>>> What to look at today - 12th of January 2017

Dow +0.50% S&P +0.28% Nasdaq +0.21% Russell +0.17%
US Market closed higher. stock market held a modest gain going into President-elect Trump's first news conference since winning the presidential election. However, the market gave back all of its gains and more after Mr. Trump expressed a desire to bring back pharmaceutical operations to the United States and voiced support for competitive drug price bidding. IBB Closed down -3%. No comments made on infrastructure spending. Telecom services (-0.5%) and real estate (-0.5%) also finished in negative territory, while the remaining eight spaces closed in the green. Energy (+1.2%) topped the day's leaderboard, piggybacking on crude oil's climb. The commodity finished higher by 2.7% at 52.20/bbl amid reports that Saudi Arabia, the world's top exporter, plans to cut supply to Asia. Crude extended its gain despite a big inventory build that was revealed by the latest stockpile data. Technology closed higher again. US After Hours AAOI +20% and KBH +3.4% earnings/guidance strength lifting optical and homebuilder names. Asian equity markets are mixed, but the sentiment may be turning more bearish as evidenced by a 7pt slide in S&P emini futures and a rally in JPY, leading to outsized declines in Tokyo stocks. Shanghai Composite is still marginally positive, though S&P/ASX200 is slightly lower. In FX majors, USD/JPY is down some 100pips from the highs below ¥114.50, GBP/JPY is at 6-week lows below ¥140, and EUR/JPY down 80pips below ¥121.40. Brazil central Bank cut rates by a wider than expected 75bps (50bp expected) to 13.00% - the largest cut since 2012. BCB also lowered its 2017 and 2018 inflation projections as it signalled an intensification of monetary easing to address disinflation, weak economic growth, and expectations of more uncertainty in global economy. MOFCOM spokesman Sun Jiwen: China faces big trade downward pressure this year.

Nikkei -1.19% Hang Seng -0.61% CSI -0.29% Shanghai -0.33%

Eur$ 1.0630 CNH 6.8880 CNY 6.9097 JPY 114.32 GBP 1.2239 CHF 1.0102 RUB 59.73 WTI$ 52.34 +0.17%

S&P -0.25% EuroStoxx -0.12% FTSE -0.07% Dax-0.10% SMI -0.79%

Macro :
- Fed’s Dudley Says Economy Needs Trustworthy Banking System
- U.S. Said to Prepare WTO Complaint Against China on Aluminum
- E&P M&A Not Seen Occurring, SocGen Says; COP, ECA, PXD Upgraded

Keep an eye on :
- ATLN VX : J&J, Actelion Said to Reach Tentative Agreement on Price
- AF FP : Air France CEO Sees ‘Difficult Year’ as Oil, Interest Rates Rise
- AREVA FP : Areva Says French Govt May Offer EU4.5/Shr to Minority Investors (vs 5.20 closed on th 10th of Jan)
- BAYN GY : Bayer, Monsanto CEOs Met With Trump to Pitch Merger: WSJ
- ENI IM : Eni Says EST Plant at Sannazzaro Refinery Still Shut After Fire
- RACE IM : Formula One may have Ferrari as shareholder - Carlo Festa Blog
- FCA IM : Fiat Chrysler Names Daphne Zheng China COO Effective Immediately
- FCA IM : FCA CEO Said to See Good Chance of Hitting 2018 Targets: Reuters
- GSK LN : Glaxo Rejected in IPR Requests of Two FibroGen Patents
- HLE GY : Hella Increases 1H Rev., Adjusted Ebit, Confirms FY Guidance
- HSBA LN : HSBC to Pay $45 Million to Settle Euribor Price-Fixing Case
- LSE LN : Draghi: ECB Must ‘Carefully’ Analyze Deutsche Boerse-LSE Merger
- MS IM : Fininvest Says Co. Didn’t Receive Any Proposal From Vivendi
- MERY FP : Mercialys: 2016 Full-Year Activity: Excellent Performance in a Challenging Market Environment
- NDA SS : Nordea Vice Chairman Ehrling May Leave Board, DI Reports
- NOVN VX : Novartis Drug Backed by U.K.’s NICE for Advanced Kidney Cancer
- CFR VX : Richemont 3Q LFL Sales Rise 5%, Beating Estimates as Asia Gains
- SAND SS : Sandvik May List SMT Unit on Stockholm Stock Exchange, DI Says
- SHP LN : Irish Drugmaker Shire Will Pay $350 Million Over Kickbacks
- SW FP : Sodexo 1Q Sales Decline 2.2%, Hurt by Weakness in France
- SZU GY : Suedzucker Raises Full-Year Profit Forecast
- UBI IM : UBI Offers 1 Euro for ‘Good Banks’ Marche, Etruria, Chieti
- VIV FP : Fininvest Says Co. Didn’t Receive Any Proposal From Vivendi
- VOW3 GY : Lower Saxony Says VW Deal With U.S. ‘Significant Progress’
- VOW3 GY : VW Pleads Guilty as U.S. Charges Five More in Diesel Scandal

