After Hours Summary: UNFI +1% following earnings, KTOS +6% on contract news... WTW -4% on CEO news and despite confidence in growth, APC -3% following Gulf of Mexico asset acquisition newsAfter Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: UNFI +1%
Companies trading higher in after hours in reaction to news: ACTS +7.5% (thinly traded; Action Semi enters into definitive merger agreement for going private transaction at $2.20/share in cash), KTOS +5.9% (awarded $54 mln contract to provide five Marine Common Aircrew Trainers to the United States Marine Corps), SANM +1.4% (announces $150 million stock repurchase program)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: AGTC -5.2% (initially traded higher but has since relinquished gains and is lower in after hours trade), FARM -1.8% (light volume - also to acquire substantially all the assets of China Mist Brands for an upfront payment of $10.8 mln)
Companies trading lower in after hours in reaction to news: FATE -7.8% (files for 5,250,000 share common stock offering by the selling stockholders), MCFT -4.9% (commences a 4 mln share follow-on offering of common stock held by an affiliate of Wayzata Investment Partners, WTW -4% (Weight Watchers CEO James Chambers resigns; commences search for a new CEO; CFO and two Directors to comprise interim Office; sees membership growth in Q3, confident in top and bottom line growth for the year), BUFF -3.2% (files for 14.3 mln share common stock offering by selling shareholders), APC -2.7% (to acquire the deepwater Gulf of Mexico assets of Freeport McMoRan Oil & Gas for $2.0 billion; expected to increase its 2016 FY capital guidance to a range of $2.8-3.0 bln; announces public offering of 35,250,000 shares of common stock), FCX -0.5% (confirms that its oil and gas subsidiary will sell its Deepwater Gulf of Mexico properties for $2 bln and up to $150 mln in contingent payments to Anadarko Petroleum),
Closing Market Summary: Stocks Rebound Following Dovish Fed RemarksThe stock market began the week on a sharply higher note as market participants dialed back rate hike expectations for the coming months. The major averages finished broadly higher, retracing the lion's share of Friday's losses. The Nasdaq Composite (+1.7%) settled slightly ahead of the S&P 500 (+1.5%) and the Dow Jones Industrial Average (+1.3%).
Interest rates remained in focus at the start of the session as participants mulled over a continued downturn in global bond markets. Early weakness was attributed to persistent uncertainty regarding the future path of global monetary policy. Recall that last week the European Central Bank disappointed investors by voting to leave its monetary policy stance unchanged. Furthermore, ECB President Mario Draghi indicated that the Governing Council did not discuss expanding the asset purchase program at the central bank's latest meeting.
Equity indices shook weakness in the opening hour of trade as Atlanta Fed President (non-FOMC voter) Dennis Lockhart and Minneapolis Fed President (non-FOMC voter) Neel Kashkari struck divergent tones on the future path of interest rate normalization. Mr. Lockhart signaled that recent data seriously warrants the discussion of raising rates. However, Mr. Kashkari stated that there's no urgency in raising rates at this time.
The major averages notched fresh session highs shortly after Fed Governor Lael Brainard reaffirmed her dovish stance. Governor Brainard stated that the case for preemptive tightening is less compelling given persistently low inflation and continued slack in the labor market. Ms. Brainard continues to advocate a cautious approach given the limited nature of the Fed's policy toolkit. In response, the implied probability of a rate hike at the September meeting fell to 15.0% from 24.0% in the prior session.
The benchmark index settled near its best level of the day, testing resistance near the 2160 price level. All ten sectors ended in the green with technology (+1.7%), utilities (+1.7%), consumer staples (+1.9%), and telecom services (+2.0%) leading the pack. On the flipside, the commodity-sensitive energy (+0.9%) and materials (+1.0%) sectors finished at the bottom of the leaderboard.
The defensively-oriented consumer staples sector (+1.9%) outperformed as the group recovered from last Friday's 2.1% decline. In the group, Dow component Wal-Mart (WMT 71.94, +1.64) demonstrated relative strength after being upgraded to "Outperform" from "Market Perform" at Cowen. Meanwhile, Philip Morris International (PM 100.64, +3.10) ended higher by 3.2% after Goldman added the stock to its conviction buy list. The broader sector trimmed its month-to-date loss to 1.4%.
In the technology sector (+1.7%), HP (HPQ 14.49, +0.54) gained 3.9% after announcing that it will acquire Samsung's (SSNLF 1250.00, 0.00) printer business for approximately $1.05 billion. Meanwhile, Apple (AAPL 105.44, +2.31) gained 2.2%, recovering from last week's 4.3% decline. The stock was under pressure after unveiling its iPhone 7 device last Thursday. The PHLX Semiconductor Index finished higher by 2.0%, narrowing its month-to-date loss to 2.2%.
