Closing Market Summary: Stocks Slide Amid Downturn in Banking NamesThe major averages began the week on a lower note as a downturn in the heavily-weighted financial sector (-1.5%) pressured the broader market. Participants also looked to move to the sidelines ahead of an oil producers meeting and the first U.S. presidential debate. The Dow Jones Industrial Average (-0.9%) finished in-line with both the Nasdaq Composite (-0.9%) and the S&P 500 (-0.9%).
The major averages began the day under pressure as European indices led to the downside. Deutsche Bank (DB 11.85, -0.90) weighed on financial names after German Chancellor Angela Merkel indicated that the bank would not be eligible for state aid in the event of a capital shortfall. Recall that the bank has been under pressure after the U.S. Department of Justice asked Deutsche Bank to settle its mortgage-backed securities probe for $14 billion. The stock tumbled 7.1% and ended at a fresh all-time low.
Participants favored a risk-off stance throughout the session, bidding Treasuries, gold, and safe-haven currencies. The CBOE Volatility Index (VIX 14.49, +2.20) jumped more than two points as investors sought some portfolio insurance ahead of some key macro events. On that note, oil producers arrived in Algiers, Algeria today to kick off the International Energy Forum. The meeting is in focus as participants look for potential supply control measures from OPEC and non-OPEC members. The forum will run through September 28. WTI crude settled higher by 3.0% ($45.85/bbl; +$1.32).
The benchmark index notched a session low in the final hour of trade. Ten sectors ended in the red with consumer discretionary (-1.1%), health care (-1.2%), and financials (-1.5%) acting as the largest laggards. Conversely, defensively-oriented real estate (+0.2%) finished with the only gain.
The economically-sensitive financial sector (-1.5%) rounded out the leaderboard as the group moved lower in sympathy with European banking names. The space was also under pressure amid some flattening in the yield curve and the proposal of some stricter capital requirements for global systemically important banks. JPMorgan Chase (JPM 65.78, -1.47), Citigroup (C 45.89, -1.26), and Bank of America (BAC 15.09, -0.43) fell between 2.2% and 2.8%. The broader sector extended its 2016 loss to 1.5%, trailing the remaining sectors.
In the health care sector (-1.2%), Dow component Pfizer (PFE 33.64, -0.62) declined by 1.8% after announcing that it will not separate its Innovative Health & Essential Health divisions. Mylan Labs (MYL 41.18, -0.88) ended lower by 2.1% after reports indicated that there may be discrepancies between EpiPen profit data and previous information provided to Congress on the profitability of the device. The group also saw some selling interest ahead of this evening's debate.
Apparel name Nike (NKE 54.40, -0.75) weighed on the consumer discretionary space (-1.1%) after being removed from JP Morgan's Focus List. Meanwhile, Dow component Disney (DIS 91.96, -1.31) fell by 1.4% after headlines indicated that the company is debating making an offer to acquire Twitter (TWTR 23.37, +0.75).
The PHLX Semiconductor Index (-1.0%) finished behind the broader technology sector (-0.7%) as iPhone suppliers underperformed. Cirrus Logic (CRUS 51.32, -1.07) and Skyworks (SWKS 72.82, -1.95) finished lower by 2.0% and 2.6%, respectively.
Treasuries ended on a higher note with the long end of the curve outperforming. The yield on the 2-yr note finished lower by three basis points (0.73%) while the yield on the 10-yr note finished lower by four basis points (1.58%).
Today's participation was below the recent average as fewer than 775 million shares changed hands on the NYSE floor.
Today's economic data was limited to the New Home Sales Report for August:
- New home sales declined 7.6% month-over-month in August to a seasonally adjusted annual rate of 609,000 (consensus 585,000), but remained 20.6% higher than the estimate for the same period a year ago.
- The annual sales pace in August was the highest since January 2008.
Tomorrow's economic data will include the Case-Shiller 20-city Index for July (consensus 5.1%) and Consumer Confidence for September (consensus 98.0), which will be released at 9:00 ET and 10:00 ET, respectively.
- Russell 2000: +9.3% YTD
- S&P 500: +5.0% YTD
- Nasdaq: +5.0% YTD
- Dow Jones +3.8% YTD
DIS MSFT; Twitter moving closer to formal sales process... MSFT, GOOG and DIS all potential acquirers but no formal bids put in yet, likely in next 30-45 days - CNBC's Faber
Mylan Clarifies EpiPen Profit Figures it Provided to Congress Last Week
Company says EpiPen pretax profits are 60% higher than it told Congress
When Mylan NV’s chief executive testified before a congressional committee last week about steep price increases on its lifesaving EpiPen drug, House members badgered her to provide more evidence for the company’s claim that its profits were just $100 for a two-pack of the injectors, despite a $608 list price.
The committee members left unsatisfied. Now it appears they were right to seek clarity.
