>>> Asia Update

Asia Mid-Session Market Update: CNY spikes overnight on reports of mandated SOE sales of USD; China, Hong Kong composite PMIs hit new highs


***US Session Highlights***
- (US) Nov ISM New York: 63.8 v 52.5 prior (business conditions across NYC rose last month as optimism grew)
- US Dec auto sales stay strong, boosting shares
- Fed minutes show that apart from unanimous agreement to raise interest rates, the committee expressed concerns about the outcome of future Trump policies, with a view to maintain a wait-and-see approach.

***US markets on close: Dow +0.3%, S&P500 +0.6%, Nasdaq +0.9%***
- Best Sector in S&P500: Services
- Worst Sector in S&P500: Utilities
- Biggest gainers: FCX +7.6%, NRG +5.9%, GM +5.5%, AA +5.0%, F +4.6%
- Biggest losers: VLO -3.6%, TSO -3.4%, MPC -3.2%, CERN -3.0%, ISRG -1.9%
- At the close: VIX 11.9 (-1.0pts); Treasuries: 2-yr 1.21% (-2bps), 10-yr 2.45% (flat), 30-yr 3.05% (flat)

***US movers afterhours***
- MG: Reports Q2 $0.26 v $0.36e, R$176.6M v $183Me; -8.9% afterhours
- M: Cuts FY16 EPS $2.95-3.10 v $3.26e (prior $3.15-3.40); affirms FY16 SSS -3.0% to -2.5%, expects to come in lower end of guidance; -10.9% afterhours
- KSS: Reports Nov/Dec SSS -2.1%; Cuts FY16 guidance to $3.60-3.65 v $3.94e (guided $3.80-4.00); -15.1% afterhours

- COST: Reports Dec SSS (ex-gas) 2% y/y; US SSS (ex-gas) 1.0% y/y

***Asia Key economic data:***
- (CN) CHINA DEC CAIXIN PMI SERVICES: 53.4 V 53.1 PRIOR (17-month high); Composite PMI: 53.5 v 52.9 prior; 45-month high
- (HK) HONG KONG DEC COMPOSITE PMI: 50.3 v 49.5 PRIOR; first expansion and highest reading since Feb 2015
- (AU) AUSTRALIA DEC AIG PERF OF SERVICES INDEX: 57.7 V 51.1 PRIOR; 3rd consecutive expansion; highest since May 2007
- (JP) JAPAN DEC SERVICES PMI: 52.3 (highest since Jan 2016) V 51.8 PRIOR; COMPOSITE PMI: 52.8 (highest since Aug 2015) V 52.0 PRIOR
- (JP) JAPAN DEC VEHICLE SALES Y/Y: 10.8% V 13.9% PRIOR
- (JP) JAPAN DEC MONETARY BASE Y/Y: 23.1% v 21.5% PRIOR; MONETARY BASE END OF PERIOD: ¥437.4T v ¥419.8T PRIOR
- (SG) SINGAPORE DEC PMI COMPOSITE: 52.0 V 52.8 PRIOR (8th consecutive expansion)
- (TW) TAIWAN DEC CPI Y/Y: 1.7% V 2.1%E
- (PH) PHILIPPINES DEC CPI M/M: 0.3% V 0.2%E; Y/Y: 2.6% V 2.6%E; CORE CPI Y/Y: 2.5% V 2.5%E

