>>> Europe pre-market Indications

Early Indications:

MainFirst Pre Mkt Indications
*SYNGENTA-ChemChinaEU merger deadline extended to 12/4(10 days)....+0.25%
*LVMH-Zenith says CEO Magada leaves, Biver takes over..............+0.5%
*STATOIL-To drill 30 exploration wells in 2017 - DN Reports........+0.5%
*LONZA-Concludes sales of peptides bizz ops,non-cash w/d CHF44m....+0.75%
*VW-Former CEO Winterkorn collecting €1.1m pension says Bild.......+0.5%
*SANOFI-Loses bid to overturn Amgen PCSK9 patent verdict...........-1%
*GRAND CITY-Tragets MDAX latest end-2017 says CEO - Boersen........-0.75%
*NEXT-Full price sales -0.4%,another tough year,clothing slow......-3%
*IAG-BA Cabin crew plans 48-HR strike from 10th Jan................-1%
*RYANAIR-Dec Load factor 94%,Dec passengers 9mln...................+1%

Shore
IAG - BA cabin crew said to plan 48-hr strike from Jan 10th...............-1.5%
NEXT - Full price sales -0.4%.Says preparing co for tougher times............-2%
ULTRA ELEC - awarded extension to sonobuoys contract for £9.7m.............+0.5%
AGGREKO - awarded contract for the Winter Games in 2018 worth $40m...........+1%
STAFFLINE - sees FY results inline,demand in staffing biz remains strong...+0.5%
CARILLION - awarded phase 1 contract for the One Central development in Dubai+1%
CAMBRIA AUTO - LfL sales ahead,sees some pressure on new car margins.......-1.5%
HILTON FOOD - To form JV with Portugal's leading food retailer Sonae.........+1%
CARILLION - JV gets 160m contract for phase 1A6 of One Central...............+1%
APPLEGREEN - Proposed purchase of 50% of Dublin fuel terminal................+1%
B&M - record Christmas,Q3 revs +20.5%,LfL +7.2%,confident will meet FY expec.+2%

FT : UK aerospace industry fears loss of leading edge after Brexit

UK aerospace industry fears loss of leading edge after Brexit
Shift to composite materials in Airbus wings spurs interest from France and Germany

Stephen Cheetham says he is “scared witless” about the impact of Brexit on British manufacturing.

But the chief executive of PK Engineering, a small aerospace supplier in the West Midlands, is pressing ahead with a £500,000 investment in new equipment to keep up with the demands of its clients.

“For us that is a very big investment, but I see business opportunities today and I think I would be a fool not to invest,” he says.

PK Engineering, which employs just over 40 people and makes precision machined parts, is not the only supplier to the aerospace industry with mixed expectations.

For many UK aerospace companies, business has never been better; the order backlogs at Boeing and Airbus offer the best part of a decade’s work and production levels are accelerating to record levels.

Last year, the UK aerospace sector grew 6.5 per cent to £31bn, 87 per cent of which was exported. Aerospace has seen average annual growth of close to 10 per cent between 2011 and 2015, outpacing the wider manufacturing industry, according to ADS, the industry lobby group.

But uncertainty over the terms and conditions of Brexit has raised questions about the next generation of aircraft programmes, with other countries lining up to challenge some of the UK’s key positions.

Within the next year Boeing is expected to decide on the launch of its next new aircraft, likely to be a single-aisle, mid-range passenger jet. Airbus will have to respond and a new era of aircraft innovation will begin.

“As work on research and development goes on, there will be opportunities to pull work away from the UK,” says an executive from one of the UK’s biggest aerospace companies.

The UK is already falling behind its continental European rivals on key aerospace infrastructure, such as test beds for engines and aircraft structures, that supports the development of high-value design and cutting edge technology, according to a recent report by Roland Berger for the Aerospace Technology Institute.

Airbus, one of the UK’s biggest employers in the sector, will face pressure to bring jobs back to France, Germany and Spain, its original stakeholder countries, say several suppliers. “We are very worried about the impact of Brexit on the whole Airbus discussion,” says one.

The UK plays a leading role in wing technology, one of the most critical and lucrative parts of aircraft manufacture, and work that other countries are keen to grab.

Britain’s position weakened during the shift from aluminium to lighter composite materials. While UK companies designed and manufactured virtually the entire wing for Airbus’s superjumbo, the A380, the top and bottom skins of the wing for the newer A350 went to Spain and Germany, both keen to accelerate development of their aerospace sectors.

“There is a constant move by Germany to get as much wing work out of the UK because it is the most valuable,” says the aerospace executive. “There will be countries looking at the UK’s position as the world’s second-largest aerospace sector and thinking that if it wasn’t [in the EU] this could actually benefit them.”

