>>> Asian Update

Asia Mid-Session Market Update: China Caixin manufacturing PMI misses again; BOJ conducts another fixed-rate JGB operation

***US Session Highlights***
- (US) Q4 PRELIMINARY NONFARM PRODUCTIVITY: 1.3% V 1.0%E; LABOR COSTS: 1.7% V 1.9%E; Q3 productivity revised higher
- (US) INITIAL JOBLESS CLAIMS: 246K V 250KE; CONTINUING CLAIMS: 2.06M V 2.06ME
- President Trump reiterates very serious concerns about NAFTA
- (US) House Speaker Ryan (R-WI): Congress must fix health care first, then move to tax reform; Obamacare must be replaced
- (US) Jan ISM New York: 57.7 v 63.8 prior
- (US) House Energy and Commerce Committee plans next week to take up bill to boost generic drug development - press

***US markets on close: Dow flat, S&P500 +0.1%, Nasdaq -0.1%***
- Best Sector in S&P500: Utilities
- Worst Sector in S&P500: Healthcare
- Biggest gainers: MJN +21.4%, CTXS +5.2%, M +5.2%, EQT +5.1%, SWN +5.0%
- Biggest losers: RL -12.3%, ETFC -8.9%, EW -8.5%, R -7.8%, SNA -7.4%
- At the close: VIX 11.9 (+0.1pts); Treasuries: 2-yr 1.22% (+1bps), 10-yr 2.47% (flat), 30-yr 3.08% (flat)

***US movers afterhours***
- DATA: Reports Q4 $0.26 v $0.14e, R$250.7M v $230Me- Non-GAAP op margin 12.3% v 14.9% y/y; Customer account adds +4K; +16.7% afterhours
- FTNT: Reports Q4 $0.30 v $0.21e, R$363M v $352Me; total billings $463.4M, +22% y/y; Non-GAAP Op margin 22% v 16% y/y; +11.1% afterhours
- V: Reports Q1 $0.86 GAAP v $0.78e, R$4.46B v $4.28Be; +3.4% afterhours
- AMGN: Reports Q4 $2.89 v $2.77e, R$5.97B v $5.74Be; +2.5% afterhours
- CMG: Reports Q4 $0.55 v $0.55e, R$1.03B v $1.03Be; -0.5% afterhours
- AMZN: Reports Q4 $1.54 v $1.40e, R$43.7B v $44.9Be; -4.2% afterhours
- ATHN: Reports Q4 $0.62 v $0.51e, R$288M v $303Me; -7.6% afterhours
- GPRO: Reports Q4 $0.29 v $0.21e, R$540.6M v $576Me; -12.5% afterhours
- FEYE: Reports Q4 -$0.03 v -$0.16e, R$184.7M v $192Me; Guides Q1 -$0.28 to -$0.26 v -$0.23e, R$160-166M v $178Me, operating margin -26% to -24%; -17.7% afterhours
- DECK: Reports Q3 $4.11 v $4.24e, R$760M v $787Me; Guides Q4 -$0.10 to $0.00 v $0.43e, Rev -6% to -5% y/y, implies $M v $381Me; Cuts FY17 $3.45-3.55 v $4.15e, Rev -5.0% (prior $4.05-4.25, Rev -3% to -1.5%); -23.0% afterhours

***Asia Key economic data:***
- (CN) CHINA JAN CAIXIN MANUFACTURING PMI: 51.0 V 51.8E (7th consecutive expansion)
- (HK) HONG KONG JAN COMPOSITE PMI: 49.9 v 50.3 PRIOR (in conctraction for 22nd out of 23 months)
- (JP) JAPAN DEC SERVICES PMI: 51.9 (4th consecutive expansion) V 52.3 PRIOR; COMPOSITE PMI: 52.3 (4th consecutive expansion) V 52.8 PRIOR
- (AU) AUSTRALIA JAN AIG PERF OF SERVICES INDEX: 54.5 V 57.7 PRIOR (4th month of expansion)
- (SG) SINGAPORE JAN PMI COMPOSITE: 51.6 V 52.0 PRIOR
- (KR) SOUTH KOREA DEC CURRENT ACCOUNT BALANCE: $7.9B V $8.9B PRIOR; GOODS BALANCE: $9.4B V $10.4B PRIOR

