After Hours Summary: LPTH +10% and SANW +6% following earnings/guidance, CAR +5% on S&P 400 addition news... ORCL -3% following earnings/guidance, NVAX -84% on trial updates, DB -7% on potential hefty DoJ settlement amountAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: LPTH +9.8%, SANW +6.1%
Companies trading higher in after hours in reaction to news: DEPO +12.7% (potential sale exploration), SCOR +6.4% (light volume - will provide a company update in conference call on Friday, September 16 at 8:30am; determines that various prior financial statements should no longer be relied upon), CAR +5.3% (to join the S&P MidCap 400), AINV +3% (Apollo Investment expanded the stock repurchase program by $50 mln to $150 mln), OHGI +2.6% (enters into securities purchase agreement, agrees to sell an aggregate of 198,413 shares of common stock at $0.63/share), P +0.8% (ticking higher - Pandora Media and Warner Music Group announce direct licensing agreement), LULU +0.5% (light volume - initiated with a Positive at Susquehanna)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: ORCL -3%
Companies trading lower in after hours in reaction to news: NVAX -84.1% (announces topline RSV F vaccine data from two clinical trials in older adults; topline data from the Resolve Phase 3 trial did not meet pre-specified efficacy objectives), CAPR -15.1% (to offer shares of its common stock in an underwritten public offering; size not disclosed), MGT -9.9% (following investor presentation / call detailing goals for the next 3-6 months), DB -7.2% (Deutsche Bank confirms negotiations with DoJ regarding RMBS; expects negotiations will lead to an outcome similar to those of peer banks which have settled at materially lower amounts), SITO -2% (to offer and sell shares of common stock in an underwritten public offering), FOXA -0.9% (downgraded to Market Perform from Outperform at Bernstein)
Deutsche Bank Is Asked to Pay $14 Billion to Resolve U.S. Probe
Closing Market Summary: Stocks Rise on Negative Economic DataThe stock market ended the Thursday affair on a broadly higher note as participants dialed back rate hike expectations following a barrage of economic data. Today's rally also featured continued strength from top-weighted Apple (AAPL 115.57, +3.80), a rebound in crude oil futures, and another mixed performance from the Treasury complex. The Nasdaq Composite (+1.5%) settled ahead of the S&P 500 (+1.0%) and the Dow Jones Industrial Average (+1.0%).
The major averages shook weakness in the opening hour of trade as a weaker-than-expected reading of the Retail Sales Report for August stymied rate hike expectations for the coming months. The report indicated that retail sales declined 0.3% (consensus -0.1%) in August while retail sales excluding autos fell 0.1% (consensus +0.3%). Softening in discretionary spending will likely negatively impact third quarter GDP forecasts.
The Producer Price Index (PPI) for August also appeared to ease fears regarding a sooner-than-expected fed funds rate hike. The report showed that the PPI was flat in August (consensus +0.1%) while core PPI rose an in-line 0.1% over that time. The reading signaled some firming in inflation at the producer level, but also that inflation rates continue to tread below the Fed's target. On a side note, the Consumer Price Index (consensus +0.1%) is slated to cross the wires at 8:30 ET tomorrow.
Equities rallied throughout the session, reveling in diminished rate hike odds. The fed funds futures market estimates the odds of a rate hike at the September meeting at 12.0%, falling from 15.0% in the previous session. The implied probability of a rate hike at the December meeting fell to 46.2% from 52.9%. Additionally, the Bank of England failed to rock the boat when it opted to maintain its monetary policy stance. It is worth noting, however, that the central bank indicated that further easing could be on the way.
The S&P 500 (+1.0%) settled near its session high, testing resistance near the 2150 price level. All ten sectors ended in the green with telecom services (+1.1%), health care (+1.1%), energy (+1.1%), and technology (+1.7%) leading the advance. Conversely, materials (+0.6%) and financials (+0.7%) ended at the bottom of the leaderboard.
The heavily-weighted technology sector (+1.7%), outperformed as Dow component Apple (AAPL 115.57, +3.80) extended its recent winning streak. The stock rallied 3.4% after the company confirmed that it sold out of first run models of the iPhone 7 plus. Credit Suisse also increased its iPhone 7 sales estimates and restated its "Outperform" designation on the stock. Separately, the PHLX Semiconductor Index (+2.3%) outperformed as iPhone supplier Skyworks (SWKS 77.02, +4.62) rallied 6.4%. The price-weighted index sports a week-to-date gain of 4.4%.
