Wednesday, January 11, 2017

Wednesday, January 11, Night Wall Street Roundup: Wall St. Ends Choppy Session Higher, Health Lags On Trump Comments

By Sinead Carew
Reuters
January 11, 2017

U.S. stocks ended higher after a choppy day on Wednesday as energy and technology gains countered a drop in healthcare stocks after President-elect Donald Trump said pharmaceutical companies were "getting away with murder" by charging high prices.

The Nasdaq ended the day with another record closing high after falling as much as 0.5 percent after Trump's first formal news conference since the Nov. 8 election.

The S&P 500 healthcare index .SPXHC ended the session down 1 percent after falling as much as 1.9 percent earlier in the day and the Nasdaq biotechnology index .NBI sank 2.96 percent, ending a six-day winning streak for both indexes.

"When somebody that high profile says something that negative, people do not want to invest in it. They view the sector as uninvestible, and withdraw their money," Brad Loncar, manager of the Loncar Cancer Immunotherapy ETF (CNCR.O).

However, the sector's pain eased as the session wore on as money managers noted that Trump gave no new specific details on his healthcare proposals, according to Michael Scanlon, portfolio manager at Manulife Asset Management in Boston.

He cited the beginning of fourth-quarter earnings season on Friday and Trump's inauguration as President on Jan. 20 as reasons for investor caution.

"Portfolio managers have every reason in the world to sit on their hands," said Scanlon. "You put those two factors together and I don't think you're going to see much movement in the market until maybe we get some fireworks on Friday with earnings."

The Dow Jones Industrial Average .DJI closed up 98.75 points, or 0.5 percent, to 19,954.28, the S&P 500 .SPX gained 6.42 points, or 0.28 percent, to 2,275.32 and the Nasdaq Composite .IXIC added 11.83 points, or 0.21 percent, to 5,563.65.Eight of the 11 major S&P sectors ended the day higher. Energy stocks .SPNY, ended 1.2 percent higher as crude oil CLc1 LCOc1 prices rose.

The S&P's technology index .SPLRCT ended up 0.7 percent, boosted most by Microsoft Corp (MSFT.O), Facebook Inc (FB.O) and Apple Inc (AAPL.O).

The biggest drag on the S&P's healthcare sector was Bristol-Meyers Squibb's (BMY.N) with a 5.3 percent decline, after news that Merck & Co. leapfrogged its rivals in the race to combine immunotherapy with other drugs as a treatment for lung cancer. The next-biggest weights on the sector included Johnson & Johnson (JNJ.N), with a 1.2 percent drop and Abbvie (ABBV.N) with a 3.6 percent decline.

Advancing issues outnumbered declining ones on the NYSE by a 2.20-to-1 ratio; on Nasdaq, a 1.22-to-1 ratio favored advancers.

The S&P 500 posted 20 new 52-week highs and two new lows; the Nasdaq Composite recorded 99 new highs and 18 new lows.

About 7.2 billion shares changed hands on U.S. exchanges on Wednesday compared with the 6.57 billion average for the last 20 sessions.


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The EnteroMedics (Symbol #ETRM) Wave Has Likely Crested; Sell Short @ $30/Share; +/- $3.50

Trump Rally Makes Stock Options Great Again For Some CEO's

By Tim McLaughlin and Ross Kerber 
Reuters
January 11, 2017

Donald Trump once described Jamie Dimon as "the worst banker in the United States," but the president-elect has helped make the boss of JPMorgan Chase & Co (JPM.N) $50 million richer.

Dimon is the top beneficiary among the 30 chief executives who run companies in the Dow Jones Industrial Average index from a stock rally inspired by Trump's election, according to a Reuters analysis of their option grants.

Trump's proposed policies for lower taxes, less Wall Street regulation and more infrastructure spending have energized the U.S. stock market since the real estate magnate's Nov. 8 victory.

The post-election rally even resurrected the value of an option award held by Goldman Sachs Group Inc (GS.N) CEO Lloyd Blankfein that was worthless on the eve of the election.