>>> Europe : Brokers Upgrades & Downgrades - 12th of January 201

>>> Up
*Adecco Raised to Hold at Deutsche Bank
*Aegon Raised to Buy at SocGen
*Balder Raised to Hold at Nordea Securities, PT SEK175
*Banco Popular Raised to Buy at HSBC, PT EU1.45
*Bankinter Raised to Hold at Fidentiis Equities, PT EU7.75
*CaixaBank Raised to Buy at Fidentiis Equities, PT EU3.60
*Conoco Raised to Buy at SocGen
*Hays Raised to Hold at Deutsche Bank
*Liberbank Raised to Buy at Fidentiis Equities, PT EU1.20
*Pagegroup Raised to Hold at Deutsche Bank
*Prudential Raised to Hold at SocGen
*Randstad Raised to Hold at Deutsche Bank
*SEB Raised to Buy at SocGen, PT SEK107
*UBS Raised to Buy at SocGen
*Unibail-Rodamco Raised to Buy at ING

>>> Down
*CaixaBank Cut to Hold at HSBC, PT EU3.24
*Cobham Cut to Sell at SocGen, PT 132p
*Disney Cut to Sell at Pivotal, PT $85
*Handelsbanken Cut to Sell at Arctic Securities, PT SEK108
*Hanover Cut to Underperform at KBW, PT $81
*Hufvudstaden Cut to Sell at Nordea Securities, PT SEK134
*Inmarsat Cut to Neutral at Citi
*Jumbo Cut to Neutral at Beta Securities, PT EU13.60
*Publicis Cut to Hold at Pivotal, PT EU73
*SEB Cut to Hold at Arctic Securities, PT SEK100
*Wallenstam Cut to Sell at Nordea Securities, PT SEK62
*Wereldhave Cut to Hold at ING
*Wolseley Cut to Hold at Liberum
*WPP Cut to Hold at Pivotal, PT 1820p
*Zurich Ins. Cut to Sell at SocGen, PT CHF235

>>> PT Change


>>> Initiation
*CNP Assurances Rated New Hold at SocGen, PT EU18
*Deutsche Wohnen Rated New Neutral at Natixis, PT EU32
*Elis Rated New Neutral at Credit Suisse, PT EU17.50
*Granges Rated New Buy at ABG Sundal, PT SEK126
*Kaufman & Broad Rated New Buy at Oddo & Cie, PT EU43
*Kid Rated New Buy at Fondsfinans, PT NOK45
*LEG Immobilien Rated New Reduce at Natixis, PT EU68
*Uniper Rated New Buy at Goldman, PT EU16.60
*Volati Rated New Hold at Nordea Securities, PT SEK78
*Vonovia Rated New Neutral at Natixis, PT EU32
*Wirecard Rated New Outperform at KBW, PT EU52
*Worldpay Rated New Outperform at KBW, PT 330p

>>> Call
>> Sector
*European Staffing Sector View Raised to Hold at Deutsche Bank

Elec­tra­bel et EDF en­terrent les re­cours contre la taxe nu­cléaire

Elec­tra­bel et EDF en­terrent les re­cours contre la taxe nu­cléaire

C’est of­fi­ciel: les pro­prié­taires des cen­trales nu­cléaires belges re­noncent à toutes leurs pro­cé­dures contre la taxe nu­cléaire. La fin d’un conflit en­tamé en 2008.

La mi­nistre de l’Éner­gie Ma­rie-Chris­tine Mar­ghem (MR) a reçu ce mardi – à 16 heures 24, pré­cise-t-elle – une lettre d’Elec­tra­bel confir­mant son dé­sis­te­ment pour le re­cours en­core pen­dant contre la taxe nu­cléaire de­vant la Cour consti­tu­tion­nelle. "Nous de­man­dons éga­le­ment le re­trait de la plainte que nous avions in­tro­duite de­vant la Com­mis­sion eu­ro­péenne. Et avec l’État belge, nous al­lons de­man­der la mise au rôle gé­né­ral de l’af­faire en­core pen­dante de­vant la Cour d’ap­pel. Nous re­ti­rons donc toutes nos pro­cé­dures en la ma­tière", confirme Anne-So­phie Hugé, porte-pa­role d’Elec­tra­bel.