“There is a recognition there is a threat there,” said one government official, citing this as the spur to government investment last year in a new £37m wing integration research facility in Filton, north of Bristol.

Access to highly skilled EU labour, to Europe’s research projects and funding and its relationship with Airbus are critical to Britain’s position as the world’s most important aerospace sector after the US.

“In the UK that is particularly important because we do not manufacture a whole aircraft any more,” says Malcolm Scott, corporate development director of the ATI.

Many companies are worried that their competitiveness will be dulled by restricted access to their employees in continental Europe. About a quarter of Rolls-Royce’s workforce is in the EU outside the UK, and like many aerospace companies these workers are often transferred at short notice to deal with temporary production challenges. “Free movement is a big issue for us,” said one senior executive.

Some foreign companies are rethinking investment into the UK, say industry bodies.

Andrew Mair, chief executive of the Midlands Aerospace Alliance, said he is aware of one big aerospace company debating whether or not to put further money into the UK. “In terms of attractiveness . . . in terms of political stability, the UK goes down,” he says.

Concerns are also mounting over the UK’s membership of the European Aviation Safety Regulator, which certifies aircraft, engines and their components.

If the UK opts to create its own regulatory regime, and UK suppliers still have to seek certification from EASA, costs would rise.

Although aircraft and their parts are exempt from tariffs under World Trade Organisation rules, there is a niggling fear that competitors could encourage governments to find loopholes during exit negotiations that would raise the cost of business for UK companies. For example, the UK’s aerospace supply chain could be hit if EU exemptions for the raw materials used to make those components are reversed.

“We are worried about where the dividing line will fall,” said the boss of one leading aerospace company. “What counts as a component? We need to make sure [ministers] don’t do anything stupid when they are negotiating woollen socks against nickel alloy.”

Finally there are worries that the decision to go it alone could lead to big non-tariff penalties such as costly delays at borders if the UK withdraws from the customs union.

Without long-term commitments from government on how EU funding will be replaced, how regulations will change, and on continued access to international talent, the UK’s aerospace industry could face a crisis of competitiveness, several aerospace executives say.

The industry is working hard to pass that message to ministers, arguing that time is running out if the UK is to be well placed to win business in the next aerospace cycle. David Jones, minister at the Department for Exiting the EU, met executives from Airbus and Rolls-Royce before Christmas to hear their concerns. “He was asking the right questions,” says one executive who was present.

But the government’s plan for Brexit remains a “black box”, says another. If Britain leaves the EU and “we have to start negotiating on a sector-by-sector basis, that will take time, and every single day that goes past we will be less competitive.”

FT : Toshiba rattled by report of fresh scandal evidence

Toshiba rattled by report of fresh scandal evidence
New headache for investors still grappling with writedown warning

Investors in Toshiba faced fresh worries after a report that Japan’s securities watchdog has turned up new evidence in its pursuit of criminal charges against former executives at the scandal-plagued conglomerate.

Shares in the company fell more than 5 per cent on Wednesday morning as the Tokyo stock market opened for its first day of trading this year, before recovering some poise. The stock was up 1 per cent at ¥285.8 in afternoon trading while the broader market was up 2.4 per cent.

The volatility came after the Asahi newspaper reported on Tuesday that the Securities and Exchange Surveillance Commission planned to present new findings to Japanese prosecutors, alleging that Toshiba’s former top management played a role in the padding of profits by ¥40bn ($339m) over a three-year period.

The SESC and Toshiba declined to comment on the report. Toshiba’s former top executives have denied any wrongdoing.

New findings by Japanese regulators would be the latest blow for the struggling nuclear-to-electronics group, after revelations last week that it is facing a multibillion-dollar writedown at its US nuclear division Westinghouse.

According to the Asahi report, the SESC alleged that Toshiba may have violated Japanese law by falsely reporting a rise in profits at its personal computer division during the 2012-2014 fiscal years. Following its investigation, the SESC concluded that the padding of profits was done on the instruction of top management.

The allegation is part of the SESC’s long-running investigation into Toshiba’s accounting scandal where the company has admitted to inflating its net profits by $1.3bn over seven years.

Under its new chairman, Mitsuhiro Hasegawa, the SESC has recently expressed its intention to push ahead with the probe beyond a fine of ¥7.37bn, which Toshiba paid a year ago.

The SESC reportedly plans to present prosecutors with new evidence it has uncovered, including emails to former chief executives. Prosecutors have thus far opted not to pursue a criminal case due to a lack of evidence and differences in accounting rules during the years in question.

Former chief executives at Toshiba, including Hisao Tanaka, who stepped down in 2015, have denied giving instructions to their subordinates to cook the books.

