After Hours Summary: AMD +7% extends Tesla AI related move higher, TPRE +5% on S&P SmallCap 600 addition news and APC +5% after launching multi billion dollar repurchase plan/reaffirming guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to news: AMD +6.9% (extending late move higher on reports that Tesla is working with AMD for an AI self-sdriving chip), VERI +5.1% (extending this week's 50%+ move higher), TPRE +4.9% (to join S&P SmallCap 600), APC +4.6% (announces $2.5 bln share-repurchase program; reaffirms the guidance it had previously provided for the deepwater Gulf of Mexico, DJ and Delaware basin assets), ABUS +4.5% (continued strength), GVP +3.6% (thinly traded - acquires Absolute Consulting for $8.75 mln in cash), KND +3.6% (rebounding on light volume; sees $20 mln pre-tax hit to Q3 earnings due to Hurricanes Harvey and Irma), GBT +3.3% (initiated after the close with a Buy rating and $51 tgt at Needham), AMPH +2.9% (received FDA approval of its ANDA for sodium bicarbonate injection 8.4% in 50 mL Luer-Jet Prefilled Syringe System), AERI +2.6% (confirms FDA Advisory Committe meeting scheduled for October 13 to review its NDA for Rhopressa for the treatment of patients with open-angle glaucoma or ocular hypertension), LUNA +2.4% (Board reinstates $2 mln stock repurchase program), APRN +2.1% (higher after Albertsons announced the acquisition of Plated, a premier meal kit service), USG +1.4% (continued strength -- gypsum/wallboard related names were notably higher on anticipated price increase), TBPH +1.3% (ticking higher - highlights results from GlaxoSmithKline and Innoviva's Phase 3 IMPACT study of Trelegy Ellipta)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: MLHR -1.3%
Companies trading lower in after hours in reaction to news: RWLK -8.8% (files for $15 mln ordinary share offering), JUNO -4.2% (announces $225 mln share offering), NVDA -1.9% (extending late move lower on reports that Tesla is working with AMD for an AI self-sdriving chip), VEON -1.4% (Telenor commences offering of 90 mln of its common shares), CRTO -1.3% (Gotham City Research releasing second portion of CRTO series), CMG -1.2% (pulling back as today's queso related optimism fades), HBI -0.8% (indicated lower following downgrade after the close to Neutral at Nomura/Instinet)
Closing Market Summary: Wall Street Takes FOMC Announcement in StrideThe stock market settled at a new record high once again on Wednesday, but the victory was far from convincing and looked improbable after the latest FOMC policy directive prompted a mild sell off. Both the Dow and the S&P 500 finished at new all-time highs, adding 0.2% and 0.1%, respectively. However, the tech-heavy Nasdaq slipped 0.1% as technology stocks struggled.
As expected, the FOMC unanimously voted to keep the fed funds target range at 1.00%-1.25% and announced that it will begin unwinding its balance sheet in October. Meanwhile, the Fed's so-called "dot plot" was unchanged from the one released in June, showing that the median FOMC member anticipates an additional rate hike in 2017 and three rate hikes in 2018.
The feds funds futures market now places the chances of a December rate hike at 67.8%, up from 57.7% on Tuesday and from 48.7% last week.
U.S. Treasuries were trading flat ahead of the FOMC announcement, but then moved lower in a curve-flattening trade. The 2-yr yield, which is more sensitive to changes in monetary policy, jumped five basis points to 1.44%, finishing at a nine-year high. Meanwhile, the benchmark 10-yr yield climbed four basis points to 2.28%.
The U.S. Dollar Index (92.25, +0.63) settled with a gain of 0.7% after holding a loss of 0.2% prior to the FOMC release.
In the equity market, the two heaviest sectors--technology (-0.5%) and financials (+0.6%)--finished at opposite ends of the leaderboard. Apple (AAPL 156.07, -2.66) weighed on the tech space, dropping 1.7%, following rumors of softer-than-expected demand for the new iPhone 8, which was unveiled last week.
Elsewhere within the tech space, chipmakers underperformed, sending the PHLX Semiconductor Index (-1.4%) lower for the first time in eight sessions. Adobe Systems (ADBE 149.96, -6.64) also exhibited notable weakness (-4.2%), despite reporting above-consensus earnings and revenues.
As for financials, the space got off to a mild start, but moved sharply higher following the FOMC policy announcement. Financials' win--which marks the eighth in the last nine sessions--was a team effort as nearly all of the sector's components finished in positive territory.
The energy sector (+0.7%) also outperformed, thanks in part to an increase in the price of crude oil; WTI crude jumped 1.5% to $50.70/bbl. The EIA's weekly crude inventory report was disappointing, showing a bigger-than-expected build of 4.6 million barrels (+3.5 million consensus).
However, the Iraqi oil minister said OPEC and non-OPEC producers are considering extending, or even deepening, last year's supply-cut agreement, which is currently set to expire in March 2018. That news helped the commodity overcome the EIA inventory report and climb to its highest level in four months.
It's also worth noting that transports outperformed on Wednesday, pushing the Dow Jones Transportation Average higher by 1.6%. FedEx (FDX 220.50, +4.50) was one of the DJTA's strongest components (+2.1%), despite issuing below-consensus guidance on Tuesday evening.
In politics, reports indicate that Senate Majority Leader Mitch McConnell (R-KY) intends to put a new health care bill on the floor next week. In order to avoid an overlap with the vote, reports indicate that Congress may delay releasing a tax reform outline until the first week of October.
Reviewing Wednesday's economic data, which included August Existing Home Sales and the weekly MBA Mortgage Applications Index:
- Existing home sales for August decreased 1.7% from July to an annualized rate of 5.35 million units while the consensus expected a reading of 5.42 million. The prior month's reading was left unrevised at 5.44 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.
- The weekly MBA Mortgage Applications Index decreased 9.7% to follow last week's 9.9% rise.
On Thursday, investors will receive several economic reports, including the weekly Initial Claims Report (consensus 310K) at 8:30 ET, the September Philadelphia Fed Index (consensus 17.1) also at 8:30 ET, and the July FHFA Housing Price Index at 9:00 ET.
- Nasdaq Composite +19.9% YTD
- S&P 500 +12.0% YTD
- Dow Jones Industrial Average +13.4% YTD
- Russell 2000 +6.5% YTD
Parker Drilling could consider non-core asset sales, M&A in tough drilling market
(MergerMarket)
Parker Drilling [NYSE:PKD], a Houston-based oil and gas drilling and rental tools company, could consider opportunistic divestitures of assets in non-core geographic areas, said CEO Gary Rich.
The company’s revenue is largely driven by a few key geographic areas, with 95% coming from Russia, the Middle East and APAC, and North America, he said. Its existing core areas are where it sees the best opportunities in a USD 55 dollar-per-barrel oil price environment, he said.
While its noncore areas in Tunisia, Colombia, Papua New Guinea, and Indonesia are less attractive, it is expensive to move rigs, so Parker would consider selling them if an offer came along, he added. It has over 70 offshore and land rigs globally.
Although the company considers acquisitions as a possible tool for strategic growth and increasing scale, the bid-ask spread is still too wide, Rich said. Parker is not pressured to make buys as it sees organic growth possibilities, particularly in its rental tools business, said Rich.
The company believes it can make the best long term returns in international markets, and it is likely to look to its existing geographies for organic growth or M&A, Rich said. Economies of scale will be increasingly important going forward, although “I’d never do a transaction just for scale,” Rich said.
Parker’s leverage is high, with USD 577m in total debt as of 30 June. That makes it more likely to opt to fund deals with cash or equity, he said. It could use some of its USD 146m in cash to do a smaller deal but would have to look at equity for a larger deal. When asked if Parker would consider a stock for stock transaction, Rich said “If it’s a good opportunity, and equity is what helps me close the transaction,” he would consider it. He said the industry is likely to see more stock transactions going forward.
At the same time, it will keep spending in line with cash flow, with caution about growth in the short term, as the current downturn has proved to be more deep and prolonged than expected, he said. Although he said he believed growth will come back to the market in Parker’s subsectors, and already is coming back into the rental tools segment, it may be slow to fully recover.
When asked whether Parker, with its stock down and its high leverage, could be vulnerable to a takeover, Rich said that while he would fulfill his duty to shareholders if an attractive proposition came along, “I think we’re capable and prepared” to succeed independently in current market conditions.
It competes with various players in each of its regions, Rich said. For example, in the Middle East it competes with Dalma Energy, a subsidiary of UAE-based Al Qahtani Investments, and in Europe it competes with UK-based KCA Deutag. KCA has been owned by Russian private equity firm Pamplona Capital Management since 2011.
Its market cap is USD 165m.
The company’s revenue is largely driven by a few key geographic areas, with 95% coming from Russia, the Middle East and APAC, and North America, he said. Its existing core areas are where it sees the best opportunities in a USD 55 dollar-per-barrel oil price environment, he said.
While its noncore areas in Tunisia, Colombia, Papua New Guinea, and Indonesia are less attractive, it is expensive to move rigs, so Parker would consider selling them if an offer came along, he added. It has over 70 offshore and land rigs globally.
