(JPM) European Aero & Defence - 2017 Airbus, Dassault & Zodiac Upgradded

European Aero & Defence - 2017

Turning more constructive on Civil Aero; remain selectively positive on Defence

For 2017 we adopt a more constructive stance on European Civil Aerospace (ECA). We upgrade Zodiac to OW from Neutral, and upgrade Airbus to Neutral from UW. We upgrade Dassault Aviation to OW (a hybrid civil aero-defence stock). We remain positive on the Defence industry and reiterate our OW ratings on BAE Systems, Thales, and Ultra Electronics.

* Civil Aero – what changed? (1) Whilst programme execution is still a risk for ECA in 2017, comments from some companies in late 2016 (e.g. MTU, Zodiac) suggest they are closer to the end of “the great product transition”
that has challenged the industry since 2014. (2) Many airlines lowered profit guidance / deferred aircraft deliveries in 2016, and some airlines could do this in 2017; but an improving economic backdrop probably provides respite to the airline industry as a whole. (3) The rally in the $ vs the euro and sterling in late 2016 is positive for the earnings of ECA companies.
* European Defence – many positives: (1) We believe a multi-year upturn in global defence spending is about to begin. (2) European Defence trades at a notable discount to US Defence. (3) Potential for significantly lower tax
rates in the US and UK. (4) UK Defence companies enjoy a 3-4% yoy benefit to 2017E EPS if the FX rate remains $1.25/£1.
* Airbus – upgrade to Neutral (PT to €68 from €55): Our comments above (“What’s changed?”) all apply to AIR as we enter 2017. But we still believe AIR has above average near-term execution risk and still see some downside risk to 2018E consensus. Hence, we upgrade to Neutral rather than OW.
* Dassault Aviation – upgrade to OW (PT to €1260 from €1100): DA’s shares underperformed in 2016 as investors digested a weak business jet market and slippage to fighter jet deliveries. 2017 should be another challenging year, but we think investors can now focus on 2018 and 2019. We see 2019E EBITA at 2x that of 2017E, driven by rising fighter jet
deliveries and better FX rates. Our updated SOTP model suggests attractive upside for the shares by end 2017.
* MTU Aero Engines – reiterate OW (PT to €140 from €125): We only upgraded MTU to OW on December 15, 2016, and take this opportunity to reiterate our more positive view. 2014-17 is a major investment period for MTU. But investors should now focus on the growth in EPS and FCF that MTU should yield from 2018. Our higher PT mostly reflects the improved FX rate (to $1.05/€1 from $1.10/€1).
* Zodiac – upgrade to OW (PT to €25.5 from €22): ZOD has been the 2nd worst performing ECA stock over the last two years as cost overruns put a major dent in EBITA for YE Aug 15 to Aug 17E. In late 2016, ZOD said it would return to more “normal” levels of profitability in YE Aug-18. We believe this is credible. Our higher PT mostly reflects an improved FX rate.

(Citi) Salvatore Ferragamo SpA (SFER.MI) — Tax Benefit from Patent Box

Salvatore Ferragamo SpA (SFER.MI) — Tax Benefit from Patent Box
Regime Drives Significant EPS Upgrade, TP Raised to €26.5 –
Reiterate Buy
Western Europe | Apparel, Accessories & Luxury Goods, Luxury Goods |
Buy
FY16-18E EPS raised by 14%/8%/7% to reflect adoption of favourable patent
box tax regime, TP raised to €26.5 — Last week Ferragamo announced the
conclusion of a renewable 5-year agreement for the “Patent Box” regime with
Italian tax authorities. A portion of the income generated from the direct and
indirect use of intangibles will be exempt from Italy’s ~31% corporate tax rate:
30% for FY15 (paid altogether with the FY16 tax reduction), 40% for FY16E and
50% for FY17-19E. We update our model accordingly and raise our FY16-18E
EPS by 14%, 8% and 7%, respectively. Based on our revised estimates and
sector multiple expansion since our last update, we update our valuation built on
a weighted average of: 1) DCF (50% weight, TP €23.2); and 2) sector peer
multiple (50% weight, TP €29.8). This points to a fair value of €26.5, the basis of
our new target price (raised from €23.0).

