>>> US Close Dow-2.10% S&P-1.78% Nasdaq-1.59% Russell-1.26%


Closing Market Summary: Cyclical Sectors Lead Market Lower

The stock market ended a volatile week on a defensive note. The Dow Jones Industrial Average paced the Friday slide, falling 2.1% while the S&P 500 (-1.8%) and Nasdaq Composite (-1.6%) registered slimmer losses.

Overnight, the Bank of Japan stepped up its easing efforts by announcing plans to purchase JPY300 billion worth of ETFs starting in April of 2016; however, the market scoffed at the news with Japan's Nikkei diving 1.9% while the yen climbed 1.1% against the dollar (121.27). This is noteworthy because stimulus from major central banks has been a big reason for the rally seen in global markets over the past few years. Therefore, a negative market reaction to news of more stimulus could be indicative of a sentiment change as participants begin wondering whether global central banks have reached their limits.

Investor sentiment saw little improvement as the focus shifted to the European session and the selling carried over to U.S. markets. Consequently, the first three hours of the day saw a steady slide in the key indices and they hit new lows ahead of the closing bell.

All ten sectors ended the day in negative territory with cyclical sectors showing relative weakness. The financial sector (-2.5%) spent the day behind its peers, but despite today's underperformance, the economically-sensitive sector ended the week flat. However, other growth-sensitive groups were not nearly as fortunate, posting weekly losses between 0.4% (consumer discretionary) and 3.1% (materials).

The top-weighted technology sector (-2.0%) lost 1.3% for the week after having to contend with weeklong underperformance in the shares of Apple (AAPL 105.90, -3.08). The largest stock by market cap tumbled 2.8% on Friday, ending the week lower by 6.4%.

Elsewhere, the energy sector (-1.6%) settled ahead of the broader market, but the group was knocked down from its high by an intraday reversal in crude oil. The energy component flashed a brief gain in the late morning, but followed that with a slide to a new low for the week, ending the pit session down 0.7% at $34.72/bbl.

The broad retreat that unfolded over the course of Thursday and Friday masked the fact that the S&P 500 ended the week little changed, shedding 0.3%. Five of six cyclical sectors finished the week in negative territory, but the four countercyclical groups posted weekly gains between 0.5% (consumer staples) and 2.8% (utilities), suggesting some sector rotation took place as investors tested the waters in defensively-oriented areas of the market.

Today's slide in equities was accompanied by strength in the bond market as the 10-yr note rallied overnight and held its ground during the day. The benchmark note ended near its high, pressuring its yield three basis points to 2.19%.

Investor participation was strong today, but that was largely due to quadruple witching. As a result, more than two billion shares changed hands at the NYSE floor.

Market participants will not receive any economic data on Monday.

  • Nasdaq Composite +4.0% YTD
  • S&P 500 -2.6% YTD
  • Dow Jones Industrial Average -3.9% YTD
  • Russell 2000 -6.8% YTD

>>> Bayer could set sights on big acquisition even as deal options dwindle - RTR

Bayer could set sights on big acquisition even as deal options dwindle - RTRS


FRANKFURT, Dec 18 (Reuters) - Bayer BAYGn.DE is likely to seek a major life sciences M&A deal in the next few years, according to banking sources, as its absence from a recent wave of consolidation could undermine its position in markets such as crop protection and animal health.

Possible targets for the German company could include veterinary drug firm Zoetis ZTS.N and Pfizer's consumer health business, the two sources said.

Bayer, Zoetis and Pfizer declined to comment.

Bayer, which makes drugs, seeds and pesticides, has watched from the sidelines as a string of its rivals in different life sciences markets have struck deals to bolster their positions.

The planned combination of DuPont DD.N and Dow Chemical's DOW.N agriculture businesses creates a more formidable rival for Bayer in both pesticides and seeds, while also eliminating two potential merger partners in those sectors.

In animal health, meanwhile, Bayer is set to become a second-tier player behind four clear market leaders following a series of major consolidation moves in the sector, capped by the exclusive talks this month between Sanofi SASY.PA and Boehringer Ingelheim to combine some businesses. (Full Story)

Bayer has been hobbled by its refusal to relinquish any of its life science businesses, which has kept it out of asset swaps such as the $20 billion Sanofi-Boehringer plan and last year's three-way trade involving Novartis NOVN.VX, GlaxoSmithKline GSK.L and Eli Lilly LLY.N. (Full Story)

In the pesticides markets it is held back by antitrust obstacles, as a close second in global rankings to Syngenta. That could also keep the coveted seeds businesses of their rivals out of reach, as they are typically combined with crop chemicals.

Syngenta and Bayer each command about a fifth of the global pesticides market, with Bayer leading the insecticides segment with a 23 percent share.

But Bayer's strategy chief and CEO-in-waiting Werner Baumann is content to bide his time for now, investment bankers say.

