>>> US Close Dow+1,48% S&P+1,53% NAsdaq+1,78% Russell+2,07%

Closing Market Summary: Stocks Rally After European Central Bank Unveils QE

The major averages registered their fourth consecutive advance on Thursday with the S&P 500 (+1.5%) reclaiming its 50-day moving average (2046/2047). The benchmark index erased its January loss while the Russell 2000 (+2.0%) displayed relative strength throughout the day.

This week has featured action from several major central banks and that extravaganza was topped off today when the European Central Bank announced the highly-anticipated launch of a quantitative easing program.

Prior to the U.S. open, ECB President Mario Draghi revealed plans to purchase investment-grade corporate and government debt in the amount of EUR60 billion per month. According to Mr. Draghi, the program will continue through September 2016 and will be deployed ‘decentrally,' meaning national central banks will participate in the risk sharing. When asked about the program's limits, Mr. Draghi said the take-up is limited to 25.0% of a given issue. The announcement boosted European debt (Italy 10-yr yield -14 bps to 1.55%) and weighed on the euro, sending the single currency lower by nearly 300 pips to 1.1340 against the dollar.

The resulting greenback strength pushed the Dollar Index (94.28, +1.37) above the 94.00 level for the first time since September 2003. In turn, this was a headwind for dollar-denominated commodities, and especially crude oil, which also had to contend with a larger than expected inventory build. The energy component fell 2.9% to $46.38/bbl while the energy sector (+0.6%) registered a modest gain after spending the first half of the session in negative territory.

Similar to energy, the materials sector (+1.3%) underperformed while the remaining cyclical groups finished ahead of the broader market.

The financial sector (+2.5%) settled in the lead, but the spike could not lift the group off the bottom of the January leaderboard. The sector narrowed its month-to-date loss to 2.9% while Dow components American Express (AXP 84.37, -3.30) and Travelers (TRV 108.17, +3.16) headed in opposite direction following earnings. American Express lost 3.8% after the company beat top-line estimates and announced plans to cut 4,000 jobs whereas Travelers rallied 3.0% in reaction to better than expected earnings.

Financials were followed by discretionary shares (+1.9%) with the group enjoying broad support. Online commerce names Amazon.com (AMZN 310.32, +13.07) and eBay (EBAY 57.14, +3.77) posted respective gains of 4.4% and 7.1% after eBay reported a one-cent beat and announced plans for a 7.0% reduction of the company's workforce. It is also worth mentioning the company agreed to appoint an Icahn Capital executive to its Board of Directors.

Elsewhere, the top-weighted tech sector (+2.0%) displayed broad strength while the PHLX Semiconductor Index (+0.6%) struggled to keep pace due to disappointing guidance from Xilinx (XLNX 38.96, -2.55) and SanDisk (SNDK 78.90, -1.54). The pair lost 6.1% and 1.9%, respectively.

Also of note, the industrial sector (+1.6%) finished just ahead of the broader market, but transport stocks soared following better than expected results from Alaska Air (ALK 67.94, +2.96), Southwest Airlines (LUV 45.35, +3.52), JB Hunt (JBHT 84.23, +2.19), and Union Pacific (UNP 119.83, +5.43). The Dow Jones Transportation Average spiked 2.9% to erase its January decline.

Unlike the six cyclical sectors, defensively-oriented groups spent the day behind the market. Telecom services (-0.6%) and utilities (-0.4%) could not stay out of the red while consumer staples (+1.1%) and health care (+1.3%) ended in the green.

Treasuries finished with slim losses that sent the 10-yr yield higher by a basis point to 1.88%.

Today's participation was ahead of average with roughly 871 million shares changing hands at the NYSE floor.

Economic data was limited to Initial Claims and the FHFA Housing Market Index:
  • The initial claims level declined to 307,000 from an upwardly revised 317,000 (from 316,000) while the consensus expected a decline to 302,000 
    • This was the first time since July 2014 that the initial claims level exceeded 300,000 for three consecutive weeks 
    • As with last week, the Department of Labor reported that there were no special factors impacting the initial claims level 
    • Continuing claims increased to 2.443 million from an upwardly revised 2.428 million (from 2.424 million) 
  • The FHFA Housing Price Index for November rose 0.8%, which followed an increase of 0.6% in October 
Tomorrow's data will be limited to Existing Home Sales for December (consensus 5.10 million) and December Leading Indicators (consensus 0.5%). Both reports will be released at 10:00 ET.
  • Nasdaq Composite +0.3% YTD 
  • S&P 500 +0.2% YTD 
  • Dow Jones Industrial Average -0.1% YTD 
  • Russell 2000 -1.2% YTD