Dimon, a lifelong Democrat, has seen his stock options surge in value by more than $50 million to $146 million since the Republican candidate's White House win.

Trump criticized Dimon in 2013 for reaching a $13 billion settlement with the U.S. government over the sale of toxic mortgages instead of fighting the case. Nevertheless, he appointed Dimon to the President’s Strategic and Policy Forum, a group of high-profile business leaders he set up last month to advise him on economic growth and job creation.

Dimon declined to comment on Trump's criticism or the rise in value of his holdings.

Jackpot

Stock options held by Dow 30 CEOs surged in value by 23 percent to about $1 billion in 2016, with most of the gain coming after Trump’s election win.

The figures reflect outstanding stock options that could be exercised at the end of 2015. Options that expired or vested in 2016 were excluded from the analysis.

In a few cases, CEOs exercised some of those options during 2016, U.S. regulatory filings show. Visa Inc (V.N) CEO Charles Scharf did not need a Trump-led stock rally to hit the jackpot. About two weeks before the election, he exercised nearly 800,000 options for gross proceeds of almost $33 million, U.S. regulatory filings show. He resigned from Visa effective Dec. 1.

For a look at how the post-election rally has affected Dow 30 stock options, click here (tmsnrt.rs/2iCbvvT)

Trump campaigned on the slogan "Make America Great Again," vowing to bolster the prospects of the American working class by preventing jobs from moving abroad, restricting immigration and renegotiating trade pacts. In 2015, Trump called high salaries paid to CEOs a "joke" and a "disgrace" and said these were often approved by company boards stacked with CEOs' friends.

Pro-Business Agenda


To be sure, Trump's election has helped investors big and small. Hopes of a pro-business agenda have driven the Dow 30 close to 20,000 - a level it has never breached - in a boon for workers' retirement plans.

"With the recent Trump/Republican win, it appears that investors are getting more excited about potential growth and animal spirits are on the rise," top investment strategists at Morgan Stanley said this month in a wealth management report. "This is likely to lead to the final euphoric stage of this cyclical bull market which could be quite powerful in 2017’s first half."

Big stock option gains for Goldman Sachs head Blankfein, American Express Co (AXP.N) CEO Kenneth Chenault and JP Morgan's Dimon may be a surprise, given that their companies have reduced or even eliminated option grants in recent years in favor of stock awards tied to hitting financial targets.

Blankfein's 322,104 outstanding options, granted in 2007 with a $204.16 strike price, were under water by $7.3 million on the eve of the presidential election. But by the end of 2016, their value had soared to $11.4 million. That was an $18.7 million swing, thanks to the Trump-inspired stock market rally and the U.S. Federal Reserve's decision to increase interest rates, a boost for banks and credit card companies.

Blankfein declined to comment.

Alan Johnson, managing director of pay consulting firm Johnson Associates in New York, said the big gains for the leaders of American Express, Goldman Sachs and JPMorgan reflect how stock option compensation can magnify gains in a company’s share price.

“When the stock goes up, with options, you get more leverage,” he said.

Mediocre Performance

Critics of stock options say the grants can produce large amounts of wealth for CEOs even with mediocre performance. One reason is that grants often are not linked to any financial performance metric, such as return on equity. And so as the United States nears the eighth year of a bull market, options can increase in value even if the CEOs are running companies whose share price has lagged broad benchmarks during their tenure.

For example, shares of Caterpillar Inc (CAT.N) rose 54 percent during Douglas Oberhelman's tenure as CEO of the big equipment maker from mid-2010 to the end of 2016, while the Dow 30 more than doubled during that span.

But the value of Oberhelman's options rallied during his last year as CEO, climbing to $20.3 million after being under water by nearly $9 million at the start of 2016.

The options' value got a $10.6 million booster shot after Trump's victory. Caterpillar shares rose 36 percent in 2016, making it one of the best performing stocks on the Dow. Trump has said he would use Caterpillar tractors to build a wall between the United States and Mexico. Caterpillar and Oberhelman declined to comment.

