Asia Mid-Session Market Update: Markets see only marginal volatility ahead of Draghi; Aussie takes breather ahead of 80 cents following recent gains amid employment data release
***Asia Summary***
- Following Wednesday’s gains in US equities, most of the Asian bourses opened the session modestly higher. The Bank of Japan’s generally inline interest rate decision and commentary have had little noticeable impact on markets. Looking ahead, traders are focusing on the upcoming ECB interest rate decision and comments. Corporate earnings in focus for the New York morning include Bank of New York, Blackstone Group, Nucor, Travelers and Union Pacific.
***Key economic data***
- (JP) BANK OF JAPAN (BOJ) LEAVES INTEREST RATE ON EXCESS RESERVES (IOER) UNCHANGED AT -0.10%; AS EXPECTED; Delays reaching 2% inflation target to ~FY19 from ~FY18
- (JP) JAPAN JUN TRADE BALANCE: ¥439.9B V + ¥488BE; ADJ TRADE BALANCE: ¥81.4B V ¥127.5BE
- (AU) AUSTRALIA JUN EMPLOYMENT CHANGE: 14.0K V +15.0KE; UNEMPLOYMENT RATE: 5.6% V 5.6%E
- (AU) AUSTRALIA Q2 NAB BUSINESS CONFIDENCE: 7 V 7 PRIOR
- (AU) Australia Jun RBA Gross FX Transactions (A$): -1.12B v -735M prior
***Speakers and Press***
China
- (CN) China expected to increasing monitoring cash flows in Macau – SCMP
- (CN) FX Regulator SAFE: China Banks sold net of CNY142.5B in foreign exchange in June; Fund flows situation stabilized and improved in H1
Australia/New Zealand
- (AU) Australia Treasurer Morrison: See the economy building momentum - Australian
Korea
- (KR) US intel sources: North Korea is making preparations for another ICBM or intermediate missile test, possibly in two weeks – CNN
- (KR) South Korea Finance Min Kim Dong-Yeon: To announce economic policy direction next week
Japan
- (JP) Japan Cabinet Office (Govt) July report: Leaves economic assessment unchanged
Other
- (DE) Germany Wisemen Bofinger said to recommend rate target for tapering of ECB bond purchases - German Press; Bofinger says instead of a fixed reduction in bond purchases, central bankers should use a yield target for long-term bonds.
- (US) House Budget Committee releases FY18 budget with fiscal spending of $1.13T, includes $621.5B in defense spending and $511B in other discretionary spending
***Asian Equity Indices/Futures (00:30ET)***
- Nikkei +0.6%, Hang Seng +0.2%, Shanghai Composite +0.2%, ASX200 +0.6%, Kospi +0.1%
- Equity Futures: S&P500 flat; Nasdaq flat, Dax flat, FTSE100 +0.1%
***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.1533-1.1505; JPY 112.18-111.78; AUD 0.7987-0.7927; NZD 0.7371-0.7340
- Aug Gold -0.3% at 1,238/oz; Aug Crude Oil flat at $47.30/brl; Sept Copper +0.4% at $2.72/lb
- GLD SPDR Gold Trust ETF daily holdings fall 5.3 tonnes to 816.1 tonnes
- (CN) China PBoC OMO: injects CNY60B in 7 and 14 day reverse repos v CNY140B prior
- USD/CNY *(CN) PBOC SETS YUAN REFERENCE RATE AT 6.7464 V 6.7451 PRIOR
- (NZ) New Zealand sells NZ$200M in 2.75% 2025 bonds; avg yield 2.8190%
- AUD/USD in focus: Following the release of Australia’s June employment data, the Aussie initially gained over 0.3%,but the currency has since reversed gains, as 3-year yields moved off of session highs.
***Equities notable movers***
Australia
- Myer Holdings,MYR.AU Guides FY17 adj Net profit A$66-70M v A$71Me; deputy CEO Daniel Bracken resigns; -9.8%
- Bellamy, BAL.AU To resume trading today, -9.6%
- Mobile Embrace,MBE.AU Settles litigation with GBD Ventures; Under the terms of the settlement, all parties are to be responsible for payment of their own costs; +9%
-Santos, STO.AU Raised FY17 production guidance; +8%
Hong Kong/China (Sunac)
- Sinotruk, 3808.HK Positive Profit alert: H1 Profit to record a substantial increase >400%; +28.8%
- Sunac China Holdings, 1918.HK Reduced asset purchase with Wanda amid debt and regulator concerns; +16%
Japan
- FujiFilm,4901.JP Announces results from Phase II Clinical Trial of "T-817MA" in Patients with Alzheimer's Disease in the United States; +3.8%
New Zealand
- Fletcher Building, FBU.NZ Profit warning, impairment charge and management change; -6%
***US markets on close: Dow +0.3%, S&P500 +0.5%, Nasdaq +0.6%, Russell +0.99% ***
- Best Sector in S&P500: Energy
- Worst Sector in S&P500: Industrials
- Biggest gainers: VRTX +20.8%; SNI +14.7%; MUR +6.7%
- Biggest losers: NTRS -8.4%; GWW -7.0%; NAVI -6.8%
- At the close: VIX 9.79 (-0.1pts); Treasuries: 2-yr 1.36% +0.6%), 10-yr 2.27% (+0.4%), 30-yr 2.85% (-0.01%)
***US Market Summary***
- Stocks continued their rally today, brushing aside concerns on timely implementation of economic reform policies. Nasdaq hit a new all-time high at 6385, rising 41 points. S&P also hit a new all-time close and high, rising 13 points, to close at 2473.
