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Daily Scan: Stocks fall Friday but post big monthly gains
Capital Markets
<p>Updated throughout the day</p> <p>October 30</p> <p>Global bourses turned in their best monthly performance in more than six years as dreams of stimulus propelled prices higher. The major U.S. indexes fell slightly Friday, but that didn't hurt the month's overall performance. The Dow had its biggest monthly gain in four years with a 8.5% jump. Friday, the Dow was down 0.5%, the Nasdaq dropped 0.4%, and the S&amp;P 500 lost 0.5% for the day. The Shanghai Composite rocketed nearly 11% while the Hang Seng gained 8.6%; the Nikkei jumped 9.75%. The STOXX Europe 600 is on track to tack on 7.7%. Note: daylight savings time ends Sunday morning in the wee hours -- set your clocks back one hour on Nov 1 at 2 a.m. That means more light in the morning for all those runners joining the New York City marathon. The World Series continues this weekend, with the Mets taking on the Royals Friday evening for Game 3. The Royals have won the past two games, so the Mets better win Friday if they want to keep playing into November. Game 4 is scheduled for Saturday evening. Happy Halloween everyone!</p> <p>Here's what else you need to know:</p> <p>GOP lashes out at CNBC, cuts cords. The Republican National Committee has suspended its partnership with NBC News before their scheduled February debate. RNC Chairman Reince Priebus wrote a letter to NBC News Chairman Andrew Lack saying that their relationship was on hold "pending further discussion." The GOP isn't happy with CNBC with the news network's handling of Wednesday's debate. The candidates accused CNBC of bating them with questions that encouraged infighting. Washington Post</p> <p>U.S. retailers want chip and PIN cards. Some big retailers, including Wal-Mart and Target, are increasing efforts to have customers use PINs with new chip-embedded credit cards, but credit card partners aren't thrilled. U.S. banks aren't prepared for the change and say they can't handle the PINs for credit cards. Banks prefer the old school signature approach for identity confirmation. Reuters</p> <p>Four U.N. staff fired for child porn. The staff shared child pornography on work email accounts. Another staff member was fired for transporting 173 kg of marijuana in an official U.N. vehicle. Legal punishment for the cases are left up to authorities in the staff member's home country. BBC</p> <p>Exxon beats earnings expectations. Exxon Mobil posted a profit of $4.24 billion, or $1.01 per share, compared to expectations of 89 cents a share. Profit did fall a whole 47% as the price of oil continues to stay below $50/barrel. CNBC</p> <p>U.S. to send special forces to Syria. The troops will support the anti-government rebels in fighting ISIS. Less than 50 forces will be deployed, but it will be the first time U.S. troops are openly working on the ground in Syria. BBC</p> <p>Valeant severs ties with Philidor; two board members resign. In a stunning turnaround, Valeant distanced itself from the mail-order pharmacy, which wil</p>
Icahn lobbies for new law to stop Pfizer corporate inversion
Capital Markets
<p>A lot of eyebrows were raised when the news came out Wednesday that Pfizer had approached Allergan regarding the possibility of a merger. Allergan is based in Ireland, so there can be no doubt what Pfizer’s real intentions are in showing up on the scene as an uninvited suitor.</p> <p>Pfizer execs have long seen the handwriting on the wall for regarding the “patent cliff” they face and the closing window for corporate inversions and all the attendant tax benefits, so they apparently decided to try and solve all their problems in one fell swoop. Snapping up rapidly growing Allergan can fix all their problems, and save them a bundle in taxes, so they decided to strike while the iron was hot.</p> <p>Unfortunately for Pfizer, American patriot and hedge fund billionaire Carl Icahn heard about this nefarious scheme, and has written a letter to the U.S. Congress telling legislators  to pass a new law to stop this corporate inversion nonsense pronto.<br /> Excerpt from Carl Icahn’s letter to Congress<br /> In his letter, Icahn explains his problem with a Pfizer – Allergan merger: “Allergan is domiciled in Ireland, and if consummated, this will be the largest corporate inversion to date, and as a result our country will lose Pfizer, its tenth largest company. The imminent planned exodus of many of our best companies is extremely dangerous, especially in our fragile economy, as it will cause the loss of thousands of jobs, as well as hundreds of billions of dollars of future tax revenue and investment in the United States.”<br /> Icahn goes on to suggest that Congress should add an amendment to the currently-under-consideration Highway Bill to ban these kind of purely profit-motivated and unAmerican corporate inversion deals.