>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • EXPR -18.3%, GES -13.9%, LE -11.5%, DG -7.7%, NQ -6.7%, ISLE -6.3%, BL -5.3%, KR -4%, BV -3.5%, SNPS -1.9%,CWB -0.7%
M&A news: GNC -3.2% (Bloomberg reported that potential sale talks may have stalled)

Select Brazil related names showing weakness: ABEV -3.8%, ITUB -3.8%, BAK -3.3%, ERJ -2.3%

Select metals/mining stocks trading lower: SBGL -2.8%, AU -2.5%, HMY -2.2%, GOLD -1.4%, AG -0.9%, TCK -0.9%, GG-0.5%

Other news:
  • HTBX -58.9% (presents topline HS-410 Phase 2 bladder cancer results; responses did not translate into clinical outcomes, there was no statistically significant difference in the primary endpoint between the vaccine and placebo arms)
  • ARDM -54.2% (top-line results from its two Phase 3 clinical trials evaluating the safety and efficacy of Pulmaquin)
  • PTN -27.8% (to issue and sell shares of its common stock and warrants to purchase shares of its common stock)
  • FCEL -11.1% (announces restructuring, impacting 17% of workforce, cuts production rate in half temporarily; sees Q4 rev below consensus)
  • CDZI -6.7% (prices underwritten public offering of 1 mln shares of its common stock at $9.75/share)
  • XNCR -5.4% (prices about a 4.6 mln share underwritten public offering of common stock at $24.00/share)
  • BEAV -4.2% (Starboard may push for Rockwell to reconsider its pending merger with BEAV)
  • PENN -3.2% (attributed to block trade sale)
  • MEMP -3.2% (enters into forbearance agreement with noteholders & receives extension of waiver under credit facility )
  • GWPH -2.5% (results from two completed Epidiolex Phase 3 trials, one in LGS and one in Dravet syndrome, will be presented at the AES Annual Meeting )
  • RXN -2.3% ( commences public offering of 7 mln depositary shares, each of which represents a 1/20th interest in a share of its Series A Mandatory Convertible Preferred Stock)
  • KNSL -1.8% (prices secondary offering by selling shareholders of 3,360,000 shares of common stock at $27.50 per shareg)
Analyst comments:
  • AA -1.3% (initiated with a Sell at Deutsche Bank)
  • WEN -0.6% (downgraded to Neutral from Buy at Guggenheimt)

(Global Handelsblatt) A Little Debt Relief for Athens

A Little Debt Relief for Athens

Europe’s bailout fund, the ESM, wants to liberate Greece from the risk of rising interest rates in what could amount to debt relief. The plan could lead to renewed tensions between Berlin and the IMF over the bailout.

Euro zone countries are preparing some minor debt relief for Greece.

The E.U. bailout fund, the European Stability Mechanism, would be used to safeguard the country against the risk of rising interest rates. The details are laid out in an ESM document that Handelsblatt has obtained.

The ESM replaced the European Financial Stability Facility or EFSF as the bloc’s bailout fund in 2012. In the summer of 2015 Greece’s troika of creditors – the European Union, the European Central Bank and the International Monetary Fund – agreed to a third bailout for the struggling country since 2010 worth €86 billion, which was tied to a series of economic reforms.

The German director of the ESM, Klaus Regling, plans to present the new measures to the euro zone’s finance ministers next Monday. Officials at the German finance ministry said that they support the proposed short-term debt relief measures in principle. The prospect of such measures was already held out to Greece in May.

Three different measures are listed in the document. First, the average term for loans issued by the old bailout fund, the EFSF, is to be increased by four years. Second, a fee could be waived that would save Greece €220 million ($233 million) next year.

The main measure, however, is to protect Athens from the risk of rising interest rates. This would enable the country to benefit from today’s extremely favorable conditions in the long term.

All the measures combined could reduce Greece's debt level relative to its gross domestic product by 21.8 percent by 2060.
To achieve this, the ESM could issue bonds with a maturity of up to 30 years, or it could use so-called interest rate swaps. Although this would initially lead to higher costs for Athens, until 2022, the country’s costs would then go down until 2060. According to ESM calculations, all the measures combined could reduce Greece’s debt level relative to its gross domestic product by 21.8 percent by 2060. Nevertheless, these calculations are subject to uncertainty.

It is clear that the program would improve the country’s debt sustainability. This is important for the International Monetary Fund, which the Europeans want to see continuing to participate in the bailout program. According to German government sources, the IMF could now incorporate the short-term measures into its analysis of debt sustainability.

