>>> Asian Update

Asia Mid-Session Market Update: China manufacturing PMI still expanding but at 3-month low; NZ unemployment rises as participation rate hits record high

***US Session Highlights***
- (US) Presidential trade adviser Navarro: Germany is benefiting from grossly undervalued euro - financial press
- German Chancellor Merkel: Do not want to influence Euro exchange rate; has always called upon ECB to have independent policy
- (US) Q4 EMPLOYMENT COST INDEX (ECI): 0.5% V 0.6%E
- (US) NOV S&P/CASE-SHILLER 20-CITY M/M: 0.88% V 0.65%E; Y/Y: 5.27% V 5.03%E; HOUSE PRICE INDEX (HPI): 192.14 V 191.77 PRIOR
- (US) President Trump: On Medicare and Medicaid, we need prices way down; prices have been astronomical - meeting with industry executives
- (US) JAN CHICAGO PURCHASING MANAGER: 50.3 V 55.0E (lowest since May 2016); new orders 49.1 v 56.5
- (US) JAN CONSUMER CONFIDENCE: 111.8 V 112.8E; 1-year consumer inflation expectation: 4.9% v 4.5% in Dec

***US markets on close: Dow -0.5%, S&P500 -0.1%, Nasdaq flat***
- Best Sector in S&P500: Utilities
- Worst Sector in S&P500: Industrials
- Biggest gainers: TMO +6.4%, MNK +4.9%, MYL +4.7%, DHR +4.4%, ABC +4.4%
- Biggest losers: UA -23.4%, UPS -6.8%, VLO -3.6%, PNR -3.5%, NUE -3.3%
- At the close: VIX 12.0 (+0.1pts); Treasuries: 2-yr 1.22% (+2bps), 10-yr 2.45% (-3bps), 30-yr 3.05% (-3bps)

***US movers afterhours***
- AMD: Reports Q4 -$0.01 v -$0.02e, R$1.11B v $1.07Be; Guides initial FY17 Rev " to grow" % y/y, GM to "increase"; +3.6% afterhours
- AAPL: Reports Q1 $3.36 v $3.22e, R$78.4B v $77Be; iPhone shipments 78.3M v 74.8M y/y (v 77Me); +3.0% afterhours
- CB: Reports Q4 $2.72 v $2.43e, Net premiums written $6.94B v $7.21B y/y; +1.1% afterhours
- EA: Reports Q3 $0.00 v -$0.14 y/y, net Rev $1.15B v $1.07B y/y; -1.1% afterhours
- X: Reports Q4 $0.27 (ex $0.88 in charges, unclear if comp) v $0.01e, R$2.65B v $2.67Be; guides initial FY17 adjusted EBITDA $1.3B v $510M y/y; -0.6% afterhours
- ILMN: Reports Q4 $0.85 v $0.81e, R$619M v $614Me; -1.5% afterhours

***Asia Key economic data:***
- (CN) CHINA JAN MANUFACTURING PMI (GOVT OFFICIAL): 51.3 (6th consecutive month of expansion, 3-month low) V 51.2E; Non-manufacturing PMI: 54.6 v 54.5 prior
- (JP) JAPAN JAN FINAL PMI MANUFACTURING: 52.7 V 52.8 PRELIM (5th month of expansion, confirms highest level since Mar 2014)
- (AU) AUSTRALIA JAN AIG MANUFACTURING INDEX: 51.2 V 55.4 PRIOR (4th straight month of expansion, 3-month low)
- (AU) AUSTRALIA JAN CORELOGIC RPDATA HOUSE PRICES M/M: 0.7% V 1.4% PRIOR
- (NZ) NEW ZEALAND Q4 UNEMPLOYMENT RATE: 5.2% (3-quarter high) V 4.8%E; EMPLOYMENT CHANGE Q/Q: 0.8% (5-quarter low) V 0.7%E; Y/Y: 5.8% V 6.1%E;
Participation rate 70.5% v 70.2%e (record high)
- (KR) SOUTH KOREA JAN PMI MANUFACTURING: 49.0 V 49.4 PRIOR (6th consecutive contraction)
- (KR) SOUTH KOREA JAN TRADE BALANCE: $3.2B V $5.3BE; Exports Y/Y: 11.2% v 9.0%e; Imports Y/Y: 18.6% v 10.1%e

