>>> Asian Update

Asia Mid-Session Market Update: Japan industrial output disappoints as BOJ official warns on inflation target; China top banks' NPLs edge higher

***Economic Data***
- (JP) JAPAN JULY PRELIMINARY INDUSTRIAL PRODUCTION M/M: 0.0% V +0.8%E; Y/Y: -3.8% V -3.0%E
- (AU) AUSTRALIA JULY PRIVATE SECTOR CREDIT M/M: 0.4% V 0.4%E; Y/Y: 6.0% V 6.1%E
- (NZ) NEW ZEALAND AUG ANZ ACTIVITY OUTLOOK: 33.7 V 31.4 PRIOR; BUSINESS CONFIDENCE: 15.5 V 16.0 PRIOR
- (NZ) New Zealand July Money Supply M3 y/y: 6.3% v 5.9% prior
- (SG) Singapore July Money Supply M1 y/y: 1.5% v 1.6% prior; M2 y/y: 5.6% v 4.3% prior
- (KR) SOUTH KOREA JULY INDUSTRIAL PRODUCTION M/M: +1.4% V -0.6%E; Y/Y: 1.6% V 0.4%E
- (KR) South Korea Sept Business Manufacturing Survey: 74 (18-month high) v 71 prior; Non-Manufacturing Survey: 75 v 70 prior
- (UK) AUG GFK CONSUMER CONFIDENCE: -7 V -8E; 6th consecutive negative reading

***Index Snapshot (as of 04:00 GMT)***
- Nikkei225 +0.9%, S&P/ASX -0.9%, Kospi -0.3%, Shanghai Composite +0.3%, Hang Seng flat, Sep S&P500 flat at 2,175

***Commodities/Fixed Income***
- Dec gold +0.1% at $1,318/oz, Oct crude oil -0.1% at $46.31/brl, Dec copper +0.3% at $2.08/lb
- (US) Weekly API Oil Inventories: Crude: +0.9M v +4.5M prior; 2nd straight build
- GLD: SPDR Gold Trust ETF daily holdings fall by 1.2 tonnes from 955.4; 2nd straight decline, lowest since July 28th
- (CN) China MoF sells 2-yr bonds at 2.344%; Sells 7-yr bonds at 2.75%
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6908 V 6.6812 PRIOR; Weakest Yuan setting since July 20th
- (CN) PBOC to inject CNY40B in 7-day reverse repos and CNY10B in 14-day reverse repos
- (AU) Australia MoF sells A$1.0B in 4.25% 2026 bonds, avg yield 1.834%; bid-to-cover 2.08x

***Market Focal Points/FX***
- Asian equity markets are mixed despite the down day on Wall St, as Nikkei225 has led key indices amid fresh selling in JPY. With expectations building for a close Fed decision in September, barring a disappointing non-farm payrolls report this Friday, USD/JPY has tested ¥103 level for the first time in a month, consolidating those gains in Asian hours. In other USD majors, AUD/USD was in a 25pip range above $0.75 level, while NZD/USD was bolstered by stronger ANZ Business Activity Outlook, rising over 30pips above $0.7250 at the high. Shanghai Composite was also modestly higher, with all top China banks now posting H1 results and containing only marginal deterioration in credit metrics.

- In notable economic data, Japan industrial output missed expectations, coming in flat m/m and falling by bigger than expected margin y/y. METI also raised its forecast for Aug m/m growth to +4.1% v +2.3% prior and maintained its overall assessment of the sector. Disappointing industrial production follows a set of better figures from Japan this week, keeping the pressure on the BOJ to accelerate economic recovery and boost inflation. BOJ's Funo reiterated central bank's position that all tools can be mobilized to achieve 2% inflation target, and while he maintained FY17 time frame for achieving that forecast, the risks to achieving that objective are seen as significant. Funo added that private consumption is showing some weakness but maintaining resilience as a trend.

