>>> Weekly Update

Weekly Market Update: OPEC Cuts; Fed on Track to Hike

Markets entered the week focused on Vienna, and growing doubts about whether OPEC and in turn non-OPEC producers could come to an accord. Ultimately the Saudis appeared to blink and an agreement was reached that would cut production by 1.2M bpd to 32.5M bpd as laid out in September's tentative framework in Algiers. Crude prices moved up into the closed door meeting on Wednesday and ended the week up 10% from the lows. The US oil patch saw a dramatic rally with some shale names jumping more than 20%. The 6-month production cut that goes into effect with the New Year is seen as a potential boon for well capitalized US producers who will not be participating in any quotas.

Global economic data continued to paint a solid picture heading into the final month of the year, particularly here in the US. November manufacturing readings largely topped estimates while new orders saw growth. Friday's Labor Department report saw several surprises in the details but the bottom line did not differ greatly from expectations. Job growth was steady, labor market slack continues to diminish, and the case for a December rate hike remains intact.

US Treasury yields hit fresh highs mid-week propelled by a continuation of the post-election reflation trade and the surge in oil prices. After making a run at 2.5% in the benchmark 10-year yield, Treasury prices were firming into the jobs numbers on Friday. Yields moved down despite the lowest print in the unemployment rate since 2007. The Dollar index drifted back below 101, but as with most asset classes, price action remains well within recent ranges and suggests post-election trends remain entrenched. Overall, stocks trended lower for the first time since the US election, and for the week the S&P500 dropped 1.1% and the Nasdaq fell 2.7%, while the DJIA eked out a 0.1% gain.

In corporate news, Caterpillar threw some dirt on the rotation into the infrastructure play, cautioning that FY17 analyst earnings consensus is overly optimistic given the expected headwinds. Starbucks shares took a hit after CEO Howard Schultz said he would cede the CEO role to his lieutenant Kevin Johnson in April. Luxury retailer Tiffany Co. blew out expectations for Q3, but merely affirmed FY16 guidance in part due to the drag on sales at its New York flagship store caused by security cordon around the adjacent Trump Tower.

MONDAY 11/28
STAN.UK: Reportedly set to unveil wider global job cuts as early as this week - financial press
*(EU) EURO ZONE OCT M3 MONEY SUPPLY Y/Y: 4.4% V 5.0%E

TUESDAY 11/29
*(EU) EURO ZONE NOV BUSINESS CLIMATE INDICATOR: 0.42 V 0.60E; CONSUMER CONFIDENCE (FINAL): -6.1 V -6.1E
(IT) ECB ready to temporarily step up purchases of Italian government bonds if Dec 4th Referendum drives up borrowing costs- financial press
*(DE) GERMANY NOV PRELIMINARY CPI M/M: 0.1% V 0.1%E; Y/Y: 0.8% V 0.8%E
*(US) Q3 PRELIMINARY GDP PRICE INDEX: 1.4% V 1.5%E; CORE PCE Q/Q: 1.7% V 1.7%E
TIF: Reports Q3 $0.76 v $0.67e, R$949M v $923Me
*(US) Q3 PRELIMINARY GDP ANNUALIZED Q/Q: 3.2% V 3.0%E; PERSONAL CONSUMPTION: 2.8% V 2.3%E
(IR) Iran Oil Min Zanganeh: Iran will NOT cut oil production
*(US) NOV CONSUMER CONFIDENCE: 107.1 V 101.5E (highest since July 2007)