- (US) Trump at a lunch with senators pleaded for them to come together and repeal and replace the Obama healthcare law. He said the GOP had been very close to striking a deal and that lawmakers should not leave town for the summer without reaching an agreement.
- (US) Crude oil stocks declined more than expected. EIA figures showed a reduction of 4.7 million barrels; forecasts had been for a reduction of 3.2 million. WTI crude spiked higher, gaining 1.2% soon after the data release, to trade over $47/bbl for the first time in two weeks.
***US Afterhours Movers***
- PTC Reports Q3 $0.28 v $0.28e, Rev $292M v $291Me; Guides Q4 $0.33-0.38 v $0.38e, R$303-308M v $309Me; Non-GAAP op margin 18-19% ; -10.9% afterhours
- AVA HydroOne to acquire Avista for US$53/shr cash in $5.3B deal; +18.8% afterhours
- HPJ Reports preliminary Q2 gross profit $11-12M v $7.6M y/y, R$50-52M v $36.7M y/y ; +18.4% afterhours
- Notable US corporate earnings in the afterhours included Steel Dynamics, Qualcomm, American Express and T-Mobile US
After Hours Summary: PLXS +6.5%, DWCH +6%, KMI / HAWK / URI +4%, TMUS +3% higher following earnings/guidance, MGM +4% on S&P 500 addition news... PTC -13%, CHRW -9%, BG -3% lower following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: HPJ +22%, SRPT +15.6%, PLXS +6.5%, DWCH +6.3%, TCBI +4.4%, KMI +4.2%, HAWK +4%, URI +3.6%, TMUS +3.1%, AEHR +2.4%
Companies trading higher in after hours in reaction to news: ALIM +5.3% (thinly traded; announced that the United Kingdom's Medicines and Healthcare Products Regulatory Agency (MHRA) has given final approval to reduce the size of its ILUVIEN Registry Safety Study), MGM +3.7% / AOS +0.2% / RMD +0.2% (to join S&P 500), NKE +2.1% (upgraded after hours to Overweight from Equal-Weight at Morgan Stanley; tgt $68)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: PTC -12.6%, CHRW -8.6%, BG -3.4% (expects Q2 adj earnings to be modestly profitable but below low end of the range of analyst estimates primarily driven by challenging ag market conditions; details $250 mln Competitiveness Program), AA -2.5%, QCOM -1.4%, AXP -1.1%
Companies trading lower in after hours in reaction to news: CFRX -10.3% (commences public offering of its common stock and warrants to purchase additional shares of its common stock; all of the securities in the offering are to be sold by ContraFect), RGLS -6.2% (commences common stock offering), GOOD -5.6% (to sell shares of its common stock in an underwritten public offering), WES -4.7% (being attributed to block trade pricing)
Closing Market Summary: Stocks Cruise to Record Highs Again on WednesdayThe Nasdaq (+0.6%) kept on rolling in the midweek session, cruising to its ninth-consecutive victory--which marks its longest winning streak in two years--and a new all-time high. The S&P 500 (+0.5%), the Dow (+0.3%), and the Russell 2000 (+1.0%) also notched new record closes, finishing at their best marks of the day.
Today's win was a team effort with all 11 of the S&P 500's sectors finishing in positive territory. The industrial sector (+0.2%) was the weakest performer while the energy group (+1.4%) was the strongest.
The energy space was underpinned by a positive performance from crude oil, which climbed 1.5% to $47.31/bbl on the heels of a better than expected EIA inventory report. According to the Department of Energy, U.S. crude stockpiles declined by 4.7 million barrels last week while the consensus expected a draw of just 3.5 million barrels.
Elsewhere, the influential health care sector (+0.8%) exhibited strength throughout the session with Vertex Pharmaceuticals (VRTX 159.69, +27.53) leading the charge. VRTX shares spiked 20.8% to a fresh all-time high after the biotech company announced positive clinical trial results for three of its newest Cystic-Fibrosis drugs. Unsurprisingly, the iShares Nasdaq Biotechnology ETF (IBB 319.63, +4.49) finished comfortably ahead of the broader market, climbing 1.4%.
The top-weighted technology sector (+0.6%) advanced for the ninth session in a row, but struggled to keep ahead of the broader market. IBM (IBM 147.53, -6.47) weighed on the group, dropping 4.2%, after reporting a decline in revenue for the 21st quarter in a row. Meanwhile, chipmakers finished modestly ahead of the benchmark index, evidenced by the 0.9% increase in the PHLX Semiconductor Index.
