>>> Europe : Brokers Upgrades & Downgrades - 15th of April 2016

>>> Up
*SOLVAY RAISED TO NEUTRAL AT JPMORGAN

>>> Down
*ACCOR CUT TO NEUTRAL VS OVERWEIGHT AT JPMORGAN
*BRIGGS & STRATTON CUT TO NEUTRAL AT ROBERT BAIRD
*CLARIANT CUT TO UNDERWEIGHT AT JPMORGAN
*EFG INTERNATIONAL CUT TO SELL VS NEUTRAL AT GOLDMAN
*FAURECIA CUT TO HOLD VS BUY AT SOCGEN
*INTERCONTINENTAL CUT TO UNDERWEIGHT VS NEUTRAL AT JPMORGAN
*MIMECAST CUT TO NEUTRAL VS BUY AT GOLDMAN
*MOTHERCARE CUT TO SELL VS HOLD AT BERENBERG
*ORIFLAME CUT TO HOLD VS BUY AT DNB MARKETS
*POUNDLAND CUT TO HOLD AT HSBC
*ZUMTOBEL GROUP AG CUT TO ’NEUTRAL’ AT JPMORGAN

>>> PT Change


>>> Initiation
*KORIAN RATED NEW BUY AT SOCGEN; PT EU32
*UNITED NATURAL FOODS RATED NEW MARKET PERFORM AT WELLS FARGO

>>> Call

>>> Deutsche Bank Abbey Life arm may get offers from Phoenix and Swiss Re this w

Deutsche Bank Abbey Life arm may get offers from Phoenix and Swiss Re this week; Legal & General only interested in Abbey annuity business

The insurance companies Phoenix Group Holdings [LON:PHNX] and Swiss Re [VTX:SREN] intend to table initial offers for Deutsche Bank’s [ETR:DBK] Abbey Life arm before a bid deadline this weekend, the Financial Times reported. The newspaper cited people familiar with the matter for the information.

Deutsche Bank is close to agreeing a sale of Abbey, a UK-based life assurance firm, the item said. The newspaper cited an earlier Bloomberg report which claimed that Phoenix and Swiss Re will probably submit offers slightly exceeding the GBP 1bn (EUR 1.25bn) paid by Deutsche Bank for Abbey Life in 2007.

Separately, the report said the insurer Legal & General [LON:LGEN] is believed to be looking at acquiring only Abbey Life’s annuity business.

The Chinese insurance group Anbang has also indicated an interest in Abbey Life, the item said.


Financial Times, previously reported intelligence

>>> Finnair could be target for large industrial player - Kauppalehti Online

Finnair could be target for large industrial player

Finnair, the Finnish airline, could be an attractive takeover target for larger players, according to Kauppalehti Online.

The Finnish-language article cited Antti Viljakainen, an analyst from Inderes who was commenting on recent airline market consolidation speculation.

He said that Finnair is an attractive takeover target for larger players in the sector due to its Asian routes and modern fleet.

However, in order for Finnair take part in consolidation talks, the state will have to reduce its stake in the company, the item noted.

Kauppalehti Online

>>> Lufthansa issues EUR 475m promissory note; speculation over SAS grows – repo

Lufthansa issues EUR 475m promissory note; speculation over SAS grows

Lufthansa's possible takeover interest in Scandinavian airline SAS has been fuelled by the German airline's announcement of a EUR 475m financing agreement, according to Borsen.

This comes after a newswire report on Wednesday stating Lufthansa and SAS have been discussing a possible partnership. Neither SAS nor Lufthansa wished to comment on the matter.

A Sydbank analyst commented that it is interesting that that new loan has been announced in conjunction with the rumours regarding SAS. He also said however that the loan may just be normal part of Lufthansa's operations.

The paper reported that SAS is half owned by the Scandinavian governments and that the new loan would enable Lufthansa to take over the state-owned shares.

SAS has a market value of DKK 6.5bn (EUR 873m),

The original article appeared in print; Page 8.

Meanwhile, Lufthansa announced the following on 14 April:

Deutsche Lufthansa AG has taken advantage of the currently highly attractive promissory note market to place a promissory note loan. The promissory note was issued in tranches with terms of four and five-and-a-half years. The Group therefore secured further long-term financing on 6 April.

Due to the very positive demand, the originally set volume of the promissory note loan was increased from EUR 300m to EUR 475m. More than 80 investors took part in the transaction, in which non-European investors provided more than half of the volume. This underlines the confidence in Lufthansa as a borrower and the Group’s positive international reputation.

Lufthansa has a rating of BBB- (stable outlook) from S&P and Ba1 (positive outlook) from Moody's. The issue was arranged by the Landesbanken Baden-Württemberg and Hessen-Thüringen.