>>> Starbucks reports EPS in-line, revs in-line; guides Q2 EPS below consens



From: thechek@mac.com At: Jan 22 2015 22:18:23
To: LAURENT CHEKROUN (MAKOR SECURITIES LLP)
Subject: Fwd:>>> Starbucks reports EPS in-line, revs in-line; guides Q2 EPS below consensus; guides FY15 EPS in-line, revs reaffirms
Starbucks reports EPS in-line, revs in-line; guides Q2 EPS below consensus; guides FY15 EPS in-line, revs reaffirms  
Reports Q1 (Dec) earnings of $0.80 per share, in-line with the Capital IQ Consensus Estimate of $0.80; revenues rose 13.3% year/year to $4.8 bln vs the $4.8 bln consensus. Global comparable store sales increased 5%, with a 2% increase in traffic. 
  • Co issues downside guidance for Q2, sees EPS of $0.64-0.65, excluding non-recurring items, vs. $0.68 Capital IQ Consensus Estimate. 
  • Co issues in-line guidance for FY15, sees EPS of $3.09-3.13, excluding non-recurring items, vs. $3.12 Capital IQ Consensus Estimate; reiterates FY15 revs growth of 16-18% (approx $19.08-19.41 bln) vs. $18.99 bln Capital IQ Consensus Estimate. 
    • Global comparable store sales growth of mid-single digits 
    • GAAP operating margin is expected to be mildly dilutive versus FY14 due to the impact of our ownership change in Starbucks Japan: 
    • Americas margin: modest improvement over FY14 EMEA margin: in the 10% - 12% range 
    • China/Asia Pacific margin: in the high teens 
    • Channel Development margin: modest improvement over FY14 
    • Non-GAAP operating margin is expected to be flat to slightly up over prior year non-GAAP operating margin 
    • New store openings of 1,650 net new.

(BFW) UBS Says Placing 7.6% of Spain’s NH Hotel Group

BN 01/22 17:13 *UBS SAYS PLACING 7.6% OF NH HOTEL GROUP
UBS Says Placing 7.6% of Spain’s NH Hotel Group
2015-01-22 17:17:22.870 GMT


By Charles Penty
(Bloomberg) -- UBS is placing 26.8m NH Hotel Group shares
on behalf of Intesa Sanpaolo, Private Equity International, in
acclerated bookbuilt offer.
* UBS comments in regulatory filing today

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(BFW) Portugal Telecom Shareholders Approve Sale of PT Portugal

BFW 01/22 19:42 PT Shareholders Are Voting on Sale of PT Portugal: Spokeswoman
BN 01/22 19:45 *PORTUGAL TELECOM SPOKESWOMAN COMMENTS ON SHAREHOLDER MEETING
BFW 01/22 19:44 *PT SHAREHOLDER MEETING APPROVES SALE OF PT PORTUGAL
BN 01/22 19:38 *PT SHAREHOLDERS ARE VOTING ON SALE OF PT PORTUGAL: SPOKESWOMAN
Portugal Telecom Shareholders Approve Sale of PT Portugal
2015-01-22 19:49:32.647 GMT


By Anabela Reis
(Bloomberg) -- Portugal Telecom SGPS shareholders approved
the sale of Oi’s PT Portugal to Altice, a spokeswoman for
Portugal Telecom SGPS who asked not to be named in line with
company policy told reporters.
* Sale was approved by 97.81% of shareholders present at the
meeting; 44% of the company’s capital was present at meeting
* NOTE Jan. 21: PORTUGAL TELECOM PREVIEW: Vote May Herald
Mergers, Litigation Link
* NOTE Jan. 21: P. Telecom Reaffirms to CMVM It Disclosed
Details on General Mtg Link
* NOTE Jan. 12: P. Telecom Shareholders Take 10 Days to
Consider Altice Deal Link


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>>> SocGen Explains That Since The ECB's QE Will Fail, It Will Need To Be Increa

SocGen Explains That Since The ECB's QE Will Fail, It Will Need To Be Increased To €3 Trillion, Include Stocks


B+ Bond Central Banks default Fail Greece Investment Grade Monetary Policy Real estate SocGen

There are a bunch of things in the ECB post-mortem note just released by SocGen's Michel Martinez, reproduced below, but here are the punchlines.

