies. Whatever the outcome of risk events, be ready to buy the dip quickly and blindly. As more investors design themselves up to do so, the dips are shallower over time, leading to an S&P500 that never lost 3% in 2017, an historical milestone. Machine learning is another beautiful market innovation, but what is there to learn from the time series of the last several years, if not that buy-the-dip works, irrespective of what caused the dip. Big Data is yet another great concept, shaping the future of us all. Yet, most data ever generated in humankind dates back three years only, in and by itself a striking limitation. The quality of the deduction cannot exceed the quality of the time series upon which the data science was applied. If the time series is untrustworthy, as is heavily influenced by monumental public flows ($300bn per months), what trust can we put on any model output originating from it? What pattern recognition can we really be hopeful of getting, in the first place? May some of it just be a commercial disguise for going long, selling volatility and leveraging up in various shapes or forms? What is hype and what is real? A short and compromised data series makes it hard, if not possible, to really know. Once public flows abate and price discovery is let free again, then and only then will we be in a position to know the difference.
Low volatility does what trending markets alone cannot. A state of low volatility presents the appearance of stuporous, innocuous, narcotized markets, thus enticing new swathes of unfitting investors in, mostly retail-type ‘weak hands’. Weak hands are investors who are brought to like investments by certain characteristics which are uncommon to the specific investment itself, such as featuring a low volatility. It is in this form that we see bond-like investors looking at the stock market for yield pick-up purposes, magnetized by levels of realized volatility similar to what fixed income used to provide with during the Great Moderation. It is in this form that Tech companies out of the US have started filling the coffers of not just Growth ETF, where they should rightfully reside, but also Momentum ETF, and even, incredibly, Low-Volatility ETF.
Low volatility is also a dominant input for Risk Parity funds and Target Volatility vehicles. The lower the volatility, the higher the leverage allowed in such players, mechanically. All of which are long-only players, joining public flows, again helping the market rise to record levels in the process, in circular reference. Rewarded by new inflows, the buying spree gathers momentum, in a virtuous circle. Valuations are no real inputs in the process, volatility is what matters the most. Volatility is not risk, except for them it is.
It goes further than that. It is not only the level of volatility that count, but its direction too. As volatility implodes, relentlessly, into historical lows never seen before in history, a plethora of investment strategies is launched to capitalize on just that, directly: Short Volatility vehicles. They are the best performing strategy of the last decade, by and large. The problem here is that, due to construction, as volatility got to single-digit territory, relatively small spikes are now enough to trigger wipe-out events on several of these instruments. Our analysis shows that if equity volatility Doubles up from current levels (while still being half of what it was as recently as in August 2015), certain Short Vol ETFs may stand to lose up to 75% or more. Moreover, short positions on long-vol ETFs can lose up to 250% of capital. For some, ‘termination events’ are built into contracts for sudden losses of this magnitude, meaning that the notes would be prematurely withdrawn. It is one thing to expect a spike in volatility to cause losses, it is quite another to know that a minor move is all it takes to trigger a default event.

On such spikes in volatility, Morgan Stanley Quant Derivatives Strategy desk warns further that market makers may be forced to rebalance their exposure non-linearly on a spike in volatility. A drop in the S&P 500 of 5% in one day may trigger approximately $ 400mn of Vega notional of rebalancing. We estimate that half a trillion dollars of additional selling on S&P stocks may occur following a correction of between 5% and 10%. That is a lot of selling, pre-set in markets, waiting to strike. Unless you expect the market to not have another 5% sell-off, ever again.
It’s All One Big Position
What do ETFs, Risk Parity and Target Vol vehicles, Low Vol / Short Vol vehicles, trend-chasing algos, Machine Learning, behavioral Alternative Risk Premia, factor investing have in common? Except, of course, being the ‘winners take all’ of QE-driven markets. They all share one or more of the following risk factors: long-only, fully invested when not leveraged-up, short volatility, short correlation, short gamma. Thanks to QE and NIRP, the whole market is becoming one single big position.
The ‘Trend Factor’ and the ‘Volatility Factor’ are over-whelming, making it inevitable for a high-beta, long-bias, short-vol proxy to disseminate across. Almost inescapably so, given the time series the asset management industry has to deal with, and derive its signals from.
