(MS) Quant. Research : Bet on Value Cautiously,Trim Momentum Selectively

Bet on Value Cautiously,Trim Momentum Selectively

In February, we have observed a broad rotation away from momentum and towards value. This note suggests ways to trim momentum exposure selectively and make a cautious bet on value

Broad rotation away from momentum and into value. Value factors have performed well in both Europe and APxJ & EM in February, but not in Japan. Price momentum has experienced a substantial reversal across regions, high
daily volatility. High quality/ low beta has outperformed junk/high beta in developed markets, while the opposite occurred in APxJ & EM, and mega/large caps have underperformed small caps globally. In that environment, our MOST model has performed well in Europe and APxJ & EM (Q1-Q5 spreads of +1.7% in both regions), but poorly in Japan.

(SG) Henkel : Limited visibility, but improving margins & undemanding valuation.

Limited visibility, but improving margins & undemanding valuation. Buy, TP €127=>117

Update Henkel’s FY15 results on 25/02 were perfectly in line with the company compiled consensus but the shares modestly underperformed the European Staples sector in the next few days. In part we think this may reflect some short term expectations that outgoing CEO Kasper Rorsted would seek to leave on a high, so some hedge funds may have been positioned for a beat. 2016 guidance is for 8-11% EPS growth (implying €5.27-€5.42 vs €5.28 pre-result consensus). There was some confusion over how to reconcile this with guidance of 2-4% OSG and a c.16.5% EBIT margin (implying c. +30bp) given FX headwinds. Management stated that, as in prior years, EPS is the dominant guidance.

SG view On 18.3x 2016E PE we think Henkel is undeniably cheap, trading at a 17% discount to Global Consumer Staples. However, near term visibility is also undeniably limited given recent management changes, macro uncertainty and the fact that for two years in a row Henkel’s EBIT margin expansion has been just 40bp, in line with peers but far short of historical rates. But then again historically it has been precisely such periods of macro uncertainty (Eurozone crisis in 2012, Russia in 2014) that have offered attractive entry points for Henkel. However we acknowledge that markets will likely wait for evidence that, once China headwinds are lapped, cost-cutting can continue to drive near best in class margin expansion at Henkel before giving it valuation credit.

How we value the stock Given lack of macro visibility, we value Henkel on a 5% discount to global Consumer Staples peers. This is 21x 2016e PE. Rolling this multiple onto our 2017e EPS number (to reflect the 12 month time horizon of our target price) yields our €117 price target, down from €127. We have trimmed 2017e EPS by 6%, half driven by FX and half by cuts to our margin forecasts (we had expected a margin beat for FY15).

Events, catalysts & risks to price target, rating & recommendation Next catalyst: Q1 16 results on 19 May 2016. See page 3 for risks.

