>>> Top Pre-Market Analyst Actions; GME +2% as BofA sees some under-appreciated

Top Pre-Market Analyst Actions; GME +2% as BofA sees some under-appreciated catalysts, TWTR -2% following downgrades

Upgrades:
  • GameStop (GME) was upgraded to Buy from Neutral at BofA/Merrill as they see a number of under-appreciated catalysts during the next few years including the upgrade of mid-cycle consoles from Sony (SNE) and Microsoft (MSFT) in addition to the new Nintendo (NTDOY) console, virtual reality, a favorable view of the software base, and a growing collectible business.
    • Shares of GME take a +2.9% tick into the open this morning, little changed YTD (+1.2%) as the stock is on the way back up from multi-month lows in June near the $25.25-level
  • Hortonworks (HDP) was upgraded to Buy from Neutral at DA Davidson owing to four main points -- Recent Hadoop Summit reveals continued fundamental momentum; Optics around cash usage likely to improve; Domestically focused; Attractive valuation.
    • HDP is indicated +2.2% this morning on relatively light volume; the stock holds a strong +48.5% gain off YTD lows from mid-February and is +9.0% off June lows
Downgrades:
  • Twitter (TWTR) was downgraded to Neutral from Buy at Monness Crespi & Hardt and to Neutral from Buy at SunTrust as the former sees waning confidence in the monetization of the product in spite of their favorable view of the content side. Firm concedes they are avid users of the product, but see limited upside to estimates and an unlikely takeout.
    • Since a late-April, early-May selloff which took the stock down -39% YTD at its lows, shares are up about +32%; TWTR is indicated -2.3% this morning, however, as two downgrades leave the stock modestly off multi-month highs from Friday which broke past the $18-level for the first time since the early parts of March
  • CoreSite Realty (COR) was downgraded to Sell from Hold at Stifel largely based on valuation with a target price of $79. Firm noted COR has been a standout performer among peers in recent years, both in terms of execution and shareholder value creation. They fear however that the current valuation at 25x 2017E AFFO leaves little margin for error with respect to upcoming quarterly results / guidance, and they see the potential for NT rev/EBITDA headwinds.
    • COR is indicated -1.0% this morning, slowing slightly from the strong pace of the advance the stock has seen in 2016; shares are higher +63.9% YTD and +20% since the beginning of June
Others:
  • CenturyLink (CTL) was initiated with a Neutral at Macquarie as they view challenging residential growth, data center monetization that could be capped and valuation as reasons to begin coverage where they do.
    • CTL, like many Telecoms (IYZ) this year, has been on an out-performing bias versus the broader market; the stock trades a modest +0.1% this morning on light volume, yet still posts +21% YTD gains

>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: OZRK +4.6%

M&A news: SGNT +39.7% (to be acquired by Nichi-Iko Pharmaceutical for $21.75 per share), IMPV +5% (Imperva has hired bankers to consider strategic options, according to Reuters), KKR +1.0% (WME | IMG announced the acquisition of UFC, professional mixed martial arts (MMA) organization; Silver Lake and KKR are strategic investment partners)

Select EU financial related names showing strength: LYG +4.4%, BCS +4.4%, RBS +4.3%, HSBC +1.9%, PUK +1.5%

Other news: BLFS +74.5% (enters into a 10-year supply agreement with Kite Pharma (KITE) for CryoStor clinical freeze media for cells & tissues), NTIP +17% (discloses settlement of patent litigation with Apple ), CYAD +8.7% (grants exclusive license to ONO Pharma (OPHLY) for the development and commercialization of NKR-2 T-cell in Japan, Korea and Taiwan), ONVO +8.5% (Organovo and Roche (RHHBY) researchers publish data demonstrating superiority of 3D bioprinted human liver tissues in assessing drug-induced toxicity), EBIO +8.1% (cont strength following last week's IND application for EBI-031), VNET +3.8% (China Reinsurance discloses 5.4% passive stake), ESLT +3% (receives contract from Maldonado District Administration in Uruguay to provide a Safe District project worth ~$19 mln), KMI +2.8% (Kinder Morgan and Southern Company (SO) enter Southern Natural Gas pipeline strategic venture), TASR +2.5% (pulling back following strength on Friday after incident in Dallas),SBGL +1.8% (announced that it will be entering into a further consultation process with organised labour and other relevant stakeholders), VRX +1.7% (cont strength following last week's ~14% gain), TSLA +1.3% (Elon Musk tweets: 'Working on Top Secret Tesla Masterplan, Part 2. Hoping to publish later this week")