However, the IMF insists on ongoing debt relief, which German Finance Minister Wolfgang Schäuble opposes. He considers debt relief to be counterproductive, especially since the Greek economy has been improving lately.

It’s an argument the IMF cannot accept. In light of the long downturn, it is hardly surprising that growth is now picking up, said an individual familiar with the IMF analyses. According to this individual, the Washington-based fund also considers it possible that Athens many finance itself again on the markets, even at higher interest rates, but noted: “This doesn’t mean that the debts are sustainable.”

According to the source, Mr. Schäuble and other finance ministers could hold a teleconference this weekend with representatives of Greece’s creditors — the European Union, the IMF and the ECB — to discuss the debt dispute.

(BofA-ML) 2017 year ahead – Refining the reflation rotation

Key takeaways
• 2017 - Reflation, Reversal, Rotation, Relief or Revolt. EPS to turn +ve but politics to remain a valuation overhang in H1.
• Defensive vs Cyclical rotation at extreme levels. More balanced approach needed but look for another leg to cyclical trades.
• O/w Media as quality cyclical and Oil. Stay cautious on UK domestic (Retail, Travel). Health, Utilities over Food & Bev.

2017 – A year of cross currents, nimble investors required
Recovery (positive but moderate in our view) and Rotation go hand in hand - we think
that the pace of the rotation has to moderate. ECB reversal on QE is a risk and tapering
because the ability or willingness to do QE fades would likely cause a setback. Investors
will demand a premium for political risk until we get clarity on populist Revolt or policy
Relief in France and elsewhere. Like 2016 investors will need to trade the ranges.
High single digit upside - politics likely to weigh near term
A valuation overhang remains in Europe vs other DM. We see a return to positive EPS
growth (+7%) in Europe for the first time since 2014, driven by higher global GDP
growth Resources recovery, capex discipline and FX. +7% growth implies less
downgrades than usual (10% is the average). Base case upside in high single digits (c9%
total return) but politics may mean market highs are more likely achieved in H2.
Modestly higher yields and higher equities compatible
Equities can continue to perform with rising rates – the key is that inflation breakevens
are not falling. However, a more aggressive bond sell-off taking Treasury yields to 3% or
higher would undermine EM, the growth outlook, peripheral spreads and risky assets.
Reflation rotation stretched – refining our approach
Rotation has been extreme (>6SD move in Def vs Cyclicals). Argues for a moderation in
returns and a more balanced approach to sector allocation. Look for another leg to
cyclical trades in the New Year. Sector valuations have also moved a long way already.
Cautious on domestic UK exposure – Brexit still to bite
The full impact of sterling weakness on the UK consumer environment is yet to be felt
and Brexit negotiations are likely to drive further uncertainty and FX volatility. Structural
issues add to our concerns in Retail and Travel & Leisure (both underweight).
O/w Oil, Health, Utilities, Media; u/w Food & Beverage
An OPEC cut and higher oil would make Oil’s high DY sustainable. Healthcare is too
cheap vs an improving sector growth outlook and 2017 is a key year for pipeline news.
Food & Beverage still seems the least attractive Defensive on valuation, positioning. We
move overweight Media, a quality cyclical that has lagged and seen valuations de-rate.

>>> Banco Popular considers merger; approached by several parties including BBVA

Banco Popular considers merger; approached by several parties including BBVA

Banco Popular [BME:POP] is considering a merger, the Spanish-language business paper Expansion reported, without citing any sources.
According to the item, Popular has been approached by several entities, including BBVA [BME:BBVA], and has held talks with some at the top executive level.
Expansion went on to explore the likelihood of BBVA, CaixaBank [BME:CABK], Santander [BME:SAN], and Sabadell [BME:SAB] as possible partners.

FT : Glencore nears end of debt reduction after 200% share rally

Glencore said it was nearing the completion of its wide-ranging debt reduction programme as it announced plans to pay a dividend of $1bn in 2017.