>>> Street Pre-Market

ML
DECAUX - Inline but strong Q1 outlook is a big positive.Est 9% org growth.+5%
CGG - headline numbers look strong,net debt as expt. No guidance..........+5%
CRH - FY EBITDA €2.22bn, 6% above.Div stable & inline,reads v well......+3/4%
HUNTING - in-line with expectations, only +ve is net debt was better.....+3%
AGGREKO - Mixed FY15 results. 2016 guidance is in-line. SI is 10%+........+3%
ADMIRAL - PBT beat by 16%, UK reserve releases good. Tone is constructive.+3%
JERONIMOS - EBITDA 9% ahead, to invest EU550-650m, div EU0.265/shr......+2-3%
CARILLION - revs look better,op profit better. High quality order book..+2-3%
BILLITON - +ve Samarco agreement overnight.BLT to self fund obligations...+2%
STEELS - U.S. imposed tariffs of 266% on imports from China.AKS +20% etc..+2%
ARKEMA - Clean EBITDA small beat.Net debt good.Outlook confident. Solid...+2%
VONOVIA - 2015 FFO beats @ €608m,Rental income €1.41b,reits guidance......+2%
BUWOG - We INITIATE with BUY, PO €21.9. Quality portfolio. 14% upside.....+1%
GRAND CITY - We INITIATE w. BUY, PO €23.5. 22% upside +2.1% div yield.....+1%
SCHRODERS - PBT 1% beat, End Dec AUM of £313.5bn, All reads in line.......+1%
AVIVA/PHOENIX - FCA to take no retrospective action on life ins claims....+1%
MELROSE - numbers in-line, cash a bit better, focus on potential deals....U/C
BBA - FY15 numbers generally in-line, Revs 2.13b,Dividend 13.5c...........U/C
ADIDAS - Pre-released. Nothing new here in guidance, not needle mover.....U/C
DELHAIZE - Largely pre-released.Also reit mid 2016 for merger completion..U/C
AHOLD - Delhaize merger on track for mid-2016.Margins small beat.US ok....U/C
TRAVIS - Top line £5.94bln (cons £5.95),EPS 124.1p (cons 123.9) DVD ok....U/C
VESUVIUS - In line largely, but cautious commentary on general outlook....U/C
ASSA - Sells car lock unit,positive effect on margin. Turnover of €60m....U/C
GENEL - FY15 results look inline; US$1bn non-cash write down on Taq Taq...U/C
DOM PIZZA - revs £316.8m, Op profit better, EPS 35.7p,record new openings.-1%
ADLER RE - We INITIATE with UNDERPERFORM, PO €10.15. LTV >80%.............-1%
SPIRAX - strong results but travel and arrive,decent margin progress......-1%
SHAWBROOK - Strong FY15 result,PBT at £80.1m 3% beat mostly from bad debt.-1%
COBHAM - lowering expectations further on commercial.Op profit light....-3-4%
ISAT - MIXED – Higher capex than est, will get mixed reactions on revs....-5%
WHITBREAD - LfL Sales +1.7% light vs cons. Costa & Premier Inn both light.-5%
EVONIK - WARNING. Outlook for 2016 is poor. Implies c15% cut to ests....-5-7%
CS
Accor -1% Accor/HNA Group are considering bids for Carlson Rezidor,BB
Adidas M/P Numbers inline with pre-release on 11 Feb
Arkema +2-3% Sales EU7.68b vs EU7.75b est, divi small ahead
Admiral FY15 PBT £377m v cons. £350.4m, dividend better
Aggreko +2-3% EBITDA inline, dividend maintained, Outlook inline
Ahold +2% 4Q underlying op income EU421m, est. EU382m
Autoneum +2-3% EBIT better CHF126.5m vs cons 121.3m, outlook inline
Axel Spring +1% Revenues €3.29bn vs cons 3.26bn, dividend slightly light
BHP +1-2% Samarco deal signed, not as bad as thought
Cobham -2% Revs 2.07b vs cons 2.15bln, demand subdued in some areas
Coltene -3% Sales 1% miss, EBIT 5% beat, outlook inline
CRH +3% FY sales 2% beat, EBITDA 2% beat, PBT 7% beat
Carillion M/P PTP is inline with cons, outlook fine, divi slightly ahead
Delhaize +1% Dividend Tops Ests, 2016 Capex Seen Rising
Domino's +1-2% Delivered good results, EPS slightly ahead, divi inline
Evonik -3-5% Q4 inline cons, FY16 14% below cons, Outlook weaker
Freenet +3-4% Revnues/EBITDA inline, outlook better
Inmarsat -7-10% Q4/15 & FY16 Guidance-Q4/15 Revs ex-L2 weak -5% vs Cons
Jeronimo +1-2% Net income/sales inline, EBITDA 2% beat
JCDecaux +1-2% Adj org rev up 4.2%, says it can outperform ad market
Jungheinrich +1-2% Sales €2754m vs cons 2734m, no guidance given yet
Melrose +1-2% Op profit 3% miss, remain focused on acquisition op
Miners +1% Copper +0.20%, Brent -0.60%, Iron Ore -1.05%, China +0.11%
Mittal +3-5% US to impose 266% duty on imports of Steel from China
Schroders +2% Clean PBT 1.5% beat, AuM 313.5b (cons 308)
Spirax Sarco +1% Revs 667.2mln cons 669.923mln, adj PBT 2% beat
Travis Perk +1% Op profit inline, Renovation mkt showed good growth in Jan
UBM -2-3% Update on proposed sale of PR Newswire to Cision
Vesuvius -3-5% Trading Profit 124mln co guided to 125-140ml
Volkswagen -1% Spec CEO Winterkorn knew of emissions issue a year before
Vonovia +2-3% Reports EPRA NAV at EU30.02, above co guidance of 28-30
Whitbred -2-3% Premier Inn lfl +2.2% vs cons +3%, Costa also weak

