>>> Asian Update

Asia Mid-Session Market Update: China CPI inflation rises on higher food prices; Wholesale PPI turns positive for the first time since 2012
Fri, 14 Oct 2016 1:09 AM EST

***US Session Highlights***
- (US) INITIAL JOBLESS CLAIMS: 246K (matches lowest since 1973) V 253KE; CONTINUING CLAIMS: 2.05M V 2.05ME
- (US) SEPT IMPORT PRICE INDEX M/M: 0.1% V 0.2%E; Y/Y: -1.1% V -1.0%E
- (US) Fed's Harker (non-voter, hawk): supports one rate move by end of the year; starting to see wage pressures
- YHOO: Verizon General Counsel: reasonable to believe email data breach had a material impact on Verizon-Yahoo deal - press

***US markets on close: Dow -0.3%, S&P500 -0.3%, Nasdaq -0.5%***
- Best Sector in S&P500: Utilities
- Worst Sector in S&P500: Financials
- Biggest gainers: ULTA +11.4%, AAL +5.0%, HCA +4.5%, ALK +3.6%, RRC +3.6%
- Biggest losers: COG -4.5%, QRVO -4.4%, FCX -4.0%, R -3.7%, MTB -3.3%
- At the close: VIX 16.7 (+0.8pts); Treasuries: 2-yr 0.86% (+2bp), 10-yr 1.74% (-4bp), 30-yr 2.47% (-3bp)

***US movers afterhours***
- HPQ -1.3%: Guides FY17 $1.55-1.65 v $1.62e; To cut about 3-4K jobs across all divisions; increases share buy back to $3B (11.6% of market cap)
- RSPP -4.4%: To acquire Silver Hill Energy Partners for $2.4B in cash and shares
- NHTC -14.3%: Reports prelim Q3 R$70.7M v $80.8M y/y
- HIVE -18.3%: Reports prelim Q3 -$0.07 to -$0.06 v -$0.04e, R$40M v $48.1Me, gross margin 67.5-68%

***Asia Session Notable Observations, Speakers and Press***
- China CPI rebounds to a 3-month high of 1.9% after falling to a 10-month low in the prior month; Food prices spike to 3.2% v 1.3% prior, with non-food rising 1.6% v 1.4% prior; Wholesale PPI turns positive for the first time since 2012 amid recovery in metal and coal prices; Economists suggest the latest inflation data will keep PBoC on hold for the rest of 2016.
- China state planner NDRC warns the recently announced debt to equity swap may increase banks' risks; Separately, State-owned Assets Supervision and Administration Commission (SASAC) signals increasing control of SOEs' bond sales due to potential debt crisis.
- Japan Fin Min Aso: Income and employment situations are improving; Personal consumption still lacking strength.
- RBA semi-annual financial stability review notes rising bad debt charges weighing on bank profit growth, with China loans also seen as concern; acknowledges that some settlements are taking longer and lending valuations are coming in below their contract price, though settlement failures to date remain low.
- Singapore GDP well below consensus as Q3 q/q contracts by over 4%; MAS still keeps width and center of currency band, but anticipates inflation to only start to pick up next year and growth to remain low; SGD falls on sentiment.
- GBP falls on FT comments from European Council president Tusk; Says UK's only alternative to "hard Brexit" is no Brexit.

***Asia Key economic data:***
- (CN) CHINA SEPT CPI M/M: 0.7% (7-month high) V 0.1% PRIOR; Y/Y: 1.9% (3-month high) V 1.6%E
- (CN) CHINA SEPT PPI Y/Y: +0.1% V -0.3%E (1st increase in 55 months)
- (SG) SINGAPORE Q3 ADVANCED GDP Q/Q: -4.1% V 0.0%E; Y/Y: 0.6% V 1.7%E
- (JP) JAPAN SEPT PPI M/M: 0.0% V -0.1%E; Y/Y: -3.2% V -3.2%E
- (JP) JAPAN SEPT M2 MONEY STOCK Y/Y: 3.6% V 3.4%E; M3 MONEY STOCK Y/Y: 3.1% V 2.9%E
- (KR) SOUTH KOREA SEPT IMPORT PRICE INDEX M/M: +0.1% V -1.8% PRIOR; Y/Y: -7.8% V -8.4% PRIOR

