Closing Market Summary: Nasdaq & S&P Notch New Highs After Jobs ReportThe stock market ended the week on a higher note as a positive reading of the Employment Situation Report for July helped the Nasdaq Composite (+1.1%) and the S&P 500 (+0.9%) notch new all-time closing highs. The upbeat employment report elicited buying interest while diminishing on-going concerns regarding the strength of the U.S. labor market. Other factors impacting today's trade included weakness from the oil pit, continued strength in the dollar, and sector leadership from the heavily-weighted financial (+1.9%), technology (+1.2%), and consumer discretionary (+1.1%) sectors. The tech-heavy Nasdaq (+1.1%) finished ahead of the Dow Jones Industrial Average (+1.0%) and the S&P 500 (+0.9%).
Today's session began on a higher note as a better-than-expected reading of the Employment Situation Report for July helped reduce concerns regarding the hiring landscape. The report showed that nonfarm payrolls (255K; consensus 185K) and nonfarm private payrolls (217k; consensus 171k) each came in stronger-than-expected despite the impressive rebound in the June report. Furthermore, average hourly earnings (+0.3% consensus +0.2%) also came in better-than-expected, which could pave the way to an increase in inflation expectations.
The positive employment report brought forward rate hike expectations, but the fed funds futures market still does not believe that a rate hike will happen before the end of 2016. The fed funds futures market currently estimates the odds of a rate hike at the December meeting at 46.5%, rising from yesterday's implied probability of 32.1%. The dollar strengthened in response while gold fell and the economically-sensitive financial sector (+1.9%) led today's rally.
Equity indices extended their advance through the session, shrugging off potential headwinds from a strengthening dollar and weakness in oil futures. The benchmark index hovered in the area of its record high for most of the session, notching a new all-time intraday high (2182.86) in the final hour. The S&P 500 (+0.9%) finished near its best level of the day as eight sectors ended in the green. The heavyweight financial (+1.9%), technology (+1.2%), and consumer discretionary (+1.1%) sectors outperformed while defensively-oriented telecom services (-0.2%) and utilities (-1.4%) ended in the red.
The financial sector (+1.9%) demonstrated broad-based strength as money center banks, investment brokerages, and life insurance names each outperformed. JPMorgan Chase (JPM 66.30, +1.74) and Citigroup (C 45.72, +1.88) finished higher by 2.7% and 4.3%, respectively. Separately, MetLife (MET 41.14, +1.60) finished the day higher by 4.1%, rebounding from yesterday's 8.7% decline. The economically-sensitive group finished the week higher by 1.4%, erasing its year-to-date loss.
The influential technology sector (+1.2%) finished ahead of the broader market as top-weighted Apple (AAPL 107.48, +1.61) gained 1.5%. The stock extended its recent rally, jumping 11.2% since reporting above-consensus bottom-line results on July 26. The high-beta chipmakers also outperformed, evidenced by the 1.3% gain in the PHLX Semiconductor Index. The price-weighted index erased a modest weekly loss to finish the week higher by 0.9%.
The Dow Jones Transportation Average (+1.9%) outperformed amid strength in rail names and airlines. The U.S. Global Jets ETF (JETS 22.32, +0.52) finished the day higher by 2.4%, trimming its weekly loss to 0.9%. Separately, railroads settled higher as Canadian Pacific (CP 144.04, +0.86) rebounded 0.6%. The name was under pressure yesterday after announcing a 9.8 million share public offering on behalf of Pershing Square.
The countercyclical health care sector (+0.3%) ended the day on a flat note as Bristol-Myers (BMY 63.28, -12.04) underperformed. The company announced that its lung-cancer treatment, Opdivo, failed to meet its primary endpoints. On the flipside, Dow component Merck (MRK 63.86, +6.02) topped the price-weighted index as investors looked to diminishing competition for its Keytruda drug.
The U.S. Dollar Index (96.24, +0.48) ended off its best level of the day, but the greenback still finished with gains against the pound, yen, and euro. Cable ended lower by 0.3% (1.3070) while the single currency declined 0.4% against the buck (1.1085). Separately, the dollar gained 0.5% against the safe-haven yen (101.76).
Treasuries ended the day on a lower note as yield rose across the curve. The yield on the 10-yr note settled higher by eight basis points, rising to 1.59%.
Participation was in-line with the recent average as more than 842 million shares changed hands at the NYSE floor.
