>>> Asian Update

Asia Mid-Session Market Update: Japan govt raises economic assessment, tracking BOJ; New Zealand trade deficit widens

***US Session Highlights***
- (US) Dec Philly Fed Non-Manufacturing Index: 20.9 v 10.6 prior
- (US) Weekly Redbook Sales w/e Dec 17th: +1.1% y/y; Dec MTD +1.5% m/m; Dec MTD +0.5% y/y
- (UK) PM May: Brexit talks so far with EU leaders have been positive and constructive and they appear willing to make the Brexit process smooth and orderly

***US markets on close: Dow +0.5%, S&P500 +0.4%, Nasdaq +0.5%***
- Best Sector in S&P500: Financials
- Worst Sector in S&P500: Utilities
- Biggest gainers: KMX +6.1%, TRIP +5.0%, FCX +4.5%, SCHW +3.6%, NVDA +3.5%
- Biggest losers: AYI -5.6%, STZ -4.0%, PX -3.8%, FTR -3.4%, SWN -2.9%
- At the close: VIX 11.5 (-0.2pts); Treasuries: 2-yr 1.22% (flat), 10-yr 2.57% (+3bps), 30-yr 3.15% (+3bps)

***US movers afterhours***
- NKE: Reports Q2 $0.50 v $0.43e, R$8.18B v $8.08Be; Worldwide futures orders growth +2% v +5%e; +1.9% afterhours
- FDX: Reports Q2 $2.80 v $2.91e, R$14.9B v $14.9Be; -3.3% afterhours
- SCS: Reports Q3 $0.30 v $0.31e, R$786.5M v $787Me (2 est); -7.1% afterhours

***Asia Key economic data:***
- (NZ) NEW ZEALAND NOV TRADE BALANCE (NZ$): -705M (5th straight deficit) V -500ME; 12-MONTH TRADE BALANCE: -3.18B V -2.95BE
- (NZ) NEW ZEALAND NOV CREDIT CARD SPENDING M/M: -4.2% V +2.8% PRIOR; TOTAL M/M: 4.1% V 10.2% PRIOR
- (AU) AUSTRALIA NOV WESTPAC LEADING INDEX M/M: 0.0% V 0.1% PRIOR
- (AU) AUSTRALIA NOV SKILLED VACANCIES M/M: 0.0% V -0.3% PRIOR
- (CN) China Nov Conference Board Leading Economic Index: 1.0% v 0.8% prior

***Asia Session Notable Observations, Speakers and Press***
- Dow Industrials within earshot of psychologial 20,000 level; Nike beats on top and bottom lines but pares afterhours gains on lower than exp Futures Orders; FedEx falls on earnings miss, affirms guidance.
- Shanghai Composite leads regional indices; Local press notes 14% rise in China Nov railway cargo volume and expectations of regulatory easing on stock index futures such as reduced margin requirements.
- Japan Cabinet Office (govt) follows BOJ in raising its economic assessment for the first time since the first half of last year; Sees economy on a moderate recovery path, with improved household spending and exports.
- New Zealand trade in deficit for the 5th straight month; Exports below estimates, while imports slightly higher, putting trade deficit higher than expected. Exports to China and Australia rise just under 1%, while shipments to US down over 20%.
- Oil prices rise about 25c after API Inventories showing largest draw in 2 1/2 months.

China:
- (CN) China Vice Premier Ma: Not devaluing CNY to boost exports - press
- (CN) NDRC: China Nov railway cargo volume 304.9M tons, +13.9% y/y
- (CN) China's Hebei province said to cut production capacity of iron and steel in 2017 - China Daily
- (CN) China said to soon ease limits on stock index futures - Chinese press

Japan:
- (JP) Japan Finance Ministry, Financial Services Agency (FSA) said to survey banks' readiness for higher interest rates - Nikkei
- (JP) According to a survey by Japan Center for Economic Research (JCER), economist expect Q4 GDP of 0.8% q/q and 1.1% y/y - Nikkei

Australia:
- AUD/USD: Fixed income markets pricing in over 50% chance that RBA raises rates in 2017 following latest RBA meeting minutes - Australian press

***Asian Equity Indices/Futures (00:30ET)***
- Nikkei -0.3%, Hang Seng +0.6%, Shanghai Composite +1.1%, ASX200 +0.4%, Kospi flat
- Equity Futures: S&P500 flat; Nasdaq flat, Dax flat, FTSE100 flat