- In China, all 4 top banks have now reported their results with BOC and ICBC disclosing H1 earnings overnight. The trend of marginally higher NPL's has been consistent for the top 4 - ICBC saw a 5bp rise to 1.55%, BOC a 4bp rise to 1.47%, CCB a 5bp rise to 1.63% and AgBank a 1bp increase to 2.40%. Other metrics such as ROE and NIMs for ICBC were lower y/y, sending the stock slightly lower, While those of BoC were more mixed. In notable Chinese press, a report citing CASS researcher forecast property prices and sales growth to correct through H1 of next year, with the risks of a "deep" correction in top-tier cities as the govt renews curbs to slow price appreciation. In China FX, PBoC set Yuan midpoint fix at the lowest level in over a month, though vice fin min Zhu said there was no basis for "continuous" Yuan decline.

***Equities***
US equities / ADRs:
- PRXL: Delays 10K filing due to misappropriation of funds by employee; -3.3% afterhours
- HRB: Reports Q1 -$0.55 v -$0.53e, R$125M v $131Me; -5.0% afterhours
- PANW: Reports Q4 $0.50 v $0.50e, R$401M v $390Me; Announces $500M share repurchase (3.9% of market cap); -5.2% afterhours
- CAL: Reports Q2 $0.46 v $0.51e, R$622.9M v $637Me; -6.8% afterhours
- MDCO: Provides update on Dyslipidemia Programs; MDCO-216 did not meet the upper statistical boundary for efficacy; -6.9% afterhours
- AVAV: Reports Q1 -$0.51 v -$0.15e, R$36.2M v $38.6Me; -12.1% afterhours

Notable movers by sector:
- Consumer discretionary: China Eastern Airlines 670.HK +0.3% (H1 result); Air China 753.HK +1.9% (H1 result); Harvey Norman HVN.AU +3.7% (FY16 result)
- Financials: Evergrande Real Estate Group 3333.HK -6.4% (H1 result); Bank of China 3988.HK +1.2% (H1 result); Industrial and Commercial Bank of China Ltd (ICBC) 1398.HK -0.2% (H1 result); China Galaxy Securities Co 6881.HK -1.5% (H1 result)
- Industrials: Zoomlion Heavy Industry Science and Technology Co 1157.HK -1.6% (H1 result)
- Technology: Ourgame International Holdings 6899.HK -3.3% (H1 result)
- Materials: Independence Group IGO.AU -4.3% (FY16 result); Sandfire Resources SFR.AU +4.1% (upgraded by JPMorgan); Adelaide Brighton ABC.AU -5.0% (H1 result); Atlas Iron AGO.AU +10.0% (FY16 result)
- Healthcare: Mitsubishi Tanabe Pharma Corp 4508.JP -3.7% (FDA accepts new drug application)
- Utilities: Huadian Power International Corp 1071.HK -5.2% (H1 result)

>>> US After Hours Summary: AVAV slumps on light quarterly report



After Hours Summary: AVAV slumps on light quarterly report

After Hours Summary:

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: CCUR +8%, VEEV +4.5%, NCS +2.8%, CHS +2.4%, OOMA +1.9%

Companies trading higher in after hours in reaction to news: FELP +8.5% (Completed its out-of-court restructuring of more than $1.4 bln in indebtedness), GSAT +5.9% (Signed a strategic agreement with Carmanah Technologies), PSG +1.9% (Announced that it has executed amendments with its lenders, extending the deadline for filing its annual report on Form 10-K; also disclosed that it had hired Centerview Partners to review and evaluate strategic alternatives), CLVS +0.7% (Amended its license agreement with Pfizer (PFE)), VRX +0.5% (Announced that Chairman and CEO Joseph C. Papa will participate in two healthcare conferences in September)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: AVAV -12.7%, HRB -6.8%, CAL -6.7%, PANW -5.1%

Companies trading lower in after hours in reaction to news: MDCO -6.9% (Provided an update on its Dyslipidemia programs; the pre-defined, upper statistical boundary for efficacy in the MILANO-PILOT study of MDCO-216, which permits early termination of the study by the Company, was not met), PRXL -3.3% (Filed to delay its Form 10-K following receipt of report of an incident of misappropriation of corporate funds by an employee in one of the Company's international operations), CYCC -3.2% (Updated on the status of its at-the-market issuance program, disclosed a plan to file an additional prospectus), SAEX -2.6% (Filed for an offering of 3.08 mln shares of common stock on behalf of selling shareholders)

Reuters - Gamesa, Siemens reject GE's offer for Adwen JV: sources

Gamesa, Siemens reject GE's offer for Adwen JV: sources

Siemens (SIEGn.DE) and Gamesa (GAM.MC) have rejected a non-binding offer from General Electric (GE.N) for assets belonging to a wind power venture between Gamesa and Areva (AREVA.PA), sources close to the talks told Reuters on Tuesday. Spain's Gamesa is merging with Siemen's wind power division to create the world's biggest builder of wind farms in a 10 billion euro ($11 billion) deal, but the Adwen venture between Gamesa and Areva has been a sticking point.

