TheChek News Flow

>>> What to look at today -13th of June 2016

Risk aversion remains the prevailing sentiment for the 3rd straight trading session in Asia, while US futures markets have been in the red from the start. The worst shooting in US history at an Orlando nightclub early on Sunday by a "lone-wolf terrorist" killing over 50 people while professing his loyalty to ISIS has served as a reminder of vulnerability to such attacks. With two weeks until the Brexit vote, polls coming in are hardly suggesting that cooler heads will prevail, with continued momentum behind the Leave camp. In FX majors, USD/JPY is testing the downside of 106 handle for the first time in over a month, while GBP/JPY cross below 150.50 is a 3-year low. GBP/USD fell over 70pips from Friday close below 1.4180. China May economic data were generally in line or softer than expected.

In US deals news, Symantec announced it is buying Blue Coat Systems for $4.65B amid further consolidation in security space. In materials, Rio Tinto was reportedly working with Goldman to take control in copper assets Turquoise Hill and sell shares to a large investor after increasing its own stake. Tesla CEO CEO Musk tweets: "NHTSA confirmed today that they found no safety concern with the Model S suspension and have no further need for data from us on this matter"

Nikkei -3.08% Hang Seng -2.49% CSI -1% Shanghai -0.99%

Eur$ 1.1252 CNH 6.5973 CNY 6.5850 JPY 105.85 GBP 1.42 CHF 0.9646 RUB 64.48 WTI $ 48.55 (-1.06%)

S&P -0.37% EuroStoxx -1.51% Dax -1.48% SMI -0.98%

Macro :

- Dijsselbloem Plans EU Deposit Guarantee Deal by Year-End: HB

- Iran Collects $5 Bln Owed by Emirates National Oil Co.: Shana

- Poll Shows 43% for Brexit; 42% Back Remain: Times/YouGov

- MSCI Inclusion of A Shares Is ‘Historical Certainty’: CSRC

Keep an eye on :

- AF FP : Air France Says 77% of Flights Operating Sunday Amid Strike

- AF FP : Air France-KLM CEO Won’t Move KLM Flights to Paris, FD Reports

- BAYN GY : Monsanto Said to Rebuff New Bayer Offer at Same Price: Dow Jones

- BCSI US : Symantec to Buy Blue Coat in $4.65b Cash Deal

- CBK GY : Commerzbank Expanding Wealth Management, Boersen-Zeitung Says

- COP US : ConocoPhillips rebuffed USD 2bn-plus bids for UK arm from Ineos and Blackstone

- DBK GY : Deutsche Bank Plans System Security, Stability Improvements: FT

- EDF FP : France-U.K. Electricity Interconnector Proposed: Telegraph

- ESJ LN : EasyJet Hopes For ‘Constructive Dialogue’ With VNV Union

- ENI IM : Eni, BP to Start Drilling 2nd Well at Egypt’s Baltim: Borsa

- FEYE US : Symantec Said to Have Been in Advanced Talks to Buy FireEye

- FON FP : Foncia could fetch EUR 1.8bn - Journal du Dimanche

- HEN3 GY : Henkel Targets Further Growth Through Acquisitions: Rheinische

- KU2 GY : Kaeser Says Siemens Isn’t Bidding for Robot Maker Kuka

- KU2 GY : Merkel Urges Equal Treatment of German Investors in China

- KU2 GY : Midea in Contact With Kuka Shareholder Voith: Handelsblatt

- LHN VX : LafargeHolcim Top Investor Calls Franc Impact ‘Devastating’: NZZ

- LXS GY : Lanxess to Actively Join Consolidation Rubber Mkt, CFO Tells BZ

- MC FP : LVMH’s TAG Heuer CEO Says Jan-May Sales Rise 20% Y/Y: Reuters

- MRL SM : Merlin, Metrovacesa Plan Vehicle for Rental Homes: Confidencial

- RNO FP : Renault Nissan Auto India’s Workers to Get ~57% Wage Rise: ET

- RIO LN : Rio Tinto Hires Goldman to Help Privatize Copper Unit: S. Times

- SAN FP : Sanofi Says Positive Phase 3 Results for Lixilan-O, -L Trials

- SAN FP : Medley (Brazilian generics unit) could be sold by Sanofi, bought for E500m in 2009 - O Globo

