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Frontrunning: July 24

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  • Humans Beating Robots Most Since ’08 as Trends Shift (BBG)
  • Easing of Mortgage Curb Weighed (WSJ)
  • European Banks Face Capital Gap With Focus on Leverage (BBG)
  • Signs Suggest China Warming to Idea of Stimulus (WSJ)
  • China Coal-Fired Economy Dying of Thirst as Mines Lack Water (BBG)
  • Jeans and shoes show criminal underbelly of China-EU trade (Reuters)
  • How U.S. drug sting targeted West African military chiefs (Reuters)
  • Japan scrambles jets after China plane flies by southern islands (Reuters)
  • Apple Plots Return to Growth After Coping With Aging Lineup (BBG)
  • AT&T Falls Shy of Analyst Estimates as Discounts Hurt Margins (BBG)
  • SAC insider trading case takes twist (FT)

 

Overnight Media Digest

WSJ

* Federal prosecutors are preparing to announce criminal charges as early as this week against SAC Capital Advisors LP, the hedge fund giant that has been the target of a multiyear investigation into alleged insider trading, according to people familiar with the matter.

* Apple Inc proved Tuesday there is still demand for its venerable iPhone in the face of stiff competition, though it is running into trouble convincing consumers to buy its other gadgets.

* Egg producer Cal-Maine Foods Inc agreed to pay $28 million to settle claims in a series of antitrust lawsuits that alleged it and other producers agreed to curtail egg supplies to inflate prices.

* The Federal Communications Commission has proposed to include a slice of spectrum now controlled by the military in its first significant auction of airwaves in half a decade.

* Miners are taking a pickax to their exploration budgets, cutting spending to find new resources. But if demand picks up - as it usually has - miners may find themselves scrambling to boost production to catch up.

* Juniper Networks Inc said Chief Executive Kevin Johnson will retire as the network-gear company also reported its second-quarter profit surged 70 percent on higher revenue.

* An oil-production boom is delivering prosperity to pockets of the United States, but in West Texas, the epicenter of activity, it is also bringing trouble in the form of surging electricity prices.

* China's economy showed fresh signs of weakness in July as an initial gauge of manufacturing activity slumped to an 11-month low, leading economists to make comparisons to conditions seen shortly after the global financial crisis of 2008 and 2009.

* French banks are making a comeback in the aircraft-finance market, thanks partly to a technique that gained notoriety during the financial crisis: securitization.

* KPN agreed to sell its E-Plus business in Germany to a unit of Telefónica in a $10.7 billion deal that would create Germany's largest mobile phone operator.

 

FT

Business Secretary Vince Cable has accused the Bank of England of holding back the economic recovery by imposing excessive financial burdens on banks and demanding that they build up high levels of capital.

Sales of Apple Inc's iPhone trumped Wall Street estimates countering concerns that the best years of smartphone growth were behind it, even as third-quarter earnings fell sharply.

Mark McCombe, the former head of HSBC's Hong Kong operations, has emerged as the external frontrunner for the top job at Royal Bank of Scotland, three people close to the process said.

Sajjan Jindal-led JSW Steel and Jindal Steel and Power Ltd, headed by brother Naveen Jindal, are competing to buy the iron ore assets of UK's Stemcor, the world's largest independent steel trading company, people familiar with the negotiations said.

Largest U.S. telecom group AT&T Inc posted a second-quarter profit on Tuesday held back by higher operating costs, mainly in mobile operations, which has been investing heavily in its new 4G network based on LTE technology.

Ford Motor Co and Toyota Motor Corp ended their partnership to develop hybrid pickup trucks and sport-utility vehicles amid robust statements from Ford about its strong future in the technology, the U.S. automaker said on Tuesday.

 

NYT

* Yahoo Inc's share buyback is legal, but timing is suspect. Daniel Loeb's exit from Yahoo raises the question of whether he was out to create true value - or stir the pot.

* Some witnesses warned a Congressional subcommittee that taxpayers, as well as the economy, could be vulnerable to banks' actions in the commodities market.

* The email habits of Stephen Cohen, the owner of SAC Capital Advisors, are at the heart of the government's civil charge against him, because his lawyers say he barely reads his messages.

* The government will announce in coming days the indictment of SAC Capital, the hedge fund led by the billionaire Steven Cohen, which could lead to the fund's demise.

* A legal battle over an obscure real estate investment trust called CommonWealth REIT lays bare the private world of Barry Portnoy, who oversees a $25 billion real estate empire stretching from Boston to Honolulu.

* At companies like PepsiCo Inc and Kellogg Co , white-coated lab technicians join with white-jacketed chefs to give consumers the taste they want with less salt, fat and sugar.

* The news on Tuesday was not particularly good for Apple Inc : revenue was flat, profit was lower, and even the sales of iPads were down. But strong iPhone sales helped beat the expectations of Wall Street.

* Telefónica said it will buy E-Plus of Germany from KPN in a cash-and-stock deal worth an implied $10.7 billion, coming amid signs of accelerating consolidation in Europe's telecommunications sector.