>>> UBS looking to acquire European asset managers

UBS looking to acquire European asset managers

UBS, the listed Swiss bank, is looking to acquire European asset managers, Aargauer Zeitung reported. The Swiss daily cited UBS European Asset Management Chief Jakob Stott who made this comment in a newswire interview on Wednesday.

Stott said it is important to gain market share even in difficult times, noting that sooner or later consolidation will occur. Stott said he would not pay over the odds and candidates must be good strategic fits and easy to integrate.

UBS acquired targets in Italy and Spain last year, the report stated.

Aargauer Zeitung

>>> Rolls-Royce chairman says ValueAct not pushing for break-up

Rolls-Royce chairman says ValueAct not pushing for break-up
Rolls-Royce [LON:RR] chairman Ian Davis said the appointment of ValueAct chief operating officer Bradley Singer as a board member does not signal an impending break-up of the FTSE-100 engineering group’s board, The Guardian reported. Davis said ValueAct has not pushed for a break-up and Rolls-Royce’s board will not break the company up.

ValueAct’s agreement with Rolls-Royce stipulates that the investment firm must relinquish its board seat if it builds a stake of more than 12.5% or reduces its shareholding below 7.5%, the item noted. ValueAct will not be able to call shareholder meetings or propose a takeover of Rolls or a merger.

The activist investor will also be prohibited from proposing strategic or managerial changes and from criticising Rolls-Royce in public, the article said. ValueAct is also bound to vote in favour of the board’s proposals at AGMs, the report added.

A report in The Times said Davis conceded that some shareholders have voiced their "unease" regarding the appointment of Singer.

One leading fund manager quoted in the report said shareholders had concerns about the appointment. The fund manager said they were not in favour of "representational" directors, arguing that the board should represent all shareholders.

Background:

ValueAct disclosed on 19 November that it had increased its stake in Rolls-Royce to 10%.

Several reports over the past six months have said ValueAct has urged Rolls-Royce to accelerate its cost reduction strategy and that the activist investor may at a later date push for a sale of Rolls-Royce’s non-aerospace businesses.

Rolls-Royce’s share price was 3p down at 680p in London yesterday (2 March) following news of Singer’s appointment, giving the company a market capitalisation of GBP 12.50bn (EUR 16.20bn).

WSJ : Porsche Trial Takes Long and Winding Road

Porsche Trial Takes Long and Winding Road

Judge decides to rehear evidence from hedge funds, extending eight-year battle

STUTTGART, Germany—In Germany Inc. versus a group of American hedge funds, the hedge funds just got a leg up.

The German judge overseeing the latest turn in an eight-year legal battle between Porsche SE and hedge funds including Elliott Management Corp. and D.E. Shaw has made the unexpected decision to step back into the case after prosecutors had already wrapped up their arguments. The judge will bring back two witnesses and begin questioning them Thursday morning.

The move was seen as a boost for prosecutors who are trying to prove two former Porsche executives concealed their company’s intention to buy Volkswagen AG for months in 2008 then manipulated the stock market to avert insolvency.

The hedge funds, which had been betting against Volkswagen’s stock, claim the alleged scheme cost them more than $5 billion. They have turned over material including an analysis of the financial situation that prosecutors have used to try to make their case. A conviction could put them in a better position to win related civil cases against Porsche, where they are hoping to recover their losses.