EDF Bel­gium et EDF Lu­mi­nus ont confirmé la même dé­marche dans un cour­rier reçu par la mi­nistre le 6 jan­vier: ils re­noncent à tous les re­cours pen­dants et nou­vel­le­ment in­tro­duits contre la taxe nu­cléaire.

La conven­tion d’ap­pli­ca­tion

Avec le vote de la loi sur la taxe nu­cléaire nou­velle mou­ture le 22 dé­cembre der­nier et sa pu­bli­ca­tion au Mo­ni­teur belge le 29 dé­cembre, la conven­tion conclue entre l’État belge et Elec­tra­bel est en effet enfin en­trée en vi­gueur. Une conven­tion si­gnée le 30 no­vembre 2015 au­tour de la pro­lon­ga­tion de Doel 1 et 2, et qui pré­voit qu’une fois la conven­tion d’ap­pli­ca­tion et aussi long­temps que l’État belge res­pecte ses en­ga­ge­ments, Elec­tra­bel et sa mai­son-mère Engie s’en­gagent à sus­pendre leurs re­cours por­tant sur les taxes nu­cléaires pour les an­nées 2008 à 2014, et à ne pas en in­tro­duire de nou­veaux.

"C’est une si­tua­tion com­plète-ment as­sai­nie et clô­tu­rée, ce qui est une bonne nou­velle." Ma­rie-Chris­tine Mar­ghem
EDF Lu­mi­nus, qui dé­tient une par­ti­ci­pa­tion d’un peu plus de 10% dans les quatre ré­ac­teurs les plus ré­cents, et EDF Bel­gium, qui dé­tient 50% de Ti­hange 1, s’étaient en­ga­gés à faire de même, une fois les mo­da­li­tés de la conven­tion d’ap­pli­ca­tion.

"Je tiens à dire que c’est une si­tua­tion com­plè­te­ment as­sai­nie et clô­tu­rée, ce qui est quand même une bonne nou­velle", a sou­li­gné Ma­rie-Chris­tine Mar­ghem mardi en com­mis­sion éco­no­mie de la Chambre, où elle était in­ter­ro­gée par l’Ecolo Jean-Marc Nol­let sur la ques­tion.

Pro­cé­dures en pa­gaille

C’est la fin d’un long bras de fer ju­di­ciaire, qui avait été en­tamé en 2008. À l’époque, le mi­nistre de l’Éner­gie Paul Ma­gnette (PS) avait im­posé une taxe de 250 mil­lions aux pro­duc­teurs d’élec­tri­cité d’ori­gine nu­cléaire. Fin 2011, Mel­chior Wa­the­let (cdH) l’avait fait pas­ser à 550 mil­lions d’eu­ros, avec des ris­tournes en cas d’in­dis­po­ni­bi­lité des ré­ac­teurs.

Une taxe contre la­quelle Elec­tra­bel et EDF se sont bat­tus avec toutes les armes pos­sibles:

• Pas moins de quatre re­cours en an­nu­la­tion ont été in­tro­duits de­vant la Cour consti­tu­tion­nelle concer­nant cette taxe par les pro­prié­taires des ré­ac­teurs – res­pec­ti­ve­ment pour les an­nées 2008, 2012, 2013 et 2014. Les trois pre­miers ont été re­je­tés, la Cour don­nant rai­son à l’État belge. Le qua­trième était tou­jours pen­dant.

• Elec­tra­bel avait aussi ré­clamé le rem­bour­se­ment des sommes ver­sées de 2008 à 2011 de­vant le tri­bu­nal de pre­mière ins­tance de Bruxelles. Sa de­mande avait été re­je­tée, mais Elec­tra­bel avait in­ter­jeté appel – une pro­cé­dure qui était elle aussi tou­jours en cours.

• Elec­tra­bel avait aussi in­tro­duit en sep­tembre 2014 une plainte de­vant la DG Concur­rence de la Com­mis­sion eu­ro­péenne contre les taxes de 2008 à 2013, es­ti­mant que ne viser que les pro­duc­teurs d’élec­tri­cité nu­cléaire re­ve­nait à ac­cor­der une aide d’État illé­gale aux autres pro­duc­teurs d’élec­tri­cité.