***Asia Session Notable Observations, Speakers and Press***
- Asia indices are tracking lower after a neutral day on Wall St where investors await a critical non-farm payrolls report on Friday; Shanghai Composite has returned for trade after a week-long holiday with a slight decline. Of note in China, the PBoC reverse repo operations saw rates rise 10bps across the maturities.
- USD majors also traded in narrow ranges with the exception of USD/JPY; Initially, the pair dropped abruptly some 40pips to the lows after BOJ's QE operation in 5-10yr merely maintained bond purchase quantity in spite of rising yields; 2 hours later, USD/JPY spiked some 60pips back above 113.20 after BOJ took cue from the bond market and conducted its 2nd fixed-rate unlimited JGB operation since mid-Nov to bring the 10-yr back toward 0.1%. BOJ official confirmed the operation was meant to bring the yield to target. Japan Finance officials also continued to deflect currency criticism from US pres Trump - Fin Min Aso said FX policy is in line with G7 and G20 agreements, adding it is aimed at inflation objectives and not manipulating FX.
- In economic data, China Caixin PMI and Hong Kong PMI were both slightly disappointing; Caixin PMI was in expansion for 7th month but missed consensus amid slower increase in output and new order activity as well as reduction in employment. After last month's jump in Hong Kong PMI to expansion, the figure was back below the 50-threshold - also on contraction in output, new orders, and falling business confidence. Employment, however, saw some marginal improvement.
- In Australia, Services PMI slowed to 54.4 from multi-year high of 57.7 last month, but remain in expansion for the 4th month; Goldman economist also claims that strong economy evidenced by yesterday's record high trade surplus has put the probability of an RBA rate hike this year somewhere at 40% and rising.

China:
- (CN) PBoC said to have raised overnight lending rates on SLF to 3.1% by 35bps - financial press
- (HK) Hong Kong China visitors +3.6% y/y during Lunar New Year holiday - Chinese press
- (HK) Macau China visitors +9.5% y/y during Lunar New Year holiday

Japan:
- (JP) BOJ Gov Kuroda: BOJ still has distance to reach inflation target
- (JP) Japan Econ Min Ishihara: No comment on Trump's claims about currencies - press
- (JP) BOJ official: JGB operation was conducted to implement yield target

Australia/New Zealand:
- (AU) Goldman Sachs economist Toohey: Probability of an RBA rate hike by Nov is "somewhere in the 40s and rising" - AFR
- (NZ) Capital Economics: Markets have priced in up to RBNZ 2 rate hikes in 2017, but CA expects it to remain on hold this year and likely next year - press
- (NZ) New Zealand real estate agency Barfoot & Thompson: Auckland Jan avg house price m/m: flat v -2.0% prior; y/y: 13% v 5.1% prior

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei flat, Hang Seng -0.4%, Shanghai Composite -0.5%, ASX200 -0.4%, Kospi -0.1%
- Equity Futures: S&P500 -0.2%; Nasdaq -0.2%; Dax -0.2%; FTSE100 -0.2%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0745-1.0770; JPY 112.50-113.25; AUD 0.7635-0.7665; NZD 0.7265-0.7295
- Apr Gold -0.4% at $1,215/oz; Mar Crude Oil +0.6% at $53.86/brl; Mar Copper -1.3% at $2.65/lb
- GLD SPDR Gold Trust ETF daily holdings rise 1.5 tonnes to 811.2 tonnes; 2nd straight increase, highest since Jan 6th
- (CN) PBOC SETS YUAN MID POINT AT 6.8556 V 6.8588 PRIOR
- (CN) PBOC to inject combined CNY50B in 7-day, 14-day and 28-day reverse repos v CNY30B on 1/25; raises reverse repos offer yield ; Raises offer yields by 10bps
- (JP) BOJ AGAIN CONDUCTS A FIXED-RATE JGB PURCHASE OPERATION OF UNLIMITED AMOUNTS FOR 5-10YR JGBS
- (JP) BOJ announces amounts to buy in upcoming QE operation; Raises 5-10-yr maturity JGB purchase; To buy ¥450B (¥410B expected) in 5-10yr JGBs, unch from ¥450B purchased on Jan 27th
- (AU) Australia MoF (AOFM) sells A$600M in 5.75% 2022 Bonds; avg yield: 2.2669%; bid-to-cover: 5.18x

