UK SMID LENDERS: We remain positive on our preferred names post Brexit, where we think current valuations reflect more pessimistic expectations than our base case estimates of a mild Brexit recession. Among the specialist lenders, we prefer Aldermore and Shawbrook (both OP) and among the pure-play challenger banks, we prefer Clydesdale (OP). We upgrade OSB to Neutral. There the BTL-focused business model remains our main concern but trading at c1.1x 17E TNAV for a c20%/17.5% ROTE in 17/18E valuations have become more supportive.
UK SMID LENDERS: We remain positive on our preferred names post Brexit, where we think current valuations reflect more pessimistic expectations than our base case estimates of a mild Brexit recession. Among the specialist lenders, we prefer Aldermore and Shawbrook (both OP) and among the pure-play challenger banks, we prefer Clydesdale (OP). We upgrade OSB to Neutral. There the BTL-focused business model remains our main concern but trading at c1.1x 17E TNAV for a c20%/17.5% ROTE in 17/18E valuations have become more supportive.
Barclays Raises Americas Integrated Oil Sector to Positive from Neutral
- MUR Raised to Overweight from Equal Weight, price target raised to $42 from $33
- CVE.CA Raised to Overweight from Underweight
- PBR (Petrobras Common) Cut to Underweight from Equal Weight, price target raised to $9 from $7.50
- PBR.A (Petrobras Preferred) Cut to Equal Weight from Overweight
- Firm thinks that global oil market is currently in the midst of a continued upward trajectory in which Brent could average $85 by 4Q17 and $80-90 between 2018 and 2021
- firm thinks energy could be one of the S&P's best performing sectors over the next 12-18 months, and estimate the group's current median potential upside at ~28%
- on a risk-adjusted basis, firm thinks COP and HSE.CA offers the best value over the next 12 months, while PBR (Petrobras common) and XOM offers the least
After Hours Summary: TEVA +1% following guidance, JUNO +25% on trial resumption news... AIR -11% following earnings/guidanceAfter Hours Gainers:
Companies trading higher in after hours in reaction to guidance: TEVA +1% (raises Q2 revs, EPS guidance ahead of next week's full release)
Companies trading higher in after hours in reaction to news: JUNO +25.4% (to resume JCAR015 Phase II ROCKET trial after FDA removes clinical hold), KITE +7.3% and CELG +0.8% (JUNO sympathy), KEY +1.8% and FNFG +0.8% (KeyCorp receives regulatory approval from the Federal Reserve to complete the merger with First Niagara Financial Group)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: LEDS -16.4%, AIR -11.3%, MIK -5.2% (anticipates Q2 results to be in the lower-to-middle range of the previously disclosed guidance; to offer for sale 11 mln shares on behalf of selling shareholders, will repurchase 1 mln of those sold), CHSP -4.2% (lowers Q2 RevPAR guidance but AFFO per share should be near the midpoint of prior guidance; cites slowdown in demand from corporate transient customers)
Companies trading lower in after hours in reaction to news: GWPH -3.2% (announces a $150 mln offering of American Depository Shares)
Asian Mid-session Market Update: Nikkei225 leading the rally higher on speculation over helicopter money as markets await details on stimulus
***Economic Data***
- (AU) AUSTRALIA JULY WESTPAC CONSUMER CONFIDENCE INDEX: 99.1 V 102.2 PRIOR, M/M: -3.0% (2nd straight decline) V -1.0% PRIOR
- (KR) SOUTH KOREA JUNE UNEMPLOYMENT RATE: 3.6% V 3.7%E
- (KR) SOUTH KOREA JUNE IMPORT PRICE INDEX M/M: +0.7% V +3.5% PRIOR; Y/Y: -4.9% V -5.1% PRIOR
- (NZ) New Zealand June Food Prices M/M: +0.4% v -0.5% prior; 4-month high
***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +1.0%, S&P/ASX +0.5%, Kospi +0.4%, Shanghai Composite +0.4%, Hang Seng +0.5%, Sep S&P500 -0.1% at 2,143
***Commodities/Fixed Income***
- Aug gold +0.2% at $1,337/oz, Aug crude oil -0.6% at $46.54/brl, Sep copper +2.5% at $2.27/lb
- GLD: SPDR Gold Trust ETF daily holdings fall 16.1 tonnes to 965.2 tonnes
- (US) Weekly API Oil Inventories: Crude: +2.2M v -6.7M prior; first build in 4 weeks
- (CN) China MoF sells 5-year bonds at 2.65%
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.6891 V 6.6950 PRIOR
- (JP) BOJ offers to buy ¥430B in 5-10yr JGBs, ¥200B in 10-25yr JGBs, and ¥120B in JGBs with maturity over 25-yr
- (AU) Australia MoF (AOFM) sells A$800M in 3.25% 2029 Bonds; avg yield: 2.1922%; bid-to-cover: 2.96x
***Market Focal Points/FX***
- Asian equity markets are in rally-mode yet again, tracking another round of solid gains on Wall St where S&P500 and Dow Industrials both closed at record highs. The melt-up from reduced political uncertainty in UK and Japan and strong start to the earnings season have helped risk-on flows pick up steam, and overnight session also produced some of the more typical outflows from safe-haven Treasuries, Gold, and Yen. While stocks continued to rally in the Asian hours, high-beta currencies have seen some profit-taking. AUD/USD and NZD/USD are down about 40pips below 0.7590 and 0.7260 respectively, Gold rallied over $10 from the lows above $1,340, and USD/JPY briefly fell over 80pips below ¥104. Crude Oil, which rallied over 4% in US hours, came in nearly 1% after API inventories showed their first build in 4 weeks.