<br /> He writes: “The Highway Bill presents an immediately available opportunity to pass international tax reform that will stop inversions. In the conversations I had with many of you, there was universal agreement on this fact as well. But our window of opportunity is shrinking. The most recent short-term extension to the Highway Bill gives us only until November 20th to pass a long-term Highway Bill that includes the international tax reform necessary to stop further inversions. If a version of the Highway Bill passes without including this necessary tax reform, I fear we will lose many more iconic companies, such as Pfizer, in the months to come.”</p> <p>Allergan has a market cap of around $115 billion. That means that a merger with Pfizer would be valued at well over $300 billion, the biggest takeover so far in a year that is on pace to set records for mergers and acquisitions activity.</p> <p>This article was originally published by ValueWalk. <br /> Photo: Rich Mitchell </p>
Credit downgrade would follow Brexit
Capital Markets
<p>Britain’s credit rating could be slashed by two notches if it leaves the European Union (EU), Standard &amp; Poor’s told Reuters on Thursday. </p> <p>Moritz Kraemer, the agency’s chief sovereign rating officer, said Britain would lose AAA rating with a one-notch downgrade if it voted to leave the bloc, and maybe double that if relations between Britain and Brussels soured or Scotland seceded. </p> <p>“Should we conclude that departure from the EU is likely over the medium term, we could lower the rating by potentially more than one notch, depending on the circumstances, such as the expected future relations with the EU,” he said. </p> <p>His comments come as the UK heads towards a referendum on its membership of the union, due to take place no later than 2017. </p> <p>The pressure is certainly mounting against the Brexit campaigners. </p> <p>A week ago, America’s top trade official pointed out that his country doesn’t have a free trade agreement with the UK so it would be subject to the same tariffs as China, or Brazil or India if it quit the EU. Splendid isolation, sure -- but also poor and friendless.<br /> Photo: Andrew Stawarz<br /> &nbsp;</p>
People Moves: Morgan Stanley loses Asia IB vice-chair; MUFG chief returns to Morgan Stanley board
Capital Markets
<p>Morgan Stanley loses Asia IB vice chairman. Chong Leong, a near 14-year veteran of the venerable U.S. investment bank, has reportedly left the firm to join the Shenzhen-based delivery services firm, S.F. Express.</p> <p>Leong apparently joined Morgan Stanley back in 2002, and was – at the time of his departure – managing director and vice chairman of its Asia investment banking division. Finance Asia</p> <p>Mitsubishi UFJ Financial Group boss to rejoin Morgan Stanley board. Nobuyuki Hirano, president and group chief executive of Mitsubishi UFJ Financial Group (MUFG), is set to rejoin Morgan Stanley’s board after a four-year hiatus.</p> <p>Hirano will be replacing Masaaki Tanaka, a senior adviser of the Bank of Tokyo-Mitsubishi UFJ, who had been serving as MUFG’s representative director on the bank’s board since May 2011, and will also be part of the board’s risk committee. Wall Street Journal</p> <p>China Merchant Securities IB chief leaves. Daniel Ng, a big player in Hong Kong’s investment banking scene, left China Merchant Securities earlier this week.</p> <p>Ng, who was the firm’s head of investment banking, was also deputy CEO of the group’s brokerage division. Prior to joining China Merchant, Ng was Bank of China International’s vice chairman of investment banking, and held several key roles in Schroders, Bear Stearns, and Standard Chartered as well. Whether or not he has joined a rival firm is currently unknown. Finance Asia<br /> Photo: Wendy</p>
Wanda boss puts the record straight
Capital Markets
<p>A recent report by The New York Times suggested that the reason behind Wanda’s rapid growth lies in the company’s political ties, stating that relatives of President Xi Jinping and other leaders are Wanda shareholders.</p> <p>This week, Wanda chairman Wang Jianlin told 1000 students at Harvard Business School that the report was wrong:</p> <p>“Wanda has no political affiliation,” he said.</p> <p>“In August 2009, our commercial properties subsidiary had initiated a round of private placement and…[President] Xi’s brother-in law, Deng Jia Gui’s investment company, Qin Chuan Dadi, participated in the private placement at the same subscribed price level as other investment companies…Just two months before the listing, Mr Deng sold all the shares held by his investment company and fully exited at a low price point, and I’d like to state at this point that Mr Deng was never a shareholder of our listed company.” </p> <p>“After six years of investment, he sacrificed the opportunity to realize a huge return in investment. This incident demonstrates that President Xi is not only strict in managing our country but is even more scrupulous when it comes to family affairs.”<br /> Photo: Richard, enjoy my life!</p>
Workers unite!