***Asian Equity Markets (00:00ET)***
- Nikkei +0.2%, Hang Seng +0.6%, Shanghai Composite -0.5%, ASX200 flat, Kospi +0.6%

***FX ranges/Commodities/Futures/Fixed Income (00:00ET):***
- EUR 1.1030-1.1060; GBP 1.2200-1.2260; JPY 103.60-104.00; AUD 0.7555-0.7605; NZD 0.7075-0.7135
- Dec Gold -0.1% at 1,257/oz; Crude Oil +0.5 at $50.68/brl; Copper +0.2% at $2.13/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 2.7 tonnes to 961.6 tonnes; highest since Aug 16th
- Equity Futures: S&P e-mini flat, Dax flat, FTSE100 +0.1%
- USD/CNY: *(CN) PBOC SETS YUAN MID POINT AT 6.7157 V 6.7296 PRIOR; First stronger Yuan setting in 8 sessions
- (CN) PBOC to inject CNY30B in 7-day reverse repos; Drain net CNY410B for the week v CNY420.1B w/w
- (CN) China MoF sells 3-month bills at 1.943%
- JGB: (JP) Japan MoF sells ¥2.175T in 5-year JGB bonds; avg yield -0.201% v -0.175% prior; bid-to-cover 4.31x v 3.03x prior

***Asia movers***
- SinoChem 600500.CN +9.7%; To merge with ChemChina
- China Railway 0390.HK +2.1%; Engineering projects
- Doosan Heavy 034030.KR +1.9%; Philippines plant project
- AIA Group 1299.HK +1.5%; Q3 value of buildings
- China Jinmao 0817.HK; +1.4%; monthly sales
- Samsung Electronics +1.3%; additional guidance after Note 7 scandal
- Seven & I 3382.JP +1.2%; Raised at Okasan to Buy
- Cochlear COH.AU +1.0%; BlackRock takes stake
- Agile Group 3383.hk +0.9%; monthly sales
- China Vanke 2202.HK -0.9%; UBS cut to Sell
- Easy One Financial 0221.HK -8.2%; profit warning
- Independence Group IGO.AU -4.3%; reserves estimate update

>>> US After Hours

After Hours Summary: ENZ +7% on earnings, HON +1% presentation update/CEO MadMoney appearance... SMSI -21%, HIVE -17%, NHTC -15% following guidance, HPQ -2% on guidance/restructuring news

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: REED +11.2% (thinly traded), ENZ +6.7%

Companies trading higher in after hours in reaction to news: LEI +6% (files for 5 mln share common stock offering by selling shareholders), CTRV +3.7% (following 25% move higher today), HON +1.2% (releases presentation slides in conjunction with CEO David M. Cote's appearance on Jim Cramer's Mad Money program tonight), ATU +0.6% (light volume; Pres/CEO disclosed purchase of 10000 shares, worth total of $225.5K)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SMSI -20.8%, (sees Q3 revs of $6.5 mln, prior guidance was for $7.9-8.4 mln, vs $8.20 mln two analyst estimate), HIVE -16.9% (guides Q3 revenues below expectations; Sees EPS at low end of prior guidance), NHTC -15% (Natural Health Trends sees Q3 revenue down 12% to $70.7 mln), ONCS -4%, HPQ -1.9% (guides FY17 adj. EPS in-line; raises dividend 7%; adds $3 bln to buyback; announces restructuring with 3-4K expected layoffs)

Companies trading lower in after hours in reaction to news: EGLT -11% (Egalet notified that FDA will not meet October 14 PDUFA goal data for ARYMO ER; No additional scientific information or data requested by FDA), LMRK -5.2% (announces a 3 mln common unit underwritten public offering representing limited partner interests), RSPP -4.8% ( RSP Permian to acquire Silver Hill Energy Partners for $1.25 billion of cash and 31.0 million shares of its common stock, implying a total purchase price of approx. $2.4 billion; co also increased its annual 2016 production guidance; commences underwritten public offering of 20 mln shares of its common stock), WMIH -2.8% (Appaloosa LP lowers passive stake to 3.7%)