- Super majority in Japan's upper house for the ruling LDP party after last weekend's elections has continued to provide fodder for speculation over Japan's monetary and fiscal efforts to facilitate reaching 2% inflation objective. Overnight, Econ Min Ishihara clarified that the govt will compile fiscal stimulus package by the end of the month while still maintaining 2020 fiscal reform goals. Today, a report in Sankei press speculated the BOJ would consider a "helicopter money" approach to target more spending for small business, household, and infrastructure projects. Later however, Cabinet Sec Suga said there was no truth to that speculation, though he did state the govt's agenda to defeat deflation will be bold. PM Abe's advisor Hamada also noted that helicopter money would be a gamble but also offered support to have a coordinated stimulus package blending monetary and fiscal measures. USD/JPY, which approached 105 in US hours, retreated below 104 on refuted "helicopter" stimulus reports.
- In China, investors await economic data for June on Trade Balance, money supply, and New Yuan loans figures during European session. In the mean time, China Premier Li has expressed confidence the economy can achieve annual GDP target of at least 6.5%, noting that Q2 growth maintained steady momentum. Q2 GDP, along with the bulk of June economic figures, will be released early on Friday (local China time).
- In Australia, Westpac Consumer Confidence index fell for the 2nd straight month as the July survey included the risks Brexit for the first time, but resident economist has stated that by now the focus has shifted on "implications for the UK economy rather than the initial reaction which speculated on some disastrous contagion for the whole of Europe." Fitch also warned that the narrow victory for Coalition does pose more of a challenge in terms of policy implementation, but added that Australia's "credit profile remains consistent with its 'AAA' rating, with relatively low public debt and high growth compared with its peers."
***Equities***
US equities / ADRs:
- JUNO: To resume JCAR015 Phase II ROCKET trial after FDA removes clinical hold; +24.2% afterhours
- TEVA: Raises Q2 $1.19-1.22 v $1.19e, R$4.9-5.0B v $4.83Be (prior $1.16-1.20, R$4.7-4.9B); +0.7% afterhours
- AIR: Reports Q4 $0.32 adj v $0.45e, R$458.2M v $459Me (1 est); -10.3% afterhours
- LEDS: Reports Q3 -$1.06 v -$0.77 q/q, R$2.4M v $2.9M q/q; -16.3% afterhours
Notable movers by sector:
- Consumer discretionary: Samsonite 1910.HK +2.7% (Tumi stockholders Adoption of the Merger Agreement)
- Industrials: Weiqiao Textile 2698.HK -0.4% (H1 guidance); China Railway Construction Corp 1186.HK +3.1% (YTD result); Yamaha Motor 7272.JP +11.1% (to replace Sharp; Obic Co.4684.JP +2.1% (Q1 result speculation)
- Materials: West China Cement 2233.HK +5.5% (H1 guidance); Hyundai Steel 004020.KR +8.2%, Posco 005490.KR +5.7% (China plans restructuring steel sector)
Closing Market Summary: Dow and S&P 500 Notch New HighsThe major averages extended their recent rally to a third session as investors eyed potential stimulus measures out of the United Kingdom and Japan. The broader market maintained its risk-on approach, bidding up oil, growth sectors, and beleaguered currencies while selling off safe-haven assets. The S&P 500 (+0.7%) and the Dow Jones Industrial Average (+0.7%) each carved out all-time intraday and closing highs while the Nasdaq Composite (+0.7%) turned positive for the year.
U.S. equities began the day on a higher note, responding to a continued rebound in overseas bourses. Japan's Nikkei (+2.5%) paced the rebound after Prime Minister Shinzo Abe announced a potential stimulus package could total JPY10 trillion. Separately, the Bank of England's Mark Carney added to stimulus speculation when he stated that a monetary response remains available should Britain's post-Brexit outlook worsen. The Bank of England is scheduled to meet this Thursday.
The broader market gapped up at the start of the session with the benchmark index (+0.7%) and the Dow Jones Industrial Average (+0.7%) each notching new, all-time intraday highs during the first half hour of trade. The major averages pulled back soon thereafter in a move that corresponded with a short-lived downturn in crude oil. The benchmark index found support near the 2147 price level and exhibited a mostly positive bias for the remainder of the day.