Mitsushige Akino, chief fund manager at Ichiyoshi Investment Management, said a potential criminal investigation into Toshiba’s former executives would be another headache for investors who are still weighing the fallout from the company’s recent writedown warning.

Toshiba’s shares plunged 37 per cent in the last week of December after the group announced it could book “several billion dollars” of impairment losses related to Westinghouse’s $229m acquisition last year of Chicago Bridge & Iron’s nuclear construction subsidiary, Stone & Webster.

Analysts say the latest impairment loss could be at least as large as the $2.3bn writedown Toshiba took on its nuclear business in April, and threatens the efforts by Satoshi Tsunaka, the new chief executive, to rebuild investor confidence following its accounting scandal.

“We don’t know yet how far the impairment losses will expand and the nuclear business is clearly no longer as profitable as in the past,” Mr Akino said. “The uncertainty still hanging is what kind of survival strategy Toshiba has.”

>>> What to look at today - 4th of January 2017

Dow +0.60% S&P +0.85% Nasdaq +0.85% Russell +0.53%
US Market Closed higher for the first session of the year. Upbeat economic data from China helped sentiment. Ten out of eleven sectors ended the day in positive territory with health care (+1.4%) and telecom services (+1.9%) climbing into the lead as the broader market retreated during the late morning. Energy (+1.2%) backed off its opening high, but still ended comfortably in the green even though crude oil surrendered a big gain to end lower by 2.6% at $52.33/bbl after climbing above $55.00/bbl in overnight action. utilities sector (-0.3%) was the lone decliner, spending the day in negative territory even as intraday demand for Treasuries pressured yields off their overnight highs. The 10-yr note ended flat with its yield at 2.45%. Volume were above average with more than 1bil shares traded. US After Hours CBAY +47% after landing gout license deal; SHAK +5%, CC +2%, IDXX +0.5% higher on index change news... AGRX -72% on Twirla update, TSLA -2% after missing delivery targets. Asian equity markets are little changed despite the decisive bounce on Wall St, consolidating recent gains; Nikkei225 is an outsized gainer as it finally returns from holiday, thanks to catch-up buying and weaker JPY. USD strength remained among the dominant themes in early 2017; USD/JPY tested above ¥118 handle, while EUR/USD broke below $1.0350. China officials increasingly more concerned over one-way Yuan depreciation, with speculation the govt may look to be more proactive in curbing outflows. PBoC adviser has warned that corporates could start to buy FX to repay debt before it is due on expectation of rising exchange rates; China govt was also reported to have conducted stress tests to assess scenarios around the yuan and capital outflows this year. BOJ Gov Kuroda reiterated commitment to the central bank's easing program, expressing confidence that more progress on reaching 2% inflation will be made this year; Separately, Japan final Dec Manuf PMI confirmed 4th month of expansion thanks to stronger growth in both production and new orders.

Nikkei +2.51% Hang Seng -0.29% CSI +0.59% Shanghai +0.54%

Eur$ 1.0406 CNH 6.9374 CNY 6.9551 JPY 118.03 GBP 1.2247 CHF 1.0280 RUB 60.90 WTI$ 52.71 +0.75%

S&P +0.12% EuroStoxx +0.33% Dax +0.25% FTSE +0.26% SMI +0.82%

Macro :
- Infrastructure Spending, Taxes Top Deutsche Bank Worries List
- China Said to Consider Options to Back Yuan, Curb Outflows
- Asia’s Richest Families Are Abandoning ‘Complacent’ Hedge Funds
- China Said to Consider Options to Back Yuan, Curb Outflows (2)