* First Focus, an advocacy group for child-friendly policies, will release on Wednesday its latest "Children's Budget," which shows how federal spending on children has declined more than 15 percent in real terms from its high in 2010, when the fiscal stimulus law raised spending on programs like Head Start and K-12 education.

 

Canada

THE GLOBE AND MAIL

* The railway company involved in the deadly train derailment at Lac-Mégantic has stopped paying for the clean-up of the disaster site, forcing the town to pick up the tab, Mayor Colette Roy-Laroche said Tuesday.

* Although no charity or group has taken Justin Trudeau up on his offer to refund speaking fees, the Liberal Leader's opponents are calling on him to explain why he accepted the money in the first place.

* The next stage in the overhaul of Toronto-based Maple Leaf Sports and Entertainment Ltd is expected to claim several top executives, as president and chief executive officer Tim Leiweke shakes up the senior ranks of the organization, according to sources familiar with the matter.

* Premiers are planning to put Canada Pension Plan reform back on the national agenda when they meet this week at Niagara-on-the-Lake.

Reports in the business section:

* British Columbia's carbon tax has resulted in a 17.4-per-cent reduction in greenhouse gas emissions, according to a new study being released Wednesday as premiers gather in Niagara-on-the-Lake, Ont., to discuss a national energy strategy aimed at - among other things - lowering carbon emissions.

* Canada's Competition Tribunal has tossed out a case over billions of dollars in credit card transaction fees and punted it to the federal government.

* Toronto-based financial technology company Davis + Henderson Corp will push further into the U.S. with a $1.2-billion (U.S.) acquisition of banking software provider Harland Financial Solutions, headquartered in Florida.

* Small firms struggling to recover from massive floods in southern Alberta last month will be eligible for government-backed loans of up to $1-million as well as two years of loan-interest rebates, the provincial government announced Tuesday.

NATIONAL POST

* A vast archive of insider emails about the Ontario Liberals gas plant scandal was delivered Tuesday to MPPs on the province's Standing Committee on Justice Policy, despite earlier claims the documents had been permanently and illegally deleted.

* Canada needs to abolish its Senate because effective reforms will never happen, Saskatchewan Premier Brad Wall said Tuesday.

FINANCIAL POST

* The Competition Tribunal's decision on Tuesday to throw out the case against credit card companies was a blow to the retail industry, but it is only a matter of time before Canada goes the way of Australia, the U.S. and much of Europe by permitting merchants to directly pass on the cost of accepting credit cards to consumers.

* Some suggest you need to save enough to give you an annual retirement income of 70 percent of your income. You may only need half of that to get by.

* The conclusion of a bitter round of labour negotiations last year at Air Canada has left its pilots with little trust for the airline's management or their union leaders.

* The Toronto stock market closed slightly lower Tuesday, weighed down by an earnings report from industrial heavyweight Canadian National Railways Co.

 

China

CHINA SECURITIES JOURNAL

- China Merchants Bank said its application for a 3.1 billion rights share issue has been approved by the China Securities Regulatory Commission.

- According to first-half figures published by the China Insurance Regulatory Commission on Tuesday, total assets of the insurance industry totalled 7.88 trillion yuan ($1.28 trillion) as of end-June, an increase of 7.2 percent from the beginning of the year.

- The China Financial Futures Exchange will conduct the first full test run for the launch of government bond futures on Saturday.

CHINA DAILY

- Guangzhou will introduce 72-hour visa-free stays for travellers from 45 countries from August, during which a visitor can travel anywhere in the province, said Zhao Yufang, deputy governor of Guangdong on Tuesday at a press conference.

PEOPLE'S DAILY

- China has become the largest trading partner of ASEAN and is expected to achieve its $500 billion trade target in 2015, said Vice Minister of Commerce Gao Yan at a press conference on Tuesday.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

ASUR Airports (ASR) upgraded to Outperform from Neutral at Credit Suisse
Carlisle (CSL) upgraded to Buy from Neutral at SunTrust
Embraer (ERJ) upgraded to Neutral from Underweight at JPMorgan
Ironwood (IRWD) upgraded to Buy from Neutral at Janney Capital
Ironwood (IRWD) upgraded to Hold from Sell at Cantor
Lockheed Martin (LMT) upgraded to Neutral from Underperform at BofA/Merrill
MGIC Investment (MTG) upgraded to Positive from Neutral at Susquehanna
Sensata (ST) upgraded to Outperform from Perform at Oppenheimer
TCF Financial (TCB) upgraded to Market Perform from Underperform at FBR Capital
TD Ameritrade (AMTD) upgraded to Neutral from Sell at Goldman
VMware (VMW) upgraded to Outperform from Market Perform at Raymond James
Wendy's (WEN) upgraded to Neutral from Sell at Goldman