- SAS SS : SAS Says 220 Flights Affected by Pilot Strike on Sunday, Swedish Mediation Office Calls in SAS, Pilots for More Talks

- SAS SS : SAS CEO Says Airline Can’t Afford Pilots’ Demands, DI Reports

- SIE GY : Kaeser Says Siemens Isn’t Bidding for Robot Maker Kuka

- TIT IM : Telecom Italia to Name George Nazi Head of Technology: Corriere

- TEF SM : Apax, CVC Capital May Make Joint Bid for O2, Sunday Times Says (GBP 10b price mentionned)

- LANS NA : FMR Reports 3.6% Van Lanschot Stake: AFM Filing

- YHOO US : Verizon, AT&T Said to Make Final Round Bids for Yahoo: Reuters

>>> Europe : Brokers Upgrades & Downgrades - 13th of June 2016

>>> Up

*AURUBIS RAISED TO BUY VS HOLD AT BANKHAUS LAMPE

*ELECTROCOMPONENTS RAISED FROM UNDERWEIGHT TO EQUALWEIGHT AT BARCLAYS

*RESTAURANT GROUP RAISED TO NEUTRAL VS SELL AT CITI

*SOCO INTERNATIONAL RAISED TO BUY VS NEUTRAL AT BOFAML

>>> Down

*KGHM CUT TO SELL AT SOCIETE GENERALE

*SAFRAN CUT TO NEUTRAL VS BUY AT BOFAML

*SAP CUT TO UNDERPERFORM VS HOLD AT JEFFERIES

*VODAFONE CUT TO NEUTRAL VS OUTPERFORM AT MACQUARIE

>>> PT Change

>>> Initiation

*APPLUS SERVICES RATED NEW BUY AT KEPLER CHEUVREUX

*BUREAU VERITAS RATED NEW BUY AT KEPLER CHEUVREUX; PT EU23.40

*HANNOVER RE RATED NEW UNDERPERFORM AT CREDIT SUISSE; PT EU97

*HELLENIC PETROLEUM RATED NEW HOLD AT BERENBERG; PT EU4.50

*HISCOX RATED NEW OUTPERFORM AT CREDIT SUISSE; PT 1,150P

*INTERTEK RATED NEW HOLD AT KEPLER CHEUVREUX; PT 3,480P

*MOTOR OIL RATED NEW BUY AT BERENBERG; PT EU16

*MUNICH RE RATED NEW NEUTRAL AT CREDIT SUISSE; PT EU172

*SCOR RATED NEW UNDERPERFORM AT CREDIT SUISSE; PT EU28

*SGS RATED NEW BUY AT KEPLER CHEUVREUX; PT CHF2,410

*SWISS RE RATED NEW UNDERPERFORM AT CREDIT SUISSE; PT CHF87

*TALANX RATED NEW NEUTRAL AT CREDIT SUISSE; PT EU32

*TUPR RATED NEW HOLD AT BERENBERG; PT TRY67

>>> Call

WSJ : Fed Decision Makers Wrestle With So-called Natural Rate

Fed Decision Makers Wrestle With So-called Natural Rate

Disagreement about long-term outlook leads to the writings of a long-dead Swedish expert

While Federal Reserve officials debate when to next raise short-term interest rates, they are also wrestling with the question of how high to lift them in coming years.

Signs point toward the new normal being much lower than in the past, which has broad implications for when the Fed should tighten monetary policy, how quickly, and how far.

Fed officials disagree about their likely end point, in part because they are struggling to understand why another underlying interest rate—the mysterious natural rate—has fallen in recent years. And for that many are turning to the musings of Knut Wicksell, a Swedish expert on the subject who died 90 years ago.

According to the textbooks, this so-called natural rate is the inflation-adjusted rate that’s consistent with the economy operating at its full potential, expanding without overheating. Also known as the equilibrium or neutral rate, it balances savings and investment.

The natural rate can’t be observed directly; the Fed knows it has been reached only by how the economy responds. “It’s like discovering Pluto: you can only see the effect of the gravitational pull,” said Eddy Elfenbein, an investor and blogger at the site Crossing Wall Street, comparing it to the dwarf planet whose existence was inferred from the orbits of Uranus and Neptune.