***Asia equities / Notables / movers by sector***
- Consumer discretionary: VAH.AU Virgin Australia -2.3%(Q2 result); 1237.HK Merry Garden Holdings +4.1% (guidance); 2432.JP DeNA Co. +3.7% (new smartphone game debuts strongly); MTR.AU Mantra Group +2.1% (Citi raises rating); SWM.AU Seven West Media -2.8% (no allegations of wrongdoing of CEO); 7733.JP Olympus Corp +0.7% (9-month result); 4452.JP Kao Corp +4.1% (FY16 result); 9831.JP Yamada Denki -4.9% (9-month result)
- Financials: 001450.KR Hyundai Marine & Fire Insurance Co +5.1%
- Industrials: 4183.JP Mitsui Chemical -4.1% (9-month result); JHX.AU James Hardie Industries -4.8% (Q3 result); 7261.JP Mazda Motor Corp -2.3% (9-month result)
- Technology: BXB.AU Brambles +2.3% (Morgan Financail raises rating); 7974.JP Nintendo Co. +5.0% (new smartphone game debuts strongly); 5802.JP Sumitomo Electric Industries +7.0% (9-month result);
- Materials: 4202.JP Daicel Corp +6.2% (9-month result); 5406.JP Kobe Steel -6.9% (9-month result)
- Energy: 568.HK Shandong Molong Petroleum Machinery -13.5% (prelim FY16 result)
- Healthcare: IPD.AU ImpediMed Ltd +2.1% (Allan Gray Australia raises rating)
- Telecom: 017670.KR SK Telecom +0.9% (Q4 result); 9433.JP KDDI Corp -1.8% (9-month result)
- Utilities: 5803.JP Fujikura +12.2% (9-month result)

>>> US Close Dow-0.03% S&P+0.06% Nasdaq -0.11% Russell -0.28%


Closing Market Summary: Stock Market Holds Steady On Thursday

Investors held their ground again on Thursday, as the major averages failed to deviate from their flat lines in range-bound action. The S&P 500 (+0.1%) finished just above its flat line, while the Nasdaq (-0.1%) closed just a tick lower. The sideways action took place ahead of tomorrow's release of the Employment Situation report for January (consensus 170k).

On the political front, House Speaker Paul Ryan announced on Thursday that tax reform and infrastructure bills, two key policies that fueled the post-election rally, will have to wait until the spring due to budgetary restrictions. For now, the new administration's focus will be health care reform.

The news did not invite an immediate response from the market, but it could lead to some anxiety as it appears that traders will have to wait a little while longer for validation of the post-election rally. 

Facebook (FB 130.84, -1.41) was the focal point of today's earnings news after the company reported above-consensus earnings and revenue after yesterday's close. However, the stock finished Thursday lower by 1.8% on possible concerns surrounding the company's lackluster year-over-year revenue growth, which slowed down for the third consecutive quarter. Additionally, the stock entered today's session with a 16.0% year-to-date gain, so a muted response to the report wasn't necessarily unexpected.

Apple (AAPL 128.52, -0.23) and Microsoft (MSFT 63.17, -0.41) also had a rough day, losing 0.2% and 0.6%, respectively. Unsurprisingly, the tech sector (+0.1%) never got going on Thursday, but still finished in line with the S&P 500. Elsewhere among influential groups, the financial struggled amid relative weakness in large cap names. The space closed the day 0.4% lower.

Merck (MRK 64.18, +2.08) was the only Dow component to report earnings results on Thursday. The company missed revenue estimates and issued below-consensus guidance before the opening bell. However Merck shares jumped 3.4% as investors appeared more focused on the upcoming milestones for KEYTRUDA, the company's experimental lung cancer treatment. In addition, President Trump's expressed desire to cut industry regulation and speed up the drug approval process has been viewed as a positive for the industry. Merck CEO Kenneth Frazier was among the executives who attended Tuesday's meeting with President Trump at the White House.

On the upside, consumer staples (+0.8%) finished near the top of the leaderboard. The sector profited from positive reactions to quarterly reports from Estee Lauder (EL 82.00, +2.08) and Philip Morris (PM 98.84, +2.89) in addition to a 21.4% spike in the shares of Mead Johnson Nutrition (MJN 84.38, +14.88). The company's huge day came after confirming discussions with Reckitt Benckiser (RBGLY 18.16, +0.64) with respect to its proposal to acquire MJN for $90 per share in cash.

