Frontrunning: August 1

  • Headlines only idiots, Schrodinger and Goebbels could love:

    • China Manufacturing Gauge Shows Unexpected Strength (WSJ)

    • China's factory activity shrank for a third straight month in July to its lowest level in nearly a year as new orders fell (Reuters)

  • For nuns and analysts alike, bank commodity earnings are a mystery (Reuters)

  • US spying comes under fresh attack (FT)

  • Summers Backed Yellen for Fed Before Rivals Now Prove More Alike (BBG)

  • Good Luck Leaving Your Wireless Phone Plan (WSJ)

  • Spain's Rajoy says he was wrong to trust treasurer in party funding scandal (Reuters)

  • Shell's Profit Falls on Shale Write-Down (WSJ)

  • Why Rand Paul and Chris Christie went to war  (Politico)

  • Sony Returns to Profit Aided by TV Business (WSJ)

  • Germany chides Egypt on 'selective justice,' Brotherhood defiant (Reuters)

  • Obama defends Larry Summers to Democrats (FT)

  • BOE Keeps QE on Hold as Officials Assess Forward Guidance (BBG)

Overnight Media Digest

WSJ

* The U.S. economy registered subpar growth and low inflation in the first half of the year, factors that led the Federal Reserve on Wednesday to keep its easy-money policies in place. The Commerce Department reported that the economy grew at a 1.7 percent annual rate in the second quarter, enough to ease fears of a full-on summertime economic stall, but still a sluggish pace by historic standards.

* A federal judge invalidated a rule on fees charged for debit-card transactions, agreeing with retailers' arguments that the Federal Reserve was too lenient on banks when it capped the fees. The decision will likely force the Federal Reserve to slash those fees, further crimping a once-lucrative business for banks and card companies like Visa and MasterCard.

* The Obama administration declassified and released documents Wednesday that described past violations of a secret court order by National Security Agency programs set up to amass records on phone calls and Internet transactions.

* Economic gains in the United States and upgrades to the nation's energy-transport infrastructure are helping oil shrug off the downturn in other industrial commodities. Crude prices are up 14 percent this year on the New York Mercantile Exchange, despite slowing growth in China and surging production in the United States.

* Ambulance company Rural/Metro Corp is preparing for the possibility of a bankruptcy filing within the next couple of weeks, said people familiar with the plans, as it is negotiating with creditors.

* United States is pumping more oil and natural gas than it has in decades, but the boom hasn't been enough to prop up the sagging output of America's two biggest energy producers, Exxon Mobil Corp and Chevron Corp.

* Facebook Inc's stock briefly touched its IPO price of $38 on Wednesday, hitting a marker that felt out of reach in autumn of last year, when the stock was in free fall. While shares eventually drifted lower to settle at $36.80, Facebook is still within striking distance of $38, a fact not lost on Facebook's investors, many of whom were burned in the company's botched IPO.

* Activist investor William Ackman's brash move to buy a 9.8 percent stake in Air Products and Chemicals Inc is drawing attention to a large but little understood company that has been struggling with sliding profits as natural gas becomes more expensive.

* The U.S. Securities and Exchange Commission is probing the way International Business Machines Corp reports sales in its cloud-computing business, the company said in a securities filing on Wednesday. The filing offered no details of what practices in particular the SEC might be questioning. IBM defended its standards, saying its reporting is the result of a rigorous and disciplined process.

* Asia-Pacific law firm King & Wood Mallesons is merging with British law firm SJ Berwin LLP, creating a firm with more than 2,700 lawyers in over 30 offices around the world. The combination is a significant move into the British and European legal markets for the company, whose formation in 2012 was the largest law firm merger not to involve a U.S. or U.K. partner.

FT

RBS is in late-stage talks with regulators at the Bank of England to appoint its head of retail banking Ross McEwan as its new chief executive.

Siemens has appointed CFO Joe Kaeser as its new chief executive, replacing Peter Loscher as the German conglomerate seeks to draw a line under a difficult period market by sliding profit margins.

Schneider Electric said it would buy British engineer Invensys for 3.4 billion pounds ