>>> Europe : Brokers Upgrades & Downgrades - 18th of May 2016

>>> Up
*BOOKER GROUP RAISED TO BUY VS NEUTRAL AT GOLDMAN
*EURONEXT RAISED TO NEUTRAL VS SELL AT UBS
*HERDEZ RAISED TO BUY AT SANTANDER
*JERONIMO MARTINS RAISED TO BUY VS NEUTRAL AT UBS
*KROTON RAISED TO BUY AT PLANNER CORRETORA
*MUNICH RE RAISED TO BUY AT JEFFERIES
*TESLA MOTORS RAISED TO BUY VS NEUTRAL AT GOLDMAN

>>> Down
*ACACIA MINING CUT TO SELL VS NEUTRAL AT CITI
*AEGON CUT TO EQUAL WEIGHT VS OVERWEIGHT AT MORGAN STANLEY
*BANCO POPULAR ESPANOL CUT TO ADD VS BUY AT ALPHAVALUE
*CAIXABANK CUT TO REDUCE VS BUY AT ALPHAVALUE
*DEUTZ CUT TO HOLD AT HSBC
*ELECTROLUX CUT TO ’SELL’ AT DNB MARKETS
*FRAPORT CUT TO HOLD AT SANTANDER
*GBL CUT TO HOLD AT HSBC
*LEONI CUT TO SELL VS HOLD AT BANKHAUS LAMPE
*SCOR CUT TO UNDERPERFORM AT JEFFERIES
*SWISS RE CUT TO HOLD AT JEFFERIES
*TURKISH AIR CUT TO NEUTRAL AT CREDIT SUISSE
*VOLVO B CUT TO NEUTRAL VS BUY AT UBS

>>> PT Change


>>> Initiation
*DASSAULT AVIATION RATED NEW BUY AT BOFAML; PT EU1,225
*JUST EAT RATED NEW BUY AT BERENBERG; PT 530P

>>> Call
>> Stock
*GENEL ENERGY REMOVED FROM EMERGING EMEA 1 LIST AT BOFAML
*NASPERS ROLLED OVER ON EMERGING EMEA 1 LIST AT BOFAML

>>> Asian Update

Asian Market Update: Japan initial Q1 GDP shows improved growth on rising consumption; AUD retreats as wage prices hit 18-month lows

***Economic Data***
- (CN) CHINA APR PROPERTY PRICES M/M: FALL IN 5 OUT OF 70 CITIES VS FALL IN 8 PRIOR; Y/Y: FALL IN 23 OUT OF 70 CITIES V FALL IN 29 PRIOR
- (JP) JAPAN Q1 PRELIMINARY GDP Q/Q: 0.4% V 0.1%E (1-year high); ANNUALIZED GDP: 1.7% V 0.3%E
- (AU) AUSTRALIA Q1 WAGE PRICE INDEX Q/Q: 0.4% (18-year low) V 0.5%E; Y/Y: 2.1% (multi-year low) V 2.2%E
- (AU) AUSTRALIA APR WESTPAC LEADING INDEX M/M: +0.2% V -0.1% PRIOR
- (NZ) NEW ZEALAND Q1 PPI INPUT Q/Q: -1.0% V -1.2% PRIOR (2nd straight decline); PPI OUTPUT Q/Q: -0.2% V -0.8% PRIOR (2nd straight decline)
- (CL) CHILE CENTRAL BANK (BCCH) LEAVES OVERNIGHT RATE TARGET UNCHANGED AT 3.50%; AS EXPECTED

***Index Snapshot (as of 03:30 GMT)***
- Nikkei225 +0.6%, S&P/ASX -0.5%, Kospi -0.6%, Shanghai Composite -1.7%, Hang Seng -1.7%, Jun S&P500 flat at 2,044

***Commodities/Fixed Income***
- June gold -0.1% at $1,276/oz, June crude oil +0.3% at $48.46/brl, Jul copper -0.9% at $2.07/lb
- GLD: SPDR Gold Trust ETF daily holdings rise 4.8 tonnes to 855.9 tonnes; 9th straight increase; highest since Nov 2013
- (US) Weekly API Oil Inventories: Crude: -1.1M v +3.4M prior; first draw in 3 weeks
- (JP) BOJ offers to buy ¥350B in 1-3yr JGBs, ¥440B in 3-5yr JGBs, ¥450B in 5-10yr JGBs
- (CN) PBOC SETS YUAN MID POINT AT 6.5216 V 6.5200 PRIOR
- (CN) PBOC to inject CNY70B in 7-day reverse repos
- (CN) China MoF sells 2-yr bonds at 2.5051%; Sells 7-yr bonds at 2.9741%
- (AU) Australia MoF (AOFM) sells A$900M in 4.75% 20 Bonds; avg yield: 2.3416%; bid-to-cover: 1.94x