***Asia Session Notable Observations, Speakers and Press***
- Asian indices are cautiously higher as US immigration policy-driven selling subsides, even though the focus on Washington remains close after today's volatility in FX markets following claims by Trump's advisor that Germany benefits from undervalued Euro. Germany's Merkel defended EMU's monetary policy and Germany's independence from the ECB, while Japanese officials also stepped up their defensive rhetoric against claims that Japan is manipulating FX. Separately from the currency markets, Trump has nominated Colorado's Neil Gorsuch (age 49) for US Supreme Court seat, as speculated earlier.
- PMI data across Asia-Pacific have been mixed - China's manufacturing remained in expansion but slid to a 3-month low, as closely watched Input Price component fell to 64.5 from 69.6. Conversely, New Export Orders rose to 50.3 v 50.1 m/m and Employment rose to 49.2 v 48.9 m/m. Separately, Japan's manuf PMI was confirmed at the highest level in nearly 3 years, while Korea's PMI continued to retreat with 6th straight month of contraction.
- NZD was volatile earlier in the session as Q4 unemployment rate rose to a 3-quarter high, however economists were quick to point out that the jump was cushioned by participation rate hitting a record high thanks to strong arrivals.

China
- (CN) China State-owned Assets Supervision and Administration Commission (SASAC): Debt risks of SOEs are controllable - China Daily
- (CN) China Stats Bureau: Coal production in 2016 fell 9.4% y/y to 3.36B tons - China Daily

Japan:
- (JP) Japan PM Abe: Will tell Trump, Japan will contribute to US jobs and infrastructure
- (JP) Japan PM Abe adviser Hamada: Trump's one sided arguments on border tax and currencies are destructive to Japan and world economy
- (JP) Japan Chief Cabinet Sec Suga: Not setting exchange rate target, follows G7 on policy; watching fx closely with a sense of urgency
- (JP) Japan Vice Fin Min of International Affairs (currency chief) Asakawa: Japan's monetary policy is aimed at beating deflation, not FX market - press
- (JP) Former BOJ exec Momma: BoJ's next move will likely be to raise 10-yr bond yield target, could start discussions within BOJ on this later this year

Australia/New Zealand:
- (AU) Morgan Stanley economist: Australia consumer companies to face more pressure in 2017 "as leading housing indicators soften, the savings rate is lower YoY and income growth remains weak" - press
- (NZ) Citigroup: Latest employment data show labor demand and supply are containing wage growth; Gives RBNZ some time before considering rate hike - press
- (NZ) New Zealand PM English calls for Sept 23 national elections - press

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei +0.6%, Hang Seng -0.7%, Shanghai Composite closed, ASX200 +0.5%, Kospi +0.5%
- Equity Futures: S&P500 +0.1%; Nasdaq +0.4%; Dax flat%; FTSE100 +0.1%

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0785-1.0805; JPY 112.65-113.25; AUD 0.7550-0.7585; NZD 0.7260-0.7340
- Apr Gold -0.1% at $1,211/oz; Mar Crude Oil -0.2% at $52.73/brl; Mar Copper -0.2% at $2.72/lb
- (US) Weekly API Oil Inventories: Crude: +5.8M v +2.9M prior; Biggest build since Nov 1st
- (AU) Australia MoF (AOFM) sells A$800M in 2.75% 2027 Bonds; avg yield: 2.7841%; bid-to-cover: 3.24x