>>> U.S. Treasury issues final inversion rules on earnings stripping

U.S. Treasury issues final inversion rules on earnings stripping


WASHINGTON (Reuters) - The Obama administration issued final "earnings stripping" regulations on Thursday in a bid to reduce the benefits of corporate tax inversions, which occur when U.S. companies seek to reduce their tax bill by rebasing abroad.

The U.S. Treasury Department said the new rules would limit the ability of inverted companies to lower their tax bills through debt that does not support investment in the United States.

>>> HP guides FY17 adj. EPS in-line; raises dividend 7%; adds $3 bln to buyback;

HP guides FY17 adj. EPS in-line; raises dividend 7%; adds $3 bln to buyback; announces restructuring with 3-4K expected layoffs
  • Co sees FY17 adj. EPS EPS $1.55-1.65 vs $1.60 Capital IQ Consensus Estimate. Based on the current environment, HP anticipates generating cash flow from operations of ~$2.8 to $3.1 billion in fiscal 2017. With about $0.5 billion in net capital expenditures, free cash flow outlook is in the range of $2.3 to $2.6 billion for fiscal 2017.
  • HP expects to return 50%-75% of annual free cash flow to shareholders through a combination of a robust dividend and regular share buy backs.
  • In fiscal 2017, the company indicated that it expects to be at the higher end of that range, with a 7% increase in the planned quarterly dividend amount, and the balance returned to shareholders through share repurchases.
  • HP also announced an increase in its share repurchase program of $3 billion.
  • The Board of Directors approved a restructuring plan that it expects will be implemented through fiscal 2019 and is expected to generate gross annual run rate savings of ~$200 million to $300 million beginning in fiscal 2020.
    • As part of the plan, HP expects ~3,000 to 4,000 employees to exit between fiscal 2017 and fiscal 2019.
    • In connection with the plan, HP anticipates incurring ~$350 million to $500 million in restructuring and other charges due to both labor and non-labor actions. Of these amounts, HP expects to incur ~$200 million in labor costs related to workforce reductions.
  • "Although our markets remain very challenged, we are committed to innovating in the core and continue to see long-term growth opportunities in commercial mobility and services, the disruption of the A3 copier market, and the digitization of graphics and manufacturing through our leading 3D printing solutions."

>>> US Close Dow -0.25% S&P -0.31% Nasdaq -0.49% Russell -0.93%

Closing Market Summary: Stocks Narrow Losses, End Lower as Trade Data Weighs

The stock market ended a roller-coaster Thursday on a modestly lower note as the major averages battled back from steep opening losses. The S&P 500 finished lower by 0.3% after stumbling 1.1% at the start of the session. The Nasdaq Composite (-0.5%) finished the day slightly behind both the S&P 500 and the Dow Jones Industrial Average (-0.3%). 

Global markets tilted to the downside overnight as a weaker-than-expected Trade Balance Report for September out of China startled investors. The report featured a 10.0% year-over-year decline in exports (expected: -3.3%) and a 1.9% year-over-year decline in imports (expected: +0.7%). The negative economic data resuscitated concerns regarding the health of the global economy.

It also led to speculation that China may tacitly embrace a competitive devaluation of the yuan to bolster beleaguered export demand.

Equity indices moved due south through the opening half hour as the heavily-weighted financials (-1.1%), technology (-0.6%), and consumer discretionary (-0.3%) sectors pressured the benchmark index. The S&P 500 briefly violated technical support levels at 2128/2130, 2127, and 2120/2119 before bottoming just below 2115. 

The broader market staged a reversal shortly thereafter as just about every area bounced back from initial selling efforts. The higher-yielding sectors -- utilities (+1.3%), real estate (+0.5%), telecom services (UNCH), and consumer staples (UNCH)-- led the rebound effort, enjoying a break from rising bond yields. 