Not all CEOs have been winners, however. Coca-Cola Co (KO.N) CEO Muhtar Kent, who contributed $2,700 to Hillary Clinton, Trump's Democratic rival for president, saw the value of his options decline by $11.3 million to $143 million.

Coca-Cola shares are off 3 percent since Trump was elected amid lingering concerns about consumers cutting their consumption of sugary drinks. A Coca-Cola spokesman declined to comment.


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Wednesday, January 11, Morning Global Market Roundup: Stocks Edge Down, Dollar Steady Ahead Of Trump News Conference

By Vikram Subhedar 
Reuters
January 11, 2017

World stocks edged down from recent highs and the dollar steadied ahead of a news conference by U.S. President-elect Donald Trump in which he is expected to give more details about his plans for the U.S. economy.

While Trump's election campaign calls for tax cuts and more infrastructure spending have boosted U.S. shares and the dollar, his protectionist statements and a flurry of off-the-cuff Tweets have kept many investors from adding to risky positions.

European shares fell 0.3 percent while the UK's FTSE 100 was on track to snap an 11-day winning streak, with both indexes hurt by weakness in industrials. Stock futures on Wall Street eased 0.1 percent as the post-U.S. election rally shows signs of running out of steam.

Trump has vowed to label China a currency manipulator on his first day in office on Jan. 20 and has threatened to slap huge tariffs on imports from China.

U.S. House of Representatives Speaker Paul Ryan and top members of Trump's transition team are discussing a controversial plan to tax imports.

Economists have warned that protectionist measures could stifle international trade and hurt global growth.

That brings Trump's press conference, scheduled for 11:00 EST (1600 GMT), into sharp focus.

"From a currency perspective, markets will aim to get a clearer picture on trade, fiscal stimulus and the new administration’s relationship to the Fed," Morgan Stanley strategists wrote in a note to clients.

The dollar inched higher against the yen on Wednesday but was little changed against the basket of currencies used to measure its broader strength.

The dollar has gained broadly since Trump's election in November as investors bet he would boost public spending and spur repatriation of overseas funds by U.S. companies as well as higher inflation and interest rates.

Sterling meanwhile edged towards a 10-week low against the dollar on Wednesday, kept under pressure by fears that Britain will undergo a "hard" exit from the EU in which access to the single market will play second fiddle to immigration controls.

The Turkish lira fell to new lows despite efforts by the country's central bank to support it with pressures piling on the economy.

An auction of German debt was expected to go down well with investors looking for safe havens. Portuguese yields held near 11-month highs as the country prepared for its toughest bond sale in years.

In commodity markets, oil rose, lifted by reports of Saudi supply cuts to Asia, but gains were capped by a lack of detail about the reductions and because of signs of rising supplies from other producers.

Prices for Brent futures LCOc1, the international benchmark for oil prices, were trading at $53.94 per barrel at 0800 GMT, up 30 cents from their previous close.

U.S. West Texas Intermediate (WTI) crude futures CLc1 were at $51.11 a barrel, up 29 cents.


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Oil Rises As Saudi Arabia Tells Asian Customers Of Output Cuts

By Amanda Cooper 
Reuters
January 11, 2017

Oil prices rose for the first time in three days on Wednesday, following news of Saudi supply cuts to Asia, but persistent doubt over output reductions and signs of rising shipments from other producers kept gains in check.

Brent crude futures were up 41 cents at $54.05 a barrel by 1133 GMT (6:33 a.m. ET), while U.S. West Texas Intermediate crude futures were up 39 cents at $51.21 a barrel.

Brent has surrendered nearly 40 percent of the gains made between late November and early January. Analysts, however, said the slide was unlikely to become more aggressive, given the likelihood of Saudi Arabia and its Gulf neighbors at least sticking to their pledge to cut output.

"Few envision that Brent crude at sub-$50 a barrel is a viable price (in the first half of 2017) amid OPEC production cuts tightening up the market," SEB commodities strategist Bjarne Schieldrop said.