WEDNESDAY 11/30
*(EU) EURO ZONE NOV ADVANCE CPI ESTIMATE Y/Y: 0.6% V 0.6%E (Highest level since Apr 2014); CPI CORE Y/Y: 0.8% V 0.8%E
*(IN) INDIA Q3 GDP Y/Y: 7.3% V 7.5%E
*(US) NOV ADP EMPLOYMENT CHANGE: +216K V +170KE
*(US) OCT PCE CORE M/M: 0.1% V 0.1%E; Y/Y: 1.7% V 1.7%E
*(US) OCT PCE DEFLATOR M/M: 0.2% V 0.3%E; Y/Y: 1.4% V 1.5%E
*(US) OCT PERSONAL INCOME: 0.6% V 0.4%E; PERSONAL SPENDING: 0.3% V 0.5%E
*(US) NOV CHICAGO PURCHASING MANAGER: 57.6 V 52.5E (highest since Jan 2015)
(US) Atlanta Fed GDPNow: cuts Q4 GDP forecast to 2.4% from 3.6% on Nov 23rd
*OPEC Ministers comment after meeting concludes: confirms cutting output to 32.5M bpd, 6 month agreement starts in Jan and could extend it another 6 months at May meeting; seeks 600K bpd in cuts from non-OPEC producers
*(BR) BRAZIL CENTRAL BANK (BCB) CUTS SELIC TARGET RATE BY 25BPS TO 13.75%; AS EXPECTED
*(AU) AUSTRALIA Q3 PRIVATE CAPITAL EXPENDITURE (CAPEX) Q/Q: -4.0% V -3.0%E
*(CN) CHINA NOV MANUFACTURING PMI (Gov't official): 51.7 V 51.0E (4th consecutive expansion and highest since July 2014)
*(CN) CHINA NOV CAIXIN PMI MANUFACTURING: 50.9 V 51.0E; 5th consecutive expansion
(HK) Macau Nov Casino Rev 18.8B Patacas v 18.4B m/m, +14.4% y/y (4th consecutive increase, largest gain since Feb 2014) v 8.8% prior

THURSDAY 12/1
GLEN.UK: Trading update: Raises FY16 Marketing EBIT at upper end of $2.5-2.7B; Guides initial FY17 illustrative cash flow $6.5B, EBITDA $14.0B; Cuts Long-term EBIT $2.2-3.2B (prior $2.7-3.7B)
*(UK) NOV PMI MANUFACTURING: 53.4 V 54.4E (4th month of expansion)
*(EU) EURO ZONE OCT UNEMPLOYMENT RATE: 9.8% V 10.0%E (lowest since Sept 2011)
*(US) INITIAL JOBLESS CLAIMS: 268K V 253KE; CONTINUING CLAIMS: 2.08M V 2.03ME
*(US) NOV FINAL MARKIT MANUFACTURING PMI: 54.1 V 53.9E (highest since Oct 2015)
*(US) NOV ISM MANUFACTURING: 53.2 V 52.5E; PRICES PAID: 54.5 V 54.5E
CAT: Guides FY17 R$38B v $38.1Be, sees FY17 EPS $3.25 consensus ex restructuring as too optimistic considering expected headwinds (Zack's FY17 consensus estimates is $3.36e) - investor presentation
(US) Atlanta Fed GDPNow: raises Q4 GDP forecast to 2.9% from 2.4% on Nov 30th
SBUX: *CEO Howard Schultz to step down, to become exec Chairman; COO Kevin Johnson to take over as CEO; effective April 3, 2017

FRIDAY 12/2
*(US) NOV UNEMPLOYMENT RATE: 4.6% V 4.9%E (lowest since 2007)
*(US) NOV CHANGE IN NONFARM PAYROLLS: +178K V +180KE
*(US) NOV AVERAGE HOURLY EARNINGS M/M: -0.1% V +0.2%E; Y/Y: 2.5% V 2.8%E; AVERAGE WEEKLY HOURS: 34.4 V 34.4E
*(CA) CANADA NOV NET CHANGE IN EMPLOYMENT: +10.7K V -15.0KE; UNEMPLOYMENT RATE: 6.8% V 7.0%E
DAL: Reports Nov Load factor 85% v 84.1% y/y; Affirms Q4 metrics guidance
(US) CMS report: 2015 US health care spending +5.8% y/y to $3.2T

>>> US Close Dow -0.11% S&P+0.04% Nasdaq +0.09% Russell +0.03%

Closing Market Summary: Narrow Range Maintained Ahead of Italian Referendum

The stock market ended a down week on a flat note. The S&P 500 surrendered a seven-point gain to end just above its flat line. For the week, the S&P 500 lost 1.0%, the Nasdaq fell 2.7%, and the Dow ticked up 0.1%.