>>> Europe Pre-Market Indications

Indications:

MainFirst Pre Mkt Indications
*BATS-Said to hit snag in Reynolds deal-StreetInsider.................U/C
*VW-Ordered to face investor suit in US over diesel cheating..........-0.5%
*DBK-Said to pay $95m to resolve US tax case(ADR's +6.19%)............+1.5%
*AUDI-And Nvidia expand partnership into artificial intelligence......+0.5%
*VALEO-Plans to invest in an Israeli and Chinese VC Fund..............+0.25%
*EURAZEO-Expanding in Third-Party Management with new €500m fund......+0.25%
*SYNGENTA-ChemChina to revise terms in attempt to gain EU approval....+1%
*FREENET-CEO sees shrinking Mobile Business market - HB...............-0.5%
*LHA--Austrian Airlines to be added to Eurowings Brand-we doubt this..U/C
*Sweden - Half Day Today


Shore
PERSIMMON - revs +8% £3.14bn,avg prices +4%,fwd sales +12%,margins improve...+2%
COSTAIN - sees FY results in line,wins place on TFL £500m projects framework.+1%
CAPE - Sees 2016 fy results ahead of views.Outlook for 2017 is encouraging...+5%
JOHNSON SERVICE GRP - sells retail drycleaning biz to Timpson for £8.25m.....+2%
FUTURA MED - launches CSD500 in Middle East and North Africa.................+1%
SCIENCE IN SPORT - sales +30% £12.24m,outlook for margins remains positive...+1%
INTERCEDE - receives $3m order from US government,prev deferred from 1H......+5%
IMIMOBILE - current trading and outlook remains in line.....................UNCH
PURECIRCLE - 1H sales -14% due to detainment of shipments in US..............-1%

>>> What to look at today - 5th of January 2017

Dow +0.30% S&P +0.57% Nasdaq +0.88% Russell +1.64%
US Market closed higher again today. Nine out of eleven sectors finished the day in positive territory, with materials (+1.4%) claiming the top spot on the leaderboard. Consumer discretionary (+1.3%) held the lead for most of the day after automakers reported better-than-expected sales for the month of December. Real estate (+1.2%), financials (+0.9%), and health care (+0.7%) also performed better than the broader market. IBB +2.7%. Telecom & Energy were worst performers. US After Hours Retailers under pressure after Macy's / Kohl's holiday sales updates, MG -9% following earnings. Asia equity markets are largely positive, led by Hong Kong; Energy is the top performing sector on the Hang Seng; Kospi is down marginally amid KRW strength after local think tanks speculated the new US govt could name Korea a currency manipulator. Nikkei225 is also softer on stronger JPY. FX majors were extra volatile, with heavy USD selling against JPY and EUR. After initial sea-saw, US short term rates have come in on perception the latest Fed minutes were somewhat less hawkish then anticipated. USD/JPY fell as much as 100pips on the greenback selloff. Chinese Yuan was up over 1% in offshore market overnight after press reports that authorities plan to order SOE's to sell USD. Today's Yuan fix by the PBoC was also a 3-week high. Japan PM Abe: Global economy is improving; Japan has bright signs.

Nikkei -0.37% Hang Seng +1.42% CSI -0.01% Shanghai +0.21%

Eur$ 1.0551 CNH 6.8147 CNY 6.8851 JPY 115.98 GBP 1.2348 CHF 1.0169 RUB 60.1211 WTI 53.29 +0.06%

S&P -0.13% EuroStoxx -0.30% FTSE -0.09% CAC -0.27% DAX -0.27% SMI +0.25%

Macro :
- Fed Officials Weigh Upside Risks to Growth from Fiscal Policy
- Fed Fund Futures Price Next Rate Hike Around June 2017
- Trump Said to Seek Murdoch Recommendations for FCC Chair: NY Mag
- S&P 500 in ‘Bullish Holding Pattern,’ Says JPMorgan’s Hunter
- Risk to Stocks in 2017 Is Earnings Disappointment: BNP’s Warther