First, on the impact of ECB QE on the economy: "we argue ECB QE could be five times less efficient than in the US. In December, press reports suggested that the ECB had run studies suggesting that a €1000bn QE programme would only boost price levels by 0.2-0.8 after two years, five to nine times less efficient than the studies for the US or the UK. The impact on GDP is not provided, but it would be reasonable to assume the same impact as on inflation on a cumulated basis."

In other words, it will be an outright failure as it "triest" to boost inflation expectations and the European economy in its current format. That, as a reminder, is its stated purpose.

So what does SocGen suggest? Simple: the same thing every Keynesian says when justifying why a piece of occult economic voodoo fails to work: it wasn't big enough. To wit:

"The potential amount of QE needed is €2-3 trillion! Hence for inflation to reach close to a 2.0% threshold medium term, the potential amount of asset purchases needed is €2-3tn, not a mere €1tn."
Or as Charles Dickens would put it:



And since there is nowhere near enough bond supply in Europe, the ECB will have to proceed with monetizing, drumroll, stocks.

Should the ECB target such an expansion of its balance sheet, it would have to ease some conditions on its bond purchases (liquidity rule, quality...) or contemplate other asset classes- equity stocks, Real Estate Investment Trust-(REIT), Exchange-traded fund (ETF)...- as the BoJ, previously.
Because what tens of millions of unemployed Europeans really need to help their lot in life, and to boost their confidence, is for the central bank to buy the stocks sold by the richest 0.001%.

* * *

Full note from SocGen:

Large QE with symbolic risk sharing

The ECB announcement today was well in line with our call that the sovereign QE programme could be large scale but not pari passu. The share of mutualisation is symbolic (1/11%). Yet, they point to higher volume than expected overall (€1140n in total) and reinforces the probability that the ECB would reach (or go over) its stated intention of 1trn increase in balance sheet.

A) The size of QE programme is €60bn per month, €1140bn in total

The main measure is an expandable asset purchase programme that includes European agencies and sovereign and complement the current programmes (Covered bond and ABS purchase programmes). Those new programmes will start in March 2015 and run until end September-16 or until the inflation outlook converges to 2.0% medium-term, which means that it could be bigger. The combined purchases will amount to €60bn per month. Apparently, the expanded programme will not include corporate bonds.

There was a large majority to today’s announcement while the Governing Council was unanimous on the idea that QE is a legal monetary policy tool.

Hence, the ECB will purchase €1140bn (60*19) from March 15 to September 2016. Today, the pace of covered bond and ABS purchases is close to €13bn per month, so additional purchases represent €47bn per month. The ECB stated that “purchases of securities of European institutions will be 12% of the additional asset purchases”. A quick rule of thumb suggests €230bn in ABS and covered bonds, €110bn in European agencies and €800bn of sovereign bonds.

The ECB also decided to cut the spread on the TLTRO rate, that would now be equal to the refinancing rate (0.05% instead of 0.15%)

B) Criteria to be specified in March

We know that the new programmes are running until September-2016 at least and that purchased bonds will be hold up to maturity. Obviously, purchases will be made on the secondary market for European issues and government bonds.

In terms of rating, it is likely that the conditions will be the same as for the ABSPP and CBPP3. First, the ECB will purchase investment grade bonds.

Secondly, for Greece and Cyprus (which are not investment grade), the condition would be that those countries “have an ongoing programme with the EU/IMF”. This would suggest that any failure to extend the current Greek programme that expires at the end of February would exclude Greece from any asset purchase programme.

Can the ECB buy at negative yield? Yes, said Draghi during the press conference

Which maturity? Details will have to be specified in March but Draghi suggested that maturities could be of 2-30 years.

Interestingly, Draghi said that it will have two limits on its purchases: 30% of the issuer outstanding and 25% of the issue. This latter limit will prevent the ECB of having a blocking minority in CACs, with the aim “to ensure that the ECB is pari passu”. As we argue below, this is not convincing, given the low degree of risk sharing.

C) Minimum symbolic risk sharing (8% risk sharing only on government bonds

As we expected, purchases of government bonds will be done according to capital key. The point is the degree of mutualisation is minimum(1/11). For most purchases, the National Central Banks (NCB) will purchase their national government bonds and bear the credit risk. The silver lining is that the less the credit risk is mutualised, the larger a QE program could become in volume terms.