The lightly-weighted utilities (+1.0%) and real estate (+1.3%) sectors neighbored consumer staples at the top of the day's standings. However, the two spaces will enter Friday as the only countercyclical sectors holding week-to-date losses.

U.S. Treasuries held solid gains on Thursday morning, only to squandered them all by the day's close. The benchmark 10-yr yield finished its trading session unchanged at 2.47%.

Today's economic data included Initial Claims and fourth quarter Productivity & Unit Labor:

  • The latest weekly initial jobless claims count totaled 246,000 while the consensus expected a reading of 250,000. Today's tally was below the revised prior week count of 260,000 (from 259,000). As for continuing claims, they declined to 2.064 million from the revised count of 2.103 million (from 2.100 million).
    • The key takeaway from this report is that initial claims continue to run at low levels, as employers appear reluctant to cut their payrolls.
  • Unit labor costs increased 1.7% during the fourth quarter, which was lower than the 1.9% increase that had been anticipated by the consensus. The preliminary productivity reading showed an increase of 1.3%. The consensus expected an increase of 1.0%.
    • The key takeaway from the report is that productivity is low, with the average annual rate of productivity growth from 2007 to 2016 being 1.1% versus the long-term rate of 2.1% from 1947 to 2016. For all of 2016, nonfarm business sector productivity increased 0.2%. Low productivity gets in the way of a rising standard of living.

Tomorrow's economic data will include the Employment Situation report for January (consensus 170k) at 8:30 am ET, while December Factory Orders (consensus 1.4%) and ISM Services (consensus 57.0) will cross the wires at 10:00 am ET.

  • Nasdaq Composite 4.7% YTD
  • S&P 500 1.9% YTD
  • Dow Jones Industrial Average +0.6% YTD
  • Russell 2000 UNCH YTD

Telegraph : The cost of leaving the euro is rising every month for Italy (Pritch

The cost of leaving the euro is rising every month for Italy - http://bit.ly/2jHltf6

Aforensic report by Italy's Mediobanca has landed with explosive force on desks across Rome, Milan, and Turin.

It lays out in minute detail why Italy is finally running out of road after eighteen years of economic depression and eurozone mismanagement. The awful possibility of a full-blown debt crisis in a country that is too big to save - and by now too angry to bully - must be faced head on.

"Our conclusion is that a voluntary debt re-profiling, an Italexit scenario, or a combination will inevitably gain traction with investors," it said.

The report said the optimal moment to leave the euro has already passed - in narrow financial terms - and that it will become progressively more costly to do so as each year passes. Within four years it will become prohibitive.

The message that some may draw is that the country must strike immediately - or very soon - if it wishes to break free of monetary union. "Fare presto" was the telling verdict of Five Star leader Beppe Grillo.

As of today, Italy can still switch half of its €1.9 trillion of traded sovereign debt to lira under the legal prerogative of Lex Monetae on roughly neutral terms, but the argument is that this calculus will shift as new debt with collective action clauses (CACs) displace the old bonds.

Mediobanca's premise is that Italy is heading into a perfect storm as a host of troubles come to the boil and the Italian treasury runs out of buyers. The European Central Bank will soon start to wind down its programme of bond purchases, while new rules on tangible equity will force Italian banks to slash holdings of government bonds by €150bn.

This will take place against a background of US monetary tightening and the Trump reflation shock. Everything is combining to push up real interest rates for an Italian economy still stuck in a low-growth deflationary trap.

For good measure, Brussels is imposing fresh fiscal tightening this year, with "safeguard clauses" to lift VAT tax automatically. The cyclical tailwinds that briefly made Italy appear viable within the euro are now headwinds.

The ECB system has already bought €210bn of Italian debt. This covered the entire budget deficit last year and covered the roll-over of old bonds as others pulled out. "Tapering will leave the Italy without the key buyer of its debt," said the report.

The country will face what Mediobanca calls an "ownership problem" on €1 trillion of debt coming due once the ECB steps back, which may come as soon as this year given the brewing revolt in Germany over inflation.

Italy's creditors will then face a choice: do they offer debt-restructing on friendly terms within monetary union, or do they hold out and wait for the political storm sweeping Italy to smash the eurozone system.

The report, by Antonio Guglielmi and Marcello Minenna, says voluntary debt exchange is the cleanest way to put Italy's debt on a "sustainable path". It could be done by stretching maturities, or by an interest rate haircut, or both.

"Without these changes, the debate regarding a unilateral exit from the eurozone and a consequent return to the lira looks likely to gain momentum based on the political situation on Rome."

They said that 'Italexit' with a cheaper currency and the restoration of "monetary sovereignty" and may be the very medicine needed to rescuscitate the Italian economy, and the Italian people are listening.

"The genie is out of the bottle. Every talk show in Italy is openly discussing whether or not to leave the euro. It is escalating by the day, and sooner or later the market is going to move," said Claudio Borghi, the economic guru of the Lega Nord.

Four political parties are flirting with the lira - led by the Five Star party and the Lega - and they may amass over half the seats in next elections, now likely in June.

Investors are taking precautions. The risk spread on Italian 10-year bonds have spiked to 187 basis points this week and are flirting with pre-crisis levels again - despite the ECB shield.

Mediobanca said the ECB's various schemes (LTRO lending, QE) have essentially financed "capital flight" from Italy, and allowed North European banks to extract their money. The risk has been switched to the eurozone taxpayer, again, a la Grecque.

Over €220bn has left the country and ended up in mutual funds in Germany, Luxembourg, and Holland. This slow break-up of monetary union shows up in the Bank of Italy's liabilities to the ECB in the Target2 payments system, now a record €359bn.

The ECB's Mario Draghi warned in a recent letter to Italian MPs that if a country were to leave the euro, "its national central bank's claims on or liabilities to the ECB would need to be settled in full."

This is dangerous territory. Mr Draghi is stating that Italy's public debt is 20pc of GDP higher than officially acknowledged - 153pc rather than 133pc - in which case why is this not recorded in official debt figures?

Whether or not Italy would in fact owe such Target2 sums is hotly contested. The ECB has until now always rubbished any suggestion that these vast sums (Germany has €754bn in credits) are a stealth bail-out or involve real money. Suddenly Target2 is no longer Monopoly paper after all.

Mediobanca's argument on CAC debt clauses - agreed by EU leaders in December 2012 - is they that make it more difficult to 'redenominate' bonds from euros into lira. The litigation costs no longer make it worthwhile.

As of late last year, the relevant bonds were evenly split. Italy had €932bn of old debt, and €902bn of new CAC debt. The contracts are migrating from one to the other at a pace of €200bn a year. Most of debt stock will be under CAC rules by 2022.

Critics dispute this point. No Italian court would uphold the supremacy of CAC clauses dictated to Italy when it had a gun to its head. "Legal experts have advised us that Lex Monetae overrides everything," said Mr Borghi.

Mediobanca's calculations on gains and losses from leaving the euro are based on the premise that the lira would fall by 30pc. This would raise the costs of all debt that cannot be switched - including €672bn of private liabilities - by an even greater percentage.

Mr Borghi argues that the euro would in fact disintegrate. The drachma and the escudo would plummet. The D-Mark and the guilder would rocket. The franc and the lira - or the new Medici 'Florin', as he calls it - would weaken to varying degrees but not by anything close to 30pc in pan-EMU terms.

Once the boil had been lanced, Italians would shift money back home from accounts in London, Paris, or Munich. The lira would settle down. "We already have a current account surplus. A weaker exchange rate would give us an even bigger surplus, so I don't see why the currency would fall that far," he said.

What all critics of the euro can agree on is that monetary union has been calamitous for Italy. Mediobanca says Italy's productivity rose in lockstep with that of Germany and France for most of the post-war era - with the help of devaluations - but then stalled under monetary union.

There has been no rise in per capita income for eighteen years. Industrial output has dropped back to the levels of the early 1980s. The economy is still 7pc smaller than it was before the Lehman crisis. Two lost decades threaten to become a third. It is worse than anything ever suffered before by a developed economy in peacetime.

Luigi Zingales from Chicago University says the euro is merely a coincidence. The currency happened to be launched just as globalisation and the China shock were starting to hit Italy with asymmetric force, exposing the failures of its education system and mid-tier industries.