>>>Asian Update

Asian Market Update: China Q1 GDP slows to 7-year lows, industrial output recovers to 9-month high

***Economic Data***
- (CN) CHINA Q1 GDP Y/Y: 6.7% V 6.7%E (7-year low)
- (CN) CHINA MAR INDUSTRIAL PRODUCTION Y/Y: 6.8% (9-month high) V 5.9%E; YTD: 5.8% V 5.5%E
- (CN) CHINA MAR FIXED URBAN ASSETS Y/Y: 10.7% V 10.4%E; 7-month high
- (CN) CHINA MAR RETAIL SALES Y/Y: 10.5% V 10.4%E; YTD: 10.3% V 10.2%E
- (CN) CHINA MAR NEW YUAN LOANS (CNY): 1.37T V 1.10TE
- (CN) CHINA MAR MONEY SUPPLY M2 Y/Y: 13.4% V 13.5%E
- (CN) CHINA MAR AGGREGATE FINANCING (CNY): 2.34T V 1.400TE
- (KR) SOUTH KOREA MAR UNEMPLOYMENT RATE: 3.8% V 3.9%E
- (PE) PERU CENTRAL BANK (BCRP) LEAVES REFERENCE RATE UNCHANGED AT 4.25%; AS EXPECTED
- NPD: Mar video game sales flat y/y at $964.1M

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 -0.3%, S&P/ASX +0.3%, Kospi -0.2%, Shanghai Composite -0.3%, Hang Seng -0.2%, Jun S&P500 flat at 2,076

***Commodities/Fixed Income***
- Jun gold +0.3% at $1,230/oz, May crude oil +0.3% at $41.62/brl, May copper -0.3% at $2.16/lb
- (CN) China said to add 8B tons of identified iron ore reserves in the next 5 years - financial press
- GLD: SPDR Gold Trust ETF daily holdings fall 3.3 tonnes to 806.8 tonnes; 4th straight decline; lowest since Mar 16th
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.4908 V 6.4891 PRIOR; weakest Yuan setting since Mar 29th; 2nd straight weaker setting
- (CN) PBOC to inject CNY35B in 7-day reverse repos; Injects net CNY70B this week v drained CNY275B prior
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥220B in 10-25yr JGBs and ¥180B in JGBs with maturity over 25-yr
- (AU) Australia MoF (AOFM) sells A$800M in 4.5% 2020 Bonds; avg yield: 4.50%; bid-to-cover: 3.17x

***Market Focal Points/FX***
- Asian equity markets are trading mixed, as the tidal wave of China economic data did not alter the perception of a managed slowdown in the world's 2nd biggest economy. Q1 GDP came in at a 7-year low of 6.7% - in line with expectations - while industrial production, retail sales, fixed asset investment, and new Yuan loans beat estimates. Today's figures match the narrative of marked improvement in Chinese economy in the month of March from the rocky start of the year, particularly as it pertains to the property sector where YTD investment growth accelerated to +6.2% v +3.0% prior, sales value rose 54% y/y, and construction remained hot with a 19% increase. The impact of China figures on macro asset classes was fairly muted - FX majors saw a slight uptick in AUD/USD of about 20pips to 0.7720 and USD/JPY rose above 109.70, as both marked their session highs immediately after China data. Crude Oil was down slightly, and copper was little changed.

- Speaking after the release of the figures, China Stats Bureau spokesperson reiterated that the economy operation is better than expected but downward pressure on cannot be underestimated, warning that L-shape in economy likely to persist. NBS acknowledged a bounce in industrial space and forecast a rise in profits, adding that the property sector was responsible for the biggest contribution in GDP growth. Trade conditions outlook was more cautious, as NBS forecast a slowdown from the impressive pace of export growth this month.

- Outside of China's economic data, commentary from govt officials and press sources was also noteworthy. PBOC Dep Gov Yi Gang reiterated that China GDP will be 6.5-7.0% this year. On FX, Yi said that Yuan overshooting is not good for China or the rest of the world, and that it is currently in equilibrium range. Note that after 4 straight sessions of firmer Yuan fixes, PBoC set Yuan at its weakest level since late March for the 2nd straight day. In terms of investment implications, a survey of high-net worth Chinese individuals by Legg Mason saw nearly 80% viewing domestic stocks as the best investment opportunity for the next 12 months, even though there are growing worries over China ballooning high-risk debt. In fact, a report from IMF estimated as much as $1.3T of China's loans to be risky - a staggering 15.5% of total lending. Nevertheless, PBoC Gov Zhou spoke earlier and voiced concerns over small and medium-sized companies struggling to secure financing.