Bond prices increased today (and yields went down) after reports indicated that the ECB may discuss modifications to its asset purchase program at next week's meeting with an aim to find a way to keep purchasing EUR 80 billion per month of bonds should the ECB elect to extend its asset purchase program beyond March 2017. Rates have been on the rise recently on concerns about central banks reaching policy limits with their asset purchase plans.

Treasuries finished higher across the board with yields pulling back throughout the complex. The yield on the 10-yr note slipped three basis points to 1.74%. 

Equities finished off their best level of the day as the S&P 500 ran into resistance near its 100-day simple moving average (2140.29) in the final hour. 

The financial sector ended off its low, but still finished at the bottom of the sector leaderboard. The economically-sensitive sector underperformed as headwinds from China's negative trade data and a flattening yield curve weighed. 

Banking names displayed relative weakness as the S&P Bank ETF (KBE 33.22, -0.75) fell 2.2%. The industry group was under pressure ahead of tomorrow's quarterly reports from JPMorgan Chase (JPM 67.74, -0.39), Citigroup (C 48.47, -0.23), PNC (PNC 87.94, -1.89), and Wells Fargo (WFC 44.75, -0.57).

Wells Fargo was also a story stock today after the company confirmed that Chairman and CEO John Stumpf will retire from the Company and the Board of Directors, effective immediately. That decision follows on the heels of a ruinous scandal for the bank that included the fraudulent opening of two million bank and credit card accounts to meet aggressive sales goals. 

The high-beta chipmakers underperformed in the technology space, evidenced by the 1.2% decline in the PHLX Semiconductor Index. The group continues to see selling interest after Samsung Electronics (SSNLF) opted to permanently suspended the production and sale of its Galaxy Note 7 device. Samsung supplier Integrated Device (IDTI 19.73, -0.50) has plunged 13.3% this week. 

The energy sector (-0.7%) finished off its low amid an uptick in crude oil. WTI crude settled higher by 0.5% ($50.40/bbl; +$0.25) despite some mixed inventory data. The Department of Energy reported that crude oil inventories rose by 4.9 million barrels (consensus: +0.65 million) while gasoline stockpiles declined by 1.90 million barrels (consensus: -1.49 million).

Biotechnology outperformed the broader health care sector (+0.1%), as the iShares Nasdaq Biotechnology ETF (IBB 271.11, +0.98) rose 0.4%. The ETF narrowed its weekly loss to 4.6%. In the ETF, Mylan (MYL 37.88, +0.81) displayed relative strength, rising 2.2%. 

Today's trading volume fell came in below the recent average of 930 million as 879 million shares changed hands at the NYSE floor.

Today's economic data included weekly initial claims and the Import/Export Price report for September:

  • Initial claims for the week ending October 8 were unchanged at 246,000 (consensus 255,000) from last week's downardly revised reading.
    • Continuing claims for the week ending October 1 declined to 2.046 million from 2.062 million.
  • Aided by a 1.1% increase in import fuel prices, U.S. import prices rose 0.1% in September following a 0.2% decline in August.
  • Export prices, meanwhile, increased 0.3% after a 0.6% decline in August, helped by a 0.4% rise in non-agricultural prices.

Tomorrow's economic data will include the 8:30 a.m. ET release of the PPI Report for September (consensus +0.2%) and the Retail Sales Report for September (consensus +0.6%). Separately, Business Inventories for August (consensus +0.1%) and the initial reading of the University of Michigan Consumer Sentiment Index for October (consensus 92.4) will both cross the wires at 10:00 ET. 

  • Russell 2000: +7.2% YTD
  • S&P 500: +4.3% YTD
  • Nasdaq Composite: +4.1% YTD
  • Dow Jones: +3.9% YTD

FT : William Hill merger plan hits serious hurdle

William Hill merger plan hits serious hurdle
Bookmaker’s largest investor opposes £4.6bn tie-up with Canada’s Amaya

William Hill’s largest shareholder has come out against the bookmaker’s attempt to merge with Canada’s Amaya in a potentially grievous blow to the proposed £4.6bn deal.