Although the company considers acquisitions as a possible tool for strategic growth and increasing scale, the bid-ask spread is still too wide, Rich said. Parker is not pressured to make buys as it sees organic growth possibilities, particularly in its rental tools business, said Rich.
The company believes it can make the best long term returns in international markets, and it is likely to look to its existing geographies for organic growth or M&A, Rich said. Economies of scale will be increasingly important going forward, although “I’d never do a transaction just for scale,” Rich said.
Parker’s leverage is high, with USD 577m in total debt as of 30 June. That makes it more likely to opt to fund deals with cash or equity, he said. It could use some of its USD 146m in cash to do a smaller deal but would have to look at equity for a larger deal. When asked if Parker would consider a stock for stock transaction, Rich said “If it’s a good opportunity, and equity is what helps me close the transaction,” he would consider it. He said the industry is likely to see more stock transactions going forward.
At the same time, it will keep spending in line with cash flow, with caution about growth in the short term, as the current downturn has proved to be more deep and prolonged than expected, he said. Although he said he believed growth will come back to the market in Parker’s subsectors, and already is coming back into the rental tools segment, it may be slow to fully recover.
When asked whether Parker, with its stock down and its high leverage, could be vulnerable to a takeover, Rich said that while he would fulfill his duty to shareholders if an attractive proposition came along, “I think we’re capable and prepared” to succeed independently in current market conditions.
It competes with various players in each of its regions, Rich said. For example, in the Middle East it competes with Dalma Energy, a subsidiary of UAE-based Al Qahtani Investments, and in Europe it competes with UK-based KCA Deutag. KCA has been owned by Russian private equity firm Pamplona Capital Management since 2011.
Its market cap is USD 165m.
Google to Buy Part of Phone Maker HTC
Search giant is set to acquire Taiwan company’s phone-design business as it strives to grow in handset market
Alphabet Inc.’s GOOGL 1.14% Google is set to buy part of struggling Taiwanese smartphone maker HTC Corp. 2498 2.51% , according to people familiar with the situation, part of the search giant’s latest effort to crack the handset market.
The acquisition, which could be announced as soon as Wednesday afternoon, is for HTC’s mobile-phone original design operations, according to the people. Google chose HTC, a longtime Google supplier, as its contract manufacturer for the high-end Pixel phone that Google launched last year, partly as a challenge to Apple Inc.
HTC, based in Taiwan, suspended trading of its shares Wednesday pending an announcement. HTC’s market capitalization is about $1.9 billion. The value or size of the division Google is set to buy is unclear.
HTC and Google declined to comment.
HTC once held a commanding position in the handset market. Its global market share peaked at 9% in 2011, when it shipped 44 million units of its own-branded phones, according to Counterpoint Research. By last year that share had plummeted to less than 1%, Counterpoint data show.
With the acquisition, Google may get deeper access to HTC’s research and development, as well as sales and distribution channels, analysts said. That could help Google as it seeks to make a bigger splash in the increasingly competitive smartphone market as it prepares to launch an updated version of the Pixel this fall.
The deal shows “Google is very serious about building its own hardware,” said Jan Dawson, chief analyst at Jackdaw Research.
Apple Acknowledges Cellular Connectivity Problem in New Watch
Company says it is investigating a fix for a future software release
Apple Inc. AAPL -1.69% acknowledged problems with cellular connectivity in its newest smartwatch, raising questions about the device’s most significant feature days before it goes on sale in stores in the U.S. and other countries.
In a statement Wednesday, Apple said the problem connecting to cellular networks occurs when the Apple Watch Series 3—the first watch from Apple to feature an LTE chip for cellular service—joins “unauthenticated Wi-Fi wireless networks without connectivity.” Apple said it is “investigating a fix for a future software release.”
Apple issued the statement after reviewers from The Wall Street Journal and the Verge encountered problems at times making calls, connecting with the Siri virtual assistant and maintaining a cellular-network connection. The Journal ran into issues across multiple wireless carriers.
Reviews from the New York Times , USA Today and other outlets didn’t report significant issues with calls and connectivity. A spokeswoman for T-Mobile US Inc. said it tested the watch extensively and it “performed well” on the company’s network. AT&T Inc. referred questions about the issues to Apple.
Apple’s stock was down 1.8% in afternoon trading in New York.
Wall Street views the Apple Watch, the first completely new product released under Chief Executive Tim Cook, as a bellwether for the company’s ability to create new devices that diversify Apple’s revenue, two-thirds of which come from iPhone sales.