***Asia Session Notable Observations, Speakers and Press***
- Asia equity markets are largely positive, led by Hong Kong; Energy is the top performing sector on the Hang Seng; Kospi is down marginally amid KRW strength after local think tanks speculated the new US govt could name Korea a currency manipulator. Nikkei225 is also softer on stronger JPY.
- FX majors were extra volatile, with heavy USD selling against JPY and EUR. After initial sea-saw, US short term rates have come in on perception the latest Fed minutes were somewhat less hawkish then anticipated. USD/JPY fell as much as 100pips on the greenback selloff.
- Chinese Yuan was up over 1% in offshore market overnight after press reports that authorities plan to order SOE's to sell USD. Today's Yuan fix by the PBoC was also a 3-week high.
- Last set of Asia Composite/Services PMIs feature prints from China Caixin, Hong Kong, Singapore, and Japan. Caixin Services hit a 17-month high and composite reached a near-4 year high. China conditions saw "improved rates of new order growth" and much higher input costs against reduced employment. In Hong Kong, the PMI data was even less rosy, as "improvement was not driven by expansions in output and new orders, but pre- production stock levels", with declines in output, new business and employment along with reduced orders from the mainland.

China:
- (CN) China MOFCOM spokesperson Jiwen: China faced record high trade frictions last year; More than half of disputes were over steel - press
- (CN) China National Energy Administration (NEA): To invest $360B in renewable power from 2016-2020
- (CN) China Financial News commentary: China should improve coordination between financial regulators to prevent systemic risk in capital markets - Chinese press
- USD/CNY: Offshore Yuan strength attributed to reports China is considering options to support currency, including ordering SOEs to sell USD - press

Japan:
- (JP) Japan PM Abe: Global economy is improving; Japan has bright signs - press

Australia:
- AUD/USD: Westpac's Speizer: AUD/USD has potential to go higher in the short term, but likely lower below $0.72 in 1-3 months - AFR

***Asian Equity Indices/Futures (00:00ET)***
- Nikkei -0.3%, Hang Seng +1.3%, Shanghai Composite +0.1%, ASX200 +0.4%, Kospi -0.1%
- Equity Futures: S&P500 flat; Nasdaq -0.1%, Dax flat, FTSE100 flat

***FX ranges/Commodities/Fixed Income (00:00ET)***
- EUR 1.0480-1.0540; JPY 116.30-117.40; AUD 0.7270-0.7300; NZD 0.6955-0.6700
- Feb Gold +0.8% at 1,175/oz; Feb Crude Oil -0.1% at $53.23/brl; Mar Copper +0.2% at $2.56/lb
- (US) Weekly API Oil Inventories: Crude: -7.4M v +4.2M prior (largest draw since Oct 4th)
- JGB: (JP) Japan MoF sells ¥2.17T in 10-yr 0.1% JGBs; Avg yield: 0.056% v 0.032% prior; bid to cover: 3.59x v 3.78x prior
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9307 V 6.9526 PRIOR; strongest Yuan setting since Dec 15th
- (CN) PBOC to inject CNY10B in 7-day reverse repos v combined CNY20B in 7-day and 14-day prior
- (CN) Offshore yuan overnight deposit rate +16.5ppts to 30% (1-yr high)

***Asia equities / Notables / movers by sector***
- Consumer discretionary: H2O Retailing Corp 8242.JP +2.0% (Dec sales); Suntory Beverage & Food 2587.JP -0.6% (denies speculation on listing); Aeon Co 8267.JP +1.0% (9-month result speculation)
- Consumer staples: China Modern Dairy 1117.HK +5.0% (Mengniu increases stake)
- Financials: Greentown China 3900.HK -0.3% (Dec result); Country Garden Holdings Co 2007.HK -1.7% (names new CFO)
- Industrials: Guangzhou Automobile Group 2238.HK -0.4% (Dec result); Takata Corp 7312.JP -6.5% (profit-taking); Mitsubishi Motors 7211.JP +3.3% (Dec result); Mazda Motor Corp 7261.JP -2.1% (Dec result); Hanjin Shipping Co 117930.KR +22.0% (to close asset sales next week); Samsung Heavy 010140.kr ($1.3B contract)
- Technology: Truly International Holdings 732.HK +6.2% (Dec result); Sony Corp 6758.JP -1.8% (holiday season PS4 sales); Toshiba Corporation 6502.JP +4.5% (writedown estimates)
- Materials: China Minmetals Resources 1208.HK +11.3% (acquisition); Newcrest NCM.AU +1.9%; Saracen Mineral Holdings SAR.AU +4.6% (gold prices higher)
- Telecom: TPG Telecom TPM.AU +2.3% (Credit Suisse raised to neutral)