• Cou­rant 2016, EDF Lu­mi­nus et EDF Bel­gium avaient in­tro­duit un nou­veau re­cours de­vant la Cour consti­tu­tion­nelle, vi­sant cette fois la taxe de 2015 – mais sans Elec­tra­bel cette fois. Un re­cours in­tro­duit à titre conser­va­toire, ex­pli­quait alors EDF Lu­mi­nus, toutes les lois né­ces­saires pour que la conven­tion entre en vi­gueur n’ayant pas en­core été ef­fec­ti­ve­ment vo­tées.

C’est au­jour­d’hui chose faite. Pour rap­pel, trois sys­tèmes se com­binent dé­sor­mais: une re­de­vance va­riable sur Ti­hange 1, une re­de­vance for­fai­taire de 20 mil­lions sur Doel 1 et 2, et une taxe va­riable sur les autres ré­ac­teurs, fixée à 38% de la marge de pro­fi­ta­bi­lité, avec un mi­ni­mum de 150 mil­lions d’eu­ros pour les trois pre­mières an­nées, 2017, 2018 et 2019.

>>> US After Hours Summary: AAOI +20% and KBH +3.4% earnings/guidance


After Hours Summary: AAOI +20% and KBH +3.4% earnings/guidance strength lifting optical and homebuilder names

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: AAOI +20.1%, LTRX +13.6%, VISI +5.2%, KBH +3.4%

Companies trading higher in after hours in reaction to news: HSGX +41.4% (announces an online publication in the American Journal of Sports Medicine; results from the two studies indicate that NeoCart is a safe & effective treatment for articular cartilage lesions through 5-year follow-up), ALIOY +4.9% (Bloomberg sources indicated Johnson & Johnson / Actelion agreed to price), STM +3.8% (still checking), BW +2.7% (Babcock & Wilcox Enterprises acquired Universal Acoustic & Emission Technologies effective today; expected to be accretive in 2017), GPAC +2.4% (enters into definitive merger with Sequel Youth and Family Services), ELY +1.4% (ticking higher; acquires OGIO International for $75.5 mln in an all-cash transaction; Callaway's management expects the acquisition to be immediately accretive to earnings)

Optical stocks are higher following Applied Optoelectronics guidance raise: OCLR +3.7%, LITE +2.9%, FN +1.4%, NPTN +0.9%, ACIA +0.8%, INFN +0.5%

A few homebuilders are higher following KBH earnings: PHM +0.6%, DHI +0.4%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: DRWI -25.9%

Companies trading lower in after hours in reaction to news: MYOS -9.4% (after closing near highs -- up 25% on the day --  the company confirmed Court has granted it the preliminary restraints that it requested against RENS Agriculture), NAK -9% (announces $25 mln bought deal; syndicate agreed to purchase 13.52 mln common shares at $1.85/offered share), DXTR -8.2% (after making 80% move higher on Wednesday), BTUUQ -6.9% (modestly pulling back), KOS -4% (announces secondary public offering of common shares), ABIO -3.6% (thinly traded; enters into a Capital on Demand Sales Agreement with JonesTrading Institutional Services to offer and sell shares of common stock having an aggregate offering price of up to $7.3 mln)

>>> Asian Update

Asia Mid-Session Market Update: USD extends post-Trump conference decline; S&P urges more governance in China bond market; Brazil cuts more than expected

***US Session Highlights***
- (US) MBA MORTGAGE APPLICATIONS W/E JAN 6TH: 5.8% V 0.1% PRIOR
- (US) Jan IBD/TIPP Economic Optimism: 55.6 v 54.8 prior
- (US) DOE CRUDE: +4.1M V +0.5ME; GASOLINE: +5.0M V +1.5ME; DISTILLATE: +8.4M V +0.5ME; US production jumped 176K barrels on the week to 8.95M bpd, highest since April 2016
- British Pound falls to lowest levels since Oct Brexit
- President-elect Trump addresses Russian intelligence report, drug pricing, defense spending, bringing jobs back to US, repealing Obama care and steps taken to separate from business dealings in first press conf since election

***US markets on close: Dow +0.5%, S&P500 +0.3%, Nasdaq +0.2%***
- Best Sector in S&P500: Materials
- Worst Sector in S&P500: Healthcare
- Biggest gainers: FSLR +4.8%, CF +4.5%, RIG +4.0%, AES +3.9%, ALB +3.8%
- Biggest losers: ENDP -8.5%, PRGO -6.9%, MNK -6.2%, BMY -5.3%, ALXN -4.9%
- At the close: VIX 11.3 (-0.2pts); Treasuries: 2-yr 1.17% (-1bps), 10-yr 2.37% (-1bps), 30-yr 2.96% (-1bps)