***Asia equities / Notables / movers by sector***
- Consumer discretionary: FXJ.AU Fairfax Media +6.1% (buyer interest report); 028150.KR GS Home Shopping +4.2%; 7419.JP Nojima Corp +9.7% (9-month result); 2802.JP Ajinomoto Co +3.2% (9-month result); ANN.AU Ansell -5.6% (JPMorgan cuts rating); SEA.AU Sundance Energy Australia -20.0% (guidance)
- Financials: CYB.AU CYBG -3.1% (Q1 trading update); OFX.AU OzForex Group -24.9% (guidance; CEO resigns); 8411.JP Mizuho Financial Group -1.1% (9-month result)
- Industrials: GUD.AU GUD Holdings +4.0% (H1 result); 5411.JP JFE Holdings +4.3% (9-month result); 5333.JP NGK Insulators +5.2% (9-month result); 7211.JP Mitsubishi Motors +12.7% (9-month result); 1911.JP Sumitomo Forestry +5.6% (raises guidance)
- Technology: 7974.JP Nintendo Co. -3.0% (guidance); 6502.JP Toshiba Corporation +0.8% (press speculates about exit nuclear construction); 6967.JP Shinko Electric Industries -17.5% (9-month result); YPB.AU YPB Group Ltd -13.6% (Q4 result); GBT.AU GBST Holdings -16.9% (guidance); 4902.JP Konica Minolta -8.5% (9-month result)
- Materials: 6988.JP Nitto Denko Corp +5.7% (9-month result); 581.HK China Oriental Group +51.7%; 5471.JP Daido Steel Co +12.9% (9-month result); ILU.AU Iluka -4.8% (JPMorgan cuts rating)
- Energy: 639.HK Shougang Fushan Resources Group -2.0%; SXY.AU Senex Energy +6.1% (affirms capital raising); 9532.JP Osaka Gas +2.9% (9-month result); 9506.JP Tohoku Electric +3.0% (9-month result); 9503.JP Kansai Electric Power +2.1% (9-month result)
- Healthcare: SRX.AU Sirtex Medical -1.0% (received draft claim alleging it misled market); 7459.JP Mediceo Paltac Holdings -0.9% (9-month result)
- Utilities: 9501.JPTokyo Electric Power Co +1.6% (9-month result)

>>> After Hours Summary: AAPL +3%, AMD +3%, ALGN +2.5% on earnings/


After Hours Summary: AAPL +3%, AMD +3%, ALGN +2.5% on earnings/guidance, Apple suppliers/tech names higher... MANH -2.5%, ILMN -1.5% following earnings/guidance

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: OSTK +13%, ACXM +6.9%, FBHS +3.1% (ticking higher; also CFO Lee Wyatt will retire), AAPL +3%, AMD +2.8%, ALGN +2.5% (also files patent infringement lawsuit against ClearCorrect and Your Smile Direct in United Kingdom), CARB +2.3% (Carbonite acquired Double-Take Software for $65.25 mln and reports prelim Q4 results, issues FY17 guidance with Double-Take Software impact), WNC +2% (ticking higher), ALGT +1.2%, CB +1.1%, ARNC +0.9% (recoups early losses after Elliott Management confirmed has nominated five director candidates and outlined path for company in presentation)

Companies trading higher in after hours in reaction to news: XOMA +10% (established proof-of-concept for its product candidate 358 in congenital hyperinsulinism and hypoglycemia post-bariatric surgery), NSTG +8.8% (announces that Humana has issued a positive coverage decision for the Prosigna Breast Cancer Gene Signature Assay), MDT +1.8% (Bloomberg reporting that the company is mulling a sale of its medical-supplies unit), FB +0.7% (Facebook working to develop an app for TV set-top boxes, according to the WSJ),

Apple suppliers/tech names are higher: CRUS +2.3%, AVGO +1.8%, QRVO +1.2%, SWKS +0.8%, TXN +0.4%, MU +0.4%, NXPI +0.3%, INVN +0.2%, QCOM +0.2%

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: BBOX -13.9% (light volume), BOOT -10.1%, MTCH -5.6% (also sells non-dating business The Princeton Review to ST Unitas), TNAV -3.4% (light volume), MANH -2.5%, ILMN -1.5%, EA -1%, X -0.6%