Biotechnology settled ahead of the health care group (+1.1%), evidenced by the 1.5% gain in the iShares Nasdaq Biotechnology ETF (IBB 290.15, +4.22). In the ETF, Vertex Pharmaceuticals (VRTX 93.10, +2.98) led after Stifel raised its price target on the stock to $109 from $105. Meanwhile, Mylan Labs (MYL 41.49, +0.65) trimmed its month-to-date loss to 2.1%. The broader sector has jumped 1.1% this week, which compares to a gain of 0.9% in the benchmark index.
In the financial sector (+0.7%), Wells Fargo (WFC 46.15, -0.37) underperformed following yesterday's report that Federal prosecutors in California and New York are investigating the bank's sales practices. Conversely, MetLife (MET 44.50, +0.72) jumped 1.6% amid continued steepening in the yield curve. The broader sector erased a modest year-to-date loss and now sports a gain of 0.1% over that time.
Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 2-yr note fell two basis points to 0.74% while the yield on the 10-yr note finished flat at 1.70%. The spread between the 2-yr and 10-yr note expanded to 96 basis points from 89 on Friday.
Today's participation was above the recent average as more than 819 million shares changed hands on the NYSE floor.
Today's economic data included weekly initial claims, retail sales for August, PPI for August, the Philadelphia Fed Survey for September, the second quarter current account balance, Empire Manufacturing for September, Industrial Production and Capacity Utilization, and Business Inventories for July:
- Jobless claims for the week ending September 10 were 260,000 (consensus 263,000), up 1,000 from the prior week and the 80th straight week they have been below 300,000.
- Continuing claims for the week ending September 3 were 2.143 million, also up 1,000 from the prior week.
- Total retail sales declined 0.3% in August (consensus -0.1%) after increasing a revised 0.1% (from 0.0%) in July.
- Excluding autos, retail sales declined 0.1% (consensus +0.3%) after declining a downwardly revised 0.4% (from -0.3%) in July.
- Total PPI was unchanged (consensus +0.1%) after declining 0.4% in July. Core PPI, which excludes food and energy, was up 0.1% (consensus +0.1%) after declining 0.3% in July.
- Producer pricing trends are improving, yet inflation rates still remain comfortably below the Fed's comfort level.
- The Philadelphia Fed Index checked in at 12.8 (consensus 0.0) versus 2.0 in August. That marked the first time since last August that the index has registered two consecutive positive readings.
- The current account deficit for the second quarter totaled $119.9 billion while the consensus expected the deficit to hit $122.8 billion. The first quarter deficit was revised to $131.8 billion from $124.7 billion.
- The Empire Manufacturing Survey was little changed at -2.0 in September (consensus 0.0) versus -4.2 in August. The dividing line between expansion and contraction is 0.0.
- Industrial production declined 0.4% in August (consensus -0.3%), which wasn't a complete surprise, after increasing a downwardly revised 0.6% (from +0.7%) in July.
- The capacity utilization rate dropped to 75.5% (consensus 75.7%) from 75.9%.
- Total business inventories were unchanged in July (consensus +0.1%) following an unrevised 0.2% increase in June. Sales were down 0.2% after increasing 1.0% in June.
- Inventory-to-sales ratio for July held steady at 1.39
For more on these economic releases, be sure to visit Economic Calendar page.
Tomorrow's economic data will include CPI for August (consensus +0.1%) and the preliminary reading of the Michigan Sentiment Index for September (consensus 91.5), which will cross the wires at 8:30 ET and 10:00 ET, respectively. Separately, Net Long-Term TIC Flows for July will be released at 16:00 ET.
- Russell 2000: +7.9% YTD
- S&P 500: +5.1% YTD
- Nasdaq: +4.8% YTD
- Dow Jones: +4.5% YTD
Japan’s Central Bank Splits Over Easing Program
Some on the BOJ’s board think its extensive bond buying needs to be more flexible, adding uncertainty to a radical experiment in monetary stimulus
The world’s leading experiment in monetary easing is floundering, and its engineers are divided over how to get it on track.
The Bank of Japan has tried radical measures for 3½ years to reflate the country’s sagging economy, resorting this year to negative interest rates. Growth and inflation remain elusive. Now the bank’s board, while still in favor of easing, has some members wanting to revise the methods for doing so—likely sparking uncertainty for economy-watchers and worries for investors.