***Market Focal Points/FX***
- Asia equities are favoring the downside, tracking larger losses in US markets where improved building permits and in-line CPI added to worries the FOMC rate hikes are back on the radar. Remarks from Fed's Kaplan, Lockhart, and Williams in the US session also went on to signal that the upcoming meetings are live for another rate hike. In Asia, Japan's Q1 preliminary GDP was a positive surprise after last quarter's contraction, helping the economy avoid a technical recession thanks to improved consumption segment. China housing prices maintained their trend of recovery. In FX majors, USD/JPY was volatile around the GDP release, initially falling below 108.80 and then rising above 109.20. AUD/USD was down about 50pips on soft wage inflation, falling to 0.7280. NZD/USD was down about 30pips below $0.6790, with added weakness coming on another decline in Q1 PPI.

- Japan Q1 prelim GDP came in at a 1-year high on sequential basis, with a some telling signs in the components. Exports rose 0.6% after a -0.8% drop in Q4, and consumption was a 3-quarter high of +0.5%, above +0.2%e and up from -0.9% in Q4. On the downside, recovery in CAPEX was notoriously absent, as non-residential investment was -1.4% v -0.8%e - the biggest decline since Q2 2015. Japan Econ Min Ishihara said the economy continues moderate recovery trend with a notable rebound in consumption, though slowing growth in China and emerging market volatility bear close watching. PM Abe's advisor Hamada recommended that the govt holds off on the sales tax hike plans but also warned that an intervention on currency could impact US/Japan ties.

- China April property prices retained their upward trend, as nearly all of top 70 cities saw sequential increase. Overall, m/m prices were up for the 12th straight month and y/y up for 7th straight month at 2.0% and 12.4% respectively. Elsewhere, the NEA saw April power consumption growth slow to 1.9% y/y from 5.6% prior, and a high-profile editorial in Chinese press called for more policy support to stimulate growth in private investment.

***Equities***
US equities / ADRs:
- ANDE: Philip Falcone's HC2 said to have offered a $37/shr cash bid for Andersons, for $1B total valuation - press; +28.1% afterhours
- AGIO: Establishes new collaboration with Celgene in metabolic immuno-oncology and amend certain rights from 2010 agreement; +3.4% afterhours
- VIPS: Reports Q1 $0.16 v $0.16e, R$1.89B v $1.87Be; -11.5% afterhours

Notable movers by sector:
- Consumer discretionary: China Eastern Airlines 670.HK -1.8% (Apr result); Car Inc 699.HK -1.7% (Q1 result); Intime Department Store Group 1833.HK -3.0% (asset-light arrangement)
- Financials: Macau Legend Development 1680.HK -1.0% (Q1 result); IOOF Holdings IFL.AU -5.8% (guidance)
- Industrials: Xinyi Glass Holding Co 868.HK +1.0% (proposes spin-off and separate listing of unit); Hitachi 6501.JP +2.1% (mid-term targets)
- Materials: Galaxy Resources GXY.AU +9.1% (final offtake agreement)

>>> US After Hours Summary: ANDE +26% following acquisition proposal f


After Hours Summary: ANDE +26% following acquisition proposal from HCHC

After Hours Gainers:

Companies trading higher in after hours in reaction to earnings/guidance: NETE +19.4%, AGIO +2.8%

Companies trading higher in after hours in reaction to news: ANDE +26.3% (HC2 Holdings (HCHC) sends letter to Chairman of ANDE stating desire to acquire Co for $37/share in cash), PETX +7.9% (announces the FDA Center for Veterinary Medicine approved Entyce for appetite stimulation in dogs), CETX +3.6% (files to withdraw form S-3 files with SEC on April 11, 2016), AGIO +2.8% (Co & Celgene (CELG) announce a strategic collaboration focused on metabolic immuno-oncology, Agios to receive an upfront cash payment of $200 mln), AVID+1.5% (CEO disclosed purchase of 100K shares in multiple transactions)

After Hours Losers:

Companies trading lower in after hours in reaction to earnings/guidance: VIPS -9.9%, ACXM -8.2%

Companies trading lower in after hours in reaction to news: MACK -4.8% (presented expanded analysis of its Phase 2 study of seribantumab in combination with exemestane in HER2-negative, hormone receptor positive metastatic breast cancer)

FT : Uber targeted by Paris over self-employed status of drivers

Uber targeted by Paris over self-employed status of drivers

Uber has found itself the target of further legal challenges in France after the official body that collects social security contributions moved to force the company to reclassify its drivers as employees.
The Urssaf for Paris and surrounding areas has launched two separate challenges to the California-based company, arguing that it has avoided paying millions of euros in employee-related charges because it has not registered its drivers as employees.