>>> US After Hours Summary: Retailers under pressure after Macy's / Ko


After Hours Summary: Retailers under pressure after Macy's / Kohl's holiday sales updates, MG -9% following earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to news/guidance: ALXN +6.4% (files previously delayed Form 10-Q; Audit / Finance Committee concluded that the previously issued financial results do not require restatement), ARNA +4.7% (sells all of its rights to develop and market lorcaserin to Eisai for a reduced amount than previously announced; enters into equity distribution agreement to sell & issue $50 mln in shares of common stock), RT +4.5% (continued strength), SGYP +2.5% (initiated with an Outperform at Oppenheimer), GPRO +1% (confirmed drone Karma set to re-launch in 2017), ACHC +0.9% (after closing near highs of the day +9%), AR +0.7% (capital budget for 2017 is $1.5 billion; Net production is expected to average 2,160 to 2,250 MMcfe/d in 2017, representing year-over-year growth of 20% to 25% relative to 2016 guidance)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: KSS -14.7% (lowers FY17 guidance to $3.60-3.65 from $3.80-4.00 vs $3.93 Capital IQ Consensus Estimate; Nov-Dec comps -2.1%), M -10%, (Macy's lowers FY17 EPS; comparable sales on an owned plus licensed basis declined by 2.1 percent in the months of November and December 2016; announces actions to streamline store portfolio, intensify cost efficiency efforts and execute real estate strategy), MG -9.3%, MC -4% (sees Q4 revs above consensus; raises dividend to $0.37/share from $0.32/share; commenced public offering of 5,000,000 shares of Class A common stock), SONC -0.7%

Companies trading lower in after hours in reaction to news: AEZS -38.4% (reports the confirmatory Phase 3 clinical trial of Macrilen (macimorelin) failed to achieve its objective of validating a single oral dose of macimorelin for the evaluation of growth hormone deficiency in adults), HLX -9.7% (Helix Energy commences public offering of 21 mln shares of common stock; discloses impairment charge and delayed in-service for Siem Helix 1 update), HRTX -8.3% (announces 'positive' topline results from its Phase 2 study of HTX-011 in subjects undergoing abdominoplasty; 'demonstrated statistically significant reductions in both pain intensity and the use of opioid rescue medications through 96 hours following surgery'), KNOP -5.4% (prices offering of 2.5 mln common units, representing limited partner interests for total gross proceeds of approx $56.1 mln), OREX -3.8% (after 64% move higher on Wednesday), SHLD -3.5% (after closing near highs of the day +7%), HPP -0.7% (announced offering of 18,673,808 shares of common stock pursuant to an effective shelf registration statement), ABT -0.5% (Abbott Labs completes acquisiton of St. Jude Medical; S&P lowered rating),, KRC -3.1% (commences 3.5 mln common stock offering)

Retail names lower on KSS / M guidance: JWN -5.2%, JCP -4.6%, DDS -3.9%, SHLD -3.5%

FT lex : Apple-SoftBank: noncore bets

Apple-SoftBank: noncore bets
Apple says its $1bn investment in SoftBank’s enormous $100bn Vision Fund is about nurturing technology which might prove “strategically important”. Yet Apple’s $10bn annual research and development budget should do that; otherwise it has a problem.

The SoftBank investment would be better justified financially. Apple has $240bn of cash and has to put it somewhere. Like the other investors, which now include Qualcomm, the chipmaker, and Larry Ellison, the Oracle founder, as well as Saudi Arabia, the original backer, it wants a return.

That is going to be difficult. The pool of potential investments initially looks dauntingly large. Add in debt and the total firepower could exceed $400bn. That only puts Apple itself, along with Alphabet and Microsoft, out of reach in terms of enterprise value.

