>>> Asian Update

Asian Market Update: Equities slip as oil slides back below $30/brl; Analysts and officials debate BOJ policy options ahead of Friday meeting


***Economic Data***
- (JP) JAPAN DEC PPI SERVICES Y/Y: 0.4% V 0.2%E
- (NZ) NEW ZEALAND DEC PERFORMANCE OF SERVICES INDEX: 58.9 V 59.8 PRIOR
- (NZ) NEW ZEALAND DEC RETAIL CREDIT CARD SPENDING M/M: -0.8% v +0.6% PRIOR; Y/Y: 7.4% v 8.4% PRIOR
- (SG) SINGAPORE DEC INDUSTRIAL PRODUCTION M/M: 2.0% V 1.4%E; Y/Y: -7.9% V -7.2%E
- (KR) SOUTH KOREA Q4 PRELIMINARY GDP Q/Q: 0.6% V 0.6%E; Y/Y: 3.0% V 3.0%E
- (TH) Thailand Dec Customs Trade Balance $1.5B v $1.2Be
- (PH) Philippines Nov Trade Balance: -$1.0B v -$1.4Be; Imports $6.1B v $6.5B prior

***Index Snapshot (as of 04:30 GMT)***
- Nikkei225 -2.0%, S&P/ASX closed, Kospi -1.2%, Shanghai Composite -2.1%, Hang Seng -1.8%, Mar S&P500 -0.1% at 1,868

***Commodities/Fixed Income***
- Feb gold +0.7% at $1,113/oz, Mar crude oil -2.4% at $29.60/brl, Mar copper flat at $1.99/lb
- SLV: iShares Silver Trust ETF daily holdings fall to 9,662 tonnes from 9,692 tonnes; multi-year low
- USD/CNY: (CN) PBOC SETS YUAN MID POINT AT 6.5548 V 6.5557 PRIOR; strongest Yuan setting since Jan 6th, 12th straight firmer setting relative to Close
- (CN) PBOC to inject CNY80B in 7-day reverse repos and CNY360B in 28-day reverse repos (largest daily injection in 3 years)

***Market Focal Points/FX***
- Asian equities are back in the red, tracking the final hour selloff on Wall St, as oil prices erased their Friday bounce to fall some 7% back below $30. Concern with oversupply in the energy space resurfaced as OPEC Sec Gen blamed non-members, while Iraq output hit record highs. The cloud of falling oil and the potential turmoil it creates in high-yield debt and emerging markets overshadowed 3-year high liquidity injection by the PBoC, which pumped in some CNY440B in 7 and 28 day repos. Chinese central bank also set Yuan higher for the 12th straight day, seeking to diminish concerns over outflows from the mainland, even as PBoC official Zhang reiterated there were no plans to lower RRR for the time being. Shanghai Composite is leading the thrust lower with an over 2% drop. In USD majors, USD/JPY was down over 30pips below 118, AUD/USD is down 30pips from the highs below 0.6940, and NZD/USD is little changed just below 0.6450 ahead of Thursday's RBNZ decision.

- With a close call of a BOJ decision looming on Friday, there is plenty of rhetoric over its policy options. PM Abe's advisor Hamada noted more easing is still needed, but because of constraints of current JGB buying policy, BOJ should consider buying foreign-denominated debt or other methods. Econ Min Amari said he did not believe the BOJ will be as dovish in its intentions as ECB's Draghi, though he reiterated confidence in Kuroda to take appropriate measures. Former Dep Gov Iwata however would not rule out the possibility of expanded QE. Analysts with BBH did not see more easing as their expected scenario, with the research note citing late-2014 highs in core-core CPI and BOJ's lack of concern over market volatility impact on corporate activity in Japan. Instead, the central bank's update on CPI and GDP forecasts will be in focus, and only a cut in FY16/17 CPI target below 1% is seen as a recognition of further delay in reaching its 2% target.

- In economic data, Korean GDP was in line with expectations, though a local think tank noted potential GDP has fallen to 2-3% range and may fall to 1-2% within 10 years. Korea's Hynix and Hyundai Motors also reported Q4 results that were largely in line with consensus - respective shares were down -1.5% and -0.4% in late session trade. Hyundai's Q4 global sales were unchanged y/y and China sales fell, but sales in Europe and US were higher. Hynix noted Q1 memory market demand would be uncertain amid seasonal weakness, but DRAM demand for PCs would improve in H2.

