>>> US Gapping up

Gapping up
In reaction to strong earnings/guidance: CIEN +9.5%, JOY +8.9%, MGCD +8.8%, DCI +6.7%, GWRE +3.5%, LB +2%, (May same store sales were flat vs -3.5%e) OLLI +1.1%, SMTC +0.8%

Select financial related names showing strength: BCS +2.2%, ING +2.2%, DB +1.9%, HSBC +1.5%, PUK +0.9%, .


Other news: RPRX +20.1% (remains on track for MAA submission for enclomiphene for the treatment of secondary hypogonadism with anticipated registration decision expected fall 2017), PPHM +17.5% (highlights latest developments for contract manufacturing and drug development), XGTI +10.4% (continued volatility in pre-mkt trade), AKAO +9.5% (receives $20 mln for an additional option on its existing contract with the Barda to 'support' the development of plazomicin & announces $25 mln private placement to new investors), KERX +5.9% (Baupost Group shows 42.53% active stake following conversion of $125 mln aggregate principal amount of notes), DERM +4.7% (announces topline results from its Phase 3 ATMOS-1 and ATMOS-2 pivotal trials for DRM04; DRM04 demonstrated statistically significant improvements for both co-primary endpoints and both secondary endpoints compared to vehicle), KITE +2.2% (granted access to the Priority Medicines regulatory initiative for KTE-C19 in the treatment of patients with refractory diffuse large B-cell lymphoma ), CCE +2.1% (cont strength), NVS+0.6% (receives EU approval for Afinitor)

Analyst comments: PSTG +4.6% (upgraded to Buy from Neutral at UBS), OPHT +4.4% (upgraded to Overweight from Neutral at JP Morgan), PENN +1.6% (upgraded to Equal-Weight from Underweight at Morgan Stanley), NVDA +0.5% (initiated with a Buy at Goldman)

>>> US Gapping down

Gapping down
In reaction to disappointing earnings/guidance: CONN -16.3%, (also appoints Lee Wright as CFO; will succeed Tom Moran)BOX -8.2%, CCCL -5.4%, COST -1.8%, (reported flat comps for May (vs +0.9%e) WUBA -1.2%, AMWD -0.5%


Other news: DEA -4.1% (announces 6.13 mln share offering), CPST -3.2% (modestly pulling back following recent strength),ORCL -2.5% (reports that former accountant has filed lawsuit - allegedly was told to change sales figures), OPTT -2.3% (modestly pulling back following recent strength), TEGP -1% ( files for ~109.5 mln class A share shelf offering by selling shareholders; proposed max offering price of $23.94/share ), BUD -1% (reports results of consent solicitation), WFT -0.7% (upsizes and prices offering of $1.1 bln of Exchangeable Senior Notes), BABA -0.5% (agrees to purchase 27,027,027 ordinary shares from SoftBank (SFTBY) at $74.00 per share)

Analyst comments: CMC -2% (downgraded to Underperform from Neutral at BofA/Merrill), XLNX -1% (downgraded to Neutral from Buy at Goldman), XOM -0.8% (downgraded to Neutral from Buy at BofA/Merrill), WSM -0.8% (initiated with a Sell at BTIG Research)

>>> US Early premarket gappers

Early premarket gappers

Gapping up: CIEN +14%, MGCD +8.8%, KERX +6.7%, DERM +3.1%, GWRE +2.5%, LB +2.3%, KITE +2.2%, BCS +2.2%, CCE +2.1%, ING +1.9%, MT +1.9%, HSBC +1.4%, PUK +1.4%, RPRX +1.2%, DB +1.2%, MON +0.9%, SMTC +0.8%, RDS.A +0.7%, NVS +0.7%, ABX +0.6%, BP +0.5%, GDX +0.5%

Gapping down: BOX -11%, WFT -9.4%, OPTT -8.6%, CPST -4.5%, DEA -2.8%, ORCL -2.4%, WUBA -1.2%, COST -1.1%, TEGP -1%, AMWD -0.7% 

WSJ : China’s Latest Export: Broken Deals

China’s Latest Export: Broken Deals
String of unwound overseas acquisition bids highlights contradictions Beijing faces as it seeks global clout for businesses

China’s global deal-making boom is coming undone.
The mystery-shrouded Anbang Insurance Group Co. is leading the way. It moved a step closer to hitting the trifecta of broken deals this week, just days after a major Chinese construction-equipment maker bailed on its bid to buy U.S. crane maker Terex Corp.
Announced overseas deals by Chinese companies topped 2015’s record before this year was half over, which would make China the world’s biggest buyer of foreign companies for the first time ever, according to Dealogic. Chinese companies have also failed to close on more deals than ever before, according to Dealogic.
It’s not a coincidence that the boom in Chinese overseas deal making occurred while businesses and individuals were pouring cash overseas, either to avoid an expected depreciation of the yuan or just to get assets out of the reach of Beijing. And the recent failures have happened while Beijing acts to stem the flow of these funds.