The company is in no rush to overhaul its agriculture business - seeds and pesticides - which is already among the most profitable in the sector with nine-month core earnings margins at more than 26 percent, above BASF BASFn.DE, Syngenta and Dow's.

The German group also has to digest last year's $14 billion purchase of Merck & Co's MRK.N consumer health products, which saw it outbid rivals such as Reckitt Benckiser RB.L.


'HE WON'T HESITATE'

But the recent M&A hiatus will only whet Baumann's appetite for deals over the next few years, the banking sources said. U.S.-based Zoetis, which has a market value of $23 billion, or any consumer health assets that might be jettisoned by Pfizer, will be on his radar, they added.

"Werner Baumann is being underestimated. He won't hesitate to do a deal if it fits. He and (finance chief Johannes) Dietsch were the driving force behind the Merck deal," one banker said, asking not to be named as they are not authorised to speak publicly.

Pfizer, which is in the process of buying Allergan AGN.N, has a history of aggressively restructuring its portfolio, with large takeovers often followed by divestments or spin-offs to focus on core businesses. For instance, it split off its Zoetis animal health unit in 2013.

Analysts at brokerages including Bernstein Research and Exane BNP Paribas have said they do not expect the U.S. drugmaker to hold on to its consumer health business for long, though Pfizer has not made any official statements regarding a separation of that business.

For Bayer, any such M&A moves might mean it will have to borrow heavily at the expense of its single-A credit rating or even hold a cash call, unless its changes tack and offers any of its businesses in a barter trade, the sources said.

Since splitting off its plastics business Covestro 1COV.DE in October, the German firm has repeatedly said it will develop its plant, animal and human health businesses under one roof.

Sources familiar with the company said management continued to regard its animal health and crop protection operations as essential parts of the group

Baumann, who is expected to take the helm of the company in early 2017, told Reuters earlier this year that Bayer did not need a merger to make it more successful and that Bayer's responsibility went beyond its shareholders. (Full Story)

But some investment bankers expect a boardroom rethink following the wave of industry deals, and say Bayer's crop protection and seeds division could be spun-off or combined with a rival's business.

>>> US Gapping down

Gapping down

In reaction to disappointing earnings/guidance: DYSL -27% (thinly traded), KMX -8.8%, KNX -7.4% ( lowers Q4 EPS guidance below consensus, also downgraded to Neutral from Buy at Citigroup), AKS -2% (provides Q4 EPS guidance including charges; sees Q4 shipments of 1.6 mln tons, down 14% QoQ)

M&A related: WFC -0.3% (Wells Fargo to sell its crop insurance business to Zurich Insurance).

Select telecom names showing early weakness: TSU -5.3%, VIV -3.6%, TEF -2.9%, TMUS -1.3%.

Other news: OSIR -12.8% (independent registered public accounting firm BDO USA resigns), QURE -8.6% (appoints Dan Soland as new CEO), ICPT -6.6% (FDA extends PDUFA date for Obeticholic acid for the treatment of PBC to May 29, 2016), VTAE -6.3% (announces top-line clinical efficacy results from the remaining monotherapy arm of Boehringer Ingelheim's Phase 2 trial of BI187004 in type 2 diabetes), VNR -5.7% (lowers monthly distribution to $0.03/unit from $0.1175/unit), ARIA -3.6% (confirms the appointment of Paris Panayiotopoulos as President and Chief Executive Officer, effective Jan. 1 2016), SWFT -3.3% (following KNX guidance), SCTY -2.9% (Jim Chanos reiterating cautious stance on SCTY- CNBC), YNDX -2.4% (Russia names weaker after Ukraine defaulted on $3 bln bond to Russia), VRX -2.1% (still checking), LVS -2% (CEO Adelson says the Macau market is beginning to bottom out - Reuters ), ALIM -2% (discloses it promoted Richard Eiswirth to the position of President and Chief Financial Officer), NE -1.8% (still checking), UN -1.6% (still checking), RIG -1.5% (Statoil ASA decides to cancel the contract with Transocean for the drillship Discoverer Americas; announced that the SIX Swiss Exchange approved its application to delist its shares), FDX -1.4% (pulling back following yesterday's earnings related strength), AN -1.3% (KMX sympathy), MS -1.2% (WSJ reports that Morgan Stanley is planning to trim up to 5% of its stock-trading employees early next year), IRMD -1.1% (announces a proposed secondary offering of common stock, by CEO Roger Susi; size not disclosed),AZN -1.1% (updates on preliminary findings from the ATLANTIC trial of durvalumab as 3rd-line or later stage therapy in patients with NSCLC), INTC -0.9% (still checking), JBHT -0.8% (following KNX guidance), YHOO -0.7% (NYPost reports that some of Yahoo's (YHOO) activist shareholders are mulling a proxy battle), MRK -0.4% (Provides Update on European Medicines Agency Marketing Authorization Application for Investigational Chronic Hepatitis C Therapy Elbasvir/Grazoprevir; anticipates a European Commission decision in mid-2016), KR -0.3% (Kroger completes tender offer for shares of Roundy's; initiated with a Outperform at Wells Fargo).