Apple hasn’t disclosed smartwatch sales to date. Market researcher IDC estimates it sold an estimated 30 million Apple Watches since introducing the device in 2015, making it the world’s largest smartwatch company by sales. But the device has failed to generate the type of sales growth Apple saw in the early days of other products such as the iPhone and iPad.
The new Apple Watch with LTE goes on sale in stores Friday for $399, and been available for preorder online since Sept. 15. The promise it can operate independently of an iPhone or Wi-Fi has raised sales expectations.
Loup Ventures, a venture-capital firm specializing in tech research, expects the Series 3 model to lift Apple Watch sales nearly 60% to 26 million units in fiscal 2018, up from 16.4 million units this fiscal year. As of Wednesday, delivery for most models of the new watch was expected to take three to five weeks.
Analysts expect Apple Watch Series 3 to get a sales push from wireless carriers motivated to sell the watch with a supporting $10 monthly data plan. They also believe its new capabilities could attract consumers who passed on the product following its 2015 debut because of its seeming lack of purpose.
When Apple introduced the Series 3 model at its product showcase Sept. 12, Apple Operating Chief Jeff Williams said it would give people “the freedom to go anywhere with just your Apple Watch.”
He said it would stream 40 million songs to his wrist and have the same phone number as the owner’s phone. He demonstrated its abilities by dialing a colleague who received the call on her Apple Watch while paddleboarding on Lake Tahoe.
What is holding the watch back from mass-market appeal is that it is still too focused on health and fitness, said Jitesh Ubrani, a smartwatch analyst with IDC. Apple needs developers to make different kinds of apps so the watch can become a “need to have” device. Cellular capability “gives them a chance,” he said.
Mr. Williams, who oversees the smartwatch, has been pushing for cellular connectivity since before the device’s launch, according to a person familiar with the product’s evolution. However, Apple struggled with poor cellular reception, the person said.
Hardware experts have said the challenges reflect the difficulties of working with such a small device. Apple crams accelerometers, gyroscopes, heart-rate sensors and 18 hours of battery life, as well as GPS, Bluetooth and Wi-Fi connectivity, into a product that is just 38 millimeters or 42 millimeters in size.
Apple isn’t the first company to offer cellular connectivity on a smartwatch. Samsung Electronics Co. currently offers it on the Gear S3 watch, a device that is thicker and noticeably heavier than the Apple Watch.
EU-US Mifid II accord will go down to the wire, official warns
European authorities reveal they have hit a stumbling block due to rules’ reach
An agreement between EU and US authorities to prevent new European rules from fragmenting global markets may only be reached with weeks to spare, a senior EU official has warned.
Regulators on both sides of the Atlantic are racing to secure a deal on so-called equivalence before a big overhaul of European markets, known as Mifid II, comes into force at the start of next year.
Without agreement on equivalence — in which regulators recognise each other’s markets standards are broadly the same — EU-based investment firms will be forced to use European-listed instruments and markets even if they are less popular and liquid. European fund managers, for example, would be required to buy or sell shares in Amazon via their less liquid listings in Frankfurt, rather than the main listing in New York.
European authorities said on Wednesday that they had hit a stumbling block in the negotiations because the Mifid II markets rules had greater reach than regulations in other parts of the world. Therefore regulators would have to strike two separate deals: one for share trading and the other for derivatives.
An agreement with the US regulators over derivatives is being held up because Brussels was negotiating a mechanism for recognising all EU swaps trading venues, said Tilman Lüder, head of the securities markets unit at the European Commission.
“The rest of the world simply doesn’t have Mifid . . . the rest of the world has sometimes, despite the financial crisis, followed a different path,” he told a conference held by Afme, the trade association, in London.
“The aim, and this is a very volatile political environment, is that we will have an equivalence decision ready around November,” he added. “Maybe we will announce a general framework before that to give the market more information.”
Investors and corporations also use benchmarks, credit indices and interest rate swaps priced on liquid US dollar markets, to hedge exposures in their portfolios.
Elisa Menardo, director of public policy at Credit Suisse, said the derivatives agreement was the tougher of the two, because it required a reciprocal agreement.
The commission is “negotiating intensely” with its US counterpart, the Commodity Futures Trading Commission, Mr Lüder said.
The talks come as the CFTC, under new chairman Chris Giancarlo, explores making changes to its electronic trading rules for swaps. Standards are currently modelled too much on the futures industry, and restrict market innovation, Mr Giancarlo said.
“This is an exercise that is ongoing. We are also talking to Asian jurisdictions, to Japan, to Singapore and to Australia.” He added that he expected the rules to take effect on January 3. Some market participants had speculated there would be a delay because of the short timeframe.