***FX ranges/Commodities/Fixed Income (00:30ET)***
- EUR 1.0380-1.0420; JPY 117.40-118.10; AUD 0.7250-0.7275; NZD 0.6915-0.6950
- Feb Gold +0.4% at 1,138/oz; Jan Crude Oil +0.4% at $53.49/brl; Mar Copper +0.2 at $2.51/lb
- (US) Weekly API Oil Inventories: Crude: -4.2M v +4.7M prior (largest draw since Oct 4th)
- SLV: iShares Silver Trust ETF daily holdings fall to 10,552 tonnes from 10,575 tonnes prior
- (CN) China MoF sells 3-year bonds, Yield: 3.01% v 3.07%e, bid-to-cover 2.27x; Sells 7-year bonds, Yield 3.180% v 3.35%e, bid-to-cover 2.74x
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.9489 V 6.9468 PRIOR

***Asia equities / Notables / movers by sector***
- Consumer discretionary: Cabcharge Australia CAB.AU +0.5% (divestment); PanaHome Corp 1924.JP +13.2% (Panasonic to make it a unit); Sydney Airport SYD.AU -5.2% (Morgans Financial cuts to hold); Bega Cheese BGA.AU +3.9% (guidance); Slater & Gordon SGH.AU -7.6% (served ASIC notices)
- Consumer staples: A2 Milk ATM.NZ +5.9% (trading update)
- Industrials: Sydney Airport SYD.AU -5.2% (Morgans cut)
- Technology: Acer Inc 2353.TW -0.8% (impairment charge); Panasonic Corporation 6752.JP -1.9% (to absorb units)
- Materials: Whitehaven WHC.AU +3.0% (Macquarie raises 2017 hard coking coal forecast) St. Barbara SBM.AU -1.1%, Regis Resources RRL.AU -0.8% (gold faces downside risks); South32 S32.AU +1.9% (Macquarie raises PT)
- Healthcare: Mayne Pharma MYX.AU +7.1% (recover losses); Benitec Biopharma BLT.AU +15.8% (update)

>>> US After Hours NKE +2%, FDX -3% on earnings

 NKE +2%, FDX -3% on earnings

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: NKE +1.7%

Companies trading higher in after hours in reaction to news: TINY 16.8% (Announced a proposed strategic restructuring), GLBS 10.3% (Provided an update regarding its proposed $5 mln private placement and conversion of outstanding loans), TIG 3.3% (Takeda (TKPYY) exercises option to make a EUR 10 million equity investment), CRUS 2.1% (Initiated with a Positive rating at Susquehanna).

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: SCS -7.4%, FDX -3% (UPS (UPS) -1.6% in sympathy)

Companies trading lower in after hours in reaction to news: RDHL -7.9% (Announced a concurrent public offering & registered direct offering of its American Depositary Shares & warrants), IMNP -5.2% (Shareholders authorize filing of an amendment to effect a reverse stock split at a specific ratio, within a range of 1-for-2 and 1-for-25).

>>> US Close +0.46% S&P +0.36% Nasdaq +0.49% Russell +0.89%

Closing Market Summary: Financials Lead Stocks Higher

The stock market registered its second consecutive advance, but intraday price action followed yesterday's pattern, suggesting the post-election rally may be running out of steam. The S&P 500 hit a session high shortly after the open, but narrowed its gain to 0.4% by the close.

The key indices raced out of the gate with the Dow Jones Industrial Average (+0.5%) setting its sights on the 20,000 mark. The price-weighted index hit a session high roughly 15 points below that level during the opening hour, slowly backing off into the afternoon.

Most cyclical sectors displayed strength from the start with three exhibiting relative strength into the close, which kept the market in the green despite the afternoon dip from highs. The financial sector (+1.1%) spent the day in the lead after underperforming yesterday. Meanwhile, the largest sector by weight—technology (+0.3%)—kept pace with the S&P 500.

However, the underperformance in technology was offset by solid gains in consumer discretionary (+0.8%) and industrials (+0.6%). The discretionary sector received broad support from retail stocks with the SPDR S&P Retail ETF (XRT 46.79, +0.67) climbing 1.5%. In earnings news, CarMax (KMX 66.16, +3.80) and Carnival (CCL 52.49, +1.17) advanced 6.1% and 2.3%, respectively, after beating earnings estimates.

As for industrials, the sector was underpinned by transport stocks, evidenced by the Dow Jones Transportation Average (+0.8%). Dow component Caterpillar (CAT 94.32, +1.61) also stood out, climbing 1.8%, after the company released its November sales figures, which showed a 17.0% year-over-year decline in total machine orders. Total energy & transportation orders declined 25.0% year-over-year, representing a slight slowdown from a 28.0% decline in October.