Keep an eye on :
- ABI BB : Garcia Family Foundation Sells $1.04m Anheuser-Busch InBev ADRs
- AOI SS : Hurricane, Africa Oil, Enquest Top Europe E&P Picks at Macquarie
- ALO FP : Alstom: Rail Expansion in China Driven by High-Speed Rail, Metro
- BMW GY : BMW Group U.S. Dec. Sales Decline 5.4% Y/y
- CGG GP : CGG Says It Will Start Talks on Financial Restructuring
- DBK GY : Deutsche Bank Surges to Highest Since April Amid Option Blocks
- DTE GY : T-Mobile Up; CFO Says Hit Subscriber Targets Around Thanksgiving
- ERICB SS : Ericsson Deepens Cisco Tie-Up to Combine Wi-Fi, Mobile Networks
- RF FP : Eurazeo Expanding in Third-Party Management With New EU500m Fund
- FNTN GY : Freenet CEO Sees Shrinking Mobile Business Market: Handelsblatt
- LULU US : Lululemon Gains Most in Month Amid High Activity in Call Options
- COX FP : Nicox to Begin Phase 2 Clinical Study for NCX 4251 in 4Q
- FP FP : Total E&P Sees 2017 Gas Output From Mahakam Block at 1.43 BCFD
- TLW LN : Tullow CFO Taking Leave, Les Wood Named as Interim Replacement
- MF FP : Wendel to Buy Tsebo With Capital Group as Minority Investor
- FR FP : Valeo Plans to Invest in Israeli and Chinese VC Funds, CEO Says
- VOW3 GY : VW Ordered to Face Investor Suit in U.S. Over Diesel Cheating

>>> Europe : Brokers Upgrades & Downgrades - 5th of January 2017

>>> Up
*Aena Raised to Buy at HSBC
*Airbus Raised to Neutral at JPMorgan
*Airbus Raised to Overweight at Morgan Stanley, PT EU76
*Allianz Raised to Overweight at JPMorgan, PT EU180
*British Land Raised to Neutral at Exane, PT 700p
*Dassault Aviation Raised to Overweight at JPMorgan
*Deutsche Wohnen Raised to Outperform at Exane, PT EU36
*DNB Raised to Overweight at Barclays
*Ferrovial Raised to Buy at Santander, PT EU21
*Fiat Raised to Outperform at MedioBanca, PT EU12
*Flughafen Wien Raised to Buy at HSBC
*G4S Raised to Hold at Jefferies, PT 235p
*LEG Immobilien Raised to Outperform at Exane, PT EU86
*Linde Raised to Market Perform at Bernstein, PT EU142
*Next Raised to Neutral at Credit Suisse, PT 4100p
*Novozymes Raised to Outperform at Bernstein, PT DKK280
*Transocean Raised to Buy at Arctic Securities, PT $19
*UCB Raised to Hold at Jefferies, PT EU65
*Uniqa Raised to Neutral at JPMorgan, PT EU7.30
*Vienna Insurance Raised to Neutral at JPMorgan, PT EU23.50
*Vonovia Raised to Outperform at Exane, PT EU37
*Zodiac Aerospace Raised to Overweight at JPMorgan

>>> Down
*Actelion Cut to Hold at Jefferies, PT CHF240
*Cairn Energy Cut to Neutral at Macquarie
*Faroe Petroleum Cut to Neutral at Macquarie
*Fonciere des Regions Cut to Neutral at Exane, PT EU92
*Gecina Cut to Underperform at Exane, PT EU131
*Hannover Re Cut to Underweight at JPMorgan, PT EU102
*Hilton Cut to Sell at Berenberg, PT $47
*ICADE Cut to Neutral at Exane, PT EU77
*Interpublic Cut to Equal-Weight at Morgan Stanley, PT $26
*Leroy Cut to Hold at Arctic Securities, PT NOK500
*Linde Cut to Hold at Deutsche Bank
*Lundin Petroleum Cut to Underperform at Macquarie
*Next Cut to Hold at SocGen, PT 4112p
*Next Cut to Reduce at HSBC
*Ophir Energy Cut to Neutral at Macquarie
*Premier Oil Cut to Neutral at Macquarie
*Rhoen Klinikum Cut to Reduce at Kepler Cheuvreux, PT EU23
*RSA Cut to Neutral at JPMorgan, PT 585p
*Safran Cut to Neutral at Credit Suisse
*Talanx Cut to Neutral at JPMorgan, PT EU32
*Tullow Cut to Neutral at Macquarie
*Zurich Ins. Cut to Neutral at JPMorgan, PT CHF290

>>> PT Change


>>> Initiation
*Hilton Rated New Buy at Goldman, PT $68
*Mondelez Rated New Buy at Berenberg, PT $51.15

>>> Call

>>> Asia Update

Asia Mid-Session Market Update: CNY spikes overnight on reports of mandated SOE sales of USD; China, Hong Kong composite PMIs hit new highs


***US Session Highlights***
- (US) Nov ISM New York: 63.8 v 52.5 prior (business conditions across NYC rose last month as optimism grew)
- US Dec auto sales stay strong, boosting shares
- Fed minutes show that apart from unanimous agreement to raise interest rates, the committee expressed concerns about the outcome of future Trump policies, with a view to maintain a wait-and-see approach.

***US markets on close: Dow +0.3%, S&P500 +0.6%, Nasdaq +0.9%***
- Best Sector in S&P500: Services
- Worst Sector in S&P500: Utilities
- Biggest gainers: FCX +7.6%, NRG +5.9%, GM +5.5%, AA +5.0%, F +4.6%
- Biggest losers: VLO -3.6%, TSO -3.4%, MPC -3.2%, CERN -3.0%, ISRG -1.9%
- At the close: VIX 11.9 (-1.0pts); Treasuries: 2-yr 1.21% (-2bps), 10-yr 2.45% (flat), 30-yr 3.05% (flat)

***US movers afterhours***
- MG: Reports Q2 $0.26 v $0.36e, R$176.6M v $183Me; -8.9% afterhours
- M: Cuts FY16 EPS $2.95-3.10 v $3.26e (prior $3.15-3.40); affirms FY16 SSS -3.0% to -2.5%, expects to come in lower end of guidance; -10.9% afterhours
- KSS: Reports Nov/Dec SSS -2.1%; Cuts FY16 guidance to $3.60-3.65 v $3.94e (guided $3.80-4.00); -15.1% afterhours

- COST: Reports Dec SSS (ex-gas) 2% y/y; US SSS (ex-gas) 1.0% y/y

***Asia Key economic data:***
- (CN) CHINA DEC CAIXIN PMI SERVICES: 53.4 V 53.1 PRIOR (17-month high); Composite PMI: 53.5 v 52.9 prior; 45-month high
- (HK) HONG KONG DEC COMPOSITE PMI: 50.3 v 49.5 PRIOR; first expansion and highest reading since Feb 2015
- (AU) AUSTRALIA DEC AIG PERF OF SERVICES INDEX: 57.7 V 51.1 PRIOR; 3rd consecutive expansion; highest since May 2007
- (JP) JAPAN DEC SERVICES PMI: 52.3 (highest since Jan 2016) V 51.8 PRIOR; COMPOSITE PMI: 52.8 (highest since Aug 2015) V 52.0 PRIOR
- (JP) JAPAN DEC VEHICLE SALES Y/Y: 10.8% V 13.9% PRIOR
- (JP) JAPAN DEC MONETARY BASE Y/Y: 23.1% v 21.5% PRIOR; MONETARY BASE END OF PERIOD: ¥437.4T v ¥419.8T PRIOR
- (SG) SINGAPORE DEC PMI COMPOSITE: 52.0 V 52.8 PRIOR (8th consecutive expansion)
- (TW) TAIWAN DEC CPI Y/Y: 1.7% V 2.1%E
- (PH) PHILIPPINES DEC CPI M/M: 0.3% V 0.2%E; Y/Y: 2.6% V 2.6%E; CORE CPI Y/Y: 2.5% V 2.5%E