Biotechnology outperformed in the health care space (+1.6%), evidenced by the 3.0% gain in the iShares Nasdaq Biotechnology ETF (IBB 287.11, +8.48). In the ETF, Mylan Labs (MYL 41.33, +1.44) rebounded 3.6%. The sub-group also benefited from reports that activist investor Starboard has taken a 4.6% stake in Perrigo (PRGO 95.23, +6.52).
The financial sector (+1.2%) ended behind the broader market as investors trimmed rate hike expectations and as Treasury yields pulled back. In the group, Wells Fargo (WFC 48.54, -0.18) underperformed as the stock continues to see weakness from last Thursday's settlement with the Consumer Financial Protection Bureau, the Office of the Comptroller of the Currency, and the Office of the LA City Attorney.
Treasuries ended modestly higher, recovering from relative weakness at the start of the session. The yield on the 2-yr note fell two basis points to 0.77% while the yield on the 10-yr note ticked down to 1.67% (-1 bps).
Today's participation was above the recent average as more than 992 million shares changed hands on the NYSE floor.
There was no economic data of note released today.
Tomorrow's economic data will be limited to the Treasury Budget for August, which will be released at 14:00 ET.
- Russell 2000: +8.6% YTD
- S&P 500: +5.6% YTD
- Dow Jones: +5.2% YTD
- Nasdaq: +4.1 % YTD
ENI IM - Qatar Petroleum reportedly may partner with Exxon to acquire multibillion-dollar Eni stake in Mozambique Area 4 gas field asset - press
- Qatar Petroleum in discussions with Exxon and Eni on potential joint investment
- 25% stake in Mozambique field could fetch €2B
Swiss-style deal will not work after Brexit, Hildebrand warns
The former head of the Swiss central bank has warned that the UK is wrong to think that negotiating a Swiss-style deal with the EU for financial services will be a feasible or desirable response to Brexit.
“We [Switzerland] have not been able in any way to regain any sovereignty on immigration. And we have no financial services agreement, despite the fact that we’ve negotiated for 10 years. Don’t believe that you’ll get anything else,” said Philipp Hildebrand, now vice-chairman of the world’s largest asset manager BlackRock.
Mr Hildebrand warned that leaving the EU would spell an end to London’s role as Europe’s financial services hub during a panel debating the future of the City at Saturday’s inaugural FT Weekend Live Festival at Kenwood House.
His comments will unsettle financiers across the City and Whitehall, who are seeking a bespoke deal allowing the UK’s different sectors to trade with Europe. Having all but given up hope of universal access to the EU single market — known in regulatory parlance as “passporting” — many have called for a deal modelled on the EU’s relationship with Switzerland.
However, concerns about immigration were a key contributor to Britain’s vote for Brexit and Theresa May, prime minister, has pledged to curb immigration. Switzerland, by contrast, has accepted the free movement of EU citizens across its borders and belongs to the Schengen passport-free travel area, a stance that has prompted a populist anti-immigration backlash.
Mr Hildebrand said: “If sovereignty on immigration is the anchor of the government’s strategy, and that’s what you want as the British people, then you have to accept that you will not get passporting, you will not get a financial services agreement. You can get, with skilful negotiation, pretty much open physical trade. But the financial side will be very difficult.”
During a decade-long period, Switzerland has negotiated close to 160 specific trade deals, though none relates specifically to finance, Mr Hildebrand pointed out.
Losing access to the single market would be a huge blow to the UK’s financial services industry because foreign institutions use Britain as a launch pad for their activities in Europe. If they are forced to move parts of their operations on to the continent to access the EU, that could, over the longer term, diminish London’s status.
Mr Hildebrand said: “That’s why I say if that’s the way the government is going to go, then it’s clear that London will not be the premier European financial centre that it has become.”
The City’s push to communicate its Brexit priorities to policymakers is led by a task force of grandees, chaired by Baroness Shriti Vadera, the chairman of Santander UK and a former Labour minister.
On Friday, City financiers warned that 20 per cent, or £9bn, of the City’s capital markets and investment banking business, could be at risk in the event of a Brexit deal that includes no or limited access to the single market.
More optimistic voices in the City have suggested that the UK could deregulate and position itself as a sort of offshore centre — a Singapore of Europe.
But Mr Hildebrand said the UK should be careful about watering down rules enacted after the financial crisis that require banks to have larger capital buffers.
“We should deregulate on all the cumbersome things but we should remain very very tough on the capital ratios. And it’s the capital ratios that are leading to very significant changes in the business models of the banks,” he said.