***US movers afterhours***
- HSGX: Announces publication of MRI data from NeoCart phase 1 and phase 2 clinical trials in the American Journal of Sports MedicineHistogenics announces the online publication in the January 2017 issue of the American Journal of Sports Medicine; +44.7% afterhours
- AAOI: Reports prelim Q4 $0.77-0.82 v $0.50e, R$84.5-84.8M v $77.4e (prior $0.46-0.51, $75-$79M); +19.7% afterhours
- KBH: Reports Q4 $0.40 v $0.37e, R$1.19B v $1.16Be; +2.4% afterhours
- ELY: Acquires OGIO International, Inc. for $75.5M all cash transaction' +1.4% afterhours

***Politics***
- (HK) Hong Kong Chief Sec Lam resigns - local media
- (US) Pharma lobby spokesperson: committed to working with Pres-elect Trump and Congress to boost US competitiveness and protect jobs - press

***Asia Key economic data:***
- (BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 75BPS TO 13.00%; MORE THAN EXPECTED (Largest cut since Apr 2012)
- (JP) JAPAN NOV CURRENT ACCOUNT BALANCE: ¥1.42T V ¥1.46TE; ADJUSTED CURRENT ACCOUNT: ¥1.80T V ¥1.87TE; TRADE BALANCE: ¥313.4B V ¥254BE
- (JP) JAPAN DEC BANK LENDING (INC TRUSTS) Y/Y: 2.6% V 2.4% PRIOR; BANK LENDING (EX- TRUSTS) Y/Y: 2.6% V 2.5%E
- (NZ) NEW ZEALAND DEC ANZ COMMODITY PRICE M/M: 0.7% v 3.2% PRIOR
- (KR) South Korea Nov Bank Lending to Households (KRW): 708.0T v 704.5T prior

***Asia Session Notable Observations, Speakers and Press***
- Asian equity markets are mixed, but the sentiment may be turning more bearish as evidenced by a 7pt slide in S&P emini futures and a rally in JPY, leading to outsized declines in Tokyo stocks. Shanghai Composite is still marginally positive, though S&P/ASX200 is slightly lower.
- In FX majors, USD/JPY is down some 100pips from the highs below ¥114.50, GBP/JPY is at 6-week lows below ¥140, and EUR/JPY down 80pips below ¥121.40. USD has been on the defensive in general amid disappointment that President-elect Trump's news conference had more to do with deflecting damaging press speculation related to his history with Russia rather than offering more detail about his fiscal priorities. Gold tracked USD weakness to the upside, approaching $1,200/oz level.
- Brazil central Bank cut rates by a wider than expected 75bps (50bp expected) to 13.00% - the largest cut since 2012. BCB also lowered its 2017 and 2018 inflation projections as it signalled an intensification of monetary easing to address disinflation, weak economic growth, and expectations of more uncertainty in global economy.
- Outside that rate decision, economic data were limited to Japan showing slightly narrower Current Account surplus and bank lending topping expectations/prior growth.
- S&P reflected on the turbulence in the China bond market, expressing the need for better governance to prevent "inconspicuous trading practices and aggressive risk-taking." Also of note in China, PBoC was set modestly firmer, NDRC chairman reiterated economy is stable but facing increasing risks, and top developer Vanke was halted on speculation a shareholder may disclose an amended stake.

China:
- (CN) China to raise fuel prices: gasoline price by CNY70/ton; diesel prices by CNY70/ton; effective tomorrow - financial press citing ICIS
- (CN) S&P: Ineffective risk governance may impede China bond market
- (CN) China Commerce Ministry (MOFCOM) spokesman Sun Jiwen: China faces big trade downward pressure this year
- (CN) US-China Business Council: Trade with China supports about 2.6M US jobs, including jobs created directly in the US - Chinese press
- (CN) China NDRC Head: Economy is generally stable, continuing momentum from H2 2016

***Asian Equity Indices/Futures (23:00ET)***
- Nikkei -1.2%, Hang Seng -0.3%, Shanghai Composite +0.2%, ASX200 -0.2%, Kospi +0.1%
- Equity Futures: S&P500 -0.2%; Nasdaq -0.2%, Dax -0.2%, FTSE100 -0.1%

***FX ranges/Commodities/Fixed Income (23:00ET)***
- EUR 1.0570-1.0610; JPY 114.50-115.50; AUD 0.7430-0.7465; NZD 0.7045-0.7080
- Feb Gold +0.5% at 1,197/oz; Feb Crude Oil -0.4% at $52.18/brl; Mar Copper flat at $2.60/lb
- SLV: iShares Silver Trust ETF daily holdings fall to 10,524 tonnes from 10,612 tonnes prior; lowest since July 5th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9141 V 6.9235 PRIOR; strongest Yuan setting since Jan 6th
- (CN) PBOC to inject combined CNY110B in 7-day and 28-day reverse repos v CNY120B prior
- (JP) BOJ offers to buy ¥410B in 5-10yr JGBs, ¥190B in 10-25yr JGBs and ¥110B in JGBs with maturity over 25-yr