That is just part of the weirdness that surrounds many of these deals, and their demise. Another is the opaque nature of the companies involved and the government owners or regulators that determine what is and isn’t allowed. Last are the reasons behind the deals, which have foreign regulators on edge.
The latest deal on the ropes is Anbang’s planned $1.57 billion acquisition of U.S. insurerFidelity & Guaranty Life, one of the biggest sellers of fixed indexed annuities. Regulators in the U.S. have demanded but haven’t gotten detailed financial information from Anbang. Fidelity says it expects Anbang will try again to get the deal approved.
It isn’t surprising that the company hasn’t provided the requested information. Efforts to figure out Anbang’s corporate structure or where its cash came from have so far failed to yield much clarity. This is the third proposed Anbang deal to run into trouble. First was its effort to buy Starwood Hotels & Resorts Worldwide Inc. After bidding up the price and threatening a rival deal, Anbang pulled out suddenly with little explanation.
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Then came its effort to buy a group of Canadian hotels. After weeks of negotiating, Anbang told Toronto-based InnVest Real Estate Investment Trust it was no longer interested. Anbang’s chief negotiator then helpfully introduced the executives to another possible buyer, this one with an even more obscure structure than Anbang. The deal was signed May 10.
Days before the latest Anbang unwind, Zoomlion, one of China’s biggest construction-equipment makers, pulled out of a $3.4 billion deal to buy Terex after failing to come up with a fully financed, binding proposal, Terex said.
Despite the headlines, China succeeds in most of its deals. Of the 50 biggest overseas deals it has struck since the start of 2015, just five have been formally withdrawn while 19 are still pending. Companies globally are pulling out of deals at a record pace this year, with U.S. companies accounting for the top three scuttled mergers. But in those cases, the deals were canceled over objections by regulators or changes in tax laws, not unilateral decisions by the buyers.

The failed deals are an embarrassment to Beijing, which wants its businesses and financial system to wield the same clout globally as its huge economy. They also highlight the contradictions in China that will keep that from happening.
The most obvious is the Chinese currency, the yuan. Chinese officials know that a weaker yuan will boost the country’s economy, but signs of weakness have at times led to capital flight. In the past month, though, Beijing has been able to both devalue the currency to its lowest level in five years and stem capital flight. It’s unclear if the busted deals were casualties of that effort.
Another contradiction lies in China’s opaque corporate and regulatory structures. Skepticism runs so high that foreign targets of Chinese companies such as U.S. computer distributor Ingram Micro Inc. have recently forced their bidders to put down deposits that sit outside of China in case the deals don’t close.
Then there’s the tight link between Chinese companies and the government. Beijing wants to build important industries such as semiconductors and agriculture via acquisitions, which sends a clear message to foreign governments that the deals aren’t being done for purely economic reasons.
At least one chip deal failed because of regulatory concerns. The big test for now is China National Chemical Corp.’s $43 billion offer for Swiss seed maker Syngenta AG, which would be by far the biggest overseas Chinese acquisition ever. Already there is opposition in the U.S.
That deal is especially important because it fits with China’s need to acquire sophisticated expertise in areas such as tech and health care. Other deals like Terex might have helped China shift some of its excess capacity overseas.
Failed acquisitions make targets and regulators more skeptical. Combined with a weaker yuan, deal making for Chinese companies will only get tougher.

(Makor) SAB LN / ABI BB - MOFCOM AND DOJ APPROVALS TO BE RECEIVED BY MID JUNE

MAKOR MERGER ARBITRAGE COMMENT - SAB LN / ABI BB - MOFCOM AND DOJ APPROVALS TO BE RECEIVED BY MID JUNE

We spoke to our ABI source who noted that the MOFCOM approval should be forthcoming by next week. There are no outstanding issues with MOFCOM and MOFCOM have largely completed their review of the transaction and were awaiting the announcement of the EC decision (received on 24 May) to ensure that there would be no conditions relating to China.

The DOJ are in the final stages of their review and an approval is imminent and expected within the next ten days. The DOJ may require some concessions aimed at protecting the interest of smaller craft brewers and their ability to distribute their products and the monitoring of wholesaler programs could also be possible. An agreement may include something similar to what has been agreed in South Africa, with the merged entity agreeing to ensure that a certain percentage of their fridge space is devoted solely to craft brewers for a certain period of time or in perpetuity.