Keep an eye on :
- ABI BB : AB InBev Investor Bevco Buys EU47.7m of Brewer’s Stock
- AC FP : Choice Hotels, Marriott Fall Amid Hilton’s Spinoff, Hilton Spinoff HGV May Trade at Premium in Regular-Way: SunTrust
- AZA IM : Alitalia Plans EU1.1B Loans, Cuts to Avoid Failure: Messaggero
- BINCK NA : Old Mutual Reports Higher BinckBank Stake of 5.62%: AFM Filing
- BWO NO : Bw Offshore Sees Settlement for FPSO Cidade De Sao Mateus
- DIS US : Disney Studios Ends Year With $7.605b in Global Box Office Gross
- FCT IM : Fincantieri Bid for STX France Approved by S.Korea Court: Echos
- GYC GY : Grand City Targets MDax Listing by End-2017: Boersen-Zeitung
- IAG LN : British Airways Cabin Crew Plans 48-Hr Strike From Jan. 10: PA
- ISP IM : Intesa Sanpaolo Says It Underwrites Glencore-Qatar Rosneft Deal
- MC FP : LVMH’s Zenith Says CEO Magada Leaves, Biver Takes Over
- NXT LN : Next CEO Expected to Be ‘Downbeat’ in Trading Update: Sky
- SAN FP : Sanofi Loses Bid to Overturn Amgen PCSK9 Patent Verdict
- SAN FP : Sanofi losed bid to overturn Amgen PCSK9 patent verdict, REGN -3.1% AMGN +1.4% in after hours
- SAN FP : Sanofi Soliqua 100/33 Diabetes Treatment Now Available in US
- SLIGR NA : Sligro 2016 Revenue Matches Estimates, 4Q Sales Increase
- STL NO : Statoil to Drill 30 Exploration Wells in 2017, DN Reports
- SYNN VX : ChemChina, Syngenta Request Extension of EU Review to April 12
- TSLA US : Tesla Drops 1.6% Post-Market; 4Q Deliveries Below View
- TOM2 NA : Intel to Buy 15% Stake of HERE Mapping Venture
- TRI FP : Trigano Buys Auto-Sleepers Investments; No Price Given

>>> Europe : Brokers Upgrades & Downgrades - 4th of January 2017

>>> Up
*Accor Raised to Buy at HSBC
*Bayer Raised to Overweight at JPMorgan
*Credit Suisse Raised to Overweight at Barclays
*Genmab Raised to Overweight at JPMorgan, PT DKK1350
*Grifols Raised to Overweight at JPMorgan
*Ipsen Raised to Buy at Natixis, PT EU80
*Lonza Raised to Overweight at JPMorgan
*Salvatore Ferragamo Raised to Buy at HSBC, PT EU29
*Shell Raised to Outperform at RBC, PT 2500p

>>> Down
*Bovis Homes Cut to Hold at Deutsche Bank
*Bovis Homes Cut to Hold at Jefferies, Sees No Near-Term Catalyst
*Gazprom Neft Cut to Hold at Deutsche Bank
*HELLA Cut to Neutral at Main First Bank AG, PT EU40
*H Lundbeck Cut to Neutral at JPMorgan
*Kambi Group Cut to Hold at ABG Sundal, PT SEK130
*Michelin Cut to Hold at SocGen, PT EU110
*Novartis Cut to Neutral at JPMorgan
*Novo Nordisk Cut to Underweight at JPMorgan
*RHI Cut to Hold at Kepler Cheuvreux, PT EU26
*Schouw & Co Cut to Hold at Nordea Securities, PT DKK535
*STMicroelectronics Cut to Underweight at Morgan Stanley, PT EU7

>>> PT Change


>>> Initiation
*Apple Rated New Buy at Guggenheim, PT $140
*Tesla Rated New Buy at Guggenheim, PT $280

>>> Call

>>> Asian Update

Asia Mid-Session Market Update: Yuan fix set at lowest level since mid-2008 as China authorities conduct stress tests around accelerating outflows this year

***US Session Highlights***
- (US) DEC ISM MANUFACTURING: 54.7 V 53.7E (highest since Dec 2014); PRICES PAID: 65.5 V 55.5E (highest since June 2011); new orders index: 60.2 v 53.0 prior (highest since Nov 2014)
- (US) NOV CONSTRUCTION SPENDING M/M: 0.9% V 0.5%E (to $1.18T, highest in 10 years)
- GM: President-elect Trump tweets: General Motors is sending Mexican-made model of Chevy Cruze to U.S. car dealers-tax free across border. Make in U.S.A. or pay big border tax!
- F: To invest $700M to expand factory in Michigan for electrified and autonomous vehicles and add 700 new jobs; to cancel $1.6B plant in Mexico; to add Electrified F-150, Mustang, Transit by 2020

***US markets on close: Dow +0.6%, S&P500 +0.9%, Nasdaq +0.9%***
- Best Sector in S&P500: Materials
- Worst Sector in S&P500: Utilities
- Biggest gainers: CTL +6.6%, ENDP +6.1%, FTR +5.9%, ABC +5.7%, MPC +5.1%
- Biggest losers: XRX -21.1%, SWN -7.9%, RRC -5.1%, KSU -4.8%, NVDA -4.4%
- At the close: VIX 12.9 (-1.2pts); Treasuries: 2-yr 1.23% (flat), 10-yr 2.45% (flat), 30-yr 3.55% (-2bps)