Germany's Siemens does not need the technology from Areva, which is majority owned by the French state, because it has developed its own offshore wind turbines.

Siemens and Gamesa said when they agreed their merger in June that Areva had three months to decide whether it wanted to buy out Gamesa's 50-percent stake in the venture, or sell it to them. This opened the door for an offer from General Electric (GE.N), which wants to become a major player in the offshore wind industry and has said it was in talks with the companies involved about buying Adwen if France consented. "General Electric has made an offer for (Adwen's) assets, which is impossible to accept," one source said.

Representatives for Siemens, Areva and General Electric declined to comment.

A spokeswoman for Gamesa said the sale process was on track and there was no final decision made about it.

If Areva does not find a buyer before the mid-September deadline, the most likely outcome would be for Gamesa to exercise its purchase option and take over Areva's 50-percent stake, the source said.

Gamesa values its current stake in Adwen at 60.6 million euros, and the option gives the same value to Areva's half. Another source said although the offer was not sufficient, General Electric could still improve it before the deadline. ($1 = 0.8974 euros)

>>> US Close Dow -0.26% S&P -0.20% Nasdaq -0.18% Russell +0.09%

Closing Market Summary: Averages End Flat as Financials Extend Winning Streak

The stock market ended a relatively quiet session on a flat note after the S&P 500 (-0.2%) spent the day inside a meager 12-point trading range. The Dow Jones Industrial Average (-0.3%) settled slightly behind both the Nasdaq Composite (-0.2%) and the benchmark index.

Equity indices began the day on a choppy note as top-weighted Apple (AAPL 106.00, -0.82) demonstrated early weakness. The tech giant underperformed in the wake of a tax ruling from the European Commission, which ordered Apple to pay up to EUR13 billion in back taxes to Ireland after it was found that Apple received an undue tax benefit. However, both the Irish government and Apple have announced that they will appeal the decision.

The major averages backpedaled through the afternoon as strengthening in the U.S. Dollar Index (96.07, +0.49, +0.51%) and a downturn in crude oil weighed on the broader market. Crude oil erased an early gain after reports indicated that Iran's Deputy Minister of Industry stated that the country could increase oil production to four million barrels per day by the end of the year. The reports fueled some uncertainty regarding the potential success of supply limiting measures that could be announced after next month's OPEC meeting. WTI crude ended the day lower by 1.3% ($46.34/bbl; -$0.62).

The S&P 500 (-0.2%) settled off its session low, but was unable to reclaim its 20-day simple moving average (2179.16). Nine sectors ended in negative territory with consumer staples (-0.6%), consumer discretionary (-0.6%), and utilities (-1.0%) rounding out the leaderboard. On the flipside, the heavyweight financial sector (+0.8%) finished with the only gain.

Retail names underperformed in the consumer discretionary sector (-0.6%), evidenced by the 1.6% loss in the SPDR S&P Retail ETF (XRT 44.50, -0.73). The group moved lower following disappointing quarterly results from G-III Apparel (GIII 33.14, -8.63) and Abercrombie & Fitch (ANF 18.29, -4.66). The retailer ETF has declined 1.3% month-to-date, which compares to a loss of 1.2% in the broader sector.

The heavyweight health care sector (-0.4%) ended behind the broader market as pharmaceutical names underperformed. Bristol-Myers (BMY 57.24, -1.52) fell 2.5%, extending its August loss to 23.5%. The name tumbled at the beginning of the month after announcing that its lung-cancer treatment, Opdivo, failed to meet its primary endpoints. Conversely, the iShares Nasdaq Biotechnology ETF (IBB 283.29, -0.58) ended slightly ahead of the broader sector.