“The practical implication is when a Fed person talks about the natural rate of interest, what they’re telling you is what they think is the terminal rate of the next hiking cycle,” said Adam Posen, president of the Peterson Institute for International Economics and a former member of the Bank of England’s monetary policy committee.

Most economists figured the natural rate was around 2% just before the financial crisis. Today, seven years after the recession, most estimates are around or just below zero.

“We’re seeing no pickup, none whatsoever, in the natural rate even as the economy has gotten back to full strength,” John Williams, the San Francisco Fed president who has spent years studying it, said in a recent interview with The Wall Street Journal.

This implies the central bank won’t be moving its benchmark federal-funds rate up much from its current level between 0.25% and 0.50% over the next few years. This, in turn, means lower rates for borrowers and lower returns to savers.

Policy makers are likely to leave their benchmark rate unchanged Wednesday at the conclusion of their two-day policy meeting, and could consider moving in July or September if the economy improves. They also will release Wednesday new projections for where they think the rate will rest in the long term.

The Fed’s estimate of its long-run fed-funds rate has been falling. In March, when officials released their most recent estimates, the median was 3.3%. Adjusted for their expectation of 2% inflation, that suggests a natural rate of 1.3%, down from 1.75% in June last year.

One risk for the Fed and the economy is that a low natural rate leaves less room for the central bank to cut rates if it wants to spur faster growth during a recession or boost inflation to meet its 2% target.

“This is a huge challenge for us,” Mr. Williams said.

The problem is economists don’t fully understand why the natural rate is so low. That makes it hard to know whether the shift is permanent or temporary, and therefore whether the rate will rebound and by how much—and in turn where the long-term fed-funds rate will rest.

“I think the current level of neutral or normal rates is pretty low,” Fed Chairwoman Janet Yellen said in Philadelphia last week. She expects it will rise over time, but said “that is something we’re uncertain about and have to find out over time.”

Economists have offered several theories for why the natural rate has fallen. Former Fed Chairman Ben Bernanke has cited a glut of savings world-wide. Harvard University economist Lawrence Summers blames ‘secular stagnation,’ or a chronic shortfall in investment demand.

Ms. Yellen has said temporary headwinds that have restrained growth since the financial crisis may be responsible, such as economic uncertainty, a strong dollar, and slower growth of productivity and the labor force.

For guidance Fed officials have been revisiting the work of Mr. Wicksell, a famed Swedish economist who did much of the seminal thinking on the subject more than a hundred years ago. Speeches by senior policy makers, including Ms. Yellen, have referenced Mr. Wicksell five times in the past year alone, and Mr. Bernanke has blogged about the Swede’s ideas about the relationship between interest rates, economic growth and inflation.

Mr. Wicksell characterized the natural rate of interest as “a certain rate of interest on loans which is neutral in respect to commodity prices, and tends neither to raise nor to lower them.” But the natural rate isn’t observable and depends on “a thousand and one things which determine the current economic position of a community,” and those factors—such as productivity, unemployment, and technological and demographic change—are constantly in flux, he said.

Fed Vice Chairman Stanley Fischer this year predicted the natural rate will remain low for the next few years, and warned that factors governing the rate are “extremely difficult” to forecast.

“The answer to the question, ‘Will [the natural rate] remain at today’s low levels permanently?’ is that we do not know,” he said in a January speech. “Eventually, history will give the answer.”

>>> Asian Update

Asian Mid-session Market Update: Stocks sell off after deadly US mass shooting, persisting Brexit fears, and soft China data

***Economic Data***

- (CN) CHINA MAY FIXED URBAN ASSETS YTD Y/Y: 9.6% V 10.5%E; multi-year low

- (CN) CHINA MAY INDUSTRIAL PRODUCTION Y/Y: 6.0% V 6.0%E; YTD Y/Y: 5.9% V 5.9%E

- (CN) CHINA MAY RETAIL SALES Y/Y:10.0% (1-year low) V 10.1%E; YTD Y/Y: 10.2% V 10.2%E

- (CN) China May Foreign Direct Investment (FDI) Y/Y: -1.0% at CNY342.6B; YTD Y/Y: 3.8% v 4.8% prior; 3-month low

- (CN) China May fiscal revenue CNY1.55T, +7.3% y/y, spending +17.6% y/y

- (JP) JAPAN Q2 BUSINESS SURVEY INDEX (BSI) LARGE ALL INDUSTRY Q/Q: -7.9 V -3.2 PRIOR; BSI LARGE MANUFACTURING Q/Q: -11.1 V -7.9 PRIOR

***Index Snapshot (as of 04:30 GMT)***

- Nikkei225 -2.6%, S&P/ASX closed, Kospi -1.6%, Shanghai Composite -0.8%, Hang Seng -2.6%, Sep S&P500 -0.4% at 2,079

***Commodities/Fixed Income***

- Aug gold flat at $1,276/oz, Jul crude oil -1.3% at $48.42/brl, Jul copper +1.4% at $2.06/lb

- (IR) Iran appoints Ali Kardor as managing director of National Iranion Oil Co, replacing Javadi - Iran press

- SLV: iShares Silver Trust ETF daily holdings rise to 10,587 tonnes from 10,535 tonnes prior; highest since Dec 2014

- GLD: SPDR Gold Trust ETF daily holdings rise 6.5 tonnes to 893.9 tonnes; highest since Oct 2013

- (CN) S&P Global Platts China Steel Sentiment falls to 16-month low

- (CN) PBOC SETS YUAN MID POINT AT 6.5805 V 6.5593 PRIOR; weakest Yuan setting since June 1st

- (CN) PBOC to inject CNY40B in 7-day reverse repos

***Market Focal Points/FX***

- Risk aversion remains the prevailing sentiment for the 3rd straight trading session in Asia, while US futures markets have been in the red from the start. The worst shooting in US history at an Orlando nightclub early on Sunday by a "lone-wolf terrorist" killing over 50 people while professing his loyalty to ISIS has served as a reminder of vulnerability to such attacks. With two weeks until the Brexit vote, polls coming in are hardly suggesting that cooler heads will prevail, with continued momentum behind the Leave camp. In FX majors, USD/JPY is testing the downside of 106 handle for the first time in over a month, while GBP/JPY cross below 150.50 is a 3-year low. GBP/USD fell over 70pips from Friday close below 1.4180, and AUD/USD traded in a 25-pip range above 0.7360.

- China May economic data were generally in line or softer than expected. Most notably, fixed urban investment growth slowed to multi-year low as property sales value and construction activity saw most pronounced declines. China industrial output was more mixed - power generation recovered from last month's decline and crude steel output showed slightly higher growth, even though the headline numbers were as expected. China Stats Bureau noted overall employment is steady and investment is growing, though economy is still faced with uncertainties. Stats Office official added the ministry will develop gauges to track the Services sector as the economy transitions more toward consumption. Separately over the weekend, IMF's dep director Lipton brought up the deterioration in China's credit markets, stating "mounting corporate debt is a key fault line in the economy" particularly with many SOEs already "on life support."

- In US deals news, Symantec announced it is buying Blue Coat Systems for $4.65B amid further consolidation in security space. In materials, Rio Tinto was reportedly working with Goldman to take control in copper assets Turquoise Hill and sell shares to a large investor after increasing its own stake.

***Equities***

US equities / ADRs:

- SYMC: Confirms to acquire Blue Coat for $4.65B; Guides FY18 $1.70-1.80

- RIO: Working with Goldman Sachs on £8B takeover of copper operations - UK press

- TSLA: CEO Musk tweets: "NHTSA confirmed today that they found no safety concern with the Model S suspension and have no further need for data from us on this matter"

- VCYT: On a preliminary basis, Medicare cuts reimbursement rate for Afirma to $2,240 from $3,200

Notable movers by sector:

- Consumer discretionary: Hotel Shilla Co 008770.KR +1.7% (rival under probe); BAIC Motor Corp 1958.HK +2.4% (acquisition)

- Financials: Noble Group NOBL.SG -4.0% (disposal of US business); Poly Property Group Co 119.HK -1.0% (YTD result); China Vanke Co 2202.HK -3.6% (said to resume trading in early July); Industrial Securities Co 601377.CN -2.2% (regulatory probe)

- Industrials: Nippon Yusen 9101.JP -1.5% (acquisition); Calsonic Kansei Corp.7248.JP +5.2% (2nd round bidding); Daewoo Shipbuilding & Marine 042660.KR -3.6% (may further cut jobs)

- Technology: Sharp Corp 6753.JP -2.2% (S&P may upgrade rating); TCL Communication Technology 2618.HK +28.2% (proposes of privatization)

FT : Chinese fund buys Italian robot toolmaker

Agic Capital, the Chinese private equity fund launched last year, has bought a European industrial robotics business — in the latest example of the country’s push to gain access to western automation technology.