***US movers afterhours***
- CBAY: Enters agreement with Kowa Pharma to license Gout compound; +56.9% afterhours
- SHAK: Shake Shack to enter SmallCap600 index; +4.5% afterhours
- CC: Chemours to enter MidCap400 Index; +1.5% afterhours
- TSLA: Reports Q4 deliveries 22.2K v 24.5K q/q (Model S deliveries 12.7K v 15.8K q/q, Model X deliveries 9.5K v 8.7K q/q) vs "just over 25K" prior forecast; -2.1% afterhours
- AGRX: AGRX: Announces positive top-line Phase 3 results for contraceptive Twirla; 51% of subjects discontinued prematurely; Pearl Index of 4.80 (**above tolerated FDA threshold); Plans to resubmit its NDA to the FDA in H1 of 2017; -72.2% afterhours

***Asia Key economic data:***
- (IN) INDIA DEC PMI SERVICES: 46.8 V 46.7 PRIOR (2nd straight month of contraction)
- (CN) China Dec Westpac Consumer Confidence Index: 116.6 v 114.9 prior
- (JP) JAPAN DEC FINAL PMI MANUFACTURING: 52.4 V 51.9 PRELIM (confirms 4th consecutive month of expansion; 1-year high)
- (KR) SOUTH KOREA NOV CURRENT ACCOUNT BALANCE: $9.0B V $8.7B PRIOR; GOODS BALANCE: $10.5B V $9.8B PRIOR
- (TH) THAILAND DEC CPI M/M: 0.1% V 0.2%E; Y/Y: 1.1% V 1.0%E; CPI CORE Y/Y: 0.7% V 0.8%E
- (UK) DEC BRC SHOP PRICE INDEX Y/Y: -1.4% V -1.7% PRIOR (44th consecutive month of decline)

***Asia Session Notable Observations, Speakers and Press***
- Asian equity markets are little changed despite the decisive bounce on Wall St, consolidating recent gains; Nikkei225 is an outsized gainer as it finally returns from holiday, thanks to catch-up buying and weaker JPY.
- USD strength remained among the dominant themes in early 2017; USD/JPY tested above ¥118 handle, while EUR/USD broke below $1.0350 - those USD gains were also consolidated in the Asian session; PBoC also carried the trend of softer Yuan with the weakest fix since mid-2008
- China officials increasingly more concerned over one-way Yuan depreciation, with speculation the govt may look to be more proactive in curbing outflows; PBoC adviser has warned that corporates could start to buy FX to repay debt before it is due on expectation of rising exchange rates; China govt was also reported to have conducted stress tests to assess scenarios around the yuan and capital outflows this year.
- BOJ Gov Kuroda reiterated commitment to the central bank's easing program, expressing confidence that more progress on reaching 2% inflation will be made this year; Separately, Japan final Dec Manuf PMI confirmed 4th month of expansion thanks to stronger growth in both production and new orders. All key components saw improvement - input prices increased at the fastest rate since July 2015, new order growth hit a 12-month high, and new export orders expanded for the fourth month running.

China:
- (CN) China State Council said to consider options to support CNY and curb outflows - financial press
- (CN) China National Development and Reform Commission (NDRC) economist Zhang Liqun: Expect a "soft landing" for China economy; Proactive fiscal policy to continue to play a role - China Daily
- (CN) HSBC Asia researcher: China credit engine is running out of gas - financial press
- (CN) PBoC senior adviser Sheng Songcheng: One way depreciation of CNY may lead companies to buy foreign currencies to repay debts before they're due - financial press

Japan:
- (JP) Bank of Japan (BOJ) Gov Kuroda: Economy is at a critical point to end deflation; BOJ to continue easing program
- (JP) Japan Fin Min Aso: Japan govt policies are improving economy

Australia/New Zealand:
- (NZ) Fonterra Global Dairy Trade Auction: Dairy Trade price index: -3.9% v -0.5% prior; 2nd straight decline

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +2.3%, Hang Seng -0.1%, Shanghai Composite +0.4%, ASX200 flat, Kospi flat
- Equity Futures: S&P500 +0.1%; Nasdaq +0.2%, Dax +0.2%, FTSE100 +0.1%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0390-1.0425; JPY 117.55-118.20; AUD 0.7215-0.7240; NZD 0.6890-0.6925
- Feb Gold -0.1% at 1,161/oz; Feb Crude Oil +0.8% at $52.74/brl; Mar Copper +0.4% at $2.50/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 8.3 tonnes (1%) to 813.9 tonnes; 26th straight decline; Lowest since Apr 29th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9526 V 6.9498 PRIOR (weakest setting since May 2008)
- (CN) PBOC to inject combined CNY20B in 7-day and 14-day reverse repos v CNY40B prior
- (CN) China MOF sells 1-yr upsized bonds at 2.7105%; bid-to-cover 2.28x; Sells 10-yr upsized bonds at 3.096% v 3.06%e; bid-to-cover 2.14x
- (JP) BOJ offers to buy ¥400B in 1-3yr JGBs, ¥420B in 3-5yr JGBs, ¥190B in 10-25yr JGBs and ¥110B in JGBs with maturity over 25-yr