Britain’s largest retail bookmaker by number of shops has been in negotiations with Amaya, which runs Pokerstars, the world’s largest online poker business, over a tie-up that would create an “international leader across online sports betting, poker and casino games”.

In a serious setback to the talks, Parvus Asset Management, which owns 14.3 per cent of William Hill, criticised the move, saying the combination had “limited strategic logic and would destroy shareholder value”.

The hedge fund said William Hill should instead consider putting itself up for sale.

In a letter to the bookmaker’s board on Thursday, Mads Eg Gensmann and Edoardo Mercadante, Parvus co-founders, said: “We strongly encourage that the board and management stops wasting valuable time and shareholder resources pursuing this value-destroying deal.

“Instead, the board and management must focus on maximising value for William Hill owners, rather than Amaya shareholders, by considering all alternative options available, including a sale of William Hill.”

William Hill and Amaya have both been seeking a transformational deal in response to a rapidly consolidating sector. Rivals Betfair and Paddy Power joined forces in March, Ladbrokes and Gala Coral are in the final stages of finalising their merger. GVC Holdings, owner of Sportingbet, bought Bwin last year after outbidding 888 Holdings.

The two gambling companies argue that there is “sound industrial logic” behind their mooted combination. William Hill is being squeezed by competition from online competitors and new taxes. Amaya has struggled to expand its sports betting arm and thereby diversify the company.

The merged company could provide an opportunity to cross-sell to customers with William Hill, for example, gaining access to Amaya’s 100m online poker customers.

But Mr Eg Gensmann and Mr Mercadante dismissed poker as a “mature, if not structurally declining, revenue stream” attractive only to skilled players, “making it inherently difficult to sell them other online gambling products where the house ultimately wins”.

In August, William Hill rebuffed a £3bn takeover bid from a consortium of Rank Group and 888 Holdings, which the board claimed was a deal based on on “risk, debt and hope”.

The Parvus co-founders said the proposed reverse takeover of Amaya had similar flaws. They suggested the transaction was similarly risky, given it was a “complex, cross-border” deal just as Canadian group faced a potential $870m fine following a ruling last year by a court in Kentucky.

They added that William Hill, led by Gareth Davis, chairman, and Philip Bowcock, interim chief executive, were prepared to sell its shares in the deal at 300p, despite the board arguing that the Rank-888 offer of 394p a share had substantially undervalued the UK bookmaker.

Finally, Mr Eg Gensmann and Mr Mercadante argue that the Amaya deal would increase net debt by £2.8bn, after previously dismissing the Rank-888 deal for increasing leverage by about £2.2bn.

In response to the letter, William Hill said: “Given the strategic fit, diversification and potential synergies we have a responsibility to all our shareholders to fully assess this. However, it is premature for us to draw conclusions whilst this work is ongoing.

“The board would not come forward with a transaction unless it was satisfied that it was in the interests of all shareholders.”

Amaya did not respond to requests for comment.

RTR _ Verizon believes Yahoo email hacking 'material,' could affect deal

Verizon believes Yahoo email hacking 'material,' could affect deal

Verizon Corp's (VZ.N) general counsel, Craig Silliman, said on Thursday the company has a "reasonable basis" to believe that Yahoo Inc's (YHOO.O) massive data breach of at least 500 million email accounts represents a material impact that could allow Verizon to withdraw from its $4.83 billion deal to buy Yahoo.
Silliman told reporters that the data breach could trigger a clause that could allow Verizon to withdraw from the deal. "I think we have a reasonable basis to believe right now that the impact is material and we're looking to Yahoo to demonstrate to us the full impact. If they believe that it's not then they'll need to show us that," he said, declining to comment on whether talks are under way to renegotiate the purchase price.

(HSBC) RED ALERT ON STOCKS (Murray Gunn)

4 Our 26 September report titled “Ominous shades of 1987” highlighted the similar Head and Shoulders top

patterns in the Dow Jones Industrials index from then, just before the famous crash, and now. You can see

that report here.