Today's economic data included the Employment Situation Report for July, the June Trade Balance, and June Consumer Credit:
- Nonfarm payrolls increased by 255,000 (consensus 185,000). Over the past three months, job gains have averaged 190,000 per month.
- June nonfarm payrolls revised to 292,000 from 287,000
- May nonfarm payrolls revised to 24,000 from 11,000
- Private sector payrolls increased by 217,000 (consensus 171,000)
- June private sector payrolls revised to 259,000 from 265,000
- May private sector payrolls revised to -1,000 from-6,000
- Unemployment rate was 4.9% (consensus 4.8%) versus 4.9% in June
- Persons unemployed for 27 weeks or more accounted for 26.6% of the unemployed versus 25.8% in June
- July average hourly earnings were up 0.3% (consensus 0.2%) after being up 0.1% in June
- Over the last 12 months, average hourly earnings have risen 2.6%
- The average work week was 34.5 hours (consensus 34.4) versus 34.4 hours in June
- July manufacturing work week was unchanged at 40.7 hours
- Factory overtime was up 0.1 to 3.3 hours
- The labor force participation rate was 62.8% versus 62.7% in June
- The trade deficit in June widened to $44.5 billion (consensus -$42.7 billion) from -$41.0 billion in May.
- The widening was a by product of imports increasing by $4.2 billion month-over-month to $227.7 billion and exports increasing by only $0.6 billion month-over-month to $183.2 billion.
- There was a $2.30 billion jump in imports of industrial supplies and materials, more than half of which was owed to imports of crude oil (+$1.43 billion), petroleum products (+$0.44 billion), and fuel oil (+$0.29 billion).
- Capital goods imports, excluding automotive, were up $1.0 billion, with civilian aircraft (+$0.7 billion) accounting for much of that increase.
- Imports of consumer goods increased $1.9 billion, paced by a robust $1.4 billion increase in pharmaceutical preparations and a $1.1 billion increase in cell phones and other household goods.
- The export side of the equation featured a $0.6 billion increase in foods, feed, and beverages, a $0.4 billion increase in consumer goods, and a $0.3 billion increase in capital goods, excluding automotive, which was offset in part by a $0.4 billion decline in exports of autos, parts, and engines.
- On a year-over-year basis, imports are down 2.4% while exports are down 3.8%.
- Total outstanding consumer credit increased by $12.3 billion in June after increasing a downwardly revised $18.0 billion (from $18.6 billion) in May. The consensus estimate for June was $16.2 billion.
- In the preceding 12-month period leading up to June, consumer credit had risen by an average of $17.7 billion.
- The growth in June was driven by a $7.7 billion increase in revolving credit, which rose to $960.8 billion, and a $4.6 billion increase in nonrevolving credit to $2673.1 billion.
- In June, consumer credit increased at an annual rate of 4.0%. For the second quarter, consumer credit increased at a seasonally adjusted annual rate of 5.25%.
There is no economic data of note scheduled to be released on Monday.
Exclusive: Apple acquires Turi in major exit for Seattle-based machine learning and AI startup
Machine learning and artificial intelligence startup Turi has been acquired by Apple in a deal characterized as a blockbuster exit for the Seattle-based company, formerly known as Dato and GraphLab, GeekWire has learned.
The acquisition reflects a larger push by Apple into artificial intelligence and machine learning. It also promises to further increase the Cupertino, Calif.-based company’s presence in the Seattle region, where Apple has been building an engineering outpost for the past two years.
“Apple buys smaller technology companies from time to time, and we generally do not discuss our purpose or plans,” said Apple in a statement when contacted by GeekWire about the deal, its standard comment after making such acquisitions.
Multiple sources with knowledge of the deal confirmed that Turi has been acquired. Sources close to the deal pegged the purchase price at around $200 million, marking a huge outcome for the original investors and early shareholders. Carlos Guestrin, the University of Washington professor who founded the company, declined to comment when GeekWire stopped by the company’s office Friday morning.
According to people familiar with the acquisition, Turi’s team is expected to remain in the Seattle region and continue to grow as Apple builds out further expertise in data science, artificial intelligence and machine learning. Turi recently hosted a closely-watched Data Science Summit in San Francisco, in an indication of its leadership position in the field.
Apple’s plans for Turi’s technology are not clear, but the company has been making a broad push into artificial intelligence through an expansion of its Siri personal assistant and related technologies.