The executives—former Chief Executive Wendelin Wiedeking and ex-Chief Financial Officer Holger Härter—deny the allegations and testified that prosecutors misinterpreted their words and actions. Prosecutors are seeking €800 million ($869.5 million) in fines from Porsche and jail time for the two executives.

Outside observers handicapping the trial had given prosecutors low odds of proving their case. But they say prosecutors’ final arguments presented last month appeared to have tilted things back in their favor, and the decision by Judge Frank Maurer to rehear two witnesses underscored that perception.

The working alliance of German prosecutors and American hedge funds—widely reviled as predatory speculators in the country—is an unexpected turn of events. Lead prosecutor Heiko Wagenpfeil was almost apologetic for relying on their testimony. Just because hedge funds have a bad image in Germany, he said during closing remarks in February, “that doesn’t mean they’re wrong.”

The hedge funds declined to comment. A spokesman for Porsche welcomed the court’s decision to again hear two witnesses. A spokesman for Mr. Wiedeking said the move could help quickly end the trial and dispel suspicions.

In the middle of the last decade, Porsche spent years building a big stake in Volkswagen stock and had secretly purchased options allowing it to buy even more.

The hedge funds, meanwhile, had been betting that Volkswagen’s shares would fall. In just a couple of weeks in October, the global financial crisis and the short selling had sliced 50% off the value of Volkswagen’s shares.

To that point, Porsche officials had repeatedly denied that they wanted to control more than 75% of Volkswagen’s shares, a key threshold under German law. Then, on Sunday, Oct. 26, Porsche stunned investors by disclosing the scale of its position and saying it intended to own more than 75%.

Porsche’s announcement created what investors call a short squeeze. Funds that had shorted Volkswagen stock needed to buy shares to cover their positions. But the revelation made clear to them Porsche had cornered the market in Volkswagen shares. That meant fewer shares were available for purchase than had been shorted.

When Volkswagen’s stock opened for trading the next morning, scarcity and strong demand from hedge funds sent its share price soaring. Volkswagen briefly became the world’s most valuable company.

Porsche over the following days sold some of its options, reaping as much as €5 billion in cash that saved it from insolvency, prosecutors allege.

Prosecutors say Porsche’s disclosure of its stock and options was aimed more at squeezing the hedge funds than actually controlling Volkswagen. They claim the drop in Volkswagen’s stock left Porsche sitting on billions of euros in liabilities and running low on cash. Police investigators testified that Porsche had only €326 million in cash left.

Mr. Wiedeking, the former CEO, has called the allegations an “absurd conspiracy theory” and testified Porsche’s financial situation was much stronger than prosecutors alleged.

According to a prosecution document, Porsche legal adviser Freshfields had encouraged the company to publicly stress its intention to control Volkswagen, which the adviser wrote would “cover up the indirect message” to hedge funds, while still having the “desired effect.” Prosecutors concluded that effect was forcing short sellers to close their positions by buying Volkswagen shares.

A spokesman for Freshfields declined to comment.

Public attention has focused on the trial, because Porsche is owned by one of Germany’s richest families, the descendants of VW Beetle creator Ferdinand Porsche. The family isn’t accused of wrongdoing, and the trial won’t directly affect Volkswagen. But Porsche, which ended up relinquishing its sports-car operation to Volkswagen, is now Volkswagen’s largest shareholder.

Defense attorneys expect to make their closing arguments later this month and a verdict could follow soon after.