***Asia equities / Notables / movers by sector***
- Consumer discretionary: Nexon Co 3659.JP -1.9% (Credit Suisse cuts to neutral); Kewpie Corp.2809.JP +6.0% (annual result); FamilyMart Uny Holdings 8028.JP -5.7% (Mizuho cuts rating)
- Consumer staples: Bellamy's Australia BAL.AU -16.8% (analysts expect turnaround may take time)
- Financials: Central China Real Estate 832.HK +1.9%, Everbright Securities Co 6178.HK -0.7%, China Overseas 688.HK +1.6% (Dec result); Steadfast SDF.AU +6.1% (Credit Suisse raises rating); China South City Holdings 1668.HK +5.5% (shareholder to sell stake)
- Industrials: Hanjin Shipping Co 117930.KR +25.5% (trading resumes); Hyundai Glovis Co 086280.KR +4.5% (Nomura raises rating)
- Materials: BC Iron BCI.AU +20.0% (raises guidance); Energy Resources of Australia ERA.AU +16.2% (Q4 result); Medusa Mining MML.AU -10.4% (cuts guidance)
- Energy: Tonengeneral Sekiyu 5012.JP +2.3% (Daiwa raised to outperform); Cosmo Energy Holdings Co 5021.JP +6.4% (Daiwa raises rating); JX Holdings 5020.JP +1.9% (Daiwa raises rating)
- Healthcare: Blackmores BKL.AU +3.2% (positive on China sales); Takeda Pharmaceutical Co 4502.JP -2.6% (S&P revised outlook to Watch Negative)

>>> US Close Dow +0.50% S&P +0.28% Nasdaq +0.21% Russell +0.17%

Closing Market Summary: Stock Market Closes Wednesday Modestly Higher

The major averages closed Wednesday's session in the green with the S&P 500 adding 0.3%. The Dow outperformed the benchmark index with a 0.5% gain.

The stock market held a modest gain going into President-elect Trump's first news conference since winning the presidential election. However, the market gave back all of its gains and more after Mr. Trump expressed a desire to bring back pharmaceutical operations to the United States and voiced support for competitive drug price bidding. The biotechnology industry plunged immediately, with the iShares Nasdaq Biotechnology ETF (IBB 278.04, -8.31) closing lower by 3.0%. Most sectors returned to or above their pre-conference levels in the afternoon, but health care (-1.0%) could not overcome biotechnology's sizable blow. Investors hoping to hear about President-elect's infrastructure spending plans came away empty handed.

Telecom services (-0.5%) and real estate (-0.5%) also finished in negative territory, while the remaining eight spaces closed in the green. Energy (+1.2%) topped the day's leaderboard, piggybacking on crude oil's climb. The commodity finished higher by 2.7% at 52.20/bbl amid reports that Saudi Arabia, the world's top exporter, plans to cut supply to Asia. Crude extended its gain despite a big inventory build that was revealed by the latest stockpile data.

The top-weighted technology space (+0.7%) also finished near the top of the standings after an afternoon push from some of its top components. For instance, Apple (AAPL 119.75, +0.64), Facebook (FB 126.09, +1.74), and IBM (IBM 167.75, +2.23) advanced between 0.6% and 2.2%. Chipmakers also provided a boost as the PHLX semiconductor Index closed up 0.4%.

Financials (+0.5%) erased their week-to-date loss that was carried into Wednesday's session. The sector rallied to a session high during late afternoon action.

Cyclical sectors have a commanding lead for the week, as five of the six are in positive territory. Materials and technology set the pace with week-to-date gains of 0.9% and 0.7%, respectively. Conversely, all five defensive sectors are posting week-to-date losses with real estate (-2.4%) leading the retreat.

U.S. Treasuries finished the trading day modestly higher after the Treasury's $20 billion 10-year reopening auction drew a high yield of 2.342% on a bid-to-cover of 2.58x. The 10-yr yield closed one basis point lower at 2.37%.

Wednesday's lone economic report was the MBA Mortgage Index, which increased 5.8%.

Tomorrow's economic data will include December Import/Export Prices and Initial Claims (consensus 235k) at 8:30 am ET, followed by the Treasury Budget at 2:00 pm ET.