Before a meeting with analysts and investors later today, the Swiss-based company said the cash would be paid in equal tranches in the first and second half in the year.
In 2018, a new dividend policy will take effect, comprising a $1bn payment and a quarter of the cash generated by its industrial, or mining arm.
The move to restart dividend payments marks a sharp shift from a year ago when the miner-cum-trader was grappling with a debt crisis and under attack from hedge funds, which saw betting again the company as easiest way to make money from a commodity market crash.
Boosted by a rebound in commodity prices and $4.7bn of assets sales, Glencore’s financial position has improved and the company is set to end the year with net debt of $16.5-$17.5bn, down from $23.6bn in June.
Shares in Glencore have risen 200 per cent to 280p this year, one of the best performances in the FTSE 100.
“Last year we announced a programme of measures to reduce our debt and structurally increase the flexibility and strength of our balance sheet,” said chief executive Ivan Glasenberg in a statement ahead of the company’s annual strategy update. “We have delivered on our commitments and done so in a way that has preserved the long-term earnings capability of the group.”
In Thursday’s statement Glencore said it could generate $6.5bn of free cash flow next year based on forward commodity prices and it had a large amount of mothballed production capacity it could bring back online.
Around a year ago, Glencore suspended 500,000 tonnes of zinc output and took a large chunk of its copper production offline.
Glencore said underlying earnings from its powerful marketing, or trading arm would come in at upper end of recently tightened range of $2.5bn-$2.7bn.

>>> Pre Market Indications

ML
* ASCENTIAL - Apex, Guardian Media selling 66m shares @ 260p; BAML;GS glocos...
DAILY MAIL - Reassuring. Revs £1.92b v £1.88b & Op profit 4% beat (781)...+2-3%
GLENCORE - No new divestments but $6.3b completed. To pay $1b in divs (285).+2%
TULLOW - We push BUY post OPEC, take PO to 370p from 320p.Oils well bid(303)+2%
BANCO POPULAR - Press reporting has approached BBVA for a merger (0.843)....+2%
MINERS - Copper unch, Iron Ore +6.3% with BHP OZ +4.9% and RIO OZ +1.6%...+1-2%
CONVATEC - Will join FTSE 100 on 16th Dec; c.50m shr to buy, >18x ADV (240).+1%
ACTELION - Traded bit better in the U.S. Post the European close (CHF 198)..+1%
GRAINGER - NNNAV 287p v BAML est 291p. LTV 36%. Adj profit up 69% (226.5)...+1%
SMURFITS - Will be joining FTSE 100 on 16th Dec; c.5m shrs to buy (1835)....+1%
NORSK HYDRO - CMD. On track with NOK 2.9b improvement ambition by '19 (40)..u/c
LINDE - Chairman Wolfgang Reitzle said to favour Praxair offer (157.2)......u/c
AIRBUS - Spec that United Continental may amend their A350 order (59.7).....-1%
ELEKTA - Weak print with 8% rev & 16% EBITA miss v lowered exp. SI 16% (70).-8%
BBVA - Press spec that Banco Popular has approached co for merger

CS

Banco Pop +2-3% Banco Popular Weighs Merger, Has Approached Bbva: Expansion
BBVA M/P Banco Popular Weighs Merger, Has Approached Bbva: Expansion
Bpost -1-2% Bpost SA Makes Final Eu5.75, Improved Proposal to PostNL
BP +2% CS UPGRADE to OUTPERFORM (Valuation)
Daily Mail +2-3% Revenues 2% ahead, EPS 6% ahead of consensus
Dixons +1-2% CS INITIATE with OUTPERFORM (Concerns overdone)
Elekta -5% Net sales 7.5% light, EBITA 13% light
Glencore +2% CMD - Sees 2016 marketing EBIT at upper end of $2.5B-$2.7B
Miners +1-2% Copper UNCH, Brent +5.10%, Iron Ore +5.00%, China +0.30%
Peugeot UNCH Total French car registrations climbed +8.5% y/y in Nov
PostNL +10-15% Bpost SA Makes Final Eu5.75, Improved Proposal to PostNL
Renault +2-3% Total French car registrations climbed +8.5% y/y in Nov
Serco M/P CMD - Comments all look inline
Sulzer M/P Purchase of Rotec's gas turbine service biz
Total UNCH CS DOWNGRADE to NEUTRAL (Limited upside)
Valeo -0.5% To withdraw and refile FTE purchase plan