Prior to the open, investors received the November Employment Situation report (178,000; consensus 180,000), which essentially matched estimates. It was a bit surprising to see a 0.1% decline in average hourly earnings (consensus 0.2%), but with the year-over-year rate hovering at 2.5%, the market does not expect this report to alter the rate hike picture. In fact, the implied probability of a rate hike, as indicated by the fed funds futures market, increased to 97.2% from yesterday's 92.7%.

Equity indices climbed through the first two hours of action, but relative strength among four of five countercyclical sectors was not enough to offset losses in heavily-weighted groups like consumer discretionary (-0.6%), financials (-0.9%), and industrials (-0.1%).

The financial sector narrowed its weekly gain to 0.9%, responding to some flattening in the yield curve as the 10-yr yield slipped six basis points to 2.39%. Treasuries climbed alongside other sovereign debt, as participants employed caution ahead of a weekend constitutional reform referendum in Italy. Polls conducted before the blackout period pointed to a likely victory for the ‘no' camp, which is expected to be met with Prime Minister Matteo Renzi's resignation. It was reported throughout the week that the European Central Bank is ready to step up its purchases of Italian bonds if there is an increase in volatility. This understanding was likely the driving force behind today's strength in Italian debt that sent the country's 10-yr yield lower by 13 basis points to 1.91%.

The consumer discretionary space spent the day in a slow retreat with Starbucks (SBUX 57.21, -1.30) acting as an overhang. The stock settled lower by 2.2% after the company announced that Chief Executive Officer Howard Schultz will be appointed Executive Chairman and a new CEO will be named. Elsewhere in the sector, other quick-service restaurant names and apparel names also struggled while homebuilders outperformed. Chipotle Mexican Grill (CMG 400.03, -2.35), Yum! Brands (YUM 62.42, -0.27) both lost near 0.5% while Gap (GPS 24.30, -0.75) surrendered 3.0% after a disappointing same-store sales report. Homebuilders bucked the trend within the sector with the Dow Jones US Home Construction ETF (ITB 27.04, +0.03) adding 0.1%.

On the upside, rate-sensitive real estate (+1.2%) and utilities (+0.9%) were bolstered by the decline in Treasury yields, while the technology sector (+0.4%) rebounded from yesterday's weakness, but still lost 2.9% for the week. Chipmakers contributed to today's strength in the top-weighted group, sending the PHLX Semiconductor Index higher by 1.3%. The high-beta index narrowed this week's loss to 4.9%. The energy sector (+0.1%) also settled among the outperformers, benefitting from continued strength in crude oil. WTI crude climbed 1.2% to $51.68/bbl, settling just below its 2016 high ($51.93) that was notched in late October.

The energy sector gained 2.6% for the week, ending well ahead of the remaining sectors.

Today's participation was shy of the 200-day average of 926 million as 882 million shares changed hands at the NYSE floor.

Taking another look at the November Employment Situation Report:

  • Nonfarm payrolls increased by 178,000 (consensus 180,000). Job gains have averaged 180,000 per month so far this year versus an average monthly increase of 229,000 in 2015.
    • October nonfarm payrolls revised to 142,000 from 161,000
  • Private sector payrolls increased by 156,000 (consensus 170,000)
    • October private sector payrolls revised to 135,000 from 142,000
  • Unemployment rate was 4.6% (consensus 4.9%) versus 4.9% in October
  • November average hourly earnings were down 0.1% (consensus +0.2%) after being up 0.4% in October
    • Over the last 12 months, average hourly earnings have risen 2.5% versus 2.8% for the 12-month period ending in October
  • The average workweek was unchanged at 34.4 hours (consensus 34.4)
  • The labor force participation rate was 62.7% versus 62.8% in October

Monday's economic data will be limited to the 10:00 ET release of November ISM Services (consensus 55.6).

  • Russell 2000 +15.7% YTD
  • Dow Jones Industrial Average +10.0% YTD
  • S&P 500 +7.2% YTD
  • Nasdaq Composite +5.0% YTD

RTRS - EDF mulls lowering dividend payout ratio to max 50 pct-BFM

EDF mulls lowering dividend payout ratio to max 50 pct-BFM - Reuters News

02-DEC-2016 16:32:38

PARIS, Dec 2 (Reuters) - French utility EDF EDF.PA is considering a cut in the amount of net profit it pays out in dividends, a business website quoted a finance ministry source as saying, as it looks to shoulder a multi-billion euro investment bill in coming years.