Companies trading lower in after hours in reaction to news: CATB -66.6% (Catabasis Pharmaceuticals announces top-line safety and efficacy results for Part B of the MoveDMD trial of edasalonexent (CAT-1004) for the treatment of Duchenne muscular dystrophy), SGYP -12.4% (Synergy Pharma to sell $125 mln of common stock in a registered underwritten public offering), GALE -5.5% (announces Pres/CEO Mark W. Schwartz will resign effective today and the evaluation of strategic alternatives), AGI -3.9% (still checking), SN -3.4% (to commence an underwritten public offering of 10 mln shares of common stock), PMD -2% (pulling back after seeing late move higher when co issued press release claiming no ownership interest in Psychemedics Brasil-- still closed day significantly lower), DRYS -1.2% (modestly pulling back after confirming will release Q4 results February 7 after the close),  AKS -0.6% and STLD -0.2% (X sympathy)

>>> Advanced Micro beats by $0.01, beats on revs; guides Q1 revs in-line (10.37

Advanced Micro beats by $0.01, beats on revs; guides Q1 revs in-line (10.37 -0.24)
  • Reports Q4 (Dec) non-GAAP loss of $0.01 per share, excluding non-recurring items, $0.01 better than the Capital IQ Consensus of ($0.02); revenues rose 15.4% year/year but fell 15.4 % sequentially to $1.11 bln vs the $1.07 bln Capital IQ Consensus.
  • Co issues in-line guidance for Q1, sees Q1 revenue down 8-14% sequentially which we compute as $951-1,018 mln vs. $964.3 mln Capital IQ Consensus Estimate.
  • Non-GAAP gross margin was 32%, up 2 percentage points YoY and up 1 percentage point sequentially primarily due to higher Computing and Graphics segment revenue.
  • Computing and Graphics segment revenue was $600 million, up 28% YoY and 27% sequentially. The YoY increase was primarily driven by higher GPU sales. The sequential increase was primarily due to higher GPU and client processor sales. Enterprise, Embedded and Semi-Custom segment revenue was $506 mln, up 4% YoY primarily driven by higher embedded and semi-custom SoC revenue.

>>> lectronic Arts Q3 Earnings Call Notes (83.43 -0.41)

Electronic Arts Q3 Earnings Call Notes (83.43 -0.41)
  • FIFA 17 was the best-selling console title in the world in 2016.
    • E-sports competition has led to dramatic increases in engagement.
  • Battlefield 1 was the biggest Battlefield launch ever.
    • Unique player base was 50% larger than that of Battlefield 4 in its comparable launch quarter.
  • EA Sports titles on mobile
    • Madden NFL mobile continues to perform at the top of the charts.
    • NBA LIVE and FIFA mobile are also doing well.
    • In mobile Star Wars: Galaxy of Heroes outperformed expectations.
  • Building and supporting deep communities, that allow titles to last for longer periods of time.
  • FIFA 18 will build on story-mode foundation featuring new story lines.
  • Madden NFL will transition to Frostbite engine for Madden 18.
  • FY18
    • New releases: NHL 18, Madden 18, all new NBA Live game launching in the fall of FY18, a UFC title, and a new Star Wars Battlefront during the holiday season.
    • Will expand competitive gaming further.
      • Will kick off competitive gaming for Battlefield later in the year.
    • Will continue to build on mobile portfolio.
    • Games will continue to receive major content updates throughout the year following their release to keep them fresh.
    • Console market continues to strengthen, mobile continues to expand.
  • 32% of unit sales are digital rather than physical, ahead of FY targets.
  • Q4 GAAP Guidance
    • Sees Q4 revs $1.48 bln, which may not be comparable to the $1.11 bln Capital IQ Consensus Estimate.
    • Total profit/loss before tax of $641 mln.
  • Expects FY17 to be biggest cash flow year ever.
EA shares are trading 1.1% lower after hours

>>> Apple first quarter earnings conference call update (+3.3% @ 125.50)