***Asia Session Notable Observations, Speakers and Press***
- Asia equity markets are largely positive, led by Hong Kong; Energy is the top performing sector on the Hang Seng; Kospi is down marginally amid KRW strength after local think tanks speculated the new US govt could name Korea a currency manipulator. Nikkei225 is also softer on stronger JPY.
- FX majors were extra volatile, with heavy USD selling against JPY and EUR. After initial sea-saw, US short term rates have come in on perception the latest Fed minutes were somewhat less hawkish then anticipated. USD/JPY fell as much as 100pips on the greenback selloff.
- Chinese Yuan was up over 1% in offshore market overnight after press reports that authorities plan to order SOE's to sell USD. Today's Yuan fix by the PBoC was also a 3-week high.
- Last set of Asia Composite/Services PMIs feature prints from China Caixin, Hong Kong, Singapore, and Japan. Caixin Services hit a 17-month high and composite reached a near-4 year high. China conditions saw "improved rates of new order growth" and much higher input costs against reduced employment. In Hong Kong, the PMI data was even less rosy, as "improvement was not driven by expansions in output and new orders, but pre- production stock levels", with declines in output, new business and employment along with reduced orders from the mainland.

China:
- (CN) China MOFCOM spokesperson Jiwen: China faced record high trade frictions last year; More than half of disputes were over steel - press
- (CN) China National Energy Administration (NEA): To invest $360B in renewable power from 2016-2020
- (CN) China Financial News commentary: China should improve coordination between financial regulators to prevent systemic risk in capital markets - Chinese press
- USD/CNY: Offshore Yuan strength attributed to reports China is considering options to support currency, including ordering SOEs to sell USD - press

Japan:
- (JP) Japan PM Abe: Global economy is improving; Japan has bright signs - press

Australia:
- AUD/USD: Westpac's Speizer: AUD/USD has potential to go higher in the short term, but likely lower below $0.72 in 1-3 months - AFR

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei -0.3%, Hang Seng +1.3%, Shanghai Composite +0.1%, ASX200 +0.4%, Kospi -0.1%
- Equity Futures: S&P500 flat; Nasdaq -0.1%, Dax flat, FTSE100 flat

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0480-1.0540; JPY 116.30-117.40; AUD 0.7270-0.7300; NZD 0.6955-0.6700
- Feb Gold +0.8% at 1,175/oz; Feb Crude Oil -0.1% at $53.23/brl; Mar Copper +0.2% at $2.56/lb
- (US) Weekly API Oil Inventories: Crude: -7.4M v +4.2M prior (largest draw since Oct 4th)
- JGB: (JP) Japan MoF sells ¥2.17T in 10-yr 0.1% JGBs; Avg yield: 0.056% v 0.032% prior; bid to cover: 3.59x v 3.78x prior
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9307 V 6.9526 PRIOR; strongest Yuan setting since Dec 15th
- (CN) PBOC to inject CNY10B in 7-day reverse repos v combined CNY20B in 7-day and 14-day prior
- (CN) Offshore yuan overnight deposit rate +16.5ppts to 30% (1-yr high)

***Asia equities / Notables / movers by sector***
- Consumer discretionary: H2O Retailing Corp 8242.JP +2.0% (Dec sales); Suntory Beverage & Food 2587.JP -0.6% (denies speculation on listing); Aeon Co 8267.JP +1.0% (9-month result speculation)
- Consumer staples: China Modern Dairy 1117.HK +5.0% (Mengniu increases stake)
- Financials: Greentown China 3900.HK -0.3% (Dec result); Country Garden Holdings Co 2007.HK -1.7% (names new CFO)
- Industrials: Guangzhou Automobile Group 2238.HK -0.4% (Dec result); Takata Corp 7312.JP -6.5% (profit-taking); Mitsubishi Motors 7211.JP +3.3% (Dec result); Mazda Motor Corp 7261.JP -2.1% (Dec result); Hanjin Shipping Co 117930.KR +22.0% (to close asset sales next week); Samsung Heavy 010140.kr ($1.3B contract)
- Technology: Truly International Holdings 732.HK +6.2% (Dec result); Sony Corp 6758.JP -1.8% (holiday season PS4 sales); Toshiba Corporation 6502.JP +4.5% (writedown estimates)
- Materials: China Minmetals Resources 1208.HK +11.3% (acquisition); Newcrest NCM.AU +1.9%; Saracen Mineral Holdings SAR.AU +4.6% (gold prices higher)
- Telecom: TPG Telecom TPM.AU +2.3% (Credit Suisse raised to neutral)