***Asia equities / Notables / movers by sector***
- Financials: Guangzhou R&F Properties 2777.HK -1.0% (Dec result); Ardent Leisure Group AAD.AU -3.9% (cuts costs); Shanghai Pudong Development Bank 600000.CN -0.4% (prelim FY16 result)
- Industrials: Takata Corp 7312.JP +17.5% (settlement report); Hyundai Motor Co 005380.KR +1.3% (guidance); China Railway Group 390.HK +2.4% (Nomura raised to buy)
- Technology: Renesas Electronics Corp 6723.JP +12.2% (created prototype for self-driving car); Sunny Optical Technology Group Co. 2382.HK +7.1% (Morgan Stanley raised to overweight)
- Materials: Alumina AWC.AU -2.1% (to take charges tied to Suriname, Western Australia); St Barbara SBM.AU +2.2% (S&P raises rating)
- Energy: China Shenhua Energy 1088.HK +3.8% (UBS raises to buy)
- Healthcare: China NT Pharma Group Co 1011.HK +13.4% (new drug approval)
- Telecom: TPG Telecom TPM.AU +3.1% (Singapore telco shares falls)

>>> After Hours Summary: CBAY +47% after landing gout license deal;


After Hours Summary: CBAY +47% after landing gout license deal; SHAK +5%, CC +2%, IDXX +0.5% higher on index change news... AGRX -72% on Twirla update, TSLA -2% after missing delivery targets

After Hours Gainers:

  • CBAY +47.4% (Kowa Pharmaceuticals America announces agreement with CymaBay Therapeutics to license gout compound)
  • SHAK +4.6% (to Join S&P SmallCap 600)
  • KOPN +2.1% and DEPO +1.3%(continued strength)
  • CC +1.5% (to join S&P MidCap 400)
  • ATHN +0.8% (upgraded to Overweight at KeyBanc)
  • AMGN +0.8% (favorable patent ruling news)
  • IDXX +0.5% (to join the S&P 500)

After Hours Losers:

  • AGRX -71.8% (announces top-line results from its Phase 3 SECURE clinical trial of Twirla; plans to resubmit its NDA for Twirla in the first half of 2017 on the basis of the SECURE results)
  • ACUR -10.7% (announces they are exploring a full range of financing and strategic alternatives, including a possible sale of the company)
  • TSLA -1.8% (Misses Q4 delivery targets on production delays related to new autopilot hardware; net orders set new record)
  • REGN -1.6% (unfavorable patent ruling news)
  • ARR -1% (announces January 2017 dividend rate per common share of $0.19 vs $0.22/share prior month)