>>> What to look at today - 3rd of March 2016

Dow+0.20% S&P+0.41% Nasdaq+0.29% Russell+1.06%
US Market closed higher on better ADP numbers. the Department of Energy's weekly inventory report showed a larger-than-expected crude inventory build (10.4 million barrel build; est 3.6 million). Despite the bearish reading oil managed to rise sharply after the report before ending its day off its best level. WTI crude ended its pit session higher by 0.5% at $34.57/bbl. positive move in oil helped the commodity-sensitive energy space (+2.5%) top the leaderboard as telecom services (+1.1%) and the financial sector (+0.9%) followed. Meanwhile, heavyweights health care (+0.2%) and technology (+0.2%) ended their day off their lows. Volume were in line with average. US After Hours SMTC +11.5%, PSTG +4.1%, PQ -13.3%, HABT -10.5%, SUNE -11.7% following suspension of dividend, SUNE -11.7% suspended dividends on preferred stock. Asian equity markets are modestly higher despite the generally soft services PMI numbers, as continued rebound in oil prices sustain risk-on flows. Despite the build in API and DOE inventories this week, reports of Saudi Arabia considering a $10B international loan - implying kingdom's fiscal strains from low prices - sent WTI crude and Brent toward their highs. Nikkei225 is among the leading indices tracking losses in JPY, as USD/JPY pair rose 80pips from the lows above 114.20. February services PMIs for China, Hong Kong, and Japan came in mixed/lower. China's print slowed to 51.2 from 52.4 and composite PMI returned to contraction of 49.4 v 50.1 prior. ahead of the PMI release, BOJ Gov Nakaso also spoke in favor of the anticipated impact of negative rates on tackling deflation, but added there would a limit on how much further central banks can push rates into negative territory.

Nikkei +1.28% Hang Seng -0.53% Shanghai +0.23%

Eur$1.0859 CNH 6.5433 CNY 6.5438 JPY 114.07 GBP 1.4080 RUB$ 73.2243 WTI 34.66

S&P+0.04% EuroStoxx+0.36& Dax+0.31% SMI +0.48%


Macro :
- Fed Beige Book: Economic Activity Expanded in Most Districts, Fed Beige Book: ‘Big Data’ Helping Emerging Financial Firms
- Saudi Said to Ask Banks to Discuss ~$10b Intl Loan: Reuters/CNBC
- Nikkei India Feb. Composite PMI 51.2 vs 53.3 in Jan.
- France to Relocate Migrant Camp, Woo Bankers If UK Quits EU: FT

Keep an eye on :
- AC FP :Accor, HNA Said to Weigh Bids for Radisson Owner Carlson Rezidor
- ADS GY : Adidas 2015 Div. In Line, Sees 2016 FX-Adj. Sales Up 10%-12%
- AH NA : Ahold 4Q Underlying Operating Income Beats Ests.
- MT NA : Arcelormittal Doesn’t Plan French Output Cuts, CEO Tells Echos
- AKE FP : Arkema Says FY Ebitda Above Guidance, Sees Further Growth in ’16
- SPR GY : Axel Springer 2015 Sales Rise as Strong Classified Ads Jump
- BLT LN : BHP-Vale Mine Reaches Accord to Pay for Brazil Dam Disaster (4)
- CBKSN : CaixaBank Says in Talks With BPI and BPI Shareholder Santoro
- CGG FP : CGG FY Net Loss Worse Than Estimates, Says Weak Start to 2016
- CDI FP : CDI Sees 1Q Rev. $223m-$228m; Single Est. $244m
- DEC FP : JCDecaux 2015 Adj Rev. Up 14%; Sees 1Q Organic Rev. Growth of 9%, JCDecaux Looking at Potential Acquisitions Around World: Co-CEO
- DBK GY : Deutsche Bank Supports Deutsche Boerse-LSE Merger Plan: Cryan
- DEXB BB : Belgium Has Shortlist of Four Candidates for Dexia CEO: De Tijd
- EVK GY : Evonik 4Q Adj. Ebitda Beats; Sees 2016 Adj. Ebitda EU2b-EU2.2b
- FNTN GY : Freenet Acquires Media Broadcast Group, Doesn’t Disclose Details
- GLEN LN : +2.095% in HK
- JMT PL : Jeronimo Martins 2015 Net EU333.3m Vs. Est. EU333.5m
- JUN3 GY : Jungheinrich 2015 Sales Rise 10%, Profit After Tax Up 9.5%
- NG/ LN : U.K. Considering Smaller Role for National Grid: Times
- REP SM : Repsol Has Further Downsizing Coming Up to Tackle Oil Price Rout
- SYNN VX : DuPont Said to Have Mulled Buying All Syngenta in Past: WSJ
- VNA GY : Vonovia 2015 FFO Exceeds Forecast, Confirms 2016 Outlook
- VOW3 GY : Volkswagen Said to Pay 120,000 Workers Bonus for 2015: dpa-AFX