>>> US After Hours Summary: Retailers under pressure after Macy's / Ko


After Hours Summary: Retailers under pressure after Macy's / Kohl's holiday sales updates, MG -9% following earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to news/guidance: ALXN +6.4% (files previously delayed Form 10-Q; Audit / Finance Committee concluded that the previously issued financial results do not require restatement), ARNA +4.7% (sells all of its rights to develop and market lorcaserin to Eisai for a reduced amount than previously announced; enters into equity distribution agreement to sell & issue $50 mln in shares of common stock), RT +4.5% (continued strength), SGYP +2.5% (initiated with an Outperform at Oppenheimer), GPRO +1% (confirmed drone Karma set to re-launch in 2017), ACHC +0.9% (after closing near highs of the day +9%), AR +0.7% (capital budget for 2017 is $1.5 billion; Net production is expected to average 2,160 to 2,250 MMcfe/d in 2017, representing year-over-year growth of 20% to 25% relative to 2016 guidance)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: KSS -14.7% (lowers FY17 guidance to $3.60-3.65 from $3.80-4.00 vs $3.93 Capital IQ Consensus Estimate; Nov-Dec comps -2.1%), M -10%, (Macy's lowers FY17 EPS; comparable sales on an owned plus licensed basis declined by 2.1 percent in the months of November and December 2016; announces actions to streamline store portfolio, intensify cost efficiency efforts and execute real estate strategy), MG -9.3%, MC -4% (sees Q4 revs above consensus; raises dividend to $0.37/share from $0.32/share; commenced public offering of 5,000,000 shares of Class A common stock), SONC -0.7%

Companies trading lower in after hours in reaction to news: AEZS -38.4% (reports the confirmatory Phase 3 clinical trial of Macrilen (macimorelin) failed to achieve its objective of validating a single oral dose of macimorelin for the evaluation of growth hormone deficiency in adults), HLX -9.7% (Helix Energy commences public offering of 21 mln shares of common stock; discloses impairment charge and delayed in-service for Siem Helix 1 update), HRTX -8.3% (announces 'positive' topline results from its Phase 2 study of HTX-011 in subjects undergoing abdominoplasty; 'demonstrated statistically significant reductions in both pain intensity and the use of opioid rescue medications through 96 hours following surgery'), KNOP -5.4% (prices offering of 2.5 mln common units, representing limited partner interests for total gross proceeds of approx $56.1 mln), OREX -3.8% (after 64% move higher on Wednesday), SHLD -3.5% (after closing near highs of the day +7%), HPP -0.7% (announced offering of 18,673,808 shares of common stock pursuant to an effective shelf registration statement), ABT -0.5% (Abbott Labs completes acquisiton of St. Jude Medical; S&P lowered rating),, KRC -3.1% (commences 3.5 mln common stock offering)

Retail names lower on KSS / M guidance: JWN -5.2%, JCP -4.6%, DDS -3.9%, SHLD -3.5%

FT lex : Apple-SoftBank: noncore bets

Apple-SoftBank: noncore bets
Apple says its $1bn investment in SoftBank’s enormous $100bn Vision Fund is about nurturing technology which might prove “strategically important”. Yet Apple’s $10bn annual research and development budget should do that; otherwise it has a problem.

The SoftBank investment would be better justified financially. Apple has $240bn of cash and has to put it somewhere. Like the other investors, which now include Qualcomm, the chipmaker, and Larry Ellison, the Oracle founder, as well as Saudi Arabia, the original backer, it wants a return.

That is going to be difficult. The pool of potential investments initially looks dauntingly large. Add in debt and the total firepower could exceed $400bn. That only puts Apple itself, along with Alphabet and Microsoft, out of reach in terms of enterprise value.

Smaller investments, however, can also be eliminated. This is a five-year fund. The money has to be deployed quickly and aggressively to have an impact. Masa Son, SoftBank’s founder, says he plans “a bunch” of $1bn buyouts, “several” $2bn-$5bn acquisitions and “one or two big size”.