Vanity Fair : BILLIONAIRE HEDGE-FUND MANAGER TIES W.S.J. TO “FAKE” NEWS EPIDEMIC

BILLIONAIRE HEDGE-FUND MANAGER TIES W.S.J. TO “FAKE” NEWS EPIDEMIC

If you’ve opened up a newspaper, turned on the TV, or logged onto the Internet over the past few months, you’ve likely encountered a discussion about the scourge of “fake news.” Web sites like InfoWars, which published countless false stories suggesting Hillary Clinton was running a child-sex-slave ring out of a D.C.-area pizzeria—leading one North Carolina man to show up to Comet Ping Pong with a gun to “self-investigate” the situation—would be a good example of the epidemic, and its effects on society. According to hedge-fund manager Ray Dalio, an article by The Wall Street Journal about his company, Bridgewater Associates, is another.
The story, written by Rob Copeland and Bradley Hope, reports that software engineers at the hedge fund are working on a project, referred to by Dalio as “The Book of the Future,” that will use technology to “automate most of the firm’s management,” including decisions like when to hire people, when to fire people, and even “whether an employee should make a particular phone call.” Within the piece, Copeland and Hope discussed Bridgewater’s unorthodox office culture, the principles of which are outlined in a series of maxims contained in Dalio’s company handbook cum cult text, Principles:
. . . and a discussion about hyenas killing wildebeests that serves as an argument for how to deal with people in the workplace:
“For example, when a pack of hyenas takes down a young wildebeest, is this good or bad? At face value, this seems terrible; the poor wildebeest suffers and dies. Some people might even say that the hyenas are evil. Yet this type of apparently evil behavior exists throughout nature through all species and was created by nature, which is much smarter than I am, so before I jump to pronouncing it evil, I need to try to see if it might be good. When I think about it, like death itself, this behavior is integral to the enormously complex and efficient system that has worked for as long as there has been life. And when I think of the second- and third-order consequences, it becomes obvious that this behavior is good for both the hyenas, who are operating in their self-interest, and in the interests of the greater system, which includes the wildebeest, because killing and eating the wildebeest fosters evolution, i.e., the natural process of improvement.”
Because of this, and other unusual aspects of life at Bridgewater—such as reportedly recording meetings and the expectation that employees must “criticize one another continually”—The Wall Street Journal reports that roughly “one-fifth of new hires leave within the first year” and “the pressure is such that those who stay sometimes are seen crying in the bathrooms.” According to Dalio himself, coming to work at Bridgewater is “a little bit like entering the Navy SEALS” and “there’s a period—usually of about 18 months— of ... adaptation to this. And some make it and some don’t make it. And so we call it ’getting to the other side.’ ”
In previous attempts to get outsiders to understand what goes on inside the firm, Bridgewater has produced testimonials starring employees who, like one named John, look into the camera and explain how Dalio’s unconventional methods yielded remarkable psychological breakthroughs. At first, John says, he resisted Dalio’s criticism that he had “a reliability problem,” but later realized he was being “illogical” by not asking why he was perceived that way. “I was closing myself off to the notion of exploring that, and reflecting on past experiences. I started to come to a realization that not only has being reliable been a problem for me professionally but personally, all the way back to the time that I was eight years old.” Most recently, Bridgewater put out another series of videos noting that joining the firm will mean that “at some point you’re going to be faced with something really painful and uncomfortable here and it’s up to you to decide if you want that experience.” According co-chief investment officer Greg Jensen, the point of the videos was to give people “a window into what it’s like to be here, to scare you away if you’re not the right kind of person or to potentially attract you if these ideas, if this way of being is attractive to you.”
Yet, despite pointing out themselves that Bridgewater is far from your typical company and clearly not for everyone, Dalio bristles at the idea that people might find aspects of life at the world’s largest hedge fund worth criticizing. Which is why, following the publication of Copeland and Hope’s article, Dalio proceeded to publish a 2,685-word response on LinkedIn, entitled “The Fake and Distorted News Epidemic and Bridgewater’s Recent Experience With The Wall Street Journal.” Although he professes to have “mixed feelings about describing our most recent experience with The Wall Street Journal because many people might misconstrue my doing this as me simply complaining about an article that I didn’t like,” Dalio says he has been “reflecting for quite a while on the destructive effects that fake and distorted media are having on our society’s well-being.”
One of Dalio’s biggest gripes is that the authors of the piece ”paint[ed] a one-sided negative picture of the work environment.” According to Dalio, that happened in part because “people who are happy with their experience and respecting our rules are not allowed to speak with the media so you end up hearing disproportionately from disgruntled people.” He says that Copeland did not take Bridgewater “up on [its] offer” to talk to “an extensive list of employees and former employees”—hand selected by the firm—”who could speak freely with him.” Dalio was also disappointed that Copeland and Hope only mentioned the (true) statistics about the high attrition rate of employees in their first and second years at the firm, while leaving out the “exceptionally low“ turnover rates of “those in years three, four, and five.” Dalio further took issue with the fact that Copeland called him out on espousing a culture of “radical transparency” while coming up with a new principle that states, “Expect those who receive the radical transparency to handle it responsibly and don’t give it to them if they can’t.” And that the writer didn’t just say, “Oh, O.K., that makes sense” when Dalio et al came back with some kind of baffling logic for how their process works.
When Copeland asked about how radical transparency works, he suggested that we were disingenuous because we didn’t pursue it totally. We explained our approach: “Don’t get me wrong: radical transparency isn’t the same as total transparency. It just means much more transparency than is typical. We do keep some things confidential, such as illnesses or deeply personal problems, sensitive details about intellectual property or security issues, the timing of a major trade, and at least for the short term, matters that are likely to be distorted, sensationalized, and harmfully misunderstood if leaked to the press.” And we pointed him to the relevant principles. Copeland and Hope chose to ignore those explanations and write “he decided to let only 10 percent have the full measure of what he calls radical transparency.” After he passed that by us, we replied that “It is incorrect that only 10 percent get radical transparency. Here’s the fact. Everyone can see most everything, but only the top 150 or so people get to see the most sensitive type of stuff which, in most companies would be limited to only the top 5 or 10 people.” The authors chose to go with their mischaracterizations, even though doing so was misleading.
In addition to not liking how building ”The Book of the Future” came across in print, Dalio says that Copeland and Hope “mischaracterized several other things . . . [but] I won’t delve into more examples because we are past the point of diminishing returns.” All you need to know is that there are ”systemic risks arising from fake and distorted media” and that those risks include coming away from a piece describing a hedge fund that, by all accounts, sounds pretty fncking strange and thinking, That place sounds pretty fncking strange.
For more examples of untrustworthy news sources, in Dalio’s opinion, refer to his essay entitled “The New York Times Story Is a Distortion of Reality,” which incidentally came out just after the Gray Lady published a story about a Bridgewater employee who claimed his superior sexually harassed him and was subsequently pressured by top managers “to rescind his claims.”