- Outside of China, RBA released its Semi-Annual Financial Stability Review that deemed financial system to be in good condition albeit with some risk to banks from New Zealand dairy and housing exposure. The report acknowledged some signs of stress in resources sector and warned that some banks are vulnerable even though the overall exposure to resource-related lending was small. That assessment runs counter to a high-profile research report from UBS this week warning that Australia banks are on the hook for a "substantial" increase in provision costs and "material rise" in charges for bad debts to mining firms that will be exposed during upcoming earnings.

- In Japan, Fin Min Aso said that despite the G20 pledge to avoid competitive devaluation, the govt will not hesitate to intervene in FX markets if conditions become disorderly. A Citigroup survey saw nearly half of institutional FX participants suggest that ¥100 will be Japan's line in the sand. BOJ's high profile meeting at the end of the month could also be an opportunity to make a policy adjustment, and today a local press report hinted that the central bank could consider boosting its purchases of ETFs. This is also in line with speculation that the BOJ might return to QQE for easing rather than push rates deeper into negative territory.

***Equities***
US equities / ADRs:
- VRX: Said to work with investment banks to review its options amid interest from buyout firms and other companies - financial press; +1.4% afterhours
- COST: Raises quarterly dividend by 12.5% to $0.45/shr from $0.40/shr (implied yield 1.2%); +0.2% afterhours
- ESV: Offers 50M shares of Class A common stock; Reports prelim Q1 R$812-817M v $785Me; quarter benefitted from better than expected utilization; cuts CAPEX guidance - filing; -5.6% afterhours
- SMCI: Reports prelim Q3 $0.33-0.35 v $0.50e, Rev $530-533M v $595Me (prior $0.43-0.53, R$530-580M); -5.9% afterhours
- RLYP: Said to have dropped M&A advisor Centerview Partners - press; -14.4% afterhours
- XXIA: Cuts Q1 $0.05-0.08 v $0.12e, R$108-111M v $123Me (prior $0.10-0.14, $121-126M); -17.5% afterhours


Notable movers by sector:
- Consumer discretionary: Toho Co 9602.JP -1.5% (FY15/16 result)
- Financials: China South City Holdings 1668.HK -1.8% (FY result); Poly Real Estate Group Co 600048.CN +0.1% (FY15 result)
- Technology: Taiwan Semiconductor Manufacturing Co 2330.TW -1.2% (Q1 result, cuts 2016 target); Toshiba Corporation 6502.JP flat (speculation on PC operations)
- Materials: Yunnan Aluminum Co 000807.CN -1.2% (FY15 result); Angang Steel 347.HK -0.7% (guidance); Regis Resources RRL.AU +1.0% (Q3 result); OJI Holdings Corp 3861.JP +0.7% (result speculation)

>>> US After Hours Summary: GBSN +39%, XXIA -15% following preannounce


After Hours Summary: GBSN +39%, XXIA -15% following preannouncements

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: GBSN +39.2%, CHKE +5.9%, VSLR +3.3%, PSG +1.8%, CUBI +1.8%

Companies trading higher in after hours in reaction to news: DEPO +1.7% (decides not to pursue reincorporation proposed by Starboard)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: XXIA -14.8%, ESV -5.3%

Companies trading lower in after hours in reaction to news: OSIR -4.9% (terminates Chief Medical Officer, Jon Hopper), STON -3.7% (announces 2 mln unit offering)

>>> US Close Dow+0.10% S&P+0.02% Nasdaq-0.03% Russell-0.12%

Closing Market Summary: Indices End Flat as Earnings Remain in Focus

The stock market ended Thursday on a flat note as the indices surrendered their slim intraday gain during the final hour. Meanwhile, better than feared earnings reports from the beleaguered financial sector (+0.3%) lent support to the major averages for a second day in a row. Additionally, today's action also featured the latest inflation data for the month of March, and continued trepidation regarding this quarter's corporate earnings reports. The Dow Jones Industrial Average (+0.1%) ended its day ahead of both the S&P 500 (UNCH) and ahead of the Nasdaq Composite (UNCH).

The trading day began on a choppy note as investors weighed quarterly earnings reports from names like Wells Fargo (WFC 48.79, -0.24), Bank of America (BAC 14.14, +0.35), and BlackRock (BLK 354.91, +6.62) against their diminished expectations for the first quarter. At the same time, March CPI data came in cooler-than-expected, which could justify the Fed leaving rates unchanged at the April 26-27 meeting. As a side note, this is the last inflation reading ahead of that meeting.