The major indices ended the day off their highs with seven sectors finishing in positive territory. The energy (+2.3%) and materials (+1.9%) sectors finished ahead of the heavily-weighted financial (+1.2%), technology (+1.0%), and industrials (+0.9%) sectors. The defensive-oriented telecom services (-0.3%), health care (-0.5%), and utilities (-1.4%) sectors trailed the action and were the only sectors that lost ground on Tuesday.
The commodity-sensitive energy (+2.3%) sector ended its day on top of the leaderboard, rallying in conjunction with a 4.4% gain in oil futures ($46.74, +$1.97). OPEC's monthly report facilitated some buying interest after the cartel raised its demand outlook for 2016 and 2017. OPEC now estimates that global demand will increase by one million barrels per day by 2017. Separately, Alcoa (AA 10.69, +0.55) boosted the materials (+1.9%) sector after it beat analysts' estimates for the second quarter.
The Dow Jones Transportation Average (+2.2%) displayed relative strength as the major airlines outperformed. United Continental (UAL 46.16, +3.75) rallied 8.8% after raising its second-quarter unit revenue guidance. American Airlines (AAL 34.66, +3.50) spiked 11.2% after announcing that its consolidated pre-tax income will increase by $200 million due to co-branded credit cards.
The financial sector (+1.2%) displayed broad-based strength, trading higher in sympathy with European banking names. Royal Bank of Scotland (RBS 4.87, +0.15) and Barclays PLC (BCS 7.95, +0.28) settled higher by 3.2% and 3.7%, respectively. Dow component JPMorgan Chase (JPM 63.20, +1.93), which announced it will be raising the pay for 18,000 minimum wage workers, outperformed the price-weighted average. JPMorgan Chase will report its quarterly results before the open on Thursday.
Data storage names led in the technology space (+1.0%) after Seagate Technology (STX 29.35, +5.26) increased its second quarter guidance due to better than expected demand for its HDD product portfolio. The stock surged 21.8%. The high-beta chipmakers also displayed relative strength, evidenced by the 1.3% gain in the PHLX Semiconductor Index.
The U.S. Dollar Index (96.49, -0.08) ended its day modestly lower as the euro and pound each rebounded against the greenback. The euro/dollar pair finished higher by 0.1% (1.1063) while the pound climbed 2.0% against the buck (1.3251).
The Treasury complex finished on a lower note and saw broad-based selling pressure. The yield on the 10-yr note ended the day higher by seven basis points at 1.51%.
Today's trading volume was above the recent average as more than 952 million shares changed hands on the NYSE floor.
Today's economic data included May wholesale inventories and the May Job Openings and Labor Turnover Survey:
- Wholesale inventories increased 0.1% in May (consensus +0.2%) after increasing an upwardly revised 0.7% (from 0.6%) in April.
- Taking into account the upward revision to the prior month, May wholesale inventories were largely in-line with expectations.
- The increase in May was driven by a 0.2% increase in nondurable inventories, which was aided by a 1.2% increase in apparel inventories and a 5.9% jump in farm products inventories.
- Durable inventories were up 0.1%, bolstered by a 1.6% increase in professional equipment inventories and a 1.1% increase in electrical inventories.
- Wholesale sales increased 0.5% following a downwardly revised 0.8% increase (from 1.0%) in April.
- The wholesale inventories to sales ratio dipped to 1.35 from 1.36, but was up from 1.31 in the same period a year ago.
- On a year-over-year basis, wholesale sales are down 2.5% while wholesale inventories are up 0.5%.
- Wholesale inventories are just one component of total business inventories.
- Manufacturing and retail inventories make up the rest of total business inventories.
- The market doesn't typically pay much attention to this release since the full business inventories release comes a few days later.
- The May Job Openings and Labor Turnover Survey showed that job openings came in at 5.500 million from a revised 5.845 million (from 5.788 million) in April.
Tomorrow's economic data will include the weekly MBA Mortgage Index and Import/Export Prices for May, which will cross the wires at 7:00 ET and 8:30 ET, respectively. The Fed's Beige Book for July and the Treasury Budget for June will both be released at 14:00 ET.
- Russell 2000 +6.2% YTD
- Dow Jones +5.3 % YTD
- S&P 500 +5.3% YTD
- Nasdaq Composite +0.3% YTD
Teva Pharma raises Q2 revs, EPS guidance ahead of next week's full release
The co announced that it will host a conference call and webcast for the investment community on Wednesday, July 13, 2016 at 8:00 a.m. ET to communicate its preliminary non-GAAP financial results for the quarter ended June 30, 2016. The Company will also provide its preliminary non-GAAP financial outlook for the years 2016 - 2019, which will include its pending acquisition of the Actavis Generics business that is awaiting FTC clearance. Ahead of the release, the company said it now sees better than expected Q2 results:
--> Sees Q2 EPS of $1.19-1.22 (Prior $1.16-1.20) vs $1.17 Capital IQ Consensus Estimate; revs $4.9-5.0 bln (Prior $4.8-4.9 bln) vs $4.82 bln Capital IQ Consensus Estimate; Sees cash flow from operating activities of $1.10-1.1 bln (Prior $1.2-1.3 bln)