Agic on Sunday said it had agreed to acquire Gimatic, an Italian supplier of robotic end-of-arm tools valued at between €100m and €150m. It did not disclose a specific price.

Agic was founded by former Deutsche Bank executive Henry Cai, a veteran dealmaker who started Agic with the goal of “shaping smart industries”, focusing on the so-called fourth industrial revolution, in automation and connectivity.

Its Gimatic deal is its first as a sole acquirer, but it was a member of the consortium — led by China National Chemical Corp — that purchased KraussMaffei Group for €925m in January. KraussMaffei, a specialist producer of plastics and rubber, is one of Germany’s largest machinery suppliers. Its sale was, at the time, the biggest-ever Chinese acquisition of a German company.

While the acquisition of Gimatic is relatively small, it plays into a growing theme of Chinese investment in automation, following last month’s offer from Midea, the Chinese home appliance maker, to purchase German robotics company Kuka.

That deal valued the business at €4.6bn but led some government officials to worry about protecting German technology. Economics minister Sigmar Gabriel has been trying to put together a German or European consortium to offer a counterbid.

Gimatic, founded 31 years ago, has been growing its sales by more than 20 per cent a year for the past three years, with four-fifths of its business stemming from Europe. Asia accounted for less than a tenth of sales but is seen as the market with the greatest potential.

Agic’s strategy is “top-line growth through internationalisation,” said Heiko von Dewitz, Agic’s Munich-based managing partner. “In the past [Gimatic] has been more margin than growth focused — we’re going to change that a bit.”

Its deal for Gimatic aligns with the industrial strategy spearheaded by Beijing last year to upgrade infrastructure, make China less dependent on manual labour and become a tier-one player in manufacturing.

“Fifty per cent of the global growth in industrial automation and robotics is in China,” said Mr von Dewitz. “Depending on the sources you look at, the global automation market is growing at 10 to 15 per cent. China is growing at 20 per cent. That gives you an idea of how much momentum there is.”

He said there is a huge opportunity for European technology companies to expand into China. But while the big companies have figured it out, companies with between $30m and $150m in revenue are further behind. “They know China is a strategic must, but they don’t know how to tackle it,” he said.

Chinese companies have offered to buy 119 European companies this year, for a total market value of €72bn — more than double the €33.5bn value from all of 2015, according to Dealogic.

Last year, Italy was the number one destination in Europe for Chinese acquisitions, as 14 companies were acquired for a total value of €10.6bn, Dialogic data shows. Gimatic is the ninth Italian company to be purchased this year.

Mr von Dewitz, an electrical engineer by training, called the acquisition a “classic leveraged buyout,” with the founder and chief executive also reinvesting in a substantial minority stake. He said Agic is likely to do another one or two deals this year.

“If you look at the small and mid-cap sector, you find a lot of hidden champions that focus on certain technologies and solutions,” he said. “They have become market leaders but they are still small and mid-cap.”

>>> Barron's weekend summary: positive on WSM, MCK, LYB

Barron's weekend summary: positive on WSM, MCK, LYB

Cover story: Barron's 2016 Midyear Roundtable offers investment advice from Scott Black (DHI, WHR), Abby Joseph Cohen (Toto, SEE, NKE, SYK), Mario Gabelli (SNE, MIICF, SSP, CST, EPC, HRS, TXT), Jeffrey Gundlach (10-Year Treasury, GDX), William Priest (AGN, FIS, GOOGL), Brian Rogers (HRS), Oscar Schafer (COMM, ANIP, NOMD), Meryl Witmer (WYN), and Felix Zulauf (short U.S. dollar, long Argentine peso).