Jean-Marie Guerra, director of enforcement at Acoss, part of the country’s social security network, said that Uber owed “several million euros” to the social security system, according to comments to AFP, the news agency.
He added that the Urssaf had taken the case to the country’s social security affairs tribunal to have the company reclassify its drivers as employees — a move that would force Uber to pay millions in employer contributions.
Mr Guerra told the AFP that Urssaf had also begun criminal proceedings with the Paris prosecutor against the company for alleged abuse of status.
On Tuesday, Uber acknowledged the proceedings, which were launched at the end of last year.
Insisting that the overwhelming majority of drivers in France opt to become self-employed “precisely to be able to work independently”, Uber said: “We are therefore strongly challenging the accuracy and validity of these procedures, but we shall leave it up to the courts to decide.”
The company added that a decision against it would have far-reaching consequences for the entire ride-hailing sector given that the majority of taxi drivers are classified as independent.
Uber said that in several recent cases, France’s leading courts of appeal have refused to reclassify independent taxi drivers as employees.
The latest legal challenges, which could take more than five years to work their way through the country’s legal system, add to Uber’s significant problems in France, its biggest market in terms of revenues outside the US.
Thibaud Simphal, who heads Uber’s operations in France, and Pierre-Dimitri Gore-Coty, head of Uber in Western Europe, stood trial in February on charges of “misleading commercial practices” and “complicity in the illegal exercise of the taxi profession”. A verdict is expected on June 9.
In January, the company was ordered to pay €1.2m to the National Union of Taxis for failing to enforce an aspect of a 2014 law governing minicab services.
The payment came after complaints that drivers using the app were not returning to their bases between rides, as required by law. Uber has appealed the fine.
The company has long insisted that its drivers, regardless of jurisdiction, are independent contractors, not employees. But that view has been challenged in court, and Uber recently reached a combined $100m settlement in class-action lawsuits in California and Massachusetts.
The agreement maintained the drivers were independent contractors but gave them the right to organise into associations that will be able to meet with Uber management.
Earlier this month, Uber and the Machinists Union reached an agreement in New York City under which all Uber drivers in the city will be able to join the newly-formed Independent Drivers Guild.
The guild, which is affiliated with the Machinists Union, will provide them with benefits, including regular meetings with management and representation if they are terminated.
However, it stops short of being a full union, and drivers who are members would still be considered independent contractors of Uber, a status that means they are not eligible for collective bargaining rights.

>>> US Close Dow-1.02% S&P-0.94% Nasdaq-1.25% Russell-1.66%

Closing Market Summary: Consumer Staples and Health Care Weigh on Averages

The major averages ended Tuesday on a lower note, erasing yesterday's gains. Today's trade featured a hotter-than-expected reading of April CPI (+0.4%; consensus +0.3%), hawkish commentary from FOMC members, a breach of the 50-day simple moving average (2056.90) in the S&P 500 (-0.9%), and the underperformance of consumer discretionary (-1.2%), health care (-1.1%), and technology (-1.1%). The Nasdaq Composite (-1.3%) ended behind both the Dow Jones Industrial Average (-1.0%) and the benchmark index (-0.9%).

Today's session began on a lower note as investors looked to the possible rate hike implications stemming from a hotter-than-expected reading of inflation in April. Meanwhile, Home Depot (HD 132.00, -3.34) came under pressure despite reporting above-consensus quarterly results. Additionally, the market maintained a negative bias after disclosures that George Soros placed bearish bets on the broader market by doubling his put position on the SPDR S&P 500 ETF (SPY 204.85, -1.92) and boosting his holdings in gold.

The S&P 500 (-0.9%) tested and briefly defended support near its 50-day simple moving average (2056.90) in the late morning, but was unable to do so again when that level was re-tested in the afternoon. As a result, the major averages extended their losses through the final hour. Nine sectors ended in the red with consumer staples (-1.9%), utilities (-1.7%), consumer discretionary (-1.2%), and health care (-1.1%) rounding out the leaderboard.

In the consumer staples sector (-1.9%), Kraft Heinz (KHC 82.16, -3.71) displayed relative weakness, losing 4.3%. Meanwhile, Hormel Foods (HRL 38.80, -1.44) ended lower by 3.6% ahead of tomorrow morning's earnings report. The broader sector trimmed its May gain to 0.3%, trailing only technology (-1.1%; month-to-date +0.4%) over that time.

Drug manufacturers displayed relative weakness in the health care space (-1.1%) as the sub-group moved lower in sympathy with AbbVie (ABBV 60.25, -2.20). The company fell 3.5% after receiving a negative ruling regarding its patent on a dosing regimen involving its rheumatoid arthritis medication. Conversely, Valeant Pharmaceuticals (VRX 29.08, +2.03) gained 7.5% after Citron's Andrew Left confirmed that he has opened a long position in the stock.