As for the laggards, financials struggled to stay afloat despite relatively upbeat earnings reports from Morgan Stanley (MS 46.62, +1.48) and US Bancorp (USB 52.08, +0.45). MS shares jumped 3.3% after the company reported better than expected earnings and revenues while USB shares added 0.9% after the company beat bottom-line estimates. Still, no matter how small the margin of victory, the financial group (+0.2%) managed to put an end to its three-session losing streak.
Like financials, the industrial group finished at the back of the pack. Transports weighed, sending the Dow Jones Transportation Average lower by 0.6%, with CSX (CSX 51.87, -2.77) and United Continental (UAL 74.24, -4.66) pacing the retreat. Both companies beat earnings per share estimates, with CSX also reporting better than expected revenues, but slipped on relatively unimpressive third-quarter guidance. CSX shares dropped 5.1% while UAL shares slipped a bit further, losing 5.9%.
In the bond market, U.S. sovereign debt finished relatively flat as participants hesitated to alter their positioning ahead of policy statements from two major central banks--the Bank of Japan and the European Central Bank. The BoJ will release its policy decision overnight while the ECB will release its decision tomorrow morning. The benchmark 10-yr yield climbed one basis point to 2.27%.
Reviewing Wednesday's economic data, which was limited to June Housing Starts and the weekly MBA Mortgage Applications Index:
- Housing starts increased to a seasonally adjusted annualized rate of 1.215 million units in June (consensus 1.160 million), up from a revised 1.122 million units in May (from 1.092 million). Building permits increased to a seasonally adjusted 1.254 million in June (consensus 1.196 million), up from an unrevised 1.168 million in May.
- The key takeaway from the report is that there was solid growth in both single-family starts (+6.3%) and permits for single-family homes (+4.1%), both of which are important given the supply constraints in the housing market that have crimped affordability for many prospective home buyers.
- The weekly MBA Mortgage Applications Index rose 6.3% to follow last week's 7.4% decrease.
On Thursday, investors will receive several economic reports, including the July Philadelphia Fed Index (consensus 22.0) at 8:30 ET, the weekly Initial Claims Report (consensus 245K) also at 8:30 ET, and the June Leading Indicators Index (consensus 0.4%) at 10:00 ET.
- Nasdaq Composite +18.6% YTD
- S&P 500 +10.5% YTD
- Dow Jones Industrial Average +9.5% YTD
- Russell 2000 +6.2% YTD
Whole Foods: Jana Partners liquidates 8.2% active stake
Republicans shift gaze to US groups’ $1tn in offshore cash
America’s technology behemoths are at the centre of a debate over US tax reform
Corporate cash piles are increasingly concentrated at a few dozen big companies, making them big potential winners if there is a generous tax break for repatriation as Republicans shift their gaze away from healthcare.
As of end-2016, roughly $1tn of cash was held overseas by 50 US companies, with Apple, Microsoft, Google-owner Alphabet, Cisco and Oracle accounting for $512bn of the figure, according to rating agency Moody’s.
That puts the technology behemoths at the centre of a debate on how to tax profits earned abroad, with the combined overseas cash levels at the five groups more than triple 2010 levels.
The issue will be one of the most charged in the debate over US tax reform, which Republicans are beginning to revive after the collapse of efforts to overhaul American healthcare.
The accumulation of offshore earnings is seen by some as proof that the American tax code makes the US a less attractive place to invest, and by others as a betrayal of their home country by US companies.
The Trump administration has advocated for a 10 per cent tax on offshore earnings to boost government revenues. Tim Cook, the chief executive of Apple, has called the current tax on repatriation of profits earned overseas — which he estimated at about 40 per cent when including state taxes — “crazy”.
To avoid those taxes a host of companies, including the iPhone maker, have tapped bond markets to fund capital expenses, buy back shares and pay dividends to stockholders. That has fuelled an increase in debt alongside the increase in cash and cash-like instruments on the balance sheets of the largest US companies.
There is unusually broad agreement among Democrats and Republicans that the right way to tackle the issue is to impose a one-off “deemed repatriation” tax on the earnings regardless of whether companies bring them home or not.
“But given the divisive political climate in Washington, a one-off tax reduction on repatriated cash, much less a more comprehensive reform of US tax law, is looking increasingly unlikely this year,” said Moody’s analyst Richard Lane.
Disputes have arisen quickly in Washington over where to set the level for the one-off tax. Disagreement is also rife over whether to tax cash and invested earnings differently and over how to handle future offshore income.
Under US law offshore earnings are subject to the country’s 35 per cent corporate income tax rate, but in reality the tax is not levied unless the earnings are repatriated, giving companies an incentive to leave them overseas.
Moody’s calculated overall cash levels rose 9 per cent from a year earlier to $1.84tn for the companies it rates in the US, excluding banks. While that figure has eased concerns over the extent of the pace of debt issuance — corporate bond sales are up 5 per cent from a year earlier, according to Dealogic — its concentration within 50 companies is nonetheless a point of scrutiny for investors.