Apple first quarter earnings conference call update
  • Co had revenue record for Apple Watch.
  • Co had 'strong' growth in many emerging markets including Brazil.
  • Co added 1.2 mln in iPhone channel inventory; exited the quarter at the low end of its 5-7 week target channel inventory range.
  • Co reported double digit Mac growth in Japan and China.
  • Co ended the quarter at low end of 4-5 week targeted range for Mac channel inventory.
  • Reduced iPad channel inventory by 700K; exited quarter at low end of 5-7 week target range.
  • The company expects that foreign exchange will be a 'major negative' as the company moves from the December to the March quarter

>>> Illumina beats by $0.02, reports revs in-line; guides FY17 EPS above consens

--> ILMN traded down 3% and only -1.34% now

Illumina beats by $0.02, reports revs in-line; guides FY17 EPS above consensus, revs below consensus
  • Reports Q4 (Dec) earnings of $0.85 per share, excluding non-recurring items, $0.02 better than the Capital IQ Consensus of $0.83; revenues rose 4.6% year/year to $619 mln vs the $614.41 mln Capital IQ Consensus.
    • Co pre-announced rev $619 mln vs. $611 mln consensus on Jan 10.
    • Non-GAAP gross margin was 69.9% for the fourth quarter of 2016 compared to 71.7% in the prior year period.
  • Co issues mixed guidance for FY17, sees EPS of $3.60-3.70, excluding non-recurring items, vs. $3.63 Capital IQ Consensus Estimate; sees FY17 revs growth between 10-12% to between $2.44-2.49 bln, vs. $2.64 bln Capital IQ Consensus Estimate.

>>> Match Group beats by $0.05, reports revs in-line; guides Q1 and FY17 light,

Match Group beats by $0.05, reports revs in-line; guides Q1 and FY17 light, impacted by strong dollar (17.37 -0.09)
  • Reports Q4 (Dec) earnings of $0.29 per share, excluding non-recurring items, $0.05 better than the Capital IQ Consensus of $0.24; revenues rose 19.5% year/year to $319.7 mln vs the $320.83 mln Capital IQ Consensus.
  • Tinder paid subs (PMC) +119% to 1.76 mln; total PCS +19% to 5.7 mln.
  • Sees Dating Q1 revs of $287-297 mln, light vs ests.
  • Sees FY17 revs of $1.26-1.305 bln, a little light vs. ests; adj. EBITDA of $450 to $470 million, with margins in line with FY 2016; natural margin expansion being constrained in FY 2017 primarily by long-term investments in Tinder ROW marketing.
    • Outlook reflects impact of USD appreciation since Q3 earnings call
    • PMC 15+% growth in Total Average PMC Monetization; Flat ARPPU in North America; International ARPPU down slightly primarily due to F/X

>>> Apple beats by $0.14, beats on revs; guides Q2 revs below consensus (121.35

--> trading 124.75, +2.80% in after hours

Apple beats by $0.14, beats on revs; guides Q2 revs below consensus
  • Reports Q1 (Dec) earnings of $3.36 per share, $0.14 better than the Capital IQ Consensus of $3.22; revenues rose 3.3% year/year to $78.35 bln vs the $77.26 bln Capital IQ Consensus. Gross margin 38.5%, in-line with estimates vs. 40.5% last year.
  • iPhones 78.3 mln vs 77.3 mln ests and 74.8 mln last year.
    • iPads 13.1 mln vs 14.7 mln ests and 16.1 mln last year Macs 5.4 mln vs 5.2 mln ests versus 5.3 mln last year.
  • Co issues downside guidance for Q2, sees Q2 revs of $51.5-53.5 bln vs. $54.05 bln Capital IQ Consensus; gross margin between 38-39% vs 38.7% ests and 39.4% last year.; operating expenses between $6.5 billion and $6.6 billion; other income/(expense) of $400 million; tax rate of 26 percent