In the technology (-0.2%) sector, large cap names underperformed as Alphabet (GOOG 769.09, -3.06), Facebook (FB 125.84, -0.70), and Apple (AAPL 106.00, -0.82) lost between 0.4% and 0.8%. Separately, the PHLX Semiconductor Index (-0.2%) finished in-line with the broader market while Cypress Semiconductor (CY 11.75, +0.62) outperformed. The stock jumped 5.6% on M&A rumors.

The economically-sensitive financial sector (+0.8%) outperformed as Dow components JPMorgan Chase (JPM 67.50, +0.55) and Goldman Sachs (GS 169.37, +3.15) topped the price-weighted index. Conversely, rate-sensitive real estate investment trusts underperformed. Public Storage (PSA 223.77, -1.97) and Realty Income (O 65.44, -0.73) ended lower by 0.9% and 1.1%, respectively.

On the M&A front, Agrium (AGU 95.76, +6.28) and Potash (POT 18.00, +1.95) announced that they have entered into discussions regarding a potential merger. The two posted respective gains of 7.0% and 12.2% while peer Mosaic (MOS 30.45, +2.50) climbed 8.9%.

Treasuries ended on a mixed note with the short end of the curve demonstrating relative strength. The yield on the 30-yr bond ended higher by two basis points (2.23%) while the yield on the 2-yr note settled lower by one basis point (0.79%). The benchmark 10-yr yield rose one basis point to 1.57%.

Today's participation was below the recent average as fewer than 737 million shares changed hands on the NYSE floor.

Today's economic data included the Case-Shiller 20-city Index for June and Consumer Confidence for August: 

  • The Case-Shiller 20-city Home Price Index for June fell to 5.1%, which was in-line with the consensus of 5.1%. This followed the previous month's revised reading of 5.3%, which fell from 5.2%.
  • The Conference Board's Consumer Confidence Index for August checked in at 101.1 (consensus 97.0) versus a downwardly revised 96.7 (from 97.3) for July.
    • Consumers are feeling more upbeat than they were the month before about business and employment conditions, as well as personal income prospects.

For more on these economic releases, be sure to visit Economic Calendar page.

Tomorrow's economic data will include the weekly MBA Mortgage Index and the ADP Employment Change Report for August (consensus 170k), which will be released at 7:00 ET and 8:15 ET, respectively. The day's data will be capped off with Chicago PMI for August (consensus 54.5) and Pending Home Sales for July (consensus 0.7%), crossing the wires at 9:45 ET and 10:00 ET, respectively. 

  • Russell 2000 +9.6% YTD 
  • S&P 500 +6.5% YTD
  • Dow Jones +5.9% YTD
  • Nasdaq Composite +4.3% YTD

WSJ : Google Takes on Uber With New Ride-Share Service

Google Takes on Uber With New Ride-Share Service
Alphabet’s carpooling program in San Francisco offers rides at cheaper rates

Google is moving onto Uber Technologies Inc.’s turf with its own ride-sharing service in San Francisco that would help commuters carpool at far cheaper rates, according to a person familiar with the matter, jumping into a booming but fiercely competitive market.

Google, a unit of Alphabet Inc., began a pilot program around its California headquarters in May that enables several thousand area workers at specific firms to use the Waze navigation app to connect with fellow commuters. It now plans to open the program to all San Francisco-area Waze users this fall, the person said, with hopes of expanding the service if successful. Waze, which Google acquired in 2013, offers real-time driving directions based on information from other drivers.

Unlike Uber and its crosstown rival Lyft Inc., both of which largely operate as on-demand taxi businesses, Waze wants to connect riders with drivers who are already headed in the same direction. The company has said it aims to make fares low enough to discourage drivers from operating as taxi drivers. Waze’s current pilot charges riders at most 54 cents a mile—far less than most Uber and Lyft rides—and, for now, Google doesn’t take a cut.

Still, Google’s push into ride-sharing could portend a clash with Uber, a seven-year-old firm valued at roughly $68 billion that largely invented the concept of summoning a car with a smartphone app.

Google and Uber were once allies—Google invested $258 million in Uber in 2013—but increasingly see each other as rivals. Alphabet executive David Drummond said Monday that he resigned from Uber’s board because of the increasing competition between the companies. Uber, which has long used Google’s mapping software for its ride-hailing service, recently began developing its own maps.