Japan’s financial regulator, big banks, insurers and advisers to Prime Minister Shinzo Abe have all piled into the fray with policy prescriptions, in a ferment that comes less than a week before the BOJ meets to decide its next move.
“The BOJ’s policy has become a ‘cloudy cocktail’—nontransparent and difficult to understand,” said Nobuyuki Nakahara, a former BOJ board member who advises Mr. Abe.
It is part of a larger unease in the central banking world, where years of easy monetary policy have failed to achieve goals in Europe as well as Japan, and the U.S. Federal Reserve is struggling with how and when to follow through on a long-advertised tightening.
Doubts about where central banks are headed are rippling through global markets, jolting investors who long piled into stocks and bonds as central banks flooded the world with cheap money.
A bond selloff sent yields on longer-term benchmark German and Japanese bonds surging this month, after historic lows earlier this year. The yield on Japan’s 30-year bond nearly hit zero in July but has jumped to about 0.55%. The S&P 500 stock index, which went two months without a 1% move, recently posted three of that size in three trading days.
The suspicion that central-bank firepower is reaching its limits finds support in Japan, where the BOJ has yet to generate steady inflation despite buying nearly $800 billion of bonds annually since late 2014, plus billions of dollars worth of exchange-traded funds. Economic growth is fragile, while the yen has been on a tear—the opposite of what the central bankers wanted and of what Japan’s exporting companies need. Japan’s stock market is down 12.7% this year.
The BOJ is due to publish an assessment of these policies at its meeting next week..
Until recently, Bank of Japan Gov. Haruhiko Kuroda managed to keep a fragile majority on the nine-member board in favor of his preferred easing steps. A decision in January to introduce negative rates on certain commercial-bank deposits passed 5-4. Two of the dissenters later left when their terms expired, replaced by supporters of easing.
That should have given Mr. Kuroda a comfortable majority. But the seven supporters of easing now have fractured over where to go next, say people familiar with their thinking.
At least three in this camp favor sticking with the plan, convinced that both huge government bond purchases and negative rates are still effective in forcing private money to flow into riskier assets. This faction thinks curbing those purchases, or even tinkering with the buying formula in a way that markets might perceive as tightening, could send the yen soaring, according to people familiar with its views, which is the opposite of the policy’s intended effect. That could hit corporate profits and the stock market.
Others, while still pro-easing, are no longer confident bond purchases can get the job done. Some including BOJ staff have floated the idea of flexibility in the buying. In place of the current commitment to buy ¥80 trillion of government bonds a year, some in this group have suggested a range, perhaps ¥70 trillion to ¥90 trillion.
The two sides get particularly heated over whether Japan is running out of bonds to buy, according to people familiar with the deliberations. The pro-flexibility faction says the practical limit could come in the next year or two as banks, which often use government bonds as collateral in day-to-day operations, become reluctant to sell more of their holdings to the central bank.
Bank of Japan Gov. Haruhiko Kuroda acknowledged the concerns insurance companies have about the BOJ’s policy of pushing down interest rates in a Sept. 5 speech.
Bank of Japan Gov. Haruhiko Kuroda acknowledged the concerns insurance companies have about the BOJ’s policy of pushing down interest rates in a Sept. 5 speech. PHOTO: KIYOSHI OTA/BLOOMBERG NEWS
These board members believe the BOJ should begin looking for policy alternatives, according to people familiar with their thinking, such as introducing a target for long-term interest rates and pledging to buy only the amount of bonds needed to guide rates to that target.
The thought is that such a move—which former Fed Chairman Ben Bernanke has endorsed as an option in certain situations—could reassure people that borrowing costs will stay low while giving the BOJ room to reduce purchases if necessary.
Opposing the idea, one easing proponent said “any grade-school student can tell with a little arithmetic” the BOJ can’t buy bonds forever, “but it’s strange to be deciding policy today based on some future limit when…we haven’t reached that limit.”
The seven pro-easing board members nonetheless agree that lowering interest rates further into negative territory should remain as an option.
They have run into opposition from commercial banks. Banks have had to lower lending rates since the BOJ’s negative-rates policy took effect. They aren’t willing to impose negative rates themselves, on savers, so the result is a narrower spread between their cost of money and what they charge. Some banks also say they see little evidence the BOJ’s negative rates are working as advertised.