Smaller investments, however, can also be eliminated. This is a five-year fund. The money has to be deployed quickly and aggressively to have an impact. Masa Son, SoftBank’s founder, says he plans “a bunch” of $1bn buyouts, “several” $2bn-$5bn acquisitions and “one or two big size”.

An analysis of public technology companies using Bloomberg data show 590 fit that criteria. Remove the very largest, those where insiders hold more than 20 per cent of the shares, or have dual class voting rights, and there are 452. Add in tech-oriented media companies and private “unicorns”, perhaps wary of an initial public offering, and the list appears more extensive.

But the real disqualifying filter is companies in the advanced tech fields that interest Mr Son, such as robotics or internet of things, which justified SoftBank’s own £24bn acquisition of Arm Holdings last year. That field is thin. Valuations are already high for most tech companies — 20 of the $1bn-plus group are valued at more than 100 times earnings before interest tax, depreciation and amortisation and it is hard to envisage a profitable exit even at lower multiples. The road of tech buyouts is littered with carcases.

Other buyout groups are prowling the same territory. The real comparative advantage SoftBank has as an acquirer is sheer size but that is unlikely to count for anything unless it chooses to aim for $100bn-plus companies such as Intel or IBM. For the most part, SoftBank will be competing with established funds such as Silver Lake. Raising $100bn was the easy part; spending it and exiting with any return — for Apple or any other contributor — will be no mean feat

>>> US Close Dow +0.30% S&P +0.57% Nasdaq +0.88% Russell +1.64%

Closing Market Summary: Stock Market Closes on a Higher Note

The stock market ended Wednesday on a higher note, ending just below its session high. The S&P 500 finished higher by 0.6%, while the Nasdaq (+0.9%) outperformed the benchmark index. The Dow (+0.3%) will begin Thursday's session within striking distance of the 20k mark. 

Nine out of eleven sectors finished the day in positive territory, with materials (+1.4%) claiming the top spot on the leaderboard. Consumer discretionary (+1.3%) held the lead for most of the day after automakers reported better-than-expected sales for the month of December. On a year-over-year basis, General Motors (GM 37.09, +1.94)reported a 10.0% increase (consensus +0.7%), while Ford Motor (F 13.17, +0.58)saw a 0.3% gain (consensus -1.6%). The two names finished up by 5.5% and 4.6%, respectively.

Real estate (+1.2%), financials (+0.9%), and health care (+0.7%) also performed better than the broader market. The health care sector received a big bump from biotechnology, evidenced by the iShares Nasdaq Biotechnology ETF's (IBB 277.53, +7.24) 2.7% gain. Information technology (+0.4%) also finished in the green, despite losses from top components like Apple (AAPL 116.02, -0.13), Microsoft (MSFT 62.30, -0.28), and Alphabet (GOOGL 807.77, -0.24). 

After finishing at the top of the leaderboard on Tuesday, telecom services (-0.3%) finished at the bottom on Wednesday. Energy (-0.3%) performed only modestly better as the sector failed to capitalize on crude oil's positive performance. The commodity ended its trading day up 1.8% at $52.28/bbl amid a weaker U.S. dollar. The U.S. Dollar Index (102.58, -0.66) finished lower by 0.6%.

On the data front, the Federal Reserve released the minutes from its December meeting, showing a discussion about the recent surge in the dollar that lifted the U.S. Dollar Index (102.72, -0.49) to a fresh 14-year high. Members of the committee discussed the potential headwinds stemming from dollar strength, but hedged that discussion by noting that continued dollar strength might keep down inflation. The minutes showed uncertainty over possible changes in fiscal policies, but members agreed that near-term risks to the economic outlook appear roughly balanced.

Treasuries climbed to new highs immediately after the release, but finished the day near their flat lines. The 10-yr yield ended Wednesday unchanged at 2.45%.

Thursday's economic data will include December Challenger Job Cuts at 7:30 ET, December ADP Employment Change (consensus 170,000) at 8:15 ET, Initial Claims (consensus 265,000) at 8:30 ET, and the December ISM Services Index (consensus 56.6) at 10:00 ET.