Whether "last night's low of $53.58/barrel turns out to be the low point remains to be seen. However, we do think that buying in the territory between the current price of $53.88/b and down to $50/b is probably as good as it gets for buyers in H1."

Saudi Arabia, the world's top oil exporter, has told some of its Asian customers that it will reduce their crude supplies slightly in February.

But there is still plenty of oil to fill the gaps left by the Organization of the Petroleum Exporting Countries. North American drilling is on the rise, while European and Chinese traders are shipping a record 22 million barrels of crude from the North Sea and Azerbaijan to Asia this month.

There is still doubt among many market watchers over whether the planned cuts will be enough to rebalance a market that has been oversupplied for the past two years.

"Traders continued to fret about rising U.S. supply and compliance by OPEC to agreed-upon production cuts," ANZ bank said.

The U.S. Energy Information Administration (EIA) said on Tuesday that crude production in the United States this year would rise by 110,000 barrels per day to 9 million bpd.

Another concern is high U.S. crude stockpiles, with the EIA scheduled to release its latest figures on Wednesday.

OPEC's second-biggest producer Iraq plans to raise crude exports from its southern port of Basra to an all-time high of 3.641 million bpd in February, keeping shipments high even as OPEC production cuts take effect this month.


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As OPEC Cuts, Traders Send European Oil Volumes To Asia

By Florence Tan and Mark Tay
Reuters
January 11, 2017

European and Chinese traders are shipping a record 22 million barrels of crude from the North Sea and Azerbaijan to Asia this month, seeking to plug any supply gap left by OPEC production cuts.

Over 11 million barrels of North Sea Forties crude have either been offloaded or are on their way to Asia, adding to a record 11 million barrels of Azeri crude oil from Azerbaijan, Reuters oil trade flows data showed.

The record export volumes come on expectations of tighter Middle East crude supplies due to plans by the Organization of the Petroleum Exporting Countries (OPEC) to cut production in an attempt to prop up prices.

Seeing an opportunity to sell North Sea oil profitably in arbitrage deals to Asia, seven supertankers chartered by commodity traders Vitol and Mercuria, European oil major Royal Dutch Shell, and China's refiner Unipec, have either delivered or are expected to soon offload European crude to China and South Korea this month, according to trade sources and Reuters data.

"Asia needs the oil, Europe has it. The OPEC cut has raised prices, and that now makes it profitable to send European oil to Asia," said one senior trader with knowledge of the deals on condition of anonymity as he is not allowed to talk to media.

December's OPEC deal, in which the group agreed to cut production by 1.2 million barrels per day (bpd) in the first half of 2017, pushed up benchmark price Dubai against Brent and West Texas Intermediate, allowing Asia to pull more competitively priced supplies from the Atlantic Basin.

An ongoing Brent contango, a market structure where oil becomes more expensive in future months, also enabled traders to lock in profits for crude on long voyages.

Shipping North Sea Forties crude from its load port Hound Point in Britain to customers in North Asia, including Japan, South Korea and China, takes over six weeks.

Battle For Asia

The deals highlight the predicament facing OPEC and other producers that have agreed to cuts, including Russia and Oman.

While cutting supplies may temporarily lift prices, this gives other producers like western oil firms an opportunity to fill the gap and sell oil to Asia, the world's biggest demand region.

"The real market battleground is East of Suez," said John Driscoll, director of Singapore-based energy consultancy JTD Energy Services, referring to the Suez Canal through which many tankers ship oil between Europe, the Middle East, and Asia.

The ships now carrying European oil to Asia have 11 million barrels of Forties crude loaded, beating a previous record of 10 million barrels in December 2015, Thomson Reuters Eikon trade flow data showed.

And more oil is to come. Two more Very Large Crude Carrier (VLCC) supertankers with 2 million barrels of Forties crude each are due to arrive in North Asia in February, while three VLCCs have been provisionally booked to load oil this month for arrival in Asia in March-April, the data showed.


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