In the consumer discretionary space (-1.2%), Home Depot declined 2.5% despite topping analysts' estimates for the quarter. Fellow home improvement name Lowe's (LOW 76.07, -0.93) slipped 1.2% ahead of tomorrow morning's quarterly report.

Interest rate-sensitive real estate investment trusts (REITs) underperformed in the financial sector (-0.7%). The sub-group was pressured by the hotter-than-expected CPI reading and hawkish commentary from FOMC members. San Francisco Fed President Williams, Atlanta Fed President Lockhart, and Dallas Fed President Kaplan each said that an interest rate hike may be warranted sooner than the market currently anticipates one. For the June Fed meeting, the likelihood of a rate increase, as measured by the fed funds futures market, jumped to 15.0% from yesterday's 3.8% estimate.

The U.S. Dollar Index (94.52, -0.01) ended slightly lower as the euro and the yen ended flat against the greenback. The dollar/yen pair finished higher by 0.1% at 109.09 while the euro ended at 1.1316 against the dollar. Separately, pound sterling gained 0.4% against the dollar (1.4462).

The Treasury complex ended on a mixed note with the yield on the 10-yr note ending higher by one basis point at 1.76%.

Today's participation was above the recent averages as more than 1.02 billion shares changed hands on the NYSE floor.

Today's economic data included April Core CPI, April Housing Starts, April Building Permits, April Industrial Production, and April Capacity Utilization:

  • The Consumer Price Index (CPI) for April produced a headline surprise, with total CPI rising 0.4% month-over-month (consensus +0.3%) and core CPI, which excludes food and energy, increasing 0.2% as expected.
    • The seasonally adjusted all items increase was broad-based, with the indexes for food, energy, and all items less food and energy rising in April.
    • The move, though, was powered by a 3.4% increase in the index for energy, which featured an 8.1% jump in the gasoline index.
    • A 0.3% increase in the shelter index and a 0.3% increase in the medical care services index were big drivers of the 0.2% increase in core CPI; however, those increases were mitigated somewhat by a 0.3% decline in the indexes for new vehicles, used cars and trucks, and apparel.
    • Over the last 12 months, CPI is up 1.1% on an unadjusted basis versus 0.9% in March. Core CPI is up 2.1% versus a 2.2% increase seen in March.
  • It's possible the Fed could use the uptrend in CPI as a basis for raising the fed funds rate in June, although we suspect the fed funds futures market still isn't going to be buying into that notion.
  • Housing starts increased 6.6% month-over-month to a seasonally adjusted annual rate of 1.172 million units (consensus 1.135 mln). The starts rate for March was revised up to 1.099 million from 1.089 million.
  • Building permits increased 3.6% to a seasonally adjusted annual rate of 1.116 million (consensus 1.130 mln). Permits for March were revised down to 1.077 million from 1.086 million.
    • Total housing starts are 1.7% below the April 2015 rate while total building permits are 5.3% below the April 2015 estimate.
    • Single-family starts increased 3.3% in April to 778,000, led by a 12.8% gain in the Midwest and a 9.0% increase in the South. Both the Northeast (-1.8%) and the West (-14.1%) saw a drop in single-family starts.
    • The rise in permits was driven by an 8.0% increase in permits for multi-family units, although permits for single-family units increased 1.5%.
    • The number of homes under construction increased to 999,000 from 994,000 in March. This will be a positive input for Q2 GDP forecasts.
  • After a string of largely disappointing data, the Industrial Production report for April proved to be a positive surprise as production increased at a faster than expected rate of 0.7% (consensus 0.2%).
  • Capacity utilization also surprised to the upside, coming in at 75.4% (consensus 75.0%).
    • The April reading represented the first increase in three months while the previous month's reading was revised down to -0.9% from -0.6%. On a year-over-year basis, industrial production is down 1.1%.
    • Most notably, the utilities index spiked 5.8% while the final products index increased 1.0% on the back of a 1.2% growth in consumer goods.
    • The only category that registered a decline in April was mining. The mining index fell 2.3% and is now down 13.4% year-over-year. The decline in mining was not enough to offset the spike in utilities, leading to a 0.3% uptick in manufacturing output.
    • Looking at capacity utilization, total industry capacity grew 1.0% year-over-year with utilities showing the largest sequential increase (up 420 basis points to 78.6%). Mining capacity utilization declined to 72.5% from 74.0%, which represents a new record low.

Tomorrow's economic data will be limited to the 7:00 ET release of the weekly MBA Mortgage Index; however, the the Federal Open Market Committee will release the minutes from the April 27 meeting at 14:00 ET.

  • Nasdaq Composite -5.8% YTD
  • Russell 2000 -3.0% YTD
  • S&P 500 +0.2% YTD
  • Dow Jones +0.6% YTD