Analyst comments: GME +2.8% (upgraded to Buy from Neutral at BofA/Merrill), CAFD +2% (upgraded to Overweight from Underweight at Barclays), ORAN +1.1% (upgraded to Overweight from Neutral at JP Morgan)

>>> US Earnings Calendar for the week of July 11th

Earnings Calendar for the week of July 11th
Confirmed companies reporting earnings next week include:

Monday (July 11)
- Pre-Market: OZRK
- After-Hours: AA, VOXX
Tuesday (July 12)
- Pre-Market: FAST
- After-Hours: AIR, ADTN
Wednesday (July 13)
- Pre-Market: CBSH, ANGO
- After-Hours: YUM, CSX
Thursday (July 14)
- Pre-Market: JPM, DAL, PGR, BLK, FRC, WNS, SKIS
- After-Hours: RECN, PPHM
Friday (July 15)
- Pre-Market: WFC, C, USB, PNC, FHN
- After-Hours: None Confirmed

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: N/A

Select metals/mining stocks trading lower: HMY -3.1%, MUX -1.5%, ABX -1.1%, NEM -1.1%, EGO -1%, GDX -1%, GG-0.9%

Other news:
  • CJES -25.5% (enters RSA with key lenders through Chapter 11 reorganization)
  • DGLY -5.1% (pulling back following strength on Friday after incident in Dallas)
  • NFLX -1.3% (Barron's profiles cautious view on Netflix)
Analyst comments:
  • TWTR -2.3% (downgraded to Neutral from Buy at SunTrust)
  • CHRW -1.8% (initiated with a Underweight at JP Morgan; downgraded to Sell at UBS)
  • CBRL -1.2% (downgraded to Underperform from Neutral at BofA/Merrill)
  • VIAB -0.9% (downgraded to Underperform from Market Perform at Wells Fargo)
  • YHOO -0.7% (downgraded to Neutral from Buy at SunTrust)

(ZH) 70% Of German Bonds Are No Longer Eligible For ECB Purchases

70% Of German Bonds Are No Longer Eligible For ECB Purchases

Back in April of 2015, we warned that the biggest risk facing the ECB is running out of eligible securities which the central bank can monetize. Draghi's recent launch of the CSPP, in which the ECB has been buying not only investment grade but also junk bonds, is an indirect confirmation of that. A direct one comes courtesy of a Bloomberg calculation according to which following a seventh straight week of gains in German bunds, the yields on securities of all maturities has plunged to unprecedented lows, which has left about $801 billion of debt out of the statutory reach of the European Central Bank.
As noted earlier, there is now $13 trillion of global negative-yielding debt. That compares with $11 trillion before the Brexit vote. The surge in sovereign debt since Britain’s vote to exit the European Union last month has pushed yields on about 70% of the securities in the $1.1-trillion Bloomberg Germany Sovereign Bond Index below the ECB’s -0.4% deposit rate, making them ineligible for the institution’s quantitative-easing program. For the euro area as a whole, the total rises to almost $2 trillion.

As Bloomberg adds, following a rush for safety and a scramble for capital appreciation ahead of more ECB debt purchases, the yield on German 10-year bunds to a record-low, and those on securities due in up to 15 years below zero, even though - paradoxically - the rush to buy these bonds has made them no longer eligible for direct ECB purchases as they now have a yield lower than the ECB's deposit rate threshold.