“We mainly see loan demand from manufacturers who need money for maintenance of aging machinery, not for new investments,” said Hideaki Furuyama, an executive at San-In Godo Bank Ltd. in western Japan.
An official at the Financial Services Agency, which regulates banks, said FSA executives have contacted their BOJ counterparts more than once in recent months to express concern about financial institutions’ profits. People familiar with the situation say the FSA put itself forward as a mouthpiece for financial firms’ concerns after a leading banker, Mitsubishi UFJ Financial Group Inc.’s Nobuyuki Hirano, publicly criticized the BOJ in April.
Life-insurance companies also are struggling when interest rates fall to this extent, said Shuhei Hirano, manager of investment planning at Meiji Yasuda Life Insurance Co.
Mr. Kuroda, the BOJ governor, nodded to these concerns for the first time in a Sept. 5 speech. He said rates of return on insurance products would likely decline and “affect people’s confidence by causing concerns over the sustainability of the financial function in a broad sense.”
He made clear the bank’s assessment won’t result in open retreat from its 2% inflation goal or its easing program. It could scrap its latest time frame for the goal, which is sometime in the year ending in March 2018, according to people familiar with the situation.
Government officials said they were exploring ways to send a stronger message that the central bank and government are working together to defeat deflation. Prime Minister Abe has put forth a new stimulus package with ¥7 trillion in spending, the first part of which is set to be approved by parliament this fall.
At a bookstore on the 10th floor of the BOJ’s headquarters, a top seller is a work by a former BOJ official, Hideo Hayakawa, comparing advocates of radical easing to Japanese World War II generals who thought they could win just through blind faith and fighting spirit. Three years ago, the store’s top titles featured the views Mr. Hayakawa attacks.
Apple Stock and iPhone 7 Both Look Like Winners
Shares of Apple have been surging, boosted by news that the first run of the iPhone 7 has sold out. Stay long.
What a week!
Apple stock has gained more than 10% since last Friday and is higher again Thursday on news that the first run of the iPhone 7 Plus has sold out.
Although Apple’s (ticker: AAPL) iPhone 7 models just went on pre-order sale Friday following Apple’s September 7th media event, the Plus model has already sold out, and the smaller model is also sold out in the jet black finish, according to Reuters.
The shares rose 2.8% to $114.90 in afternoon trading on the news. The demand for the new iPhones is all the more bullish given that this was one of the least anticipated launches in the company’s history, with analysts forecasting that buying an iPhone would soon be akin to buying a new microwave and preferring to look toward models in 2017 and beyond for buy signals. Even after the introduction of the new models Apple got at least one downgrade and there was plenty of criticism from early reviewers.
However with a large number of consumers ready to upgrade from the two-year-old iPhone 6 model—and the highly publicized battery fires in Samsung phones—orders have been swift, showing that consumer loyalty and excitement remain key parts of Apple’s business.
Citi’s Jim Suva argues that there may be many reasons for the new phones selling out beyond simple demand: “Apple’s initial roll out across more than 25 countries (almost two times the number of countries in prior roll outs) could be a contributing factor. Availability of dual camera components (which are in the iPhone 7 Plus models) could be another factor,” as well as promotion from carriers. (Both Sprint (S) and T Mobile (TMUS) were out recently with upbeat sales data.) Overall it’s still good for Apple, he writes, and reiterated a Buy rating on the stock citing the recent positive news flow.
Perhaps this shouldn’t be surprising, given that even the iPhone models less hailed by Wall Street and critics remains popular with the public. Even with Apple losing a bit of market share in the second quarter, its iPhone 6s and 6 remained the bestselling smartphones in the world by some estimates.
Credit Suisse ’s Kulbinder Garcha increased both his iPhone unit estimates and earnings estimates for Apple today, writing that “a number of recent data points suggest a better than expected iPhone 7 cycle.” He expects the higher margin Plus model to account for 33% of sales (up from 30% in the 6s cycle), with his recent surveys of U.S. consumers finding 81% plan to upgrade to higher memory as well.
Apple previously said that there were limited quantities available for preorder, and analysts had already lowered their expectations for the 7 models.
Nonetheless, there seems to be room for the latest iPhone to surprise on the upside. And even with Apple stock hitting a nine-month high, the shares still trade at a reasonable 12.9 times forward earnings, with a 2% dividend yield.