In response to questions from The Wall Street Journal, Mylan now says the $100 figure presented by CEO Heather Bresch included something the company didn’t clearly convey to Congress—taxes. The company substantially reduced its calculation of EpiPen profits by applying the statutory U.S. tax rate of 37.5%.
Without the tax-related reduction, Mylan’s profits on the EpiPen two-pack would be closer to $160, or 60% higher than the figure the company gave Congress. The company sells about 4.1 million EpiPen two-packs in the U.S., analysts said.
Mylan said it provided the House Government Oversight Committee early Monday morning more detailed figures on its EpiPen profits, clarifying that the numbers were after taxes. The company called the inclusion of taxes standard for a product-line profitability analysis like the one Congress asked for.
Mylan’s explanation left some analysts scratching their heads.
The 37.5% tax rate Mylan applied to EpiPen “has nothing to do with reality,” said Ryan Baum, an analyst with SSR Health LLC, a health care investment-research firm in Stamford, Conn., because the company didn’t pay that much tax on the product. Mylan had a low 7.4% overall tax rate last year, he said, and a negative effective tax rate in the U.S. where the EpiPens were sold.
“That implies this notional ($100) profit figure also has nothing to do with reality,” Mr. Baum said. He added that Mylan executives have the discretion to present financial figures any way they want, but “good behavior would be to document your figures in a more transparent manner.”
Mylan said applying an overall effective tax rate wouldn’t be correct, because that figure takes into account other countries’ rates and companywide tax strategies. The company also said any lack of clarity wasn’t intentional.
Hedge Fund Giant Brevan Howard Cuts Some Fees to 0%
Brevan’s 0% fee applies to new investments by existing clients in flagship fund
Brevan Howard, one of the largest hedge funds in the world, will stop charging a management fee in its flagship fund for new money from current investors.
The 0% management fee marks one of the starkest signs yet of the pressure facing hedge funds. According to people familiar with the matter, the firm has also told clients the 0% fee will apply to any gains on the existing money they have invested in the fund, meaning that clients’ overall management fees will trend lower if the fund makes money.
Brevan will still charge a 20% performance fee on money invested in the fund, the people said.
The $18 billion hedge-fund firm expects roughly $3 billion in redemptions at the end of the year, said a person familiar with the matter.
A Brevan spokesman didn’t return a request for comment on the expected redemptions.
The new terms come as investors have pulled cash from the $2.9 trillion hedge-fund industry for three consecutive quarters for the first time since 2009, according to research-firm HFR. Hedge funds have been underperforming since financial markets began their rebound in 2009, and this year on average are up 3% through July, less than half the S&P 500’s total return for the period.
While the $14.5 billion Master fund was a star performer during the credit crisis, notching a 20.4% return in 2008, it is on pace to mark its third straight losing year. This year through August, the fund was down 2.5%.
The new terms will have the added benefit of generating performance fees. Some of the assets in the Master fund are below their high water mark, meaning Brevan can’t collect performance fees on those assets until investment gains make up for previous losses.
The 0% fee kicks in on Dec. 1, and Brevan is introducing the same terms for its much smaller Multistrategy fund.
*DJ Brevan Discount Comes as Firm Struggles With Client Defections, Investment Losses
*DJ Brevan's 0% Fee Applies to New Investments by Existing Clients in Flagship Fund - Sources
*DJ Brevan Howard Introduces 0% Management Fee For Some Client Money - Sources
EU set to clear $1.8 bln Wabtec, Faiveley deal - sources - Reuters News
26-SEP-2016 16:53:23
BRUSSELS, Sept 26 (Reuters) - EU antitrust regulators are set to approve Wabtec Corp's WAB.N $1.8 billion bid for French rival Faiveley Transport FAIP.PA on condition the U.S. rail component maker sell Faiveley's brake pad unit, two people familiar with the matter said on Monday.
The European Commission is expected to give the green light this week, ahead of its Oct. 24 deadline, the people said.
Wabtec offered the concession in July after the EU competition enforcer said the deal to Create one of the world's largest public rail equipment companies would reduce competition and might lead to price hikes for customers.
ECB's Draghi: euro area recovery expected to continue at moderate and steady pace, but slightly less momentum than thought in June - comments to European Parliament
- incoming information continues to point to Euro Area economy being resilient to global and political uncertainty, notably after the Brexit vote
- overall projections indicate that accommodative mo po stance will continue to provide effective support to cyclical recovery and upward path in inflation
- low interest rate environment has range of implications for economic actors that need to be carefully monitored
- annual inflation expected to be 0.2% this year and to increase to 1.2% in 2017 as the impact of past oil price falls unwinds
- borrowing conditions for households and firms have eased considerably and credit creation has strengthened, thus supporting aggregate spending across the euro area
- CSPP is benefiting not only the large companies, which can directly access the bond market, but also smaller companies
- widespread feelings of insecurity, including economic insecurity, remain a major concern