This is Apple’s second Seattle-related acquisition in the past two years. In 2014, the tech giant bought Union Bay Networks, a stealthy cloud networking startup, which ultimately led to Apple opening an engineering office in Seattle.
Turi lets developers build apps with machine learning and artificial intelligence capabilities that automatically scale and tune. Its products —which include the Turi Machine Learning Platform, GraphLab Create, Turi Distributed, and Turi Predictive Services — are largely designed to help large and small organizations make better sense of data. Use cases include recommendation engines, fraud detection, predicting customer churn, sentiment analysis, and customer segmentation.
The company began as an open-source project at Carnegie Mellon in 2009 under Guestrin’s guidance. In 2012, he joined the University of Washington’s faculty. Amazon founder Jeff Bezos provided $2 million to endow two professorships in machine learning at the UW for Guestrin and his wife, Emily Fox. Guestrin later spun off the open-source project from the UW into its own company, at the time called GraphLab. He remains the University of Washington’s “Amazon Professor of Machine Learning,” according to his LinkedIn profile.
A year after the spin-off, the company raised $6.75 million in its Series A funding round from Madrona Venture Group — one of Seattle’s leading venture firms — and NEA, the Silicon Valley behemoth best known around the Northwest as the primary backer of Tableau Software. The company then reeled in an additional $18.5 million in January 2015.
That’s when the company first changed its name from GraphLab to Dato. A few weeks later, Datto, which has been offering data backup and recovery services from its Connecticut headquarters since 2007, first complained about Dato’s new name. The two companies went back-and-forth for the next several months, deadlocked in a trademark infringement argument. Ultimately Dato was forced to rebrand again, changing its name to Turi earlier this month.
Turi is one of several Seattle-area companies developing machine learning and artificial intelligence technology. Some say the region is poised to be an epicenter for the emerging industry.
Apple has made around 15 acquisitions since early 2015, including Perceptio and VocalIQ, two artificial intelligence/machine learning startups similar to Turi. Other Apple acquisitions in 2016 include Emotient, a facial recognition startup; LearnSprout, an education startup; Flyby Media, a spatial perception startup; and LegbaCore, a firmware security startup.
Earlier this year, Apple CEO Tim Cook hinted that the company was open to making a larger acquisition as iPhone sales decline. Apple reported $231 billion in cash in its most recent earnings report. “We continue to look and we stay very active in the M&A market,” Cook said at the time.
Bank of England Stimulus Moves Could Fall Short
Britain seems headed for a recession later this year, notwithstanding a sharp reduction in interest rates. Why sterling could fall further
The Bank of England delivered an unexpectedly broad range of measures Thursday aimed at stimulating growth, after the economy suddenly slowed following a vote by the United Kingdom to leave the European Union. The BOE’s moves might not be enough to offset recessionary head winds, however.
The U.K.’s central bank reduced interest rates from 0.5% to 0.25%, the lowest level in its history, and the first cut in seven years. The Bank of England said it will launch a 100 billion-pound ($131.4 billion) “term funding scheme” to provide funding for banks—similar to the European Central Bank’s targeted long-term refinancing operation—as a means to ensure that the lower rates are passed along to consumers.
It also allocated £60 billion to buy U.K. government bonds, its first quantitative easing in four years, and boosted its asset-purchase program to £435 billion. On top of that, the BOE plans to buy £10 billion in sterling-denominated corporate bonds.
Investors greeted the news by selling the British pound, which fell 1.4% against the dollar, to $1.3139. That drove up bond prices, pushing yields down to fresh lows. The yield on U.K. government debt with a 10-year maturity fell 16 basis points (hundredths of a percentage point) to 0.64% from 0.80%. German sovereign debt of similar duration offers a negative yield.
London’s benchmark FTSE 100 index, whose component companies earn about 80% of their revenue outside the U.K., gained 1.6% Thursday.
THE BREADTH OF THE STIMULUS package surprised many. “It’s the full gamut,” says Alan Wilde, head of global fixed income at Baring Asset Management. “It has gone beyond what markets tentatively discounted.”
A cut in interest rates had been flagged by Bank of England Gov. Mark Carney in June after the U.K. voted in favor of Britain’s exit from the E.U., or Brexit. The referendum result took markets by surprise, with sterling falling 10% against the greenback. But the consequences for the U.K.’s economic outlook are equally troubling.