Or rather, they are ineligible for the time being.
As a result, the rally has boosted the same concerns we warned about for the first time in the summer of 2014, namely that the ECB’s Public Sector Purchase Programme could run into scarcity problems well before its completion date of March 2017, prompting speculation policy makers may tweak their plan.
ECB's QE began in March 2015 and was initially due to run until September 2016, before being extended by six months earlier this year. Apart from the deposit-rate floor, there are limits on how much the central banks may own of each bond, and each nation’s overall debt, while purchases must also be carried out in line with the ECB’s capital key, which is roughly in proportion to the relative size of each euro-area economy. That means Germany must back up the biggest proportion of purchases, even as the stock of eligible securities gets ever smaller.
The ECB's implicit admission of an apriori failure came in March of this year when the ECB had no choice but to expand its bond buying program to corporates, unleashing an unprecedented central bank intervention in corporate securities, in the process directly manipulating the corporate bond market.
Central-bank officials acknowledged the concerns that its asset-purchase program could face implementation challenges over time, an account of the June 2 Governing Council meeting published on Thursday showed. Officials next set policy on July 21.
Meanwhile, the frontrunning of the ECB continues: German bunds have returned 6.9 percent since the start of the year, according to Bloomberg World Bond Indexes. That’s beaten a 5.2 percent gain in Spanish bonds, and 3.6 percent return in Italy’s - two nations likely to be among the biggest beneficiaries of any move to loosen QE rules.
That said, it is only a matter of time before the ECB moves the goalposts again. Recall just a week ago Bloomberg reported that the European central bank was about to fold:
  • ECB SAID TO WEIGH LOOSER QE RULES AS BREXIT DEPLETES ASSET POOL
  • ECB OPTIONS SAID TO INCLUDE MOVING AWAY FROM QE CAPITAL KEY
  • ECB SAID TO BE CONCERNED ABOUT SHRINKING POOL OF ELIGIBLE DEBT
A Reuters report refuted this news the day after, but the trial balloon for the market reasponse was already in place. We expect that during the next ECB meeting Draghi will announce changes to existing ECB policy and do away with the deposit rate floor entirely, or in combination with the elimination of the ECB's capital key.
After all, the ECB will not rest before it is the proud owner of all European sovereign and corporate debt.

FT : Rolls-Royce takes full ownership of ITP

Rolls-Royce is taking full control of one its key aerospace partners, paying €720m for the 53 per cent of Industria de Turbo Propulsores it does not already own.

ITP, which is the ninth largest aircraft engine and components company in the world by revenue, is based in Bilbao in Spain and employs 3,000 people worldwide writes the FT’s John Murray Brown. It has partnered Rolls-Royce on all its Trent engine programmes working on turbine technologies, with a particular expertise in super-alloys.

The deal will boost Rolls-Royce’s long-term aftermarket revenues, including from the high volume Trent 1000 and Trent XWB engines, where ITP has been a key risk and revenue sharing partner.

The purchase also adds to Rolls-Royce’s manufacturing and services capabilities on key defence programmes, such as the TP400, the world’s most powerful turboprop developed for use on the A400M Airbus military transport aircraft.

Monday’s announcement follows the decision by SENER Grupo de Ingenieria, currently the majority shareholder, to exercise its put option. Consideration will be settled over the two years following completion in eight equal evenly spaced instalments, with the option to take up to half the consideration in the form of Rolls-Royce shares. Completion, which is subject to regulatory clearances, is expected in early 2017.

ITP’s revenues were €710m last year, with net income of €59m. Gross assets at the end of 2015 were €1.7bn. Warren East, Roll-Royce chief executive, said:

This investment will add to our aerospace capability, with excellent facilities, services and products, to generate additional opportunities for profitable growth.

(ZH) Gundlach Reveals His Portfolio Which Is "Outperforming Everyone Else's"

Gundlach Reveals His Portfolio Which Is "Outperforming Everyone Else's"

With the S&P touching new all time highs on Friday, Barron's took the opportunity to ask the recently rather skeptical Jeff Gundlach what he thinks of stocks here. Not surprisingly, DoubleLine's new "bond king", was less than enthused: "Look, I wouldn’t be surprised if the S&P hit a new high. But every time the S&P 500 gets to 2100, you hear, “This is it, this is the one, it is time to buy,” which is the strangest way to think about the market. It has gone from 1100 to 2100, so now is the time to buy? If the stock market really is such a great buy at 2100, it will still be a very good buy at 2200. I want the market to prove itself. I would rather miss that 100 points than be the fool who bought at 2100 only to watch it go to 1900."
And while fundamentals leave much to be desired, especially with bond yields in the US slamming new all time lows suggesting a deflationary environment as far as the bond market can see, stocks continue to gain. Gundlach's reasoning for this relentless levitation: central banks in general and the ECB in particular.