On the downside, the energy sector (-0.2%) spent the day in negative territory even though crude oil rose 0.3% to $53.24/bbl. Elsewhere, the consumer staples sector (-0.3%) remained at the bottom of the leaderboard throughout the day, weighed down by General Mills (GIS 61.45, -1.61). The sector heavyweight lost 2.6% after missing earnings/revenue estimates and lowering its organic sales guidance. Another countercyclical sector—health care (-0.1%)—surrendered an opening gain to end with a modest loss even though biotechnology outperformed into the close. The iShares Nasdaq Biotechnology ETF (IBB 270.76, +1.97) added 0.7%.

On the M&A front, Fred's (FRED 20.19, +9.04) agreed to acquire 865 Rite Aid (RAD 8.61, +0.44) stores for $950 million in cash. The transaction more than doubled Fred's store footprint, sending its shares higher by 81.1%.

The Treasury market ended on a mostly lower note with the 10-yr yield rising two basis points to 2.56% while the 2-yr yield held unchanged at 1.22%.

Investor participation was above average with nearly 970 million shares changing hands at the NYSE floor.

Tomorrow, the weekly MBA Mortgage Index will be released at 7:00 ET while November Existing Home Sales (consensus 5.50M) will be reported at 10:00 ET.

  • Russell 2000 +21.7% YTD
  • Dow Jones Industrial Average +14.6% YTD
  • S&P 500 +11.1% YTD
  • Nasdaq Composite +9.5% YTD

Reuters - Sanofi talks with Actelion progressing: source

Sanofi talks with Actelion progressing: source
The company's logo is seen at the headquarters of Swiss biotech company Actelion in Allschwil, Switzerland December 6, 2016. Reuters / Arnd Wiegmann
The company's logo is seen at the headquarters of Swiss biotech company Actelion in Allschwil, Switzerland December 6, 2016. Reuters / Arnd Wiegmann
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By Pamela Barbaglia and Maiya Keidan | LONDON
Talks between Actelion (ATLN.S) and Sanofi (SASY.PA) are making progress, despite investors' anxiety as to whether the Swiss biotech firm's chief executive really wants a deal, a person with direct knowledge of situation said on Tuesday.

The source said Actelion had now reached a point where the company needed to sign a deal and it could not call off negotiations with the French drugmaker without triggering an investor rebellion demanding the overthrow of its board.

Actelion's share price has fallen more than 7 percent in the last two days as a hoped-for takeover valuing the Swiss biotech firm at up to $30 billion has failed to emerge, frustrating hedge funds that have bought heavily into the stock.

"You can count us in to the growing camp of hedge fund discontent about this process," said Michael Wegener, managing partner at Hong Kong-based Case Equity Partners. "What is it that's wrong?"

The silence in recent days has unnerved investors who had been looking for a deal before the Christmas break, but the source said it would be "neither impossible nor unusual" to see a big transaction coming between Christmas and New Year's Eve.

U.S. healthcare group Johnson & Johnson (JNJ.N) abandoned its efforts to buy Actelion last week and people familiar with the situation said Sanofi had stepped in with proposals for an offer that would include cash and a so-called contingent value right (CVR).

The CVR - similar to one that Sanofi provided when it bought U.S. rare diseases firm Genzyme for $20 billion in 2011 - would pay out if certain Actelion drugs live up to commercial expectations.

Investors said any offer where the CVR represented more than 20 percent of the overall value of the deal would not go down well with shareholders.

Sanofi and Actelion declined to comment.

After being trumped in August by Pfizer's (PFE.N) $14 billion bid for U.S. cancer drug company Medivation, Sanofi remains hungry for deals to broaden its drug line-up as its key diabetes business comes under pressure.

Actelion's drugs for treating pulmonary arterial hypertension, a life-threatening form of high blood pressure in arteries connecting the heart and lungs, would dovetail with its Genzyme rare diseases unit, analysts believe.

The Swiss group was founded by its CEO Jean-Paul Clozel in 1997 and his long-term desire to retain independence has stalled takeover attempts in the past.

FT : General Mills earnings spoiled by yoghurt sales slump

Yoghurt troubles continue to sour sales and profits at General Mills.

The food giant saw its shares slide 3.5 per cent on Tuesday after it announced quarterly earnings that missed Wall Street’s estimates, as demand for its Yoplait yoghurt slumped.