On the earning front, several companies are scheduled to report before Thursday's opening bell with Monsanto (MON 105.05, +0.28) and Walgreens Boot Alliance (WBA 82.98, +0.02) being the most notable.

  • Russell 2000 +2.2% YTD
  • Dow Jones Industrial Average +0.9% YTD
  • S&P 500 +1.4% YTD
  • Nasdaq Composite +1.7% YTD

>>> Fed Minutes Key Excerpts

Fed Minutes Key Excerpts

  • Asset price movements as well as changes in the expected path for U.S. monetary policy beyond December appeared to be driven largely by expectations of more expansionary fiscal policy in the aftermath of U.S. elections.
  • The staff's forecast for real GDP growth over the next several years was slightly higher, on balance, largely reflecting the effects of the staff's provisional assumption that fiscal policy would be more expansionary in the coming years. These effects were substantially counterbalanced by the restraint from the higher assumed paths for longer-term interest rates and the foreign exchange value of the dollar.
  • Several participants pointed out that, depending on the mix of tax, spending, regulatory, and other possible policy changes, economic growth might turn out to be faster or slower than they currently anticipated. However, almost all also indicated that the upside risks to their forecasts for economic growth had increased as a result of prospects for more expansionary fiscal policies in coming years.
  • Many participants underscored the need to continue to weigh other risks and uncertainties attending the economic outlook. In that regard, several noted upside risks to U.S. economic activity from the potential for better-than-expected economic growth abroad or an acceleration of domestic business investment. Among the downside risks cited were the possibility of additional appreciation of the foreign exchange value of the dollar, financial vulnerabilities in some foreign economies, and the proximity of the federal funds rate to the effective lower bound. Several participants also commented on the uncertainty about the outlook for productivity growth or about the potential effects of tight labor markets on labor supply and inflation.
  • Members agreed that there was heightened uncertainty about possible changes in fiscal and other economic policies as well as their effects. However, members also agreed that near-term risks to the economic outlook appeared roughly balanced. Some members saw, with gradual adjustments of the stance of monetary policy, only modest risk of a scenario in which an undershooting of the longer-run normal rate of unemployment would create a sharp acceleration in prices.
  • However, several others pointed out that a further rise in the dollar might continue to hold down inflation. Participants generally agreed that they should continue to closely monitor inflation indicators and global economic and financial developments.

>>> FOMC Minutes.


  • Summary of Economic Projections

In conjunction with the Federal Open Market Committee (FOMC) meeting held on December 13-14, 2016, meeting participants submitted their projections of the most likely outcomes for real output growth, the unemployment rate, and inflation for each year from 2016 to 2019 and over the longer run.1 Each participant's projection was based on information available at the time of the meeting, together with his or her assessment of appropriate monetary policy, including a path for the federal funds rate and its longer-run value, and assumptions about other factors likely to affect economic outcomes. The longer-run projections represent each participant's assessment of the value to which each variable would be expected to converge, over time, under appropriate monetary policy and in the absence of further shocks to the economy. "Appropriate monetary policy" is defined as the future path of policy that each participant deems most likely to foster outcomes for economic activity and inflation that best satisfy his or her individual interpretation of the Federal Reserve's objectives of maximum employment and stable prices.
Most FOMC participants expected that, under appropriate monetary policy, growth in real gross domestic product (GDP) would pick up a bit next year and run at or slightly above their individual estimates of its longer-run rate through 2019. Almost all participants projected that the unemployment rate would run below their estimates of its longer-run normal level in 2017 and remain below that level through 2019. All participants projected that inflation, as measured by the four-quarter percentage change in the price index for personal consumption expenditures (PCE), would increase over the next two years, and several expected inflation to slightly exceed the Committee's 2 percent objective in 2018 or 2019. Table 1 and figure 1 provide summary statistics for the projections.