The main piece of information in the ECB communiqué is here: “With regard to the sharing of hypothetical losses, the Governing Council decided that purchases of securities of European institutions (which will be 12% of the additional asset purchases, and which will be purchased by NCBs) will be subject to loss sharing. The rest of the NCBs’ additional asset purchases will not be subject to loss sharing. The ECB will hold 8% of the additional asset purchases. This implies that 20% of the additional asset purchases will be subject to a regime of risk sharing”.

So the ECB indicates that the degree of risk –sharing is 20%, which seems a good compromises. However, regarding government bonds, the decree of risk sharing seem symbolic(8/100-12=1/11). To put is simply, the ECB will purchase €70bn on a risk sharing basis while the NCB will purchase the remaining €730bn. Noteworthy, the ECB will likely give objectives to the NCBs (purchases according to the capital keys).

This approach is consistent with our long held view that the ECB QE could not be both large and pari passu. Legal and political hurdles remain large because of the two articles of the European Treaty: Article 123 on prohibition of monetary financing and Article 125 (no bailout clause or no mutualisation clause). The ECB might well be pari-passu ex ante as Draghi argues. Yet, in the case of a debt restructuring, either the CB would avoid the debt restructuring (remind that the Eurosystem avoided the Greek PSI in 2012) or the (bankrupt) national government would probably be obliged to recapitalize its NCB. In both cases, the bigger are the purchases, the larger is the expected loss given default of the private sector. Investors risk seeking such way of proceeding as a lack of confidence in the euro area. Hence the final outcome on sovereign bond spreads might be uncertain debt sustainability concerns increase in the future. The flow of purchases will be positive but lower liquidity and higher expected loss given default will play out negatively.

Will it work?

In a joint paper with rates strategists (What kind of ECB sovereign and what impact?, we argue ECB QE could be five times less efficient than in the US. In December, press reports suggested that the ECB had run studies suggesting that a €1000bn QE programme would only boost price levels by 0.2-0.8 after two years, five to nine times less efficient than the studies for the US or the UK. The impact on GDP is not provided, but it would be reasonable to assume the same impact as on inflation on a cumulated basis. These figures are consistent with our own estimates.

The potential amount of QE needed is €2-3 trillion! Hence for inflation to reach close to a 2.0% threshold medium term, the potential amount of asset purchases needed is €2-3tn, not a mere €1tn. Should the ECB target such an expansion of its balance sheet, it would have to ease some conditions on its bond purchases (liquidity rule, quality...) or contemplate other asset classes- equity stocks, Real Estate Investment Trust-(REIT), Exchange-traded fund (ETF)...- as the BoJ, previously.

So the onus will remain on delivery of better-designed fiscal policy and structural reform. But it is difficult to be hopeful on these fronts.

* * *

Of course, this means that the time to frontrun the expansion of ECB QE 1 has begun. The only problem is that for Draghi to act, stocks will have to crash first, and they can't crash if they are frontrunning the event the follows from their crash.

Good luck figuring that one out.

>>> IBM to focus M&A efforts on as-a-service space; eyeing more partnerships

IBM to focus M&A efforts on as-a-service space; eyeing more partnerships 

International Business Machines (NYSE:IBM) will concentrate its acquisition search on as-a-service and partnership opportunities, according to CFO Martin Schroeter.

On the 4Q14 earnings call held 20 January, Barclays analyst Ben Reitzes asked about M&A plans for 2015. Schroeter said the company had typically acquired assets to complement and build on its internal innovations around future Enterprise IT. He noted that it had been aggressive in its approach to M&A, citing the purchase of SoftLayer Technologies as an example.

“Now I do think that we see two differences as we move into the future on our acquisition policy or our acquisition approach,” the CFO said. “One is, more of our acquisitions will probably be on an as-a-service basis as opposed to, say, an on-premise model. And that's kind of the nature of the market and that's also where we have a lot of opportunity because we don't really play in some of those areas today.”

Schroeter said although IBM has more than a hundred as-a-service offerings, it saw a lot of opportunities to expand in the space.

“And then secondly we've been more active and been very successful in partnering with leading companies in order to help transform industries and in order to help transform professions,” he added.

The CFO said the company had been working with companies including Apple and Twitter, noting that while these partnerships required a lot of investment, IBM did not have to own all the technology in order to provide new offerings to its clients.