  • Russell 2000 +1.2% YTD
  • Dow Jones Industrial Average +1.0% YTD
  • S&P 500 +1.6% YTD
  • Nasdaq Composite +3.4% YTD

(Gavekal) VIX Flirting with Pre-GFC Lows, Uncertainty at All-Time Highs. Huh?

VIX Flirting with Pre-GFC Lows, Uncertainty at All-Time Highs. Huh? - http://bit.ly/2j8VwJ5
Recently, we have highlighted a number of divergent trends between ‘soft’ data and ‘hard’ data in both Europe and the US. For the most part, improving survey responses remain unconfirmed by the quantifiable information currently available. The surge in the economic policy uncertainty index is no exception.
In 2016, uncertainty rose around the world, led by the UK (unsurprisingly).
With that rise in policy uncertainty, we would have expected to see an increase in market volatility. After all, through 2015, major spikes in the simple average of the above policy uncertainty indexes coincided with a significant (above 30) rise in the VIX.
Last year, with the exception of a Brexit-related spike to 26 and an even smaller surge in reaction to the US election in November, the VIX averaged just under 16 (about 25% lower than its ten-year average of more than 21).
While the average level of economic policy uncertainty fell somewhat from November to December, it remains quite elevated versus the VIX at 11.49 today (about one point above its low near 10 back in early 2007).
In a reversal of the trends we have observed elsewhere (positive survey data, unconfirmed by the numbers themselves), the ‘hard’ data here seems to be telling us everything is a-ok while the policy uncertainty data would indicate cause for concern.

(ZH) BlackRock's Robo-Quants Are On Pace To Post Record Losses

BlackRock's Robo-Quants Are On Pace To Post Record Losses


With active managers losing billions in assets under management weekly, in many cases regardless of performance, as the great tsunami sweep funds away from the "2 and 20" (or even 0.5% and nothing) crowd to passive management, funds have become increasingly desperate to figure out how to preserve this dying business model, with its high fees and generous margins, in a time when the asset management - whether passive or active - industry can barely outperform the stock market. In the case of Blackrock, that has meant fusing active management with robotic quants, and the result has been... a debacle.
According to Bloomberg, BlackRock’s main quantitative hedge-fund strategies, which like RenTec but only with far less success, use computer models to sort through vast amounts of data to pick out patterns, were on track for losses in 2016, and of the strats, four were set for their worst returns on record, data through November showed. A separate investor presentation with a broader quant lineup showed that almost two-thirds underperformed.
Blackrock joined many other traditional hedge fund managers in the shift to quant investing last year in hopes of scooping up that elusive extra alpha; Fink combined the group, which previously had been one of the asset manager's top performers, with the stock-picking unit early last year to lift returns and lure clients to higher-fee products. Demand for low-cost exchange-traded funds helped BlackRock maintain its position as the world’s biggest asset manager, but also has led to record withdrawals from its U.S. active funds business and chipped away at revenue.
Kyle Sanders, an analyst at Edward Jones, told Bloomberg that "quant is key to salvaging BlackRock’s active business. This is one way to improve their performance and distinguish themselves from the pack. Unfortunately, they have yet to deliver.” The silver lining is that with much of the rest of Wall Street's quants also "failing to distinguish" themselves, at least Blackrock does not stand out.
As Bloomberg accurately notes, BlackRock’s quant push reflects the broader pressures convulsing the money management industry. High costs and middling returns (thanks central bankers) have caused investors to spurn active managers in favor of ETFs. To cope, many managers have turned to computer-driven strategies to gain an edge. That even includes some of the most storied names in the hedge-fund world, like Paul Tudor Jones and Ray Dalio, who have jumped on the quant bandwagon to bolster performance - and justify their hefty fees. The only problem is that many, if not all, of these quants systems use the same signals, which leads to not only massive crowding and a reduction in liquidity, it makes outperformance virtually impossible as everyone chases the same trades.
Putting the company's attempt to revive its active-quant business in context, at $282 billion, BlackRock’s active equity business constitutes just a small part of the $5.1 trillion behemoth. Still, it’s an important one for BlackRock because the funds carry much higher fees than its ETFs. For example, the $21.7 billion BlackRock Equity Dividend Fund has an expense ratio of 0.69 percent, data compiled by Bloomberg show. That’s 17 times higher than its $92.1 billion iShares Core S&P 500 ETF, which has an expense ratio of just 0.04 percent. This means that in the first nine months of 2016, its active equity business alone accounted for 16 percent of BlackRock’s base fees, even though it made up 6 percent of AUM. Over the years, it has also been one of Fink’s biggest headaches.
And this is where the robotic rescue team arrives.
With returns for the group’s fundamental active equity funds consistently lagging behind many of its rivals, even after improving in 2016, it suffered broad redemptions, which contributed to a record $19.3 billion of outflows from its U.S.-based active fund business last year. The $78 billion quant team, which BlackRock dubbed Scientific Active Equity, or SAE, was supposed to help fix that. In addition to combining SAE with its stock pickers, BlackRock armed them with the team’s analytical tools.