Capital Markets
<p>Here's an interesting take from Société Générale on the flat-wage conundrum during this US economic growth spurt:</p> <p>"The lack of wage acceleration continues to be one of the most puzzling aspects of this expansion. Solving this puzzle is of crucial importance to both policymakers and investors. We explore the thesis that low productivity growth is the culprit behind sluggish wage growth. If true, this would point in the direction of structural weakness in both, rendering the Phillips curve ineffective. However, our analysis suggests that the causality actually goes the other way, from real wages to productivity. In other words, after a five year period of no gains in real wages, labor has effectively gone on a productivity strike. This phenomenon is not new and has been observed in previous cycles. The only difference about the current cycle is that the process has taken longer. We continue to assume that the US economy has been operating on a dormant portion of the Phillips curve, but is nearing an inflection point."</p> <p>Meanwhile the rich get richer...<br /> Photo: Ilya Boyandin<br /> &nbsp;</p> <p>&nbsp;</p>
Equity investment outlook October 2015: global growth scare: is it warranted?
Capital Markets
<p>&nbsp;</p> <p>During the third quarter, global markets were roiled by heightened investor uncertainty and downright fear that China’s slowing economic growth might tip the global economy into recession. The selling pressure that took hold in mid-August had all the elements of a mini panic. The only assets that held their value or posted gains were cash and investment grade bonds. The further out one looked on the risk spectrum, the worse the decline. Non-investment grade bonds traded off 3-5%. Even the 6% decline in the S&amp;P 500 Index during the quarter was relatively benign compared to smaller cap stocks that pulled back nearly 12% and emerging market equities that tanked nearly 18%. China and the economies that depend most directly on China’s demand were hit hardest: the Chinese market fell 30% and Brazil was down 33%.</p> <p>The key development precipitating the sell-off was China’s decision to let its currency devalue versus the U.S. dollar. This was read by global markets as tacit acknowledgement by the Chinese authorities that China’s growth was flagging and needed a lift from a weaker currency. Given the leading role that China has played in driving global growth over the past decade, investors ran for the exits, fearful that a recession in China could trigger a global recession. Our response is “not so fast.” In China and the economies dependent on it, concern is completely justified by the facts. The “miracle” hyper growth phase of China’s economic development may very well be over, leaving China to manage a potentially difficult downshift into an extended period of much slower growth (slow growth, not zero growth). This could have serious, lasting implications for many emerging market economies and stock markets. That said, the implications for the U.S. are much more nuanced and the current level of investor concern may be unjustified and overdone. We think a strong case can be made that the U.S. economy can decouple from a Chinese slowdown. Some even argue that the U.S. economy will prove to be a net beneficiary of the cooling-off in Chinese and emerging market growth. This Outlook will look at the growth scenarios for China and China-dependent countries compared to the U.S.</p> <p>China</p> <p>China is experiencing a significant slowdown in its growth rate, a change that is having wide-ranging spillover effects. Year after year of double digit Chinese gross domestic product (GDP) growth helped power global growth over the past 15 years (Figure 1). Since the year 2000, the emerging markets’ share of the global economy has increased from above 45% to 60% now (Figure 2). Investors are rightly concerned about the impact of a Chinese slowdown on global growth, but we think that the brunt of this slowdown will be borne by China and its main suppliers (not the U.S.). China’s voracious appetite for commodities during its go-go days helped lift growth for many commodity and goods producing countries. Now that China’s growth is slowing, demand for these commodities is waning and prices are plummeting. This, of course, is devastating to the profitability of commodity producers and the countries dependent on them (e.g. Brazil, Russia, Indonesia, Malaysia, South Africa and Australia). The big question is: could this commodity deflation be good news for the U.S. consumer? We try to answer this question later in this Outlook.</p> <p>Figure 1:</p> <p>Source: Cornerstone Macro, Economic Research, October 11, 2015 (end date: 6/30/15). Year-on-year growth rate.</p> <p>Figure 2:</p> <p>Source: Cornerstone Macro, Econ</p>