The company – known for a range of food products from cereal to tortillas – said that net retail sales in its largest market, the US, were down 9 per cent during the quarter ending November 27. Improving sales for its Annie’s natural and organic products, Old El Paso line of Mexican food and Totino’s frozen hot snacks were not enough to offset the 18 per cent fall in sales of Yoplait yoghurt products, and declines in Pillsbury refrigerated dough and Progresso soups.

International sales were also down by 4 per cent from the same period a year ago, General Mills said, with the strong dollar cutting into the value of its overseas sales.

General Mills reported an overall 7 per cent decrease in net sales compared to a year earlier, to $4.1bn, short of analysts’ expectations of $4.22bn in revenue. Net income for its fiscal 2017 second quarter came in at $481.8m, a 9 per cent fall year-on-year and shy of the $523.16m that analysts had expected. That translated to diluted earnings per share of 80 cents, 8 per cent lower from the year-ago period and also short of Wall Street’s forecast of 85.8 cents per share.

During a conference call with investors, General Mills executives said they hoped to stem the declines by focusing on its “consumer first” strategy of identifying and catering to shoppers’ shifting preferences for more natural meals and snacks. General Mills’ chief executive Ken Powell blamed in part “weakening food industry trends” for the lacklustre results, and said the company was making “targeted adjustments” to its plan for the second half of fiscal year 2017 to improve its topline performance.

In particular, chief operating officer Jeff Harmening said that the company has “a good deal of work to do to turn around our yoghurt business,” and while some improvement is expected in the back half of the year, it’s unlikely to return to growth. “We believe the key to success will be fundamentally shifting our portfolio through renovation and innovation to give consumers what they want from their yoghurt, and that’s the essence of ‘consumer first,’” he said.

General Mills is in the midst of efforts to streamline its global operations and supply chain network. By the end of fiscal year 2018, the company plans to have closed 11 plants and reduced approximately 5,000 positions worldwide. On Tuesday it said it was lowering its target for organic net sales growth, from its previous range of a 0-2 per cent decline to 3-4 per cent decline over the full fiscal year 2017.

From a year ago, General Mills shares have gained about 6.15 per cent.

Reuters - Exclusive: Top French banks sue ECB to reduce capital demands

Exclusive: Top French banks sue ECB to reduce capital demands

France's top lenders are suing the European Central Bank to get an exemption from holding capital
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against deposits parked with a state-owned fund, the most high-profile challenge to supervision from Frankfurt to date.

As well as providing euro zone banks with funding, the ECB has been their main regulator for the past two years, tasked with ending cozy relationships between the industry and national authorities that contributed to the financial crisis.

The Frankfurt-based institution has been sued repeatedly over its bond-buying programs and by smaller banks seeking to escape its supervision.

But this is the first case brought by major banks in the euro zone and is a rare confrontation between France's financial elite and the ECB's supervisory board, led by the former head of France's own banking regulator, Daniele Nouy.

The lawsuits have been brought by BNP Paribas (BNPP.PA), Societe Generale (SOGN.PA), Credit Agricole (CAGR.PA), Credit Mutuel, Groupe BPCE and La Banque Postale over the past few weeks, filings with the European Court of Justice show.

Sources with direct knowledge of the cases told Reuters the banks are protesting the ECB's demand that they set aside capital against special deposits they have with state investment institution Caisse des Dépôts et Consignations (CDC).

The legal action comes amid heightened tension between banks and the ECB, which is inundating the financial sector with excess cash to try to stimulate growth while charging banks for depositing it with the central bank overnight.

"You are seeing banks more and more go to court to challenge the supervisor," a senior legal source said. "Years ago that was unthinkable."

The ECB and the banks declined to comment.

400 BILLION

Tax-free savings accounts in France, such as the Livret A, are widely used by smaller retail savers and they were worth some 400 billion euros ($417 billion) at the end of last year.

Slightly more than half that money was then placed by the banks with the Caisse des Dépôts et Consignation, which uses the funds to invest in public housing and other projects.

Banks argue that this exposure to the CDC should not count towards the calculation of their leverage ratio, which is a measure of a lender's capital as a proportion of total assets.

They cite a European Commission act saying regulators may grant an exemption for, "deposits that the institution is legally obliged to transfer to (a) public sector entity ... for the purposes of funding general interest investments".

Under EU rules due to come into full force in 2018, banks must hold capital worth at least 3 percent of their total assets. By stripping out the deposits with the CDC, banks would get a higher leverage ratio for a given amount of capital.

For example, La Banque Postale said its capital was worth 5 percent of assets at the end of June but if its deposits with the CDC were included in the calculation, its leverage ratio would fall to 3.4 percent.

A source close to the ECJ said a decision on the suits may take about two years, meaning it was unlikely to come before the leverage ratio rule is phased in.