MF
*BANCO POPULAR-Weighs merger,has approached BBVA - Expansion........+2%
*AIRBUS-Utd Airlines may amend $12.4b order to smaller jets.........-1%
*NESTLE-Develops method to reduce sugar in its chocolate............+0.5%
*BPOST-Raised its offer for PostNl(+10%) by €0.376 to €5.75.........+5%
*ELEKTA-Sales 2.43b(2.63),Ebita 391m(442.2),CF 114m,Savings 500m....-3%
*HYDRO-Sees Global Primary Aluminum demand growth abt 5% 2016.......+1%
*SYNGENTA-ChemChina to set up $5b Fund for Syngenta bid.............-1%
*KONTRON-Cost cutting program over 1.5yrs,higher DD mln range.......+0.5%
*GEBERIT-Sees gd bizz ahead,Q4 weaker,Germany stil ok,f/c valid.....+1%
*AIR FRANCE-CEO sees FY Ebit close to €1b vs Cons €954.2m - Echos...+1%

(Citi) Telecom Italia : Hard to believe, harder to dismiss; Upgrade savers to Ne

Hard to believe, harder to dismiss; Upgrade savers to Neutral

 Can TI turn the corner? — CEO Cattaneo has managed to deliver excellent cost
cutting since taking over as progress is coming through earlier than expected. He
has signaled more ambitious targets on cost cuts to be announced in February as
part of the new three year plan (2017-19). Strong fixed KPIs and some progress in
headline top line trends may also raise hopes of a sustainable turnaround, which in
our view will be hard to dismiss while TI shows progress in the coming quarters.
 Hard to believe — However we remain unsure if TI will be able to sustain this
progress. Consensus is bullish, mainly because it likely treats Iliad’s mobile launch
as a small incremental headwind; and the launch of competitive infrastructure as the
only headwind for wholesale; rather than an additional one to an already structurally
challenged business. We also note that the pace of cost cutting is bound to slow
from 2Q17 (on tougher comps), while TI continues to suffer from the worst EBITDA
to FCF conversion in the industry with hidden financial liabilities) are potentially
behind these outflows (see Cash and Carry: FCF headwinds for EM-heavy telcos).
 Forecast changes — We make modest changes to our estimates. Overall, we
raise our estimates for Italian revenue/ EBITDA by 1.2%/0.5% in 2017; assuming
that the flow of other revenues remains high. We also increase our FCF estimate for
2016 by c.€500m on working capital but do not expect that to be repeated in future
years, so estimates are broadly unchanged and we expect a net outflow in 2017.
EPS, is very sensitive to small changes in EBITDA and rises by 5%/19% in 2018/19.
 Caught in three minds — As highlighted above, we see long term risks prevailing
but also scope for the coming quarters to act as positive catalysts. The Italian
referendum due on December 4th is another curveball that may end up having
significant implications, with the risks largely to the downside (see Bull/ Bear
analysis inside). We believe the savers offer much better protection/upside in the
binary event and therefore upgrade our recommendation on them to Neutral with a
price target of €0.55/share (Telecom Italia SpA(savings shares) (TLITn.MI):
Upgrade the saving shares to Neutral; price target of €0.55). We reiterate our Sell
rating on the ords and €0.60/share price target.

(Jefferies) Integrated Oils : OPEC Delivers

OPEC has delivered an agreement to cut production by 1.2 mbd. The agreement seems to meet the four criteria the Saudis required; it is a collective action with equitable burden sharing and country-level allocations that provide credibility and transparency. OPEC has indicated that non-OPEC countries will also make production cuts of 600 kbd, with 300 kbd coming from Russia.

(CS) ITalian Banks : Italian Referendum

The Italian Referendum result is due on December 5th. While a narrow NO win could dispel some uncertainty, a wide NO win could further fuel uncertainty and is unhelpful for banks’ recapitalization plans. If banks are unable to recapitalize, we envisage 3 potential options. (i) Italy could gain the waiver set in the article 32 of the BRRD – straight bail-out to rescue banks in case of “serious disturbance in the economy of a Member State to preserve financial stability”. This would imply systemic risk relief, but we think the waiver is unlikely. (ii) authorities to allow the postponement of the recapitalizations. In this case, we do not foresee imminent bail-in or bailout. There might be potential systemic risk reduction, but the issue would remain, so it would not be necessarily a positive. (iii) authorities to apply bail-in. This could be the most likely scenario, as it would comply with current rules. It is a worst case scenario though as it would increase the risk of a moderate bank run.

(CS) UK BUILDINGS: The October release of the UK Online Estate Agent survey

UK BUILDINGS: The October release of the UK Online Estate Agent survey reflects the seasonally weaker months as we approach the end of the year, new vendor instructions, property sales and total number of listed properties all posted declining trends in October. Looking ahead, however, it appears the industry is optimistic for a positive start to 2017, with a net balance of 60% of respondents expecting new vendor instructions to be up on a three month horizon.