“As people get the data and learn how to use the data, I think that there is going to be alpha generated and, therefore, will give active managers more opportunity than they’ve had in the past to actually create returns,” BlackRock President Rob Kapito said at a Barclays conference in September.
Unfortunately, as more have turned to the same strategies, it means the "robotic" returns have dwindled: BlackRock inherited the three-decade-old quant business with its purchase of Barclays Global Investors in 2009. Initially, the group was a big success under new management, delivering outsize returns. More recently, things haven’t panned out quite as well. According to BlackRock’s most recent publicly available figures contained in its third-quarter earnings report from October, the strategies beat 31 percent of its peers or a benchmark over a one-year period. That’s slightly worse than its traditional stock pickers, who exceeded their yardsticks half the time.
Worse, according to Bloomberg, at least three of the quant strategies used by BlackRock’s global hedge fund platform have suffered losses greater than 10 percent in the year through November. That compares with an average return of 3.6 percent for quant funds, One would think that massive size, in the case of the world's biggest asset manager Blackrock, would also mean scale.
It has not. Some examples:


The biggest decline was in BlackRock’s $768 million 32 Capital fund, a global long-short equity fund run by Raffaele Savi that has seen its assets decrease by 34 percent in the one-year period ended October. The fund lost 12.2 percent through November, the worst year-to-date performance in its 15-year history.

Some of the quant group’s deepest losses came in the first few months of the year, when markets plunged before bouncing back sharply in late February. Many quant shops stumbled, but a big reason SAE missed the rebound had to do with BlackRock’s own investment policy. It instructs the team to sell when losses become sizable, regardless of what its mathematical models say, according to a person with direct knowledge of the matter.
Of course, Wall Street is notorious for never taking blame for bad investments, and so it was the "timing's" fault:


“They had the worst timing possible,” Morningstar’s Jason Kephart, who called into question BlackRock’s ability to shift factor weightings on the fly, said in an interview. Whatever the case, performance suffered. The fund class for institutional investors fell 6.9 percent in 2016 and beat only 9 percent of funds in its category, data compiled by Bloomberg show.

To make matters worse, SAE has lost some of its top talent. The departures included Bill MacCartney, a former Google scientist that BlackRock hired in 2015 to help build out machine-learning, and Ryan LaFond, a head researcher and one of the brains behind the firm’s socially responsible funds.

Of course, SAE could rebound from its lackluster performance and plenty of bold-faced quant names had a tough time in 2016. The main computer-driven fund at Leda Braga’s Systematica Investments lost 11 percent last year. Three such funds run by Man Group Plc’s AHL division had losses through September.

And regardless of the industry’s ups and downs, few firms anywhere can match BlackRock’s wherewithal. SAE is made up of more than 90 investment professionals, including 28 Ph.D.s and numerous data scientists. In September, Mark Wiseman, the former head of the Canada Pension Plan Investment Board, was brought in to run the group.
Meanwhile, the withdrawals continue: even as the promise of computer-driven investing helped quant funds amass almost $16 billion in new money in the first 11 months of 2016, BlackRock was largely left out. After getting $1.7 billion in fresh capital in 2015 (and snapping six straight years of multibillion-dollar outflows), SAE once again suffered investor withdrawals last year. Fink hasn’t been shy about his disappointment over the inability of SAE to bring in money in the past.


“The one area where we’ve done quite well is in the model-based equities and we’re still not seeing really any flows,” he said on a fourth-quarter earnings call in 2014. “I am very bullish on building this out as a component of our active equity area and I’m quite frustrated, to be frank, that we haven’t seen the momentum that I would thought we would.”
For now, however, this particular fusion of robots and humans is slowly turning out to be a disaster. While Blackrock has other options, such as its massive "passive" ETF platform to fall back on, other active managers, all of whom are suffering the same withdrawals as investors demand performance or yank their funds, are nowhere near so lucky, and absent big changes in 2017, extrapolating current trends would mean the extinction of the carbon-based asset managers sometime over the next 20 years.
For now, unfortunately, 2017 is ot starting off so well.