4 On 30 September we issued an “Orange alert for stocks” as the Dow Industrials index re-tested the neckline of

its head and shoulders top pattern again and failed. You can see that report here.

4 With the US stock market selling off aggressively on 11 October, we now issue a RED ALERT. The fall was

broad-based and the Traders Index (TRIN) showed intense selling pressure as the market moved to the lows

of the day. The VIX index, a barometer of nervousness, has been making a series of higher lows since August.

4 The key pivot points remain 17,992 in the Dow Industrials index and 2,116 in the S&P 500 ®. As long as those

levels remain intact, the bulls still have a slight hope. But should those levels break and the markets close

below (which now seems more likely), it would be a clear sign that the bears have taken over and are starting

to feast. The possibility of a severe fall in the stock market is now very high.

4 The drop in EUR-USD adds confidence to our Elliott Wave triangle analysis, suggesting that a move towards

parity is underway.

(ZH) Royal Air Force Pilots Ordered To Shoot Down "Hostile" Russian Jets Over Sy

Royal Air Force Pilots Ordered To Shoot Down "Hostile" Russian Jets Over Syria

As the US officially enters the Yemen military campaign, the UK appears ready and willing to precipiate a catalytic event from which there is no going back. With relations between Russia and the West at post-Cold War lows and deteriorating fast, Royal Air Force (RAF) pilots have been given the go-ahead to shoot down Russian military jets when flying missions over Syria and Iraq, if they are endangered by them. The development comes with warnings that the UK and Russia are now "one step closer" to being at war, according to the Sunday Times.
While the RAF's Tornado pilots have been instructed to avoid contact with Russian aircraft while engaged in missions for Operation Shader, the codename for the RAF's anti-Isis work in Iraq and Syria, their aircraft have been armed with air-to-air missiles and the pilots have been given the green light to defend themselves if they are threatened by Russian pilots.

"The first thing a British pilot will do is to try to avoid a situation where an air-to-air attack is likely to occur — you avoid an area if there is Russian activity," an unidentified source from the UK's Permanent Joint Headquarters (PJHQ) told the Sunday Times. "But if a pilot is fired on or believes he is about to be fired on, he can defend himself. We now have a situation where a single pilot, irrespective of nationality, can have a strategic impact on future events."
Where things get tricky is the qualifier "if he believes he is about to be fired on" - since this makes open engagement a function of threat evaluation in real time during stressed conditions, the likelihood of an escalation that could result in two warplanes shooting at each other, just jumped significantly.

The RAF Tornados aircraft will be armed with heat-seeking Advanced Short Range Air-to-Air Missiles (Asraams, also called AIM-132 missiles), the IBT adds. These weapons, which cost £200,000 each, have a longer range than other air-to-air missiles, allowing RAF pilots to shoot down enemy aircraft without being targeted themselves.

Providing cover to the largely underreported, if substantial escalation, according to the Sunday Times report an appraisal carried out by UK defence officials said: "It took six days for Russia to strike any Isis targets at all. Their air strikes have included moderate opposition groups who have been fighting to defend their areas from Isis. Among the targets hit were three field hospitals." In the past 24 hours Russia's Defence Ministry said that it has continued its air strikes on IS positions in Hama, Idlib, Latakia and Raqqa. It reported that the attacks resulted in the "complete destruction" of "53 fortified areas and strong points with armament and military hardware", seven ammunition depots, four field camps of "terrorists", one command centre, and artillery and mortar batteries.
Russia has countered that US airstrikes have failed to make much of an impact on ISIS targets, and as reported last month, a "mistaken" strike by the US coalition forces killed over 60 Syrian soldiers in a move Russia accused of being a provocation to war.
The Sunday Times' report quoted a defence source as saying: "Up till now RAF Tornados have been equipped with 500lb satellite-guided bombs — there has been no or little air-to-air threat. But in the last week the situation has changed. We need to respond accordingly."
But another source of the original story summarized the severity of the situation best when he said that "we need to protect our pilots but at the same time we're taking a step closer to war. It will only take one plane to be shot down in an air-to-air battle and the whole landscape will change.