The companies also are racing to develop driverless cars. Google has led the way with such technology, founding its project in 2009 and now amassing more than 1.8 million miles of autonomous driving with its test cars. But Uber earlier this month bought Ottomotto LLC, a six-month-old driverless-truck startup founded by Google veterans. Uber said it plans to start testing robotic taxis in Pittsburgh over the next several weeks, beating Google to a commercial test of self-driving technology.

Uber and Lyft declined to comment.

Waze is one part of Google’s larger ambitions to upend transportation. Google is considering testing its driverless cars in a ride-sharing service, people familiar with the matter said, and executives have identified ride-sharing as a potential business model for its self-driving technology.

Waze’s path in new markets could mimic its development in Israel, where the company was founded, according to the person familiar with the matter. Google started testing a carpool service for Israeli commuters on Waze last year, and it quickly expanded. The Waze ride-sharing service is now available at all hours in most parts of Israel.

In the San Francisco pilot, any area Waze user can sign up as a driver, but ridership is limited to roughly 25,000 San Francisco-area employees of several large firms, including Google, Wal-Mart Stores Inc. and Adobe Systems Inc. Riders are limited to two rides a day—intended to ferry them to and from work.

In the planned expansion, anyone with the Waze app in the San Francisco area could sign up to be a rider or driver, the person said. Though Google currently doesn’t take a cut, the company is exploring different rates in Israel and San Francisco, the person said.

Ben Schachter, an analyst at Macquarie Group Ltd., said a Waze ride-sharing service is a natural next step for Google, which has made clear its intentions to move into transportation. He warned that the company would need to navigate several potential pitfalls, including legal and safety issues.

“I don’t think they’ve had any significant experience in a lot of the issues that will surely arise around” starting a ride-sharing business, Mr. Schachter said.

Like Uber and Lyft, Waze’s drivers aren't employees of the company, the person said. Unlike Uber, Google doesn’t plan to vet drivers for a Waze service, instead relying on user reviews to weed out problem drivers, the person said.

Waze, which operates as its own unit within Google, boasts 65 million active users, many of whom alert other users to police or traffic accidents—a hallmark of the app.

Robert Rickett, a 29-year-old nonprofit worker in Sacramento, Calif., said he uses Waze for navigation daily, particularly while driving for Lyft in the evenings. But he said he wouldn’t abandon Lyft for a Waze ride-hailing service, unless it offered him better opportunities as a driver.

Still, he noted Waze’s positive reputation among drivers is a big advantage—though he admitted he didn’t know Google owned the service.

“They have a lot of people who trust Waze,” he said while driving two Lyft passengers across the Bay Bridge into Oakland, Calif. “If they can capitalize on that, they could pull some market share.”

FT : UBS hires psychologists to help revamp research reports

UBS has brought in psychologists, data scientists, shipments specialists and pricing experts to overhaul how it generates investment ideas and recommendations for clients.
The bank says the move — which some investors have viewed with scepticism — has more than doubled readership of its research output in the past two years.