Daily Scan: Asian shares post best month in six years; Bank of Japan slashes growth, inflation forecasts
Capital Markets
<p>Updated throughout the day</p> <p>October 30</p> <p>Asian bourses turned in their best monthly performance in more than six years as dreams of stimulus propelled prices higher. Friday was a bit of bust -- Asia-ex Japan finished lower on Friday. And, ironically, the Nikkei 225 notched gains after the Bank of Japan declined to expand its stimulus program. Go figure. Here's what happened in October:</p> <p>Day<br /> Week<br /> Month</p> <p>Hang Seng Index<br /> -0.79%<br /> -1.89%<br /> +8.60%</p> <p>Hang Seng China Enterprises Index<br /> -0.41%<br /> -2.96%<br /> +10.54%</p> <p>Shanghai Composite<br /> -0.14%<br /> -1.36%<br /> +10.80%</p> <p>Shenzhen Composite<br /> +0.02%<br /> -0.82%<br /> +17.36%</p> <p>Nikkei 225<br /> +0.78%<br /> +1.46%<br /> +9.75%</p> <p>Straits Times Index<br /> -0.09%<br /> -2.33%<br /> +7.40%</p> <p>European bourses meanwhile are edging upwards, the U.K.’s FTSE 100 is currently up 0.05%, Germany’s DAX 30 is up 0.37%, and France’s CAC 40 is up 0.41%. As for Wall Street, S&amp;P 500 futures have so far climbed 0.32%.</p> <p>Here’s what else you need to know:</p> <p>RBS, BNP profits beat estimates. BNP Paribas’ third quarter net income rose to $2.01 billion, beating a $1.85 billion showing expected by analysts, while the Royal Bank of Scotland, despite a massive hit from litigation, misconduct and restructuring costs, posted $1.46 billion in attributable profit, thrashing forecasts of a $276 million loss. Reuters / Financial Times</p> <p>German retail sales miss forecasts. German retail sales grew 3.4% in September versus the previous year, a pretty good climb compared to August’s revised 2.1% growth rate. Unfortunately, it’s a hair shy of the 4.1% showing analysts had been expecting. Financial Times (paywall)</p> <p>Italian unemployment falls to two-year low. Things are looking good over in Italy. According to the nation’s statistics bureau, Istat, unemployment in the country fell to 11.8% – its lowest level since January 2013. Istat</p> <p>Bank of Japan stands pat. In an 8-1 vote, the Bank of Japan’s Policy Board decided to keep its stimulus program unchanged. Shortly after the closing bell, the bank also decided to slash its growth forecast and push back the time frame for its 2% inflation target. Bank of Japan (pdf)</p> <p>Samsung sells chemicals business to Lotte. In another chaebol to chaebol deal, South Korea’s Lotte Group is set to acquire Samsung’s chemical business for around $2.63 billion. The deal reportedly includes 31% of Samsung Fine Chemicals and 90% of Samsung SDI’s chemicals operation. </p>
Daily Scan: CVS dumps Valeant's Philidor pharmacy; 2-year Treasury yields rise sharply
Capital Markets
<p>Updated throughout the day</p> <p>October 29</p> <p>The U.S. Treasury market shrugged off the weak GDP for the third quarter, and turned tail at the very real threat of a December interest rate hike. The yield on the two-year note -- often viewed as a proxy for where the federal funds rate is heading -- rose to 0.728%, up from 0.707% on Wednesday, its biggest one-day move since February. Tuesday, the yield stood at 0.61%. (Yields rise when prices fall.) On Wednesday, the Federal Reserve dropped its concern about global weakness and strongly hinted that they may the economy is robust enough to raise rates. Economists were divided over whether the weaker-than-expected report on third quarter GDP would move the Fed. Growth fell to 1.5%  short of the 1.7% expectation. In the economy-is-fine column: Initial jobless claims came in at 260,000 for the week ending October 24 -- the 34th week in a row that the jobless claims remained below 300,000. Stocks edged down Thursday, with the Dow Jones Industrials off 0.1%. The Nasdaq fell 0.4%, and the S&amp;P 500 dropped 0.04%. Oil closed just over $46/barrel.