Risk appetite managed to pick up as the session went on, and the benchmark index was able to extend out of its initial six-point trading range. By the end of the session, six sectors traded above their flat lines as energy (+0.4%) led financials (+0.3%), telecom services (+0.3%), and health care (+0.1%). 

In the economically-sensitive financial sector (+0.3%), money center banks again helped lead the advance as Bank of America (BAC 14.14, +0.35) gained 2.5% after reporting a bottom-line beat on light revenue. The company attributed part of the revenue shortfall to a 16.0% decline in trading revenue for the quarter. Meanwhile, Wells Fargo (WFC 48.79, -0.24) ended its day beneath its flat line as investors weighed a $200 million increase to its loan loss reserves against a top and bottom-line beat. The broader sector has gained 4.3% this week, but remains down 3.7% on the year.

Baker Hughes (BHI 43.18, +1.88) displayed relative strength in the energy space (+0.4%). The company rallied 4.6% after reports indicated that Carlyle (CG 17.05, -0.19) is discussing a potential acquisition of $7 billion worth of assets from the company and Halliburton (HAL 38.38, +0.07). This deal would help Baker Hughes and Halliburton complete appropriate divestments to aid their proposed merger. Separately, WTI crude ended its day lower by 0.6% at $41.45/bbl.

In the health care space (+0.1%) large cap components Bristol-Myers (BMY 67.87, +0.30) and Merck (MRK 56.45, +0.49) outperformed. Bristol-Myers gained 0.4% after announcing that the FDA accepted priority review of its Hodgkin's Lymphoma drug. Meanwhile, Merck outperformed after its Zepatier medication received positive results in a head-to-head clinical trial against a competitor's medication.

Conversely, four sectors ended in the red with consumer staples (-0.5%), materials (-0.1%), utilities (-0.1%), and technology (-0.1%) rounding out the leaderboard. In the technology space (-0.1%), the high-beta chipmakers underperformed after Taiwan Semiconductor (TSM 25.30, -0.87) issued below-consensus guidance for the second quarter.

The U.S. Dollar Index (94.96, +0.21) rebounded throughout the day after the below-consensus CPI readings pressured the greenback. The dollar ended its day 0.1% higher against the yen at 109.40 while the euro/dollar pair finished lower by 0.2% at 1.1258.

The Treasury complex ended its session off its low with the yield on the 10-yr note ending higher by three basis points at 1.79%.

Today's participation was above the recent average as more than 882 million shares changed hands on the NYSE floor.

Today's economic data included Core CPI for March and weekly initial claims: 

  • The Consumer Price Index (CPI) for March showed only a 0.1% increase for the all items index (consensus +0.3%). Similarly, core CPI, which excludes food and energy, was up only 0.1% (consensus +0.2%) after a 0.3% increase in February.
    • With the March data, total CPI was up 0.9% over the last 12 months versus 1.0% in February while core CPI rose 2.2% versus 2.3% in February.
    • The moderation in those year-over-year growth rates will likely draw the Fed's attention as a basis for holding off on a rate hike at the April 26-27 meeting. This CPI report is the last inflation report ahead of that meeting.
    • The energy index (+0.9%) drove the increase in the all items index, logging its first increase since November. The food index was down 0.2% following a 0.2% increase in February.
    • Driving the modest gain in core CPI were the indexes for shelter, recreation, medical care, education, tobacco, and personal care, although increases there were offset to a large extent by declines in the indexes for apparel, airline fares, communication, household furnishings, and used cars and trucks. The apparel index, in particular, was down 1.1% after a 1.6% increase in February.
  • Initial claims for the week ending April 9 were 253,000 (consensus 268,000), a decrease of 13,000 from the prior week.
    • There were no special factors influencing initial claims, which logged their 58th straight week below 300,000 -- the longest streak since 1973!
    • The four-week moving average for initial claims decreased by 1,500 to 265,000.
  • Continuing claims for the week ending April 2 dropped to 2.171 million, a decrease of 18,000 from the prior week.
    • The four-week moving average for this series stands at 2.178 million -- the lowest level since November 18, 2000.

Tomorrow's economic data will include the 8:30 ET release of Empire Manufacturing for April (consensus 2.3). Meanwhile, Industrial Production (consensus +0.0%) and Capacity Utilization (consensus 75.5%) for March will be reported at 9:15 ET. Finally, the day's data will be capped off with the preliminary reading of the University of Michigan's Consumer Sentiment Index for April (consensus 92.0) and the Net Long-Term TIC Flows for February, which will cross the wires at 10:00 ET and 16:00 ET, respectively. 

  • Nasdaq Composite -1.2% YTD
  • Russell 2000 -0.7% YTD
  • S&P 500  +1.9% YTD
  • Dow Jones +2.9% YTD