La Banque Postale and BPCE, which long had a monopoly on French regulated savings accounts, would be worst hit.

"It's obviously important for Banque Postale," Olivia Perney Guillot, who rates the bank for Fitch said. "The ratings already take into account the potential lifting of the national exemption."

BPCE and Credit Agricole SA knocked 30 and 15 basis points respectively off their leverage ratios earlier this year to take account of their deposits with the CDC.

Their complaints should be familiar to Daniele Nouy, who worked at the French central bank before becoming the head of France's prudential authority in 2010.

In 2013, before moving to the ECB, she warned that French banks would be "strongly impacted" by new liquidity rules due to their exposure to regulated savings accounts, among other reasons.

>>> US Gapping Up:

Gapping Up

Earnings/guidance: BBRY +3.1%

M&A: LYG +2.3% (to acquire MBNA Ltd from Bank of America (BAC))

Select small cap oil & gas names seeing early bid: BCEI +7.5%, WTI +5.3%, RICE +3.7%, SDRL +2.7%, FRO +2.3%, APC +1.7%

Other news:

  • CNAT +147.5% (Enters into exclusive option, collaboration and license agreement for the global development and commercialization of its first-in-class, orally active pan-caspase inhibitor emricasan with Novartis (NVS)),
  • AKBA +37.7% (co & Otsuka Pharma (OTSKY) enter a collaboration and license agreement in the U.S. for vadadustat; co will receive $265 mln in committed funds plus development & commercial milestones),
  • ACAD +22.7% ( announces positive top-line results from its Phase II exploratory study of pimavanserin in patients with Alzheimer's disease psychosis),
  • ABIO +17.2% (still checking, possibly a newsletter mention),
  • RAD +6.5% (Fred's Pharmacy to acquire 865 RAD stores); WBA +1.5% 
  • GGB +3.6% (still checking),
  • GSAT +3.7% (light volume follow-through from yesterday's breakout),
  • ITUB +3.6% (Brazilian bank, still checking),
  • BBD +3.6% (Brazilian bank, still checking),
  • PSTI +3.3% (co and and Corporate Venture Capital sign a binding term sheet for the establishment of a new Japanese corporation for the clinical development/commercialization of its PLX-PAD cell therapy product in Japan),
  • TASR +2.5% (San Bernardino County Sheriff's Department Deploys 1525 TASER X2 Smart Weapons),
  • SRPT +1.7% (Announces that the EMA validated the previously submitted MAA for eteplirsen to treat Duchenne muscular dystrophy amenable to exon 51 skipping),
  • MS +1.7% (still checking),
  • VRX +1.5% (still checking),
  • IONS +1.4% (co and AstraZeneca (AZN) advance lead drug candidate IONIS-AZ4-2.5-LRx into preclinical development).

Analyst actions:

  • NVDA +2.7% (added to Conviction Buy List at Goldman; $129 tgt),
  • SQ +2.4% (initiated with a Buy ratings at Guggenheim and Nomura),
  • AMD +2.4% (upgraded to Buy at Mizuho),

>>> US Early pre-market gappers

Early pre-market gappers

Gapping up: CNAT +147.5%, AKBA +37.7%, ACAD +22.7%, ABIO +17.2%, BCEI +7.5%, WTI +5.3%, GGB +3.6%, GSAT +3.7%, RICE +3.7%, ITUB +3.6%, BBD +3.6%, BBRY +3.1%, PSTI +3.3%, SDRL +2.7%, NVDA +2.7%, TASR +2.5%, SQ +2.4%, FRO +2.3%, LYG +2.3%, AMD +2.4%, MDR +2.1%, DB +2.0%, OCLR +1.9%, SRPT +1.7%, MS +1.7%, APC +1.7%, VRX +1.5%, IONS +1.4%, DRI -1.4%.

Gapping down:XGTI -28.5%, NURO -22.6%, NPTN -21.5%, SBGL -6.4%, SCMP -6.0%, REN -5.7%, CEMP -5.6%, WOR -5.3%, GIS -3.7%, IAG -3.3%, AG -2.6%, ERIC -2.5%, AUY -2.4%, CDE -2.3%, BBBY -2.3%, SLW -2.1%, KGC -2.0%, SSRI -1.8%, HMY -1.5%, NEM -1.5%, SLV -1.5%, ABX -1.3%, GOLD -1.3%, GDX -1.3%, GG -1.3%, HSBC -1.3%, NAT -1.3%, ASML -1.2%, SAND -1.2%, PAAS -1.1%