In late July, Barron’s said Apple was still a buy despite third-quarter sales dropping 15%, arguing that slowing iPhone growth wasn’t as dire as bears feared. The stock is up 10.5% since that article’s publication, compared to a 1.3% decline in the S&P 500.
The iPhone 7 may not be the most revolutionary model Apple’s introduced, but as today’s news shows, it doesn’t pay to bet against the tech giant and its enduring appeal to consumers around the world.
SFR minorities’ protest against Altice offer ignores upside potential - source
SFR [EPA:SFR] minorities criticising Altice’s [AMD:ATCT] exchange offer for the 22.25% it does not own are ignoring upside opportunities from the combination, a source close to the situation said.
Minority SFR shareholder CIMA has filed a complaint with France’s stock market regulator AMF, contesting the fairness opinion conducted by independent expert Accuracy on the exchange ratio and questioning the methodology used to calculate the offer.
A second minority investor told this news service his fund is seeking advice from lawyers on whether a case can be made against Altice’s offer. This investor said it is not tendering.
SFR is confident the methodology employed by Accuracy stands up to scrutiny, said a source and a person familiar with the situation.
The French cable group stands by its decision to support Altice’s offer, the source said.
Eight newly issued Altice class A shares are offered in exchange for five SFR shares, corresponding to EUR 24.02 per SFR share based on Altice’s closing share price this afternoon (Thursday) of EUR 15.01. SFR closed at EUR 24.70.
Minority take-outs do not usually warrant a premium, the source said. Criticism may have been justified had the offer been in cash, and not allowed SFR shareholders to benefit in any upside in the combination, the source said.
There is a notable cross-shareholder base largely weighted in favour of Altice, the source and a person familiar with the situation said. The SFR camp believes these shareholders are likely to tender to benefit from improved liquidity in the Altice shares, the source said.
But the deal also means SFR shareholders will hold a stake in a debt-heavy Altice, which may not be as attractive to some shareholders, a former investor in the cable company said. SFR is a good brand which has lost customers since being acquired by Altice, this investor said. Altice’s debt, in particular the bond interest rate, could be a concern for SFR holders, this fund manager said.
In its latest investor presentation for 2Q16 results, Altice said group net leverage was 5.0x, with Altice France (SFR) at 4.0x.
Opposition from French shareholders with larger stakes in SFR than Altice does not come as a surprise, the person said. Altice is therefore unconcerned, he said.
The all-share offer announced on 5 September is opportunistic, the shareholder approached by this news service said. Altice is taking advantage of a slump in SFR’s share price, he added. His fund has long-term positions in both Altice and SFR, he added. It is making the offer prematurely, as SFR is yet to benefit from Altice’s investment in the cable company’s network, he said.
SFR hit a year-to-date closing high of EUR 38.10 on 29 March, just before news that a proposed tie-up between fellow French TMT players Orange [EPA:ORA] and Bouygues’ [EPA:BOUY] telecom unit had collapsed. SFR stock has since rebounded from a low of EUR 19.98 on 3 August.
Claims of opportunism are ill-founded, the source said. Altice always intended to acquire the outstanding shares sooner rather than later for better access to SFR’s cash flows, the source said.
The proposed Orange/Bouygues deal unveiled in January had a positive impact on domestic cable and mobile players. The prospect of French consolidation prevented Altice from making the SFR offer for a few months, the source said. Altice was also pre-occupied with concluding the Cablevision [NYSE:CVC] transaction in the US at this time, he said.
The pressures on SFR’s share price are not going to disappear in the short term, as the failure of the Orange/Bouygues deal suggests the French telecoms market will remain fiercely competitive, the source argued.
Altice declined to comment. SFR did not respond to a request for comment.
Apollo could make higher offer for TDC; Telia could also be interested - report
Apollo Global Management is reportedly mulling over raising the offer for Denmark – based telecoms company TDC, according to Bloomberg.
The wire report cited unnamed sources close to the situation and wrote that the investor company is thinking of making a higher offer than its original bid, which was rejected in July. The item said that Apollo had engaged financial advisors for the job as well as it is raising funds. The item claimed that Apollo may make its renewed offer within weeks.
The Sweden – based telecoms company Telia could also make an offer, the item said, citing the same unnamed sources and TDC could even interest other private equity players. TDC turned down a bid earlier in July but did not say who the bidder was. The item said that Apollo may still decide not to make an offer.