This may be true. But it is precisely when you face such a threat that you need a flexible exchange rate and all your sovereign tools to dig yourself out of the hole.

The elemental failure of policy elites in Europe and Italy is that they ignored all the warnings from currency theorists - and indeed ignored from the historic North-South divide that blighted Italy's internal lira union after the Risorgimento, which should have been a salutary warning.

Now it is too late. Italy has gone past the point of no return in monetary union. The markets know it.

(GS) This is NOT the End of the Dollar Bull Run

1. The Dollar is falling, shaking the conviction level of Dollar bulls. What is notable
about this fall is that it coincides with broadly stable nominal rate differentials
(Exhibit 1), in line with front-end market pricing for Fed hikes that is roughly
unchanged since the start of 2017, with about 125 bps priced through end-2019. As
we have emphasized (“Interest Differentials versus Oil as Drivers of Recent Dollar
Moves“, FX Views, November 27, 2016), rate differentials are by far the most
important driver of the Dollar, so this divergence is potentially alarming. This FX
Views examines why the Dollar is falling. Most hypotheses, like better global
growth or a US inflation overshoot, don’t explain why nominal and real rate
differentials are so stable, even as the currency has fallen. We believe the principal
reason for the divergence is “Dollar down” rhetoric from the new administration,
which we think highlights the constraints facing President Trump, rather than likely
outcomes. After all, a policy mix that combines fiscal stimulus and protectionism is
hard to reconcile with a weaker currency, even if that is what the new administration
wants. The last episode when USD diverged meaningfully below rate differentials
began a year ago, when market fears over a large RMB devaluation were building.
That episode lasted over six months, ending with the Nov. 8 election. The current
episode should be shorter, with a good run for US data – our expectation – the tie
breaker.

