Market Snapshot
Asia: Japan -3% to 19436. Hong Kong -1.5% to 22410. China -4.2% to 3508. India -0.9% to 27366.
Europe: London -0.9%. Paris -1.1%. Frankfurt -1%.
Futures: Dow -0.4%. S&P -0.2%. Nasdaq -0.5%. Crude -0.7% to $41.04. Gold -0.2% to $1151.50.
Ten-year Treasury Yield flat at 2.08%
Economic News
9:45 PMI Manufacturing Index Flash
Insight from the Street
Over the course of the last 3 to 4 years of the 6 year bull market run, the S&P has been going up on an economy that was improving due to continued job growth and zero borrowing cost. Because of this, investors flocked to the US in a ‘nowhere to go but buy stocks’ mentality. During this time the S&P deflected almost everything in its path. Big investment firms and mutual funds poured money into US stocks because the zero borrowing cost has been the main driver of the unending chain of stock buybacks. Stock markets around the world were making new highs almost daily, but as global growth slowed, so did some of the world’s largest economies.
While it’s clear to see the US is slowing, the weakness is not all home grown, and is now being dragged down by China and Europe who seem to go from one economic crisis to the next. After Europe cleaned up the most recent Greek credit crisis, Puerto Rico has become a problem in the US. In Asia, where the Shanghai Composite went straight up for the last two years, has been falling dramatically over the last month and a half, and Hong Kong’s Hang Seng Index has fallen into a bear market, falling over 20% from their peaks set back in April. China has started a currency war and the continued slide in the commodity space is now starting to hit the emerging market currencies. Clearly the big institutions that have been buying stock in the last 6 years are not moving, they are getting out. Does this mean the bull market is over, or is this just another bump in the road to higher prices? Right now warning lights are flashing, and while Asia and Europe are seeing many of their stock markets fall into bear market territory, most of the selling is long overdue. Historically, late August into the middle of October are when US stocks have seen most of their corrections and crashes, so the timing of the global sell off could not come at a more volatile period.
Markets
World stocks are heading for their worst week of the year after data showed Chinese factory activity shrinking at the fastest pace since 2009. Marking the fifth straight month of contraction, the flash Caixin/Markit China Manufacturing PMI fell to 47.1 in August, compared to a final reading of 47.8 in July. More than $500B was erased from the S&P 500 yesterday, while the Dow plummeted below 17,000 for the first time since October.
The widely watched eurozone manufacturing PMI for August remained flat at 52.4, although the figure was slightly better than the 52.2 reading of economists due to a stronger performance from Germany. A similar survey of activity in the eurozone’s services sector, however, reached a two-month high for August, pushing the composite output index to 54.1. “The flash PMI suggests that the euro zone is still experiencing one of its best periods of economic growth and job creation during the past four years,” said Markit’s Rob Dobson. The U.S. flash manufacturing PMI will be released at 9:45 a.m. ET.
WTI crude is heading for its eighth straight weekly decline, the longest weekly losing streak in about thirty years. In late 1985, oil prices slumped to $10 from around $30 over five months, after OPEC raised output to counter an increase in production outside the group. Weaker global stock markets and data from China’s factory slowdown are particularly weighing on the commodity today, adding to worries about lower demand.
Greek Prime Minister Alexis Tsipras announced he would resign on Thursday to pave the way for snap elections, just hours after sealing an €86B bailout deal and receiving cash from international creditors. The European Commission, which had been braced for an early election, is now calling on Athens to “maintain its commitments to the eurozone” despite the fresh political uncertainty.
Meanwhile, North Korean leader Kim Jong Un has ordered his troops to go on a “semi-war state” after issuing an ultimatum to Seoul to halt anti-North loudspeaker broadcasts by Saturday afternoon or face military action. The Kim regime has frequently issued bellicose statements, claiming that the divided Korean Peninsula was “on the brink of war,” but the latest threat followed a highly unusual exchange of artillery shells across the two nations’ border. South Korea’s Kospi index closed the session down 2%.
Stocks
Apple has raised A$2.25B ($1.6B) with a debut “Kangaroo” bond issue, smashing the record for the largest-ever corporate bond deal in Australia. The iPhone maker sold A$1.15B of seven-year notes at a yield of 110 bps more than swap rates and A$1.1B of four-year securities at a 65 bps spread, bringing its total debt issuances over the past two years to $50B. Apple (AAPL) had only sold U.S. currency bonds until last November, but has since expanded to euros, yen, pounds, Swiss francs and Aussie dollars.
Twitter (TWTR) shares dropped below their IPO price of $26 yesterday, continuing to slip on news of poor performance and uncertainty around its leadership. Co-founder and interim CEO Jack Dorsey said in an earnings release last month that the company was facing problems growing its user base. Twitter (NYSE:TWTR) has now overhauled its mobile ad platform by launching several new formats and has renamed it the Twitter Audience Platform.
“A number of sources” told Digiday Google (GOOG, GOOGL) is testing the inclusion of video ads within search results, and that the subject has “come up in discussions between Google and the ad industry.” Bing (MSFT) already offers video ads through its Rich Ad format, and Yahoo (YHOO) is working on its own solution. With search ads still accounting for a giant portion of Google’s profits, the payoff could be quite big.
Uber’s global bookings are projected to rise nearly threefold to $10.84B this year and reach $26.12B the next, according to a confidential slideshow seen by Reuters. The figures still don’t display whether Uber (UBER) (which keeps 20% of booking revenue) is profitable, since it offers financial incentives to drivers to gobble up market share. When’s it finally going public? The presentation suggested an Uber Global IPO within 18-24 months.
McDonald’s has signed its second deal with a Russian franchisee which will help it to expand in several remote Siberian regions. Under the deal, Russia’s GiD will open up to 20 fast-food restaurants in the Novosibirsk, Tomsk, Kemerovo, and Altai in coming years. McDonald’s (MCD), which has operated in Russia for 25 years, already has more than 500 restaurants in 120 Russian cities – servicing more than 1M customers per day.
Six days after Trian Fund Management disclosed a 7% stake in Sysco (SYY), the company announced Nelson Peltz is joining the board, as is fellow Trian partner Josh Frank. The food distributor’s board now has 12 members (10 independent). “We have engaged in constructive dialogue with Nelson and Josh and look forward to benefiting from their insights and contributions,” said Jackie Ward, Sysco’s nonexecutive chairman.
Novartis has agreed to buy all remaining rights to an experimental drug from GlaxoSmithKline (GSK) for as much as $1B, bolstering the Swiss drugmaker’s stable of treatments for multiple sclerosis. Novartis (NVS) will pay $300M upfront to Glaxo for ofatumumab, followed by another $200M after late-stage clinical trials, and may pay another $534M if certain milestones are met during the drug’s development.
United Technologies is in talks to buy residential products maker Nortek (NTK), in a deal that would mark the industrial conglomerate’s latest move to remake itself, WSJ reports. It’s still unclear where talks are holding or what price is being discussed, but Nortek’s market value stands at $1.2B and enterprise value at more than $2.5B. NTK closed yesterday’s session up 17%, while UTX fell 2.4%.
Distancing itself from air-bag supplier Takata, Toyota (TM) has asked smaller parts maker Nippon Kayaku (NPKYY) to increase production so it can provide more than 13M inflators for its vehicles from next July until 2020. Takata’s (TKTDY) inflators have so far been linked to eight deaths and more than 100 injuries after exploding with excessive force, although the root cause behind the eruption has still not been identified.