Analyst comments: FOSL -7.4% (downgraded to Sell from Neutral at Goldman), GLOP -2.3% (downgraded to Underweight from Neutral at JPMorgan), AIXG -1.2% (downgraded to Equal-Weight at Morgan Stanley), BA -1.1% (downgraded to Market Perform from Outperform at Wells Fargo), SGYP -0.7% (downgraded to Neutral from Buy at Citigroup), TXN -0.3% (downgraded to Mkt Perform from Outperform at Bernstein).

>>> US Gapping up:

Gapping up:

In reaction to strong earnings/guidance: HK +16% (light volume), RHT +6.4%, BBRY +5.8%, DRI +2.9%, AIR +2.7% (light volume), CNC +2.6% (ticking higher), LEN +1.7%, DLTH +0.8%.

M&A news: QIHU +2.8% (enters into a definitive merger agreement to be acquired by a consortium of investors in an all-cash transaction valued at ~$9.3 bln, or $77.00/share), .

Metals/mining stocks trading higher: HMY +11.8%, SBGL +5.9%, AU +2.3%, ABX +2.3%, BHP +2% (also higher despite Moody's placing ratings of BHP Billiton on review for downgrade), MT +1.9% (also higher despite downgraded to Sector Perform at RBC Capital Mkts), RIO +1.7%, GDX +1.2%, SLV +0.9%, GLD +0.7%
Other news: GPT +16.2% (Gramercy Property Trust and Chambers Street Properties close merger, complete private placement of $150 mln in senior unsecured notes, enter into new credit facility; initiated with a Buy at DA Davidson), GALE +4.1% (light volume, Galena Biopharma agress to sell Zuplenz to Midatech Pharma (MTP) for an upfront payment of $3.75 mln), BTU +6.8% (issues update, discloses potential plan to raise $150 mln in debt financing as well as a new $250 mln credit facility), JRJC +4.6% (announced that it has received ~$24.0 million from its investment in the Langfang real estate project, including fully recovered principal of ~$21.7 million.), TK +3.2% (following ~60% decline yesterday), NSPH +3.1% (prices $10 mln public offering of common stock at $0.47/share), CDXS+2.9% (ticking higher, announces multi-year contract extension to supply MSD with enzyme used in manufacture of Sitagliptin), RMBS +2.7% (to collaborate with Microsoft researchers in the exploration of future memory requirements for quantum computing), GMLP +2.5% (following ~30%+ decline yesterday), PTLA +1% (ticking higher, announces completion of BLA submission to FDA for Andexanet Alfa).

Analyst comments: ROSG +4.8% (initiated with a Spec. Buy at Cantor Fitzgerald -- Thyroid may reveal ROSG to be your CUP of Tea), PLUG +3.2% (initiated with a Outperform at FBR Capital), SUNE +2.4% (initiated with a Outperform at FBR Capital; tgt $10.50), DERM +1.7% (upgraded to Buy from Neutral at Citigroup), FIT +1.4% (initiated with a Buy at Mizuho), DD +0.9% (upgraded to Buy at BofA/Merrill),CRM +0.7% (upgraded to Outperform from Neutral at Wedbush), EXAS +0.7% (initiated with a Buy at BTIG Research)

>>> US Insider Trading - Weekly Update

Buyers:
  • Crestwood Equity Partners (CEQP) 10% owner, First Reserve GP XI and Director bought 829,746 shares at $13.60-18.77 worth ~$17.2 mln
  • Vanda Pharma (VNDA) 10% owner, Deerfield Mgmt bought 1,201,364 shares at $8.00-8.99 worth ~$10.1 mln
  • Lands' End (LE) 10% owner, E. Lampert bought 231,856 shares at $22.25-23.16 worth ~$5.3 mln
  • Summit Midstream Partners (SMLP) 10% owner, Energy Capital Partners II bought 151,160 shares at $15.21-16.90 worth ~$2.4 mln
Sellers:
  • Henry Schein (HSIC) CEO and SVP sold 69,322 shares at $154.35-158.80 worth ~$10.8 mln
  • Costco (COST) Director sold 50K shares at $159.64-160.71 worth ~$8.0 mln
  • Shake Shack (SHAK) 10% owner, Select Equity Group sold 99,999 shares at $43.04-41.44 worth ~$4.2 mln
  • Alexion Pharma (ALXN) Director sold 21,319 shares at $187.56 worth ~$4.0 mln