Features: 1) Positive on WSM: Retailer's shares have fallen with the sector, but it has differentiated itself with a strong Internet operation, and can compete with AMZN because it controls its inventory, which is exclusive to its brand; 2) Positive on MCK: Though bears say the drug wholesale is in secular decline, it has strong cash flow, significant bargaining power, new clients, and a strong position in specialty-drug wholesaling; shares could have 15% upside during the next year; 3) Positive on LYB: A selloff creates a buying opportunity for bargain hunters, who could see the chemical maker's shares rebound and return more than 20%; 4) Baruch Lev and Feng Gu say accounting hasn't kept pace with the growth of companies with intangible assets like research, which differ from tangible assets like property, and they call for changes to GAAP.

Tech Trader: The expanding constellation of Internet of Things devices has led to complexity that doesn't benefit consumers; it may be time for AAPL, GOOGL, and other players to cooperate on the creation of a set of industry standards that work for everybody.

Trader: U.S. stocks' inability to break through previous highs isn't worrisome short-term, says Michael Shaoul of Marketfield Asset Management, but if the market isn't able to get through, it will become an issue; Fed futures continue to forecast the Fed's rate action, or lack thereof, accurately, but they will get it wrong someday; Barron's admits it should have paid closer attention when DWRE chief Thomas Ebling, who had mainly been selling company shares, established a 10b5-1 plan to acquire them on the open market before the CRM deal; Positive on FFIV: Even without an acquisition, shares of the company should continue to be rewarding.

Profile: Ralph Bassett, co-manager of Aberdeen U.S. Small Cap Equity, says speaking with management is a crucial part of his stock-picking efforts.

Follow-Up: Dell will likely go public again, at which point it will be clear how lucrative Michael Dell's leveraged buyout of the company was; the company's financial performance since the deal supports the idea that Dell and Silver Lake "stole the company"; Positive on HLF: Despite a few recent hurdles after its move to separate its properties into a REIT and spin off its time-share business, momentum is now in the company's' favor.

European Trader: Following the European Central Bank's move into Europe's corporate credit markets, pushing returns even lower, there are still strategies investors can use to gain, especially in high-yield debt.

Asian Trader: Five picks from Hong Kong-based brokerage firm CLSA (Positive on Macquarie Group, AIA Group, Samsung Electronics, Seven & i Holdings, and Tencent Holdings).

Emerging Markets: Peru's next president, mostly likely former World Bank economist Pedro Pablo Kuczynski, will inherit the emerging world's hottest 2016 stock market.

Commodities: "La Nina is likely to result in increased production of cocoa-the key ingredient in chocolate, across the globe-putting pressure on prices that have run up on an anticipated deficit this season."

Streetwise: Positive on POT: Most investors don't consider fertilizer producer a quality company, but large potash producers are more disciplined than the market gives them credit for, and margins could recover.

>>> What to look at this Week End - 11th & 12th of June 2016

Global markets were volatile this week as risk assets first recovered from the let-down of last week's May US jobs report and then succumbed to global jitters as funds rotated into fixed income. The ongoing oil market recovery propelled both WTI and Brent firmly back over $50 early in the week, helping boost the broader energy sector. Solidifying belief that the Fed will need to hold off on rate hikes at least little bit longer has helped gold and silver prices reach one month highs as well. In a widely anticipated speech on Monday, Fed Chair Yellen said nothing at to upset the apple cart, and there is a sense that a Fed rate increase in September is emerging as the new favorite view, although July is still touted as a 'live' meeting as well. The dollar arrested its decline without testing the lows seen in early May. Mid-week the DJIA and S&P500 approached but did not hit new all-time highs, as Brexit fears and interest rate jitters took over and pushed risk assets lower. For the week, the DJIA gained 0.3%, the S&P slipped 0.1%, and the Nasdaq fell 1%.

Macro :

- Dijsselbloem Plans EU Deposit Guarantee Deal by Year-End: HB

- Iran Collects $5 Bln Owed by Emirates National Oil Co.: Shana

- Poll Shows 43% for Brexit; 42% Back Remain: Times/YouGov

- MSCI Inclusion of A Shares Is ‘Historical Certainty’: CSRC

Keep an eye on :