***Equities***
US equities / ADRs:
- RLYP: Nine of the 12 drugs tested in Veltassa Drug-Drug Interaction Study showed no clinically meaningful reduction in absorption; +17.2% afterhours
- RMBS: Reports Q4 $0.18 v $0.15e, R$76.8M v $72.5Me; Acquires Secure Mobile Payment and Ticketing Solutions for £64.7M cash; +6.2% afterhours
- SWFT: Reports Q4 $0.53 v $0.47e, R$1.09B v $1.11Be; +5.3% afterhours
- SANM: Reports Q1 $0.58 v $0.60e, R$1.53B v $1.58Be; +4.7% afterhours
- STLD: Reports Q4 $0.09 v $0.08e, R$1.59B v $1.66Be; +2.3% afterhours
- MEG: Nexstar reportedly willing to pay $2.3B for Media General; Said to be close to deal - NYPost

Notable movers by sector:
- Consumer discretionary: Air China 753.HK -0.4% (guidance); Juneyao Airlines Co 603885.CN +4.2% (guidance); Ajinomoto Co 2802.JP -0.3% (9-month result speculation); JSR Corp 4185.JP -0.6% (9-mo result)
- Industrials: CRRC 1766.HK -6.2% (to issue bond); China Machinery Engineering Corp 1829.HK -1.4% (contract awarded); Nippon Yusen 9101.JP -3.5% (considers forecast revision)
- Technology: Hynix Semiconductor 000660.KR -0.2% (Q4 result); Samsung SDI 006400.KR -13.2% (Q4 result); LG Innotek 011070.KR -5.6%?(Q4 result); Toshiba Corporation 6502.JP -4.5% (considers write down for some business)
- Materials: Shandong Chenming Paper Holdings 1812.HK +4.5% (guidance); China National Materials Company 1893.HK +7.5%, China National Building Material Co 3323.HK -1.9% (parent considers strategic reorganization)
- Energy: Guodian Technology & Environment Group Co 1296.HK +1.9% (JV plan); Kansai Electric Power 9503.JP -4.7% (speculation to lower base rates)

>>> US Close Dow-1.29% S&P-1.56% Nasdaq-1.58% Russell-2.28%

Closing Market Summary: Indices End Session Under Heavy Selling Pressure

The stock market ended its first session of the week under heavy selling pressure, pinned down by declining oil prices, added selling pressure in the financial sector, a decidedly poor showing from the small-cap stocks and a violation of a technical support level at 1890 for the S&P 500.

The biggest loser of the day was the Russell 2000 (-2.3%). It was followed by the Nasdaq Composite (-1.6%), the S&P 500 (-1.6%), and the Dow Jones Industrial Average (-1.3%).

There was weakness from the start of today's trading and not a whole lot of buying interest in general throughout the session.  The lack of buying interest stemmed in part from an understanding that the week ahead contains a number of potentially important market-moving catalysts:

  • Earnings results from the likes of Apple (AAPL 99.41, -2.01), Amazon.com (AMZN 596.53), Boeing (BA 124.04, -0.60), and Ford (F 11.98, -0.16) to name a few luminaries
  • The Federal Open Market Committee meeting on Wednesday
  • The Bank of Japan meeting on Thursday; and
  • The advance estimate for fourth quarter GDP, which the Atlanta Fed's GDPNow model forecast is for just 0.7% real growth

The weakness in oil prices began overnight as supply concerns once again took root.  Selling pressure intensified late in the day as the commodity settled its pit session down 5.8% at $30.34 per barrel.  Selling pressure in the stock market picked up with the drop to session lows for oil and persisted into the close as extended trading action took oil prices even lower.

The energy sector (-4.5%) was the worst-performing sector today and was followed by the materials (-3.3%) and financials (-2.3%) sectors. The telecom services (-0.3%), consumer staples (-0.8%), and utilities (-0.9%) sectors exhibited relative strength but still finished lower for the day.