Economists predict the U.K. economy will fall into recession in the third and fourth quarters of 2016 as uncertainty takes hold. Surveys already suggest that Brexit is taking a toll and activity is declining. The Bank of England has slashed its 2017 forecast for gross-domestic-product growth from 2.3% to just 0.8%, although that is still above analysts’ consensus estimate of 0.5%.
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Growth, or the ebbing of it, is a much greater concern for the bank than inflation, which appears to be gaining following the decline in the value of sterling. The rate of inflation, just 0.5% in May, is well below the central bank’s target of 2%, but economists forecast it could climb above 3% in the near term as import prices rise to offset the pound’s weakness.
While observers applauded the Bank of England’s decisiveness—in stark contrast to the seemingly tentative approach of the ECB—the efficacy of the latest moves might lack punch. The interest-rate cut was widely anticipated, and QE isn’t as potent as it had been in the past.
Intervention in the market for corporate credit has been tried before, with limited success. With only about £150 billion of bonds eligible for purchase, the strategy could run up against liquidity constraints.
The term funding scheme offers little comfort for banks that already are struggling to eke out profits.
“It is hard to see where the gains are going to come from,” says Azad Zangana, senior economist at Schroders.
THE BANK OF ENGLAND’S initiatives could help to bolster consumer confidence, which has taken a knock from Brexit. But most important, it could buy time for the new government to implement fiscal policies in the fall to spur economic growth. That could mean an end to austerity and more stimulus, possibly in the form of tax cuts, which tend to have a more immediate effect on the economy.
Whatever the government decides to do, the Bank of England made it clear it stands prepared to take further steps by the end of the year, if necessary, including cutting interest rates to a level “close to, but a little above, zero.”
Analysts at Credit Suisse see interest rates dropping to 0.05% in November. They see Thursday’s central-bank package providing only “slight economic stimulus” and expect the weakness in the U.K. economy to persist. “This is not a game-changer for the economy, even if it is supportive of U.K. financial-asset prices (in local currency terms),” they wrote.
It underlines the fact that sterling will remain vulnerable in the near term.
Inuvo shares down 15% after missing on the top & bottom line
- Co reported Q2 EPS of ($0.02) vs $0.01 Capital IQ Consensus Estimate; revs -6% YoY to $15.6 mln vs $16.7 mln Capital IQ Consensus Estimate
- Adjusted EBITDA for the first half of 2016 was $1.6 mln.
>>> Hilsenrath earlier in WSJ said if NFP above 200k strong change of Fed action in September...
Waiting for post number comment now...
Trina Solar chairman plans to boost stake as he takes company private - source - Merger Market
* Chairman currently owns 5.5%, could exceed 30%
* 13E3 filing expected before end of August
* Consortium has links to state-owned entities
Trina Solar [NYSE: TSL] Chairman and CEO Jifan Gao will increase his stake in the company quite significantly as part of the proposed USD 11.60-per-ADS take-private exercise, according to a source familiar with the situation.
The funding will come from a loan provided by Industrial Bank [SHA:601166] and may see the chairman end up with more than 30% of the company post delisting, including his rollover stake, the source added.
Chairman Gao and his affiliates currently own just 5.5% of the Chinese solar power company, according to the 1 August announcement that a definitive merger agreement (DMA) has been signed. No shares are held by the other bid consortium members, which include two Industrial Bank vehicles and two additional Chinese entities.
Aside from the loan that will finance the chairman’s equity portion, the USD 1.025bn take-private will be entirely equity funded, the first source and a second source familiar with the situation said. The financing package includes provisions for the total amount of equity raised to cover all costs arising as a result of the take-private, including Trina Solar’s two convertible bonds that have a combined nominal value of USD 288m, they said. Both CBs are well out of the money and come with change-of-control or delisting puts at par.
As of March 31, the company had USD 621.4m in cash and cash equivalents, including USD 169m of restricted cash, which could potentially be used to cover the redemption of the CBs.
The DMA didn’t provide any details about the financing, except to say that an equity commitment letter has been signed between the “parent” bid vehicle and each of the sponsors. It also mentions a debt commitment letter, but that refers solely to the loan covering the chairman’s portion of the equity, the first source said.
More information about the financing will be provided in the preliminary 13E3 filing with the US Securities and Exchange Commission, which according to the two sources should be out before the end of August.