</p> <p>Here’s what else you need to know:</p> <p>CVS terminates Philidor from Caremark program. CVS says that it found "noncompliance" in an audit of Philidor, a pharmacy associated with the embattled Valeant. Last week activist investor Andrew Left alleged that Valeant was using Philidor as a front for fraudulent activity. MarketWatch</p> <p>LinkedIn beat earnings expectations. The social media site reported earnings of 78 cents per share on $780 million in revenue, compared to the expected 46 cents per share on $756 million in revenue. Sales were up 37% from the previous year. Shares rose 10% in after hours trading with the news. CNBC</p> <p>A Boeing 767 caught fire in Florida. The plane was taxing for departure from Fort Lauderdale-Hollywood International Airport for Venezuela. The Dynamic International Airways Flight 405 suffered a fuel leak before catching fire on the runway around 12:30 p.m. Passengers were evacuated from the aircraft, and 14 were injured. CNN</p> <p>Paul Ryan elected 62nd speaker of the House. The Wisconsin representative takes over from Representative John Boehner. The 45-year-old Ryan is the youngest speaker since 1869, and is also the first speaker since 1989 to be elected in the middle of a congressional term. New York Times (paywall)</p> <p>Pfizer, Allergan may merge in biggest deal of year.  The combo would elbow aside the Anheuser-Busch InBev $104 billion pact to buy SAB Miller. 2015 is shaping up to be the hottest year for mergers. Pfizer has a market cap of $216 billion while Allergan is $112.5. The bankers win, whichever way you look at it. Wall Street Journal (paywall)</p> <p>Deutsche Bank to lay off 35,000, scotch dividend. Deutsche Bank CEO John Cryan told the press that he plans to reduce his firm’s full-time workforce by 9,000 and shut down the bank’s operations in 10 countries. The massive overhaul, once finished, will result the job losses. </p>
Don't doubt the power of Apple
Capital Markets
<p>Apple continues to wow with continued reports of profit growth. And yet, analysts are skeptical of whether the company can keep it up. Ben Thompson of Stratechery scoffs at this, saying Apple knows exactly what they're doing. Here's part of Thompson's argument for the power of the iPhone:</p> <p> Reality #1: Smartphones are the most important products in people’s lives, which means that the willingness to pay for the “best” is higher than it is for just about anything else; relatedly, the smartphone budget is likely the last to be cut in any sort of economic tightening<br /> Reality #2: Nearly all iPhone users upgrade to new iPhones, while a significant number of Android users switch. Ergo, the more saturated the smartphone market becomes (and the more people appreciate just how important a smartphone is to their lives, per Reality #1) the better Apple does<br /> Reality #3: Apple’s increasing monopoly on the high-end of the market is creating a virtuous cycle that ensures they will own the high-end indefinitely. From an app perspective, new and updated apps launch first on iOS, which means people who care buy iPhones, which means future new and updated apps launch first on iOS. From a component perspective, Apple is increasingly the only manufacturer that can even afford to buy the best components, and they have massive scale which ensures they get first dibs on what is new. This, of course, further solidifies Apple’s hold on the high end, which only strengthens their position with component manufacturers further. From a broader hardware perspective, Apple’s scale means their costs are lower than any potential competitors, which means their investment in new technology like 3D Touch can be commensurately higher, which again, solidifies their hold on the high end, which increases their scale even more.</p> <p>Undeniably even people who don't identify as Mac users own iPhones, iPads, and other Apple products. Does Apple need to saturate the market, or can it continue growing with its existing core base?<br /> Photo: Világos Gergő</p>