>>> Facebook: Color on Qtr

  • Aegis Capital raises tgt to $155 from $150. Facebook delivered a stellar quarter that exceeded estimates across the board with 53% ex-FX advertising revenue growth, as the platform, along with Instagram, is taking advertising share. User growth remains solid and overall engagement increased slightly, which is notable given rising competition from Snapchat. Expense guidance was quantified at 40%-50% for GAAP and 47%-57% for non-GAAP (firm had modeled 52.5% non-GAAP entering the results vs mid-40% for consensus). Consistent with the past, expects expenses to come in below guidance.
  • Needham Research notes FB reported strong 4Q16 results, rev of $8.8B, 4% above estimates, and Non-GAAP EPS of $1.41, 9% above estimates. In firm's view, the soundtrack of FB's current strategy? should be the children's song "Anything you can do, I can do better." Within its video tab, FB is clearly targeting YouTube viewers and TV ad spending. Instagram stories and effects and live video emulate Snap's core competence. Buy button experimentation emulates Amazon. Recommendations mirror Yelp, OpenTable, and TRIP. A key FB advantage is it can roll out new offerings to 1.9B MAUs virtually overnight, after another company has iterated to create a successful product.
  • Stifel Research raises tgt to $165 from $155. Facebook beat consensus revenue/EPS by 3%/8% as the company's advertising business maintained its impressive momentum. Despite a difficult y/y comparison with 4Q:15, advertising revenue grew +54% y/y ex-FX to $8.63B. Management guided 2017 GAAP / non-GAAP operating expense growth of 40%-50% / 47%-57% y/y, which was on the high-end of consensus expectations. Despite these investments, firm expects growth in the core business along with ramping contributions from video ads, Instagram, and Messenger / WhatsApp to fuel above-market ad revenue growth for the next several years.
  • Mizuho Securities raises tgt to $148 from $146. FB is entering an investment year, and firm believes the company will need to successfully pivot to video to stem decelerating revenue growth in 2017 and beyond. With Op Ex increasing materially and ad loads decel'g materially, Facebook will need to push users to spend more time through more engaging video content, which in turn should allow the company to push high-CPM video ads across its ~1.9b user base. Firm thinks reaction to the guide will be mixed, and the stock could trade flat to down. However, FB has a penchant investing appropriately and firm could see higher revenue prospects if video ramps up quickly.
  • Pivotal Research lowers tgt to $135 from $147; Cuts to Hold from Buy. Facebook reported yet another very good quarter for 4Q16, with +53% ad revenue growth, as reported. Margins were also strong, with adjusted EBITDA of 68%. However, guidance on expense growth and capital expenditures for next year was higher than its previously forecast. Accounting for these factors, valuation on a YE2017 basis falls to $135 from $147, which is only slightly above current trading levels. Guidance for expense growth provided by management for 2017 reflects an expected acceleration from 2016 levels. GAAP expenses are expected to grow between 40-50% while non-GAAP expenses are expected to grow between 47-57%. By contrast, firm previously expected growth of +31% on a GAAP basis and +43% on a non-GAAP basis. Similarly, capital expenditure expectations for 2017 of $7-7.5bn were also higher than its prior $6bn forecast.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • SFLY -18.9%, (also updates strategic plan / restructuring in 2017; expects to incur 2017 restructuring charges of $15-20 million), EGOV -16.7%
  • MLNX -13.7%, CRUS -10.9%, RL -9.9%, (also announces CEO departure; Jane Nielsen to Lead Execution of the Way Forward plan), SBH -7.9%
  • PRXL -7.6%, NVO -7.5%, QRVO -6.9%, MTW -6.7%, LM -4.7%, DB -4.3%, XEL -4%, EW -3.9%, BBD -3.9%, KEX -3.8%, AZN -3.5%, MET -3.4%
  • SPH -3.3%, AOS -3%, TGI -2%, SYMC -1.9%, (also announces its intention to offer $1.0 billion aggregate principal amount of senior unsecured notes due 2025)
  • CSTM -1.8%, (also commences $625 mln offering of senior unsecured notes due 2025)
  • AGNC -1.7%, (also announces a $750 mln at-the-market offering of common stock)
  • IP -1.7%, VOD -1.4%, HOLX -1.2%, MDU -1.2%, EL -1.2%, CFX -1.1%, SNA -1%, NXTD -0.8%
Other news:
  • VNR -67.6% (files petitions for relief under chapter 11 of the U.S. Bankruptcy Code)
  • STML -34.4% (cautious comments from biotech blogger Adam Feuerstein)
  • AVIR -24.4% (announces top-line data from its double-blind, placebo-controlled Phase 2a study of BTA585 in adults challenged intranasally with respiratory syncytial virus; data indicate there was not a significant reduction in the primary endpoint )
  • CVEO -18.1% (Civeo commences an underwritten public offering of 20,000,000 common shares)
  • CBAY -13.5% (to offer and sell shares of its common stock; size not disclosed)
  • MNKD -8.6% (lower in extend trading after filing a proxy statement for an upcoming special meeting of stockholders under which it will seek approval to effect a reverse stock split )
  • FBP -7.4% ( commences 20 mln common stock offering -- 10 mln shares by funds affiliated with Thomas H. Lee Partners and 10 mln by Oaktree Capital )
  • CORI -3.8% (to offer shares of its common stock in an underwritten public offering)
  • CS -2.2% (in sympathy with DB)
  • AMAG -1.9% (announces results from its definitive PK study; Makena administered subcutaneously demonstrated bioequivalence to the IM injection)
  • LYG -1.2% (in sympathy with DB)
Analyst comments:
  • VFC -2.2% (downgraded to Neutral from Buy at Goldman)
  • JWN -1.9% (downgraded to Sell from Neutral at Goldman)
  • WNC -1.5% (downgraded to Neutral from Overweight at Piper Jaffray)
  • URI -0.9% (downgraded to Hold from Buy at Argus)