>>> Europe : Brokers Upgrades & Downgrades - 3rd of MArch 2016

>>> Up
*IS BANKASI RAISED TO BUY AT SOCIETE GENERALE
*PETRA DIAMONDS RAISED TO OUTPERFORM VS NEUTRAL AT MACQUARIE
*SSE RAISED TO BUY VS HOLD AT INVESTEC
*TECHNIP RAISED TO HOLD VS SELL AT LIBERUM
*ZODIAC AEROSPACE RAISED TO NEUTRAL AT JPMORGAN

>>> Down
*BANCO POPULAR CUT TO HOLD VS BUY AT SOCGEN
*BARCLAYS AFRICA GROUP CUT TO HOLD VS BUY AT RENAISSANCE CAPITAL
*DNB NOR CUT TO ADD VS BUY AT ALPHAVALUE
*GAM HOLDING CUT TO NEUTRAL VS OUTPERFORM AT MEDIOBANCA
*GARANTI CUT TO HOLD AT SOCIETE GENERALE
*GEM DIAMONDS CUT TO NEUTRAL VS OUTPERFORM AT MACQUARIE
*KELLER CUT TO HOLD VS BUY AT BERENBERG
*MTU AERO ENGINES AG CUT TO UNDERWEIGHT AT JPMORGAN
*NEDBANK CUT TO HOLD VS BUY AT RENAISSANCE CAPITAL
*NORDEN CUT TO SELL FROM HOLD AT SEB; PT DKK94
*STAGECOACH CUT TO SELL VS REDUCE AT INVESTEC
*SWISS LIFE CUT TO HOLD VS BUY AT KEPLER CHEUVREUX
*YAPI KREDI CUT TO SELL VS HOLD AT SOCGEN

>>> PT Change


>>> Initiation
*ALLEGHENY TECHNOLOGIES RATED NEW HOLD AT BERENBERG; PT $13.9
*NORSK HYDRO RATED NEW SELL AT BERENBERG; PT NOK29.10
*UNITED CO RUSAL RATED NEW HOLD AT BERENBERG; PT HKD 2.90

>>> Call
>> Stock
*THOMAS COOK CUT TO ADD VS BUY AT ALPHAVALUE

FT : Miramax bought by Qatari broadcaster BeIN Media Group

Miramax bought by Qatari broadcaster BeIN Media Group

Miramax, the studio behind films such as Pulp Fiction, Shakespeare in Love and The English Patient, has been sold to BeIN Media Group, the Qatari broadcaster.
BeIN acquired the entire company from a group of investors, including the Qatar Investment Authority — the country’s sovereign wealth fund — and Tom Barrack’s Colony Capital, for an undisclosed sum.