The technology sector (-1.4%) reversed sharply intraday as large-cap constituents Alphabet (GOOGL 733.62, -11.84), Facebook (FB 97.01, -0.93), and Apple went on the defensive. The three companies declined between 1.0% and 2.0%. Alphabet is set to report earnings after the bell next Monday while Facebook reports after the close on Wednesday, and Apple reports after Tuesday's close.

The consumer discretionary space (-1.2%) was also under pressure, yet gains in Amazon.com and McDonald's (MCD 119.20, +0.80) helped keep losses in check. McDonald's was a top-performing Dow component after the company impressed investors with its latest earnings report and a reassuring-sounding outlook.

The Dow Jones Transportation Average (-1.9%) for its part had a tough day courtesy of weakness in many of its components, but primarily the railroads: Kansas City Southern (KSU 65.20, -2.21), CSX (CSX 21.97, -1.20), and Union Pacific (UNP 68.79, -1.20).

The weakness in the transports pressured the industrials sector (-1.3%), which also had to deal with a Goldman Sachs downgrade of Caterpillar (CAT 57.91, -0.50) to "Sell" from "Neutral."  in other developments, Johnson Controls (JCI 34.21, -1.39) and Tyco (TYC 34.15, +3.56) announced a merger, although that news didn't do anything to help turn the tide of selling interest in the broader market.

The lightly-weighted telecom services outperformed the broader market thanks to a strong showing from Verizon (VZ 47.03, -0.01).

Treasuries ticked higher throughout today's session as equities declined. The benchmark note ended its day on its high with the yield on the 10-yr note lower by four basis points at 2.01%.

Today's participation was lighter than the recent trend with only one billion shares changing hands on the NYSE floor.

There were no major U.S. economic releases today, although there were some focal points of weakness that included a disappointing trade balance report out of Japan, which featured an 8.0% year-over-year decline in exports, and a poor reading from the Dallas Fed Manufacturing Survey.

Tomorrow's economic data includes November's Case-Schiller 20-city Index (consensus 5.8%), the FHFA Housing Price Index for November, and January's Consumer Confidence report.

FT : Vonovia lowers threshold in hostile bid for rival landlord

Vonovia lowers threshold in hostile bid for rival landlord

German property group Vonovia has cut the level of backing it needs from shareholders in an effort to salvage its hostile takeover bid for its closest rival, Deutsche Wohnen.
Germany’s largest listed landlord said on Monday evening that it was cutting the approval threshold for its €14bn bid from 57 per cent to 50 per cent of Deutsche Wohnen shareholders, in order to increase the likelihood that the transaction went through.

As of Friday, Vonovia had control of 20.6 per cent of Deutsche Wohnen’s capital and voting rights, according to regulatory filings published on Vonovia’s website.
The decision to adjust the threshold automatically extends the offer period, which had been due to expire on Tuesday, for two more weeks, meaning that Deutsche Wohnen shareholders now have until February 9 to tender their shares. Vonovia is not allowed to adjust the offer terms again.
Vonovia said it had taken the decision after it emerged in discussions with shareholders that some index funds and holders of Deutsche Wohnen’s convertible bonds were not allowed to tender until a deal had been successful.
Stefan Kirsten, Vonovia’s chief financial officer, said the move did not change the company’s “declared goal” of gaining a holding in Deutsche Wohnen of 50 per cent plus one share, on a fully diluted basis. “We can only achieve the full potential for synergies with a majority,” he said.
Deutsche Wohnen is vehemently opposed to a deal it has argued will “destroy value”.
Lars Wittan, chief investment officer, said the move showed “that Vonovia has recognised that a clear majority of Deutsche Wohnen shareholders reject the hostile takeover”.
“Now Vonovia wants to force through a takeover against the majority of Deutsche Wohnen shareholders — and is justifying this with technical constraints. This offer is and remains value-destroying for shareholders of Deutsche Wohnen,” he said.
The decision by Vonovia to lower the acceptance threshold for the deal is the latest twist in the battle for supremacy in the German property market.
Vonovia and Deutsche Wohnen have emerged from two years of frenetic dealmaking as the two biggest listed entities in the sector. Vonovia owns about 370,000 homes, while Deutsche Wohnen has about 147,000.
Last autumn, Deutsche Wohnen launched a bid to buy Germany’s third largest listed landlord, LEG Immobilien, in a €7.6bn deal which would have created a group with a similar market value to Vonovia.
Vonovia, which spent €3.9bn to buy landlord Gagfah in 2014 and bought Südewo, a southern German property owner, for €1.9bn last June, countered by saying it would make a bid for Deutsche Wohnen if Deutsche Wohnen’s shareholders refused to back the bid for LEG.
Deutsche Wohnen’s bid duly failed, leaving it and Vonovia in a straight takeover battle.