Gapping down
In reaction to disappointing earnings/guidance: N/A
M&A news:
In reaction to disappointing earnings/guidance: N/A
M&A news:
- PX -1.7% (Praxair and Linde (LNAGF) confirm break off preliminary merger talks)
- HPQ -0.9% (HP to acquire Samsung's (SSNLF) printer business for $1.05 bln)
Select EU financial related names showing weakness:
- DB -3.1%, RBS -3%, LYG -2.8%, BCS -2.3%, BBVA -2.2%, HSBC -1.9%, CS -1.7%, ING -1.5%
Select China related names showing weakness with Shanghai down 2% overnight:
- MOMO -6.2%, YY -4.1%, WB -2.9%, SINA -2.8%, JD -2.3%, BIDU -1.7%, BABA -1.7%
Select metals/mining stocks trading lower:
- BBL -3.9%, AG -3.4%, BHP -3.1%, CLF -2.9%, FCX -2.7%, RIO -2.1%, MT -1.9%, X -1.6%, SAND -1.5%, SAND -1.5%, GDX -1.5%, GG -1.4%,SLV -1.2%, HL -1.2%
Select oil/gas related names showing early weakness:
- APC -2%, WLL -2%, CHK -1.6%, SDRL -1.3%, TOT -1.1%
Other news:
- GERN -28% (The co will provide an update on the imetelstat Phase 2 trial in myelofibrosis and Phase 2/3 trial in myelodysplastic syndromes)
- AMRN -12.3% (announces interim efficacy analysis for the REDUCE-IT)
- QGEN -2% (provides statement regarding preliminary injunction; confirms intent to defend its US IP position)
- AAL -1.7% (reports August 2016 traffic), YHOO -1.5% (likely in sympathy with BABA)
- AMD -1.2% (tenders up to $1,035 mln for its outstanding 6.75% Senior Notes due 2019, 7.75% Senior Notes due 2020, 7.50% Senior Notes due 2022 and 7.00% Senior Notes due 2024)
- RH -1% (pulling back following Friday's advance post earnings)
Analyst comments:
- SALE -6.4% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- RUBI -5% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- TRUE -4.4% (downgraded to Underweight from Equal-Weight at Morgan Stanley)
- CHRW -1.5% (downgraded to Equal Weight from Overweight at Barclays)
- OXY -1.2% (downgraded to Underweight from Neutral at JP Morgan)
- TGT -1% (downgraded to Market Perform from Outperform at Cowen)
Gapping up
In reaction to strong earnings/guidance: N/A
M&A news:
In reaction to strong earnings/guidance: N/A
M&A news:
- RPTP +19.9% (to be acquired by Horizon Pharma (HZNP) for $9.00/share, for an implied fully diluted equity value of ~$800 million)
- POT +4.4% (Potash and Agrium (AGU) announce $36 bln merger of equals)
- TRNC +3% (TRNC and and Gannett (GCI) are in 'active' discussions, according to Bloomberg sources)
Other news:
- CUR +75% (announces private placement of common stock and convertible preferred stock for gross proceeds of $20 mln)
- NVGN +18.6% (receives confirmation from the FDA that the IND application for Cantrixil has been successfully opened)
- CLSN +14.2% (announces NIH analysis concluded that increased burn time per tumor volume substantially improved survival in patients treated with ThermoDox)
- CTRV +11.2% (presents new preclinical data profiling the 'robust' anti-HBV activity of its CRV431)
- REXX +9.1% (provides an update on its Appalachian Basin operations, currently drilling second of four wells on the Vaughn pad for Dec 2016 sales, expects Q3 production to be at the high end of previously announced guidance)
- PRGO +4.5% (Activist investor Starboard is said to have accumulated a near 5% stake, will push for the company to hire advisors to help it focus on its core assets, according to the WSJ)
- CEL +2.7% (updates on its proposed Golan Teleco purchase; co to allow Golan Telecom (as an exception to its 'no shop' obligation) to conduct negotiations with two third parties)
- NVO +2% (Barron's profiles positive view on Novo Nordisk)
- SHPG +1.5% (likely in sympathy with upgrades to peers AZN and NVO)
- OPTT +1.4% (may be related to news of gov't contract on Friday)
Analyst comments:
- P +4.6% (upgraded to Buy from Neutral at SunTrust)
- NVO +2% (upgraded to Buy from Hold at Deutsche Bank)
- AZN +1.3% (upgraded to Buy from Hold at Jefferies)