An analysis of public technology companies using Bloomberg data show 590 fit that criteria. Remove the very largest, those where insiders hold more than 20 per cent of the shares, or have dual class voting rights, and there are 452. Add in tech-oriented media companies and private “unicorns”, perhaps wary of an initial public offering, and the list appears more extensive.

But the real disqualifying filter is companies in the advanced tech fields that interest Mr Son, such as robotics or internet of things, which justified SoftBank’s own £24bn acquisition of Arm Holdings last year. That field is thin. Valuations are already high for most tech companies — 20 of the $1bn-plus group are valued at more than 100 times earnings before interest tax, depreciation and amortisation and it is hard to envisage a profitable exit even at lower multiples. The road of tech buyouts is littered with carcases.

Other buyout groups are prowling the same territory. The real comparative advantage SoftBank has as an acquirer is sheer size but that is unlikely to count for anything unless it chooses to aim for $100bn-plus companies such as Intel or IBM. For the most part, SoftBank will be competing with established funds such as Silver Lake. Raising $100bn was the easy part; spending it and exiting with any return — for Apple or any other contributor — will be no mean feat

>>> US Close Dow +0.30% S&P +0.57% Nasdaq +0.88% Russell +1.64%

Closing Market Summary: Stock Market Closes on a Higher Note

The stock market ended Wednesday on a higher note, ending just below its session high. The S&P 500 finished higher by 0.6%, while the Nasdaq (+0.9%) outperformed the benchmark index. The Dow (+0.3%) will begin Thursday's session within striking distance of the 20k mark. 

Nine out of eleven sectors finished the day in positive territory, with materials (+1.4%) claiming the top spot on the leaderboard. Consumer discretionary (+1.3%) held the lead for most of the day after automakers reported better-than-expected sales for the month of December. On a year-over-year basis, General Motors (GM 37.09, +1.94)reported a 10.0% increase (consensus +0.7%), while Ford Motor (F 13.17, +0.58)saw a 0.3% gain (consensus -1.6%). The two names finished up by 5.5% and 4.6%, respectively.

Real estate (+1.2%), financials (+0.9%), and health care (+0.7%) also performed better than the broader market. The health care sector received a big bump from biotechnology, evidenced by the iShares Nasdaq Biotechnology ETF's (IBB 277.53, +7.24) 2.7% gain. Information technology (+0.4%) also finished in the green, despite losses from top components like Apple (AAPL 116.02, -0.13), Microsoft (MSFT 62.30, -0.28), and Alphabet (GOOGL 807.77, -0.24). 

After finishing at the top of the leaderboard on Tuesday, telecom services (-0.3%) finished at the bottom on Wednesday. Energy (-0.3%) performed only modestly better as the sector failed to capitalize on crude oil's positive performance. The commodity ended its trading day up 1.8% at $52.28/bbl amid a weaker U.S. dollar. The U.S. Dollar Index (102.58, -0.66) finished lower by 0.6%.

On the data front, the Federal Reserve released the minutes from its December meeting, showing a discussion about the recent surge in the dollar that lifted the U.S. Dollar Index (102.72, -0.49) to a fresh 14-year high. Members of the committee discussed the potential headwinds stemming from dollar strength, but hedged that discussion by noting that continued dollar strength might keep down inflation. The minutes showed uncertainty over possible changes in fiscal policies, but members agreed that near-term risks to the economic outlook appear roughly balanced.

Treasuries climbed to new highs immediately after the release, but finished the day near their flat lines. The 10-yr yield ended Wednesday unchanged at 2.45%.

Thursday's economic data will include December Challenger Job Cuts at 7:30 ET, December ADP Employment Change (consensus 170,000) at 8:15 ET, Initial Claims (consensus 265,000) at 8:30 ET, and the December ISM Services Index (consensus 56.6) at 10:00 ET.

On the earning front, several companies are scheduled to report before Thursday's opening bell with Monsanto (MON 105.05, +0.28) and Walgreens Boot Alliance (WBA 82.98, +0.02) being the most notable.

  • Russell 2000 +2.2% YTD
  • Dow Jones Industrial Average +0.9% YTD
  • S&P 500 +1.4% YTD
  • Nasdaq Composite +1.7% YTD