Several classes of investors may move to sell in lock-steps if and when markets turn. The boost to asset prices and the zero-volatility environment created the conditions for systemic risks in the form of an over-compensation to the downside. Record-low volatility breeds market fragility, it precedes system instability.
Systemic Risk is Not Just About Banks: Look at Funds
The role of trending markets is known when it comes to systemic risks: a not sufficient but necessary condition. Most trends do not necessarily lead to systemic risks, but hardly systemic risks ever build up without a prolonged period of uptrend beforehand. Prolonged uptrends in any asset class hold the potential to instill the perception that such asset class will grow forever, irrespective of the fundamentals, and may thus lead to excessive risk taking, excess leverage, the formation of a bubble and, ultimately, systemic risks. The mind goes to the asset class of real estate, its undeterred uptrend into 2006/2007, its perception of perpetuity (”we have never had a decline in house prices on a nationwide basis’’ Ben Bernanke), the credit bubble built on banks hazardous activities on subprime mortgages as a result, and the systemic risks which emanated, with damages spanning well beyond the borders of real estate.
The role of volatility is also well-researched, especially low volatility. Hayman Minsky, in his “Financial Instability Hypothesis’’ in 1977, analyses the behavioral changes induced by a reduction of volatility, postulating that economic agents observing a low risk are induced to increase risk taking, which may in turn lead to a crisis: “stability is destabilizing”. In a recent study, Jon Danielsson, Director of the Systemic Risk Centre at the LSE, finds unambiguous support for the ‘low volatility channel’, insofar as prolonged periods of low volatility have a strong predictive power over the incidence of a banking crisis, owing to excess lending and excess leverage. The economic impact is the highest if the economy stays in the low volatility environment for five years: a 1% decrease in volatility below its trend translates in a 1.01% increase in the probability of a crisis. He also finds that, counter-intuitively, high volatility has little predictive power: very interesting, when the whole finance world at large is based on retrospective VAR metrics, and equivocates high volatility for high risk.
Both a persistent trend and prolonged low-volatility can lead banks to take excessive risks. But what about their impact on the asset management industry?
Thinking at the hard economic impact of the Great Depression (1929-1932) and the Great Recession (2007-2009), and the eminent role played by banks in both, it comes as little surprise that the banking sector captures all the attention. However, what remains to be looked into, and perhaps more worrying in today’s environment, is the role of prolonged periods of uptrend and low-vol on the asset management industry.
In 2014, the Financial Stability Board (FSB), an international body that makes recommendations to G20 nations on financial risks, published a consultation paper asking whether fund managers might need to be designated as “global systemically important financial institution” or G-SIFI, a step that would involve greater regulation and oversight. It did not result in much, as the industry lobbied in protest, emphasizing the difference between the levered balance sheet of a bank and the business of funds.
The reason for asking the question is evident: (i) sheer size, as the AM industry ballooned in the last few years, to now represent over 15trn for just the top 5 US players!, (ii) funds have partially substituted banks in certain market-making activities, as banks dialed back their participation in response to tighter regulation and (iii) , funds can indeed do damage: think of LTCM in 1998, the fatal bailout of two Real Estate funds by Bear Stearns in 2007, the money market funds ‘breaking the buck’ in 2008 amongst others.
But it is not just sheer size that matters for asset managers. What may worry more is the positive feedback loops discussed above and the resulting concentration of bets in one single global pot, life-dependent on infinite momentum/trend and ever-falling volatility. Positive feedback loops are the link for the sheer size of the AM industry to become systemically relevant. Today more than ever, they morph market risks in systemic risks.
Volatility will not forever be low, the trend will not forever go: how bad a damage when it stops? As macro prudential policy is not the art of “whether or not it will happen” but of “what happens if”, it is hard not to see this as a blind spot for policymakers nowadays.
The addiction that could not be let go
In conclusion, markets are being brought into an unstable equilibrium, at risk of snapping violently. The stability of markets resembles the one of a pendulum held in vertical position: a small disturbance is able to create large swings. The swing can be so violent as to send tremors across the real economy, thus jeopardizing the hard earned progress on recovery in growth rates and unemployment of recent years. If positive feedback loops are ignored and bubbles are left unchecked, that may one day most unambiguously qualify as a policy mistake: the addiction to monetary steroids and price control that could not be let go, on time. A bust that was entirely predictable, if only macropru conditions had been a real target, and short termism had not prevailed.