Downgrades

Alon USA Partners (ALDW) downgraded to Neutral from Outperform at Credit Suisse
Broadcom (BRCM) downgraded to Market Perform from Outperform at BMO Capital
Broadcom (BRCM) downgraded to Market Perform from Outperform at William Blair
Broadcom (BRCM) downgraded to Neutral from Buy at B. Riley
Broadcom (BRCM) downgraded to Neutral from Buy at Citigroup
Broadcom (BRCM) downgraded to Neutral from Buy at Mizuho
Broadcom (BRCM) downgraded to Neutral from Outperform at Credit Suisse
Broadcom (BRCM) downgraded to Sector Perform from Outperform at RBC Capital
Crane (CR) downgraded to Neutral from Buy at Citigroup
D.R. Horton (DHI) downgraded to Neutral from Buy at Compass Point
DuPont (DD) downgraded to Sector Perform from Outperform at RBC Capital
Lennar (LEN) downgraded to Neutral from Buy at Compass Point
Murphy Oil (MUR) downgraded to Sector Perform from Outperform at RBC Capital
Norfolk Southern (NSC) downgraded to Underperform from Neutral at BofA/Merrill
Northern Tier (NTI) downgraded to Neutral from Outperform at Credit Suisse
PACCAR (PCAR) downgraded to Market Perform from Outperform at Wells Fargo
PACCAR (PCAR) downgraded to Neutral from Overweight at Piper Jaffray
Pacific Premier (PPBI) downgraded to Outperform from Strong Buy at Raymond James
Peoples Bancorp (PEBO) downgraded to Market Perform from Outperform at Raymond James
Polycom (PLCM) downgraded to Underperform from Sector Perform at RBC Capital
Portland General Electric (POR) downgraded to Hold from Buy at Deutsche Bank
PulteGroup (PHM) downgraded to Neutral from Buy at Compass Point
STMicroelectronics (STM) downgraded to Underperform from Buy at BofA/Merrill
Sapient (SAPE) downgraded to Market Perform from Outperform at Raymond James
ValueClick (VCLK) downgraded to Neutral from Buy at Goldman

Initiations

Costco (COST) initiated with a Buy at Williams Capital
UPS (UPS) coverage assumed with an Outperform at Credit Suisse

HOT STOCKS

HanesBrands (HBI) to acquire Maidenform Brands (MFB) for $23.50 per share
Apple (AAPL) CEO Cook doesn’t see high-end handset segment at its peak
Said on track for “very busy Fall” when questioned on product cycle
Barrick Gold (ABX) to divest Barrick Energy, recognize $500M loss in Q2
Canadian Natural (CNQ) to acquire Barrick Energy for $173M
Juniper (JNPR) board approved additional $1B share repurchase authorization

EARNINGS

Companies that beat consensus earnings expectations last night and today include:
TE Connectivity (TEL), Encana (ECA), Evercore Partners (EVR), Wellpoint (WLP), Thermo Fisher (TMO), Elan (ELN), Euronet (EEFT), Unisys (UIS), Apple (AAPL), KKR Financial (KFN),  International Game (IGT), ACE Ltd. (ACE), C.R. Bard (BCR), Discover (DFS), Robert Half (RHI),  Illumina (ILMN), Juniper (JNPR), Broadcom (BRCM), Electronic Arts (EA), VMware (VMW)

Companies that missed consensus earnings expectations include:
Pfizer (PFE), Nabors Industries (NBR), Norfolk Southern (NSC), Panera Bread (PNRA), AT&T (T)

Companies that matched consensus earnings expectations include:
Spirit Airlines (SAVE), Praxair (PX), Spectranetics (SPNC), ClickSoftware (CKSW), Altera (ALTR), Vascular Solutions (VASC)

NEWSPAPERS/WEBSITES

  • Concerned that tougher mortgage rules could hamper the housing recovery, regulators are preparing to relax a key plank of the rules proposed after the financial crisis. They want to loosen a proposed requirement that banks retain a portion of the mortgage securities they sell to investors, sources say, the Wall Street Journal reports
  • In the wake of the deadly oil-train derailment in Quebec this month, the U.S. rail industry (GE, GMT, VLO, PSX, TSO) is grappling with a safety problem regulators have warned about for years: tank cars that rupture during accidents, the Wall Street Journal reports
  • Just as Wall Street's commodity titans (JPM, GS) face intensifying pressure over their trading operations, nimble rivals are stepping up efforts to chip away at their bedrock business of financing the world's raw materials industry, Reuters reports
  • Dell (DELL) shareholders converge on Texas today to vote on CEO Michael Dell's $24.4B buyout offer for the company after a previous meeting was pushed back a week in the hope of convincing dubious investors to accept the deal, Reuters reports
  • The Fed faces new pressure to explain why it lets banks trade raw materials and control supplies after congressional witnesses said regulators can’t really grasp what lenders are doing in industrial businesses, Bloomberg reports
  • In the second year of the U.S. housing recovery, the loans that helped trigger the housing bust are making a comeback. Applications in late June jumped to the highest level since 2008 after the Fed sent fixed rates surging by signaling it may curtail bond buying credited with pushing borrowing costs to the cheapest on record, Bloomberg reports

SYNDICATE

Agios Pharmaceuticals (AGIO) 5.9M share IPO priced at $18.00
Heat Biologics (HTBX) 2.5M share IPO priced at $10.00
Jones Energy (JONE) 12.5M share IPO priced at $15.00

 

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