The website of TV station BFM Business said the state-controlled utility would reduce its dividend payout ratio to a maximum 50 percent of underlying net profit from 2017.

EDF declined to comment.

At the publication of its nine-month sales in early November, EDF had confirmed it would stick to a planned payout ratio of between 55 and 65 percent of net income excluding non-recurring items.

EDF, which in recent years has had to borrow billions of euros just to pay dividends, plans to invest tens of billions of euros in the next decade for building two nuclear reactors in Britain and for upgrading its ageing French nuclear fleet.

In February, as it published a 68 percent drop in 2015 earnings, the utility proposed to cut its dividend to 1.10 euros per share after paying 1.25 euros three years in a row.

The French state - which owns 85 percent of EDF - has agreed to take its dividend on 2015 earnings in shares, which left about 1.8 billion euros worth of cash in EDF. It will also take its dividend on 2016 and 2017 earnings in shares and will subscribe to 3 billion euros of a 4 billion euro share issue which EDF plans for early 2017. (Full Story)

EDF shares were 0.5 percent lower in mid-afternoon trading, outperforming the wider French stock market .FCHI which was down 1.1 percent.

Reuters - Vivendi denies considering Telecom Italia involvement in pay-TV deal

Vivendi (VIV.PA) denied on Friday a press report that said the French media group was willing to resume talks with Italian broadcaster Mediaset (MS.MI) over a collapsed pay-TV deal and was considering involving Telecom Italia (TLIT.MI).

Vivendi is the top investor in Telecom Italia.

Il Sole 24 Ore daily reported on Friday Vivendi and its leading shareholder and Chairman Vincent Bollore would be willing to consider a revised deal with Mediaset that divided control of the group's Mediaset Premium pay-tv unit among the broadcaster, the French group and Telecom Italia.


"Vivendi and Vincent Bollore categorically deny any rumors about deals with Mediaset Premium and a possible involvement of Telecom Italia," Vivendi said in a statement.

Vivendi has walked away from a deal that gave it full control of Mediaset Premium saying the unit's business forecasts were unrealistic.

(Exane) Luxury goods


The recent "growth paradigm" crisis & the “old normal”
Luxury growth in recent years has hinged on a) retail network expansion + b)
price inflation
Luxury market growth in the most recent ten and five years has been ca. 5% p.a. Retail
network expansion and higher prices have been the two key drivers behind this –
acting in broadly equal proportion;
This growth model has failed to produce shareholder value in the past three
years
ROIC for the luxury goods industry has on average continued to decline since 2012.
Adding retail space in a more muted market is a recipe for space productivity dilution,
ROIC compression and TSR deterioration. This is inevitable in a luxury goods industry
that is more and more resembling retail, in terms of cost structure and capital allocation
– albeit operating at higher prices vs. general retailers. We find that companies that
have invested the most are also the ones that have suffered the most severe ROIC
deterioration in recent years;
We see many reasons to anticipate lower contribution from both retail network
expansion and price inflation in the future
a) The most important new frontier – China – has enough stores. There is limited
opportunity for the companies in our coverage to add DOS in that market;
b) Several deflationary forces are at play:
b1. The bulk of new luxury demand growth is coming from middle class consumers in
China. Middle class consumers have lower spending power than early adopters;
b2. Chinese authorities are keen to stem capital outflows and increase tax receipts.
Repatriating luxury spend is one way to do so. This demands lower price gaps vs.
Europe;
b3. Chinese consumers have unprecedented levels of price transparency, in the era of
digital luxury;
Luxury goods companies need to adjust to an “old normal” of more moderate
growth
We note that capex / sales is above the long-term average, when it should be below it.
More muted retail network expansion will require lower capex levels. Digital
development is not going to pick up the slack. Luxury goods companies will likely
produce significantly higher free cash flow. The investment case for luxury goods will
likely move from one of “pure growth” to one of “growth and dividend payouts”;