NYT : Twitter’s Turmoil May Invite Takeover Attempts http://nyti.ms/1ZO1xFv

At least Twitter’s chief executive is using the company’s product. http://nyti.ms/1ZO1xFv

Jack Dorsey revealed in a tweet late Sunday that four top executives have stepped down. What seems like a permanent revolution among Twitter’s senior ranks hasn’t done any favors for the $12 billion media business. With the stock trading below its initial public offering price and Mr. Dorsey a part-time chief executive who also runs the payments company Square, the danger is that the company becomes aimless.

The departing leaders include the head of product, of which there have been at least five since 2010, including a stint by Mr. Dorsey. His reinsertion as chief executive last year was the most prominent turn of the revolving door. He had led the company when it was a start-up, but wasn’t an obvious choice to return because running a troubled yet fast-growing public company would normally be a full-time job. As well as bringing Mr. Dorsey back, Twitter has replaced its finance boss, chief operating officer and head of engineering since the company filed to go public in the summer of 2013.

Revenue at the microblogging company is growing fast, increasing more than 50 percent annually. Yet the company is in the red, losing $430 million in the first nine months of last year. Adding more users may solve this problem, which is why Twitter spends heavily to develop new products. But the constant churn at the top must make it hard for the company’s engineers to plan what they are doing.

Add Twitter’s market meltdown — the company’s stock now trades about a third below where it went public in 2013 — and Mr. Dorsey’s creation looks vulnerable. Moreover, unlike at many tech businesses, there’s no dominant or super-voting shareholder able to block takeover attempts. Google, Facebook or a more traditional media company could perhaps be tempted to buy Twitter.

That might be a better outcome than a fate like Yahoo’s. The company squandered its moment in the sun and ended up struggling with its core businesses and looking for new ideas under a series of chief executives, the latest being Marissa Mayer. Twitter has not reached that point yet, but the possibility should focus Mr. Dorsey’s mind on the need for greater stability.

Reuters - Short-seller Carson Block launches hedge fund

Short-seller Carson Block launches hedge fund

Short-seller Carson Block, founder of research firm Muddy Waters LLC who exposed accounting problems and wrongdoing at a slew of Chinese companies, has launched a hedge fund investment firm, a filing with the U.S. Securities and Exchange Commission showed.

Block's new company, Muddy Waters Capital LLC, combines activism with long-short strategies but with an emphasis on betting against companies, the SEC filing said. Block, who according to the filing received an initial investment of $100 million, had been contemplating a hedge fund for several years.

Block follows in the footsteps of short sellers such as Jim Chanos, whose Kynikos Associates manages about $6 billion.

Block made his mark in the $3 trillion hedge fund industry after he challenged accounting practices of a number of Chinese companies that trade on North American stock exchanges, then bet against them using his own money to short their stocks.

One of the companies to which Block drew attention was Sino-Forest Corp [SCLC.UL], a Canadian-listed Chinese company whose shares fell 74 percent before it eventually filed for bankruptcy protection in March 2012.

Block's original Muddy Waters firm specialized in short-selling research that he distributed free of charge. Block is going to continue distributing free research, a source familiar with the situation said. Block's original firm had been making money by trading its principals' own capital, meaning Block had put his dollars behind his work.

Muddy Waters Capital hired Matijn Rasser, who spent over 10 year as an intelligence officer with the U.S. government as the new firm's chief of staff. It also hired Jamie Brown, formerly of Standard Pacific Capital and PwC, as chief financial officer and chief operating officer, the filing said.