>>> US Close Dow +0.60% S&P +0.85% Nasdaq +0.85% Russell +0.53%

Closing Market Summary: Stocks Climb to Begin 2017

The stock market began the new year on a higher note, but the bulk of today's advance took place during the initial minutes of the session. The S&P 500 added 0.9% after being up 1.1% during the opening hour.

The long weekend was fairly quiet from the news standpoint, but investors did receive upbeat economic data from China (Caixin Manufacturing PMI 51.9; previous 50.9) and the eurozone (December Manufacturing PMI 54.9; previous 54.9). The data was used to justify the sunny disposition in the pre-market, but roughly half of the early gains faded shortly after the open. The morning pullback coincided with a spike in the yen after the dollar/yen pair failed to climb above its December high (118.67). The yen picked up about 100 pips against the dollar in just over an hour, and the risk-off move in the currency market helped cool the buying jets in the stock market. However, the last 30 minutes of the session saw the market rally back towards its early high.

Ten out of eleven sectors ended the day in positive territory with health care (+1.4%) and telecom services (+1.9%) climbing into the lead as the broader market retreated during the late morning. Telecom services rallied behind Verizon (VZ 54.58, +1.20) after the stock was upgraded to ‘Buy' from ‘Neutral' at Citigroup while the health care sector received support from biotech names. The iShares Nasdaq Biotechnology ETF (IBB 270.24, +4.86) spiked 1.8%. Although biotechnology lifted the health care sector, it could not keep the Nasdaq Composite (+0.9%) ahead of the broader market due to relative weakness in chipmaker names. The PHLX Semiconductor Index (+0.1%) spent the bulk of the day in negative territory, but late afternoon buying prevented a lower finish while the broader technology sector (+0.9%) settled just ahead of the broader market.

Like technology, financials (+1.0%) settled in the neighborhood of the S&P 500, but the sector flirted with a 2.0% gain at the start. Similarly, energy (+1.2%) backed off its opening high, but still ended comfortably in the green even though crude oil surrendered a big gain to end lower by 2.6% at $52.33/bbl after climbing above $55.00/bbl in overnight action.

Automakers were in the news today, starting with General Motors (GM 35.15, +0.31). Shares of GM ended higher by 0.9% after being down 1.0% in pre-market after President-elect Donald Trump said, in a tweet, that GM should pay a "big border tax" on Chevrolet Cruze vehicles produced in Mexico. General Motors responded by saying that most Cruze vehicles for U.S. distribution are produced in Ohio. Separately, Ford (F 12.59, +0.46) climbed 3.8% after announcing it will expand its plant in Michigan instead of developing a new location in San Luis Potosi, Mexico.

On the downside, the utilities sector (-0.3%) was the lone decliner, spending the day in negative territory even as intraday demand for Treasuries pressured yields off their overnight highs. The 10-yr note ended flat with its yield at 2.45%.

Today's participation was above average as more than one billion shares changed hands at the NYSE floor.

Economic data included Construction Spending and ISM Index:

  • Total construction spending increased 0.9% in November (consensus +0.5%) on top of an upwardly revised 0.6% increase (from +0.5%) in October. On a year-over-year basis, total construction spending increased at a seasonally adjusted annual rate of 4.1%.
    • The key takeaway from the report is that construction spending is increasing and will serve as a positive input for Q4 GDP forecasts.
  • The ISM Manufacturing Index closed 2016 on an upbeat note, hitting 54.7 (consensus 53.6), which was up from 53.2 in November and the highest reading all year. December marked the fourth straight month that the index was above 50.0, which is the dividing line between expansion and contraction.
    • The key takeaway from the report is that it helps validate the market's budding growth assumptions for 2017 considering the strength in December was forged on the back of a big uptick in the component indexes for new orders and prices.
  • For further detail on today's economic releases, be sure to visit Economic Calendar

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while the Federal Reserve will release the December FOMC Minutes at 14:00 ET.

  • S&P 500 +0.9% YTD
  • Nasdaq Composite +0.9% YTD
  • Dow Jones Industrial Average +0.6% YTD
  • Russell 2000 +0.5% YTD