The South African Competition Tribunal have to set a pre-hearing date within 10 days and thus a hearing date should be set by 10 June at the latest. Given that the transaction is unopposed, we do not expect any third party intervenors and thus the pre-hearing process should be very quick and conclude within a day or two. If the pre-hearing process is short and there are no third party intervenors, the Tribunal will not need to set a formal hearing date. Given the comprehensive nature of the Competition Commission's review, it is highly unlikely that the Competition Tribunal will have to undertake any further investigative review of the transaction and therefore we expect the Competition Tribunal approval relatively shortly following the pre-hearing. According to our ABI source, the Competition Tribunal hearings could take place on either 9 or 16 June and as per the Competition Tribunal website, these two dates are currently free and no hearings have yet been scheduled.

Once the final pre-conditional approval has been received (likely to be South Africa), the parties can dispatch the Scheme Documentation to SAB shareholders. Under the Takeover Panel rules, SAB and ABI have 28 days to dispatch the documentation, however, given the length of time required to obtain the pre-conditional approvals, we believe that the documentation should be ready to dispatch to shareholders fairly promptly after the receipt of the final approval i.e. by mid/late June. As the shareholder meetings cannot take place until 21 calendar days following the dispatch of the Scheme Documentation at the earliest, the SAB shareholder meeting will be held by early/mid July. Assuming that SAB and ABI have managed to secure court dates and that the remaining regulatory approvals have been received by the SAB shareholder meeting, the court meeting to sanction the Scheme could take place fairly promptly (one or two days) following the approval of the Scheme by SAB shareholders. Therefore, the transaction could be in a position to be fully completed by the end of July ahead of the 12 August payment date for SAB shareholders to receive the dividend.

(UBS) European Exchanges - May 2016 Cash Equity Volumes: A Difficult Month

European Exchanges - May 2016 Cash Equity Volumes: A Difficult Month

* Cash Equity Volumes worsened for the European exchanges in May
Cash equity volume trends across the European exchanges we cover worsened in May. YoY declines to
Average Daily volumes (ADVs) in May ranged from -25 to -30% for DB1, Euronext, LSE & Borsa Italiana
(part of the LSE group) while declines were more severe at BME (48%). For most of the exchanges, May
2016 marked the weakest ADV for cash equities since August 2014. With the seasonally slow summer
months ahead of us, 2016 is shaping up to be a challenging year for the exchanges, especially those that
have a high reliance on cash equity volumes like Euronext and BME.
* Our forecast for 9% decline in 2016 cash equity volumes may be too optimistic
For the group, we forecast a 9% decline to cash equity volumes in 2016. However, with YTD cash equity
volumes down 10-27% for the exchanges we cover, our outlook for the cash equity space may be overly
optimistic. With 35-40% of revenues generated from cash equity trading volumes at Euronext and BME,
we expect further consensus earnings downgrades for these two firms. We are currently 6-8% below
consensus EPS estimates for BME over 2016 and 2017 and 6-10% below for Euronext.
* Valuation: DB1 a Buy, ENXT a Neutral and BME a Sell
We continue to rate DB1 a Buy as they have the smallest exposure to cash equity volumes, accounting
for just 8% of 2015 revenues. Despite Neutral-rated Euronext's high exposure to cash equity volumes,
we prefer it to BME (rated Sell) as we expect cost-cutting opportunities will result in better share price
and earnings performance.

(UBS) European Equity Strategy - Fed Up? Impact on European Equities…

European Equity Strategy - Fed Up? Impact on European Equities…

* Market implied probabilities of US rate hikes are rising…
The market implied probabilities of an upcoming Fed hike have risen sharply in recent weeks (Figure 1). In part, this has coincided with better macro momentum in our UBS Economic surprise indices. This adds to the heightened level of "event risk" for European equities in June (such as the UK referendum, Spanish general election, ECB meeting and BoJ meeting).

* What does it mean for European Equities?
Looking back over the last 6 US rate cycles, European Equities have tended to perform reasonably well in the 12 months following the first hike: up 7% on average and outperforming the US. But our Macro Strategy team have highlighted how this US rate cycle is likely to be far shallower than previous cycles – meaning each hike may have a bigger impact. The gap between policy rates in the US and Europe has been an indicator of the relative performance of European and US equities. This time around may be different given the disconnect between the two cycles and negative rates in Europe: nonetheless European relative performance is now at an extreme.

* Sectors: Winners & Losers
Cyclicals stand to gain the most from higher yields – all but 2 sectors are positively correlated to rising US yields. In particular, Insurance, Autos and Tech are the best performers in rising yields. European Banks' relative performance has also tracked the level of US yields in the last few years. Defensives are all negatively correlated.

* Stock Screen
We screen for European stocks that are most correlated to rising US yields. Banks make up the bulk of the names of the companies but there are also Autos, Cap Goods and Construction Materials