SAFE, NDRC and MOFCOM approvals needed
The equity financing will consist mostly of onshore money that will need approval from China’s State Administration of Foreign Exchange (SAFE) before it can be exchanged into US dollars to pay for the transaction, the first source said.
Obtaining SAFE approval has become quite a lengthy process for some applicants this year – Qihoo 360 Technology, iDreamSky Technology [NADSDAQ: DSKY] and Baoxin Auto [HKG: 1293] are some examples – as Beijing attempts to limit capital outflows, as reported. The parties involved in the Trina Solar transaction have taken this into account by allocating more time than usual to the expected timetable, the first source noted.
In the 1 August press release, the parties said the deal is currently expected to close during the first quarter of 2017 – or eight months (about 240 days) from when the deal became binding.
According to Dealreporter analytics, the 16 US-listed Chinese companies (covered by this news service) that have been taken private since the beginning of 2015 needed on average 139 days between DMA and closing.
Take-private targets have also tended to be more optimistic in their own forecasts of how quickly the deals would complete post signing a DMA. Qihoo expected to close its USD 6.7bn deal in just under 6.5 months, Wuxi Pharmatech projected to get its USD 3.01bn deal done in 4.5 months and e-Commerce China Dangdang [NASDAQ: DANG], which was the most recent one before Trina Solar to sign a DMA on 31 May, said it expects the USD 369.4m deal to reach the finish line in 2H16, implying a maximum of seven months.
The long-stop date for the Trina Solar deal is 1 August, 2017.
Aside from SAFE approval, Trina Solar will also need clearance from the National Development Reform Commission (NDRC) and China’s Ministry of Commerce (MOFCOM), the DMA shows. It will need to make an antitrust filing with MOFCOM since it exceeds the revenue threshold, doesn’t operate under a variable interest entity structure and will see a change of control as a result of the delisting, the first source said. However, China’s solar power industry is highly fragmented so the regulator isn’t expected to raise objections, the same source added.
Trina Solar is a manufacturer of solar modules, but operates across the value chain, making ingots, wafers and cells as well. More recently it has started to get involved in downstream solar power projects and as of the end of March 2016 had 967.3MW of downstream projects, including 920.8MW in China.
Alternative energy is an industry that Beijing is putting a lot of focus on and the official target is to increase the installed solar power capacity to 150GW by 2020, versus 43GW at the end of 2015, as reported.
The strategic importance of the sector might explain why the Trina Solar consortium members appear to have close links to the Chinese government. Research by this news service shows that Liuan Xinshi Asset Management Co is partly backed by state-owned Shanghai Industrial Investment Holdings (SIIC) and Lu’an Industrial Investment Development Co, which is state funded and backed by the local government of Lu’an. Also, Great Zhongou Asset Management (Shanghai) is 51%-owned by Zhong Ou Asset Management, which in turn is 35%-owned by Italian bank UBI Banca and 20%-held by China Private Ventures, the second largest shareholder of Tsinghua Science Park.
Separately, the two sources said that Shanghai Xingsheng Equity Investment & Management Co and Shanghai Xingjing Investment Management Co are both subsidiaries of Industrial Bank, whose largest shareholder is the Ministry of Finance of the Fujian Province.
Eyes on shareholder vote
The deal is also conditional on shareholders’ approval and given that the consortium owns only 5.5% of the shares and voting rights this could be one potential deal risk to monitor. At least two-thirds of the shares represented in person or by proxy at an extraordinary general meeting have to vote in favour for the deal to go through. Notably, Trina Solar has a few substantial third party investors – as of 15 April, Franklin Resources held 14.8%, Platinum Investment Management 12.9% and Oaktree Funds 5.8%, all according to Trina Solar's latest 20F filing.
Trina Solar lost 35% of its stock market value between mid-March and late June this year as solar power companies globally came under pressure from intense competition, a reduction in government subsidies and weak profitability. Just before the announcement of the DMA, Trina Solar’s shares traded at USD 8.25, representing a 40.6% spread to the indicative offer price. However, the chairman didn’t follow the path of some other take-private bidders who lowered their offers in response to market performance, but stuck to the terms flagged earlier, perhaps with the upcoming EGM vote in mind.
The news service understands that there have been some discussion with other potential bidders since the indicative announcement in mid-December, which may have contributed to keeping the offer price unchanged.
Four days after the DMA was announced (4 August), the stock closed at USD 10.49 and the spread had narrowed to 10.6%.
A representative for Trina Solar declined to comment beyond the public filings.