The revamp — under Juan-Luis Perez, the global head of research who UBS poached from Morgan Stanley in late 2013 — comes at a time of existential crisis for the City of London’s sprawling research departments.
Banks and brokerages are preparing to abandon the age-old practice of “bundling” research costs with trading fees to satisfy new EU rules coming into force in 2018, which UK-based banks expect to be adopted despite Brexit.
Investors — already under pressure over the fees they charge their own clients and struggling with low interest rates — are expected to react by drastically reducing the volume of research they use.
Mr Perez told the Financial Times that, to thrive in the new era, researchers must “ask better questions” rather than letting themselves off the hook with questions and buzz words that are overly vague.
“This is the area where the sell side has to make the biggest investment and we (the sellside) are not making as much of an investment as we have to,” said Mr Perez, a 30-year-veteran of sell side research.
He has used psychologists to help analysts think about their topics differently, and pinpoint more precise and insightful research questions. Words such as “risky” are discouraged, because Mr Perez said research showed “risky” could be interpreted as a risk of failure of between 10 and “80 something” per cent to investors.
“If you are using the word risky all the time, you can never learn because the interpretation of risk is so broad that you can always take the victory lap,” said Mr Perez.
“It’s not just to avoid the word risky,” he added. “[It is] to try to break down the big questions, like ‘what is the future of the bank into testable propositions’ that can have an incontrovertible answer.”
They are also using a Question Bank to cultivate questions from clients directly, although not all are considered. “An analyst or economist can ask you a question for which you have no answer, or the answer is incredibly difficult to find,” said Mr Perez. “For example, a huge problem that we don’t consider solvable within our domain of expertise is the implications of climate change.”
Once the questions have been selected, UBS uses new Evidence Lab tools to answer them, including a new global team of narrow specialists in everything from geospatial analysis to shipments and payments, and data scientists. “This is a very significant operation, this is not a cottage industry, and this is a core component of what we’re doing,” said Mr Perez, declining to say how many specialists work in Evidence Lab.
UBS’s enhanced research reports also give clients interactive tools so they can plug in their own assumptions for things such as the take-up of Apple’s next innovation or the likely competitive battle on air routes, and then get their own set of results from UBS’s model.
Mr Perez said he had evidence that clients “like” the new offering. Readership of reports has more than doubled in the past two years, and reports that use the “Evidence Lab” tools have readership that is “several multiples” of the readership for regular reports. UBS is ranked number three in Europe, the Middle East and Africa equity and equity linked research, according to Extel, and number 6 for All America research by Institutional Investor.
Mr Perez said that the bank would have to “wait a couple of years” to discover whether clients would be willing to pay more for the added value research. “At this point in time it’s still bundled. We can observe how we are progressing with the clients, the usage, the overall payment — over the next two or three years we’ll have to get to know much more accurately (what clients will pay for).”
Some investors were less effusive, saying that some of the things UBS is trumpeting are not unique. The Swiss bank has moved away from single price targets, to a price target plus a bull and bear case, as have a handful of other research houses, said one investor. Another pointed out that other rivals are also focusing more on “big questions” and offering interactive models.

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance:
  • GIII -16.3%, ANF -13.9%, SCSC -13.4%, CTLT -4.3%, DRD -0.5%
M&A news:
  • HSY -10.7% (Mondelez International (MDLZ) says no longer pursuing a potential combination)
Select metals/mining stocks trading lower:
  • GOLD -2.0%, RIO -1.4%, HMY -1.4%, AUY -1.0%, GDX -0.8%
Other news:
  • AEO -1.3% (in sympathy with ANF earnings)
  • CETX -1.2% (Proposes $15 mln rights offering)
  • OPTT -1.1% (Names new CFO)
  • AAPL -1.1% (EU confirmed Ireland granted undue tax benefits of up to EUR 13 bln to AAPL)
Analyst comments:
  • SIG -1.3% (downgraded to Neutral from Overweight at JP Morgan)

>>> US Gapping up


Gapping up

In reaction to strong earnings/guidance:

  • PAHC +5.5%, DSW +4%, STAF +3.6%, ADHD +2.1%

M&A news:

  • MDLZ +3.6% (no longer pursuing combination with HSY)

Select EU financial related names showing strength:

  • DB +2.4%, BCS +2.0%, CS +1.8%, HSBC +1.3%, LYG +1.3%, SAN +1.0%

Other news:

  • BCEI +32% (receives continued listing standard notice from the NYSE; elects to pay interest on its senior unsecured notes)
  • KMDA +7.9% (meets primary endpoint of US phase 2 study of inhaled alpha-1 antitrypsin for the treatment of alpha-1 antitrypsin deficiency)
  • PTLA +2.1% (reports interim results from ongoing Phase 3b/4 ANNEXXA-4 study)
  • NAT +1.6% (sends letter to shareholders; CEO informs of recent stock purchases)
  • CZR +0.9% (Reportedly wins two-week reprieve from bondholder lawsuits)
  • CAVM +0.6% (CFO buys shares),  REGN +0.5% (Positive Barron's mention)
  • LUV +0.5% (Reaches agreement in principle on a new contract with its pilots)

Analyst comments:

  • SPHS +4.7% (initiated with a Overweight at Piper Jaffray)
  • UAL +4.6% (upgraded to Outperform from Mkt Perform at Raymond James)
  • GEMP +2% (initiated with a Outperform at RBC Capital Mkts)
  • FTNT +1.4% (upgraded to Overweight from Sector Weight at Pacific Crest)