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance/SSS:
  • ESIO +10.4%, KLIC +6.9%
  • WFT +6.2%, (also Weatherford and Nabors form alliance for integrated drilling solutions to oil and gas land market in the lower 48 states of the United States)
  • CACI +5.5%, HMY +5.4%, IVAC +5.3%, NOK +4.6%,BRKS +4.3%, ACLS +4.2%, ALL +3.7%, DLPH +3.7%,TSCO +3.6%, COST +3.3%, CAVM +3.1%, PH +3.1
  • CDNS +3%, PM +2.7%, QGEN +2.6%, LCI +2.4%, ING +2.4%, BDX +2.1%, ZUMZ +2%, (Zumiez reports January comps of +9.4% vs -4.6% year ago and -3.4% last month; sees Q4 EPS at or slightly above high end of $0.60-0.66 prior guidance vs $0.64 consensus)
  • AFG +1.5%, IDXX +1.4%, VIRT +1.4%, EXTR +1.3%,MKSI +1.3%, BSX +1.2%, FB +1.1%, MRK +1%, SIRI +1%, KMT +0.9%, RGLD +0.8%, MMC +0.7%
  • CNMD +0.6%, COP +0.5%
M&A news:
  • MJN +26.3% (confirms discussions with Reckitt Benckiser (RBGLY) with respect to its proposal to acquire the outstanding shares of MJN for $90 per share)
  • M +3.4% (NY Post report that exec might be open to possible sale)
Select metals/mining stocks trading higher:
  • MTL +4.5%, SSRI +3.9%, AG +3.4%, GFI +2.9%, SLW+2.4%, ABX +2.4%, GDX +2.4%, PAAS +2.4%, GG+2.4%, HL +2.3%, FSM +2.1%, NEM +2.1%, GOLD +2%
Other news:
  • EYES +19.7% (announces that the German Institute for the Hospital Remuneration System has renewed Status 1 (full approval) for the Epiretinal Prosthesis across 15 hospitals under the NUB1 innovation program)
  • ETRM +6.1% (after closing at highs - up more than 30% on the day)
  • PULM +3.5% (after surging 80% higher on Wed)
  • SND +1.2% (prices 5.95 mln common stock offering at $17.50/share)
Analyst comments:
  • ACIA +3.7% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • SDLP +3.5% (upgraded to Overweight from Equal-Weight at Morgan Stanley)
  • MT +3.4% (added to Conviction Buy List at Goldman)
  • ACHN +3.4% (initiated with a Buy at Ladenburg Thalmann)
  • MPC +2.4% (upgraded to Buy from Neutral at UBS)
  • X +2.3% (upgraded to Buy from Neutral at BofA/Merrill)
  • TSO +1.9% (upgraded to Overweight from Neutral at JP Morgan)
  • TS +1.7% (upgraded to Buy at Stifel)
  • AA +1.4% (upgraded to Overweight from Neutral at JP Morgan)
  • PSO +0.9% (upgraded to Neutral at Credit Suisse)

>>> Ralph Lauren beats by $0.22, reports revs in-line; guides MarQ revenue sligh

--> RL -10.5% broke all support levels

Ralph Lauren beats by $0.22, reports revs in-line; guides MarQ revenue slightly above consensus; CEO Stefan Larsson to step down
  • Reports Q3 (Dec) earnings of $1.86 per share, excluding non-recurring items, $0.22 better than the Capital IQ Consensus of $1.64; revenues fell 11.9% year/year to $1.71 bln vs the $1.71 bln Capital IQ Consensus.
  • In terms of guidance for Q4 (Mar), co expects revenue to be down mid-teens vs consensus of a -17% decline.
  • Co also announces that CEO Stefan Larsson and the company have mutually agreed to part ways. Stefan Larsson will stay on until May 1, 2017. A search for a new CEO will be conducted. Co will continue to execute the Way Forward plan announced in June 2016, and CFO Jane Nielsen will lead execution of the plan until a new CEO is hired.
  • Co says it continued to drive the execution of the Way Forward plan -- refocusing and evolving its iconic product core, cutting lead times, and aligning supply with demand -- to put the foundation in place to drive demand back to the business.
  • Specifically, in DecQ, the co re-focused and evolved its iconic core product offering for Fall 2017; continued to drive quality of sales up by moderating discount levels across retail and wholesale; lowered inventory levels by 23% to better match demand; reduced SKUs for Spring 2017 by over 20%; significantly improved its ability to match supply to demand by reducing pre-market commitments to 15% of inventory buys for Fall 2017 from 60% for Fall 2016; platformed all of its core fabrics, accounting for about 50% of unit volume; co remains on track to get halfway to its goal of a 9-month lead time by the end of this fiscal year and 90% there by the end of next fiscal year.
  • Co expects its FY17 restructuring activities to result in approximately $180-$220 mln of annualized expense savings related to its initiatives to streamline the organizational structure and right-size its cost structure and real estate portfolio. Co expects to incur restructuring charges of about $400 mln as a result of the FY17 restructuring activities and a $150 mln inventory charge associated with its Way Forward plan. These charges are expected to be substantially realized by the end of FY17.