It has a lot to do with [European Central Bank President] Mario Draghi. He said that we need not just tremendous amounts of central planning, but also the central planners in every country to have some sort of coordinated approach to policy. It sounds like his dream would be a worldwide central bank. To a conservative person like me, it’s fairly horrifying. But the markets love hearing that central banks are going to do something, and they think the U.S. may cut rates—may even join the rest of the debt-burdened developed world with negative interest rates. I think it’s a false hope.
Speaking of Treasuries, Gundlach is just as bearish on the "safe haven" plays, saying that "it is no surprise the 10-year has been strong after Brexit" but he is "not at all convinced that we are going to see much lower yields in the U.S. But even if we do, you’re talking about a de minimis profit. Even if the 10-year yield drops another percentage point, how much will you make? Less than 10%."
The flipside is how much would one lose on a 1% rise in rates, aka the convexity of fixed income product. The answer, as the following JPM chart shows, is a 9% drop in 10Y prices, while a 1% rise in yields would send 30 Year TSYs lower by 19% (and alternatively, higher by 25% if the 30Y were to drop to just about 1%).


But if Gundlach is staying away from both the broader equity market, as well as bonds, and as he adds "there are better ways to speculate", where is he allocating funds now - what are those ways? His answer:


"Gold miners have a very high probability—if you bought them today and were disciplined—of making 10%. One of the things driving markets lower is a declining belief in—and enthusiasm for—central-planning authorities and the political establishment. In this environment, gold is a safe asset. There’s an 80% chance of making 10% in gold; the probability of a 10% gain on Treasuries is 20% at best. I’ve never seen a worse risk-reward setup. "
Which brings us to the punchline: what does Gundlach's portfolio look like: "our portfolios are high-quality bonds, gold, and some cash." And before CNBC makes fun of yet another "gold-bug", Gundlach is already prepared with the snyde answer: "People say, “What kind of portfolio is that?” I say it’s one that is outperforming everybody else’s. I mean, bonds are up more than 5%, gold is up substantially this year [28%], and gold miners have had over a 100% gain. This is a year when it hasn’t been that tough to earn 10% with a portfolio. Most people think this is a dead-money portfolio. They’ve got it wrong. The dead-money portfolio is the S&P 500."
And since the S&P 500 merely tracks the size of the Fed's balance sheet, the next leg higher in the US stock market may have to wait for the Fed to finally launch QE4, which considering both Treasury and stock prices are at all time highs, is something the market is increasingly comfortable assuming will happen sooner rather than later.
For now, however, our money is on Gundlach.

>>> Zoetis investor Pershing Square sells 6m shares

Zoetis investor Pershing Square sells 6m shares
 
Zoetis (NYSE:ZTS) shareholder Pershing Square Capital Management, the vehicle of renowned activist investor Bill Ackman, has cut its stake in the Florham Park, New Jersey-based animal health business by 6m shares.

The Schedule 13D filing can be read here.

Pershing Square retains a stake of approximately 3.8%

>>> Italian Banks News - 11/07/2016

BMPS La Repubblica reports that BMPS could use “Gacs” for the planned sale of up to Euro 10 bn NPL’s that the ECB has asked BMPS to sell.
Reuters also reports (again) that Atlante will soon take on an additional role to buy bad loans from BMPS. Il Sole suggest that State CDP could contribute Euro 500 mn (to Atlante) with a similar amount coming from Sga, (the Bco di Napoli bad bank). Also suggested that insurance and pension funds could also contribute.
Il Corriere reports comments from Mr Baretta (Economy undersecretary) that a state intervention on BMPS should be considered only as a last resort.

POP MILANO / BCO POPOLARE La Repubblica reports that some short selling is taking place on Bco Popolare as some investors are betting on the merger deal not being successful.

GRUPPO MUTUIONLINE Il Sole reports in its letter to investors column that the company could like to launch the sale of investment funds via a new online platform (via partnerships with financial institutions). No guidance give for 2016 but they confirmed the positive trend.

BANKS Reuters reports that a EU court is likely to say this month that the European Commission cannot use state aid rules to impose losses on private investors in a bank bailout. Suggested that such a ruling would help Italy in its talks with the European authorities.
Il Sole reports that at today’s European finance ministers meeting its possible that the issue of Italian banks may be discussed (burden sharing etc).