>>> US Close Dow -0.54% S&P -0.09% Nasdaq +0.02% Russell +0.70%

Closing Market Summary: Stock Market Finishes Flat After Late Afternoon Rally
Investors continued hedging their investment risk on Tuesday, choosing to play it safe in the wake of last week's record high levels and amid a week full of influential reports on both the earnings and economic fronts. However, an afternoon rally helped the major averages finish at their highest levels of the day. The S&P 500 shed 0.1% after being down more than 0.5% in the early going.
The health care sector assumed a leadership position in today's market, underpinned by the outperformance of the drug and biotech stocks. Those issues rallied on the other side of a meeting President Trump had with industry executives. While the president pressed his case for lowering drug prices, market participants were heartened by his added belief that regulations should be reduced and that the drug approval process should be sped up. Those declarations lent some relief to investors, who appeared heartened by the notion that the meeting with the president was better than feared.
A host of health care names kicked off today's trading session by reporting quarterly results before the opening bell including Pfizer (PFE 31.73, +0.42), Eli Lilly (LLY 77.03, +2.33), Thermo Fisher Scientific (TMO 152.39, +9.10), and Aetna (AET 118.61, +1.90). The results were mixed, but the four names added between 1.3% and 6.4% after President Trump met with CEOs from top U.S. drugmakers on Tuesday morning. Biotechnology stood out with the iSharesNasdaqETFBiotechnology (IBB 278.07, +7.68) spiking 2.8%.
On the cyclical side, Exxon Mobil (XOM 83.89, -0.97) also reported earnings this morning. The reaction to the report was negative, pushing the company and the energy space lower by 1.1% and 0.1%, respectively. However, the energy sector's loss was capped by crude oil, which finished its trading day 0.3% higher at $52.81/bbl. The energy component's gain came amid a downtick in the U.S. Dollar Index (99.60, -0.82), which finished Tuesday 0.8% lower.
The remaining cyclical sectors fell as cautious sentiment lingered throughout the day. Industrials (-0.9%) closed at the bottom of the leaderboard following United Parcel Service's (UPS 109.13, -7.90) disappointing fourth quarter earnings report and relative weakness in airline names. The top-weighted technology sector also underperformed the benchmark index, thanks in part to a poor showing from chipmakers. The PHLX Semiconductor Index finished Tuesday lower by 1.3%. In the broader tech sector, Apple (AAPL 121.29, -0.34) shed 0.3% ahead of its earnings report.
Conversely, countercyclical spaces and Treasuries thrived on wary investors' actions; all five defensive spaces finished higher while the benchmark 10-yr yield closed five basis points lower at 2.44%. The utilities sector (+1.6%) was the day's top performer, while telecom services (+0.1%) eked out a small gain.
Today's economic data included fourth quarter Employment Cost Index, November Case-Shiller Home Price Index, January Chicago PMI, and January Consumer Confidence:
  • The fourth quarter Employment Cost Index rose 0.5%, while the consensus expected an uptick of 0.6%.
    • The key takeaway from the report is that compensation costs did move higher in 2016, which creates some profit margin constraints while at the same time lending employees some increased spending potential.
  • The Case-Shiller 20-city Home Price Index for November rose 5.3%, which was above the Briefing.com consensus of 5.0%. This followed the previous month's unrevised reading of 5.1%.
  • Chicago PMI for January decreased to 50.3 from 54.6 in December while the consensus expected a reading of 55.0.
    • The key takeaway from this report is that it's a first quarter report, and with the pullback to a level that is just above a contraction reading, it will serve perhaps to temper some of the market's heightened optimism surrounding economic growth prospects.
  • The consumer confidence reading for January declined to 111.8 from the prior month's revised reading of 113.3 (from 113.7). The consensus expected the survey to hit 112.5.
    • The key takeaway from the report is that consumer confidence is still at relatively high levels, although consumers' outlook was reined in a bit following the post-election surge.
Tomorrow will see a full slate of economic reports including MBA Mortgage Applications Index at 7:00 am ET, January ADP Employment Change (consensus 165k) at 8:15 am ET, January ISM Index (consensus 55.0) at 10:00 am ET, December Construction Spending (consensus 0.2%), February FOMC Rate Decision (consensus 0.625%) at 2:00 pm ET, and January Auto & Truck Sales at 2:00 pm ET.
  • Russell 2000 +0.3% YTD
  • Dow Jones Industrial Average +0.5% YTD
  • S&P 500 1.8% YTD
  • Nasdaq Composite 4.3% YTD