The purchase will help BeIN broaden its holdings from sports networks and movie channels in 24 countries including the US, France, Hong Kong and Australia. Nasser Al-Khelaïfi, BeIN chairman and chief executive, said Miramax would complement his company’s “plans to grow across the entertainment industry and develop new content production”.
Miramax’s library comprises more than 700 titles, including award winners such as No Country for Old Men and commercial hits such as the Scream franchise. The studio has recently resumed investing in new productions, including the forthcoming Bridget Jones’s Baby and Southside With You, a film based on the first date of Barack and Michelle Obama.
“In concert with BeIN leadership, we look forward to further expanding our film and television output, broadening our distribution capabilities and fortifying our position as the premiere independent studio brand,” said Steve Schoch, Miramax chief executive.
The sale is the latest turn in Miramax’s ownership saga.
The studio, founded in 1979 by Harvey and Bob Weinstein, revolutionised independent cinema with a string of critical and commercial hits in the 1980s and 1990s, prompting Hollywood’s big studios to create their own “independent” divisions in response.
The brothers stayed with the company when it was acquired by Walt Disney in 1993 for $60m but eventually left in 2005 to start The Weinstein Company.
The Weinsteins were bidders when Disney sold Miramax in 2010 but were trumped by a $660m offer from the investor consortium that included Colony and the QIA.
Colony and its partners focused on monetising Miramax’s existing films, including completing a $500m securitisation of the company’s library, striking distribution deals with Netflix and Hulu and, in 2013, cutting a production and distribution deal with The Weinstein Company.
“By riding the secular wave into online streaming, we successfully returned our partners’ capital many times over and safeguarded the passion, dedication and hard work of the library’s true artistic masters,” said Mr Barrack, founder and chief executive of Colony.
“Our sale to BeIN will provide not only stewardship for these irreplaceable films but a best of class strategic owner focused on expansion of production and the betterment of the Miramax brand,” he said.

>>> Asian Update

Asian Market Update: Services PMIs retreat; Australia exports showcase transition away from mining


***Economic Data***
- (CN) CHINA FEB CAIXIN PMI SERVICES: 51.2 V 52.4 PRIOR
- (HK) HONG KONG FEB PMI Services: 46.4 V 46.1 PRIOR (12th straight contraction)
- (JP) JAPAN FEB SERVICES PMI: 51.2 V 52.4 PRIOR; COMPOSITE PMI: 51.0 V 52.6 PRIOR
- (KR) SOUTH KOREA FEB CPI M/M: 0.5% V 0.1%E; Y/Y:1.3% V 0.9%E; CPI CORE Y/Y: 1.8% V 1.8%E
- (AU) AUSTRALIA JAN TRADE BALANCE (A$): -2.9B V -3.2BE; 21st consecutive month of deficit
- (AU) AUSTRALIA FEB AIG PERF OF SERVICES INDEX: 51.8 V 48.4 PRIOR; first expansion in 5 months
- (NZ) NEW ZEALAND Q4 VALUE OF ALL BUILDINGS Q/Q: 2.5% V 2.0%E; 4th straight quarter of increase
- (BR) BRAZIL CENTRAL BANK (BCB) LEAVES SELIC TARGET RATE UNCHANGED AT 14.25%; AS EXPECTED; Decision again was not unanimous (6-2)

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 +1.0%, S&P/ASX +1.1%, Kospi +0.2%, Shanghai Composite +0.2%, Hang Seng -0.5%, Mar S&P500 +0.1% at 1,985

***Commodities/Fixed Income***
- Apr gold -0.2% at $1,240/oz, Apr crude oil +0.4% at $34.80/brl, May copper -0.5% at $2.18/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 2.4 tonnes to 788.6 tonnes; Highest since Sept 2014
- SLV: iShares Silver Trust ETF daily holdings rise to 9,777 tonnes from 9,692 tonnes ; highest since Jan 15th
- USD/CNY: *(CN) PBOC SETS YUAN MID POINT AT 6.5412 V 6.5490 PRIOR
- (CN) PBOC to inject CNY40B in 7-day reverse repos
- (JP) Japan investors net buy ¥934B in foreign bonds v net buy ¥1.97T in prior week; Foreign investors net sell ¥1.01T in Japan stocks v net sell ¥441B in Japan stocks in prior week

***Market Focal Points/FX***
- Asian equity markets are modestly higher despite the generally soft services PMI numbers, as continued rebound in oil prices sustain risk-on flows. Despite the build in API and DOE inventories this week, reports of Saudi Arabia considering a $10B international loan - implying kingdom's fiscal strains from low prices - sent WTI crude and Brent toward their highs. Nikkei225 is among the leading indices tracking losses in JPY, as USD/JPY pair rose 80pips from the lows above 114.20. AUD/USD is near its highs late in the day with a 40pip rise to 0.7320, while NZD/USD is in the middle of its 40-pip session range below 0.67.