Goldman Sachs making positive comments on Buy rating on HAL and SLB
- SLB price target $100
- HAL price target $49.50
- firm sees HAL and SLB as beneficiaries of upcoming constraints in frac sand logistics
- firm notes that rising per well sand usage is likely to create inefficiencies in frac sand distribution in 2017/2018. Owing to scale and logistical advantages, firm estimates HAL and SLB (on the Conviction List) can generate an incremental $7-$20/T in pressure pumping profits versus peers
- firm believes HAL/SLB are the likely beneficiaries and best positioned to exceed last peaks EPS owing to their scale and financial flexibility, which should drive market share gains and premium NAM margins (900bp)
Early premarket gappers
Gapping up: OPTT +3.9%, PRGO +3.3%, NVO +2%, P +1.9%, INFY +1.4%, SA +1.4%, HMY +1.4%, AZN +1.3%, SHPG +1.1%, POT +1.1%
Gapping down: GERN -12.6%, AMRN -11.4%, SINA -4.3%, YY -4.2%, BBL -4.1%, MOMO -4%, WB -3.9%, AG -3.7%, RUBI -3.6%, BHP -3.4%, VNET-3.4%, DB -3.2%, APC -3.1%, RH -3%, HPQ -2.9%, BBVA -2.8%, JD -2.7%, MT -2.7%, FCX -2.6%, WLL -2.6%, CHK -2.5%, BCS -2.4%, BABA -2.4%,BIDU -2.3%, RBS -2.2%, LYG -2.2%, QGEN -2.2%, ING -2.2%, YHOO -2.2%, AMD -2.2%, RAI -2%, HSBC -2%, CS -2%, DAL -2%, RIO -1.9%, X -1.8%,HL -1.8%, PX -1.7%, SDRL -1.7%, CLF -1.6%, SAND -1.5%, SAND -1.5%, TOT -1.5%, GG -1.4%, SLV -1.4%, GDX -1.3%
Gapping down: GERN -12.6%, AMRN -11.4%, SINA -4.3%, YY -4.2%, BBL -4.1%, MOMO -4%, WB -3.9%, AG -3.7%, RUBI -3.6%, BHP -3.4%, VNET-3.4%, DB -3.2%, APC -3.1%, RH -3%, HPQ -2.9%, BBVA -2.8%, JD -2.7%, MT -2.7%, FCX -2.6%, WLL -2.6%, CHK -2.5%, BCS -2.4%, BABA -2.4%,BIDU -2.3%, RBS -2.2%, LYG -2.2%, QGEN -2.2%, ING -2.2%, YHOO -2.2%, AMD -2.2%, RAI -2%, HSBC -2%, CS -2%, DAL -2%, RIO -1.9%, X -1.8%,HL -1.8%, PX -1.7%, SDRL -1.7%, CLF -1.6%, SAND -1.5%, SAND -1.5%, TOT -1.5%, GG -1.4%, SLV -1.4%, GDX -1.3%
Logic for the upgrade: Cyclical upturn + stabilized earnings + strong liquidity + UW and inexpensive laggard = China back to OW
We raise offshore Chinese equities (MSCI China) to Overweight from Market-weight in a regional context to reflect our expectation that the tactical trading backdrop for China has improved, underpinned by: 1) a potential cyclical pickup in investment provoked by renewed policy easing: 2) a stabilization in corporate earnings growth/profitability; 3) an equity-friendly liquidity environment buttressed by a dovish Fed (EM flows), and entrenched market expectation for further Rmb weakness and onshore yield-chasing flows (Southbound); and, 4) light investor positioning, China’s relative appeal as an inexpensive laggard vs. APJ and EM, and forthcoming catalyst (SZ Connect). Our refreshed 12m index target for MXCN is 70 (from 60.5), implying 9% upside. MXCN has gained 6% since we downgraded it to MW on Dec 3 2015, moderately underperforming APJ and EM by 5pp and 8pp respectively.
Structural imbalances remain; selectivity is the key
While China’s tactical return case has brightened, we recognize that the structural imbalances in the system remain significant, MXCN has bounced 35% from its lows in Feb (17% since the Brexit vote), investor sentiment is about 1.5 s.d higher than the past 120d averages, and the near-term Fed policy outlook is far from certain, all pointing to the need for selectivity and strong emphasis on risk/reward in our view.
3 themes to get exposed to potential flow- and policy-driven upside
1. Heavy index weights to position for continued passive EM 1. inflows. Within the space, we remain positive on Tech/ADRs (New China) which have contributed 80% of MXCN’s ytd returns but are still underweight by EM funds (~240bps);
2. High-yielding stocks in the Southbound universe to meet onshore yieldchasing demand. Besides, HK/China financials (banks), China Utilities, Macau, and HK/China property also offer high yields.
3. Select domestic infra-spending proxies with high sensitivity to infra FAI growth.