“So you'll see also more partnerships, if you will, as opposed to acquisitions. But from an acquisition standpoint, more as-a-service I would think as opposed to on-prem(ise),” he concluded.

The company announced in June 2013 its purchase of SoftLayer, a Dallas, Texas-based cloud computing infrastructure provider, for USD 2bn.

IBM has been suggested by this news service as a potential bidder for numerous targets in recent times, including Vancouver-based real-time analytics provider Bit Stew Systems; California-based video surveillance and security software company 3VR Security; and Attunity (NASDAQ:ATTU), a data management and analytics business based in Massachusetts and Israel.

During his prepared remarks on Tuesday’s call, the CFO noted that IBM had sold a number of large businesses in 2014 that did not fit its strategic profile, including its x86 server and customer care service operations, and announced the sale of its semiconductor manufacturing business. Schroeter added that despite generating USD 7bn of revenue in 2013, these businesses had lost around USD 500m of pre-tax profit.

IBM said it would sell its semiconductor manufacturing unit in October for an undisclosed sum. The sale of its x86 server business was completed in September for USD 2.1bn, while the disposal of its customer care operation closed in January last year for around USD 500m.

IBM has been a prolific acquirer in the past half-decade, with the majority of targets based in North America or Europe.

The company's most consistent advisory relationship has been with Cravath, Swaine & Moore, which has been used for multiple acquisitions and disposals, according to the Mergermarket M&A database. Financial advisors used on sizeable deals during the past few years include Citi and Deutsche Bank, with the latter used for SoftLayer. Goldman Sachs was used for the sale of the semiconductor manufacturing business.

On the call, IBM reported a cash balance of USD 8.5bn at year end, while total debt stood at USD 40.8bn. The company has a market capitalization of USD 150.5bn.

>>> Avon seen engaging with TPG, industry sources say

Avon seen engaging with TPG, industry sources say

Avon Products (NYSE:AVP) has been having discussions with private equity firm TPG Capital about a potential transaction, three industry sources said.

The New York City-based direct sales cosmetic company has been working on a turnaround for years amid stagnant revenue and a government investigation into allegations of corruption. In December, Avon announced a settlement with regulators in which it agreed to pay USD 135m.

It could not be learned if talks with TPG have advanced and it is unclear if Avon has engaged advisors to help it consider a possible transaction. Avon was not immediately available for comment and TPG declined to comment.

Avon has been considered a candidate for a leveraged buyout given its strong cash flow, several industry sources said, but the business is also underperforming and a deal would carry a fair amount of risk.

The company’s problems include little top line growth, lack of spending necessary for brand/pricing improvement and gross margin expansion, and some management turnover, as reported. Over the past year, Avon’s stock has declined more than 50%.

To partially address these issues, Avon could look to shut down its US-based direct sales business, which has struggled and represents only a minority of the company’s sales, an industry executive said.

Avon has a market cap of approximately USD 3.3bn and had USD 1.8bn in net debt as of September 2014, putting its enterprise value at around 12.6x unadjusted LTM EBITDA.

To secure a deal, a buyout may have to be structured using preferred shares or mezzanine debt in order to enhance what may be limited returns, one of the industry sources said. Avon may be able to be levered at 6x-6.25x EBITDA, the source added.

The buyout talks come two years after Avon rejected a USD 10bn offer from Coty (NYSE:COTY), a New York-based cosmetics firm. Subsequently, Avon’s CEO stepped down and Coty pursued an IPO.

In March of last year, Avon entered into a partnership with Coty in Brazil that allowed Avon sales representatives to sell Coty fragrances. An industry banker said at the time that if the partnership was a precedent to a sale, it would be a long courtship, implying he did not think a takeover was in the works.

TPG has connections to Avon, having acquired the company’s Japanese business for USD 38m in 2010.

(BFW) Moody’s Warn European QE Credit Negative For Insurers

Moody’s Warn European QE Credit Negative For Insurers
2015-01-22 17:57:11.800 GMT


By Sarah Jones
(Bloomberg) -- Moody’s senior credit officer Benjamin Serra
says QE will have biggest impact on life insurers because
depressed interest rates for longer will squeeze investment
margins, according to statement.
* Says life insurers predominantly invest in fixed income inc.
sovereign bonds
* Says while balance sheets will look healthier as asset
prices rise, gains won’t be realized because insurers hold
securities until maturity
* QE impact will be strongest in Germany, the Netherlands
where high guarantees on life insurance products are
offered, mismatch of assets and liabilities highest


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