- China's 12th National Committee of the Chinese People's Political Consultative Conference (CPPCC) has started to convene in Beijing, culminating in the guidelines for 2016 economic growth targets. Speaking at the opening conference, committee's spokesperson said China economy is expanding with "good quality", fundamentals "remain sound", January data showed positive signs, and overall China is seeing "good momentum in its structural reform." Remarks come the day after Moody's cut its China sovereign outlook to negative, but local economists panned the revision. BoCom said the rating agency misjudged the economy since its overall risks are still positive, while UBS economist actually questioned the credibility and authority of the western credit agencies.

- February services PMIs for China, Hong Kong, and Japan came in mixed/lower. China's print slowed to 51.2 from 52.4 and composite PMI returned to contraction of 49.4 v 50.1 prior. Markit economist said economy is still weak and unstable, though the relative outperformance in services is indicative of continued improvement in the economic structure. Hong Kong PMI was a touch firmer but has now been in contraction for a full year. Here, Markit noted the impact from global slowdown, lower tourist activity, and the decline in "stocks of inputs". Japan PMIs also retreated amid slowdown in new order growth, decline in hiring, and weaker forecasts towards activity over the 12-month outlook. Note that ahead of the PMI release, BOJ Gov Nakaso also spoke in favor of the anticipated impact of negative rates on tackling deflation, but added there would a limit on how much further central banks can push rates into negative territory.

- Australia's January trade balance was in deficit for the 21st straight month though not as deep as anticipated, as exports rose 1% m/m v 5% decline in December. A closer look at the export components reveals the extent to which Australian economy is transitioning away from mining industry dependence - exports of iron ore fell about 10% to a 5-year low while crude oil shipments fell 11% to a 9-year low - even though a 2-day closure of Port Hedland due to Cyclone Stan was mentioned as a factor. Exports in "other manufactures" category made up for the decline in metals, rising some 15% on the month. Australian index also outperformed on the session, in part helped by the rally in BHP after confirmed Samarco disaster settlement in Brazil.

***Equities***
US equities / ADRs:
- SMTC: Reports Q4 $0.17 v $0.15e, R$118.6M v $116Me; +13.8% afterhours
- WB: Reports Q4 $0.15 adj v $0.12e (2 est), R$149M v $105M y/y; +1.2% afterhours
- AEO: Reports Q4 $0.42 v $0.41e, R$1.11B v $1.12Be; +0.7% afterhours
- SINA: Reports Q4 $0.35 v $0.37e, R$253.6M v $243Me; -3.6% afterhours
- HABT: Reports Q4 $0.05 adj v $0.04e, R$60.6M v $60.5Me; -11.0% afterhours

Notable movers by sector:
- Consumer discretionary: Fast Retailing Co 9983.JP +3.5% (Feb result)
- Consumer staples: Woolworths WOW.AU +0.3% (approached for real estate assets)
- Financials: Evergrande Real Estate Group 3333.HK -1.4% (Feb result); Jinmao Investments 6139.HK +4.5% (guidance)
- Industrials: Fantasia Holdings Group Co 1777.HK +5.8% (FY15 result); Cleanaway Waste Management CWY.AU -1.2% (restructuring); Posco 005490.KR +1.0% (raising prices); Japan shippers Kawasaki Kisen +7.8%, Nippon Yusen +5.4%, Mitsui OSK +8.0% (press speculation on rising profitability)
- Technology: Toshiba Corporation 6502.JP +7.1% (seeks loans for restructuring); Sharp 6753.JP +6.1% (Hon Hai deal speculation)
- Materials: BHP +3.7% (settles Samarco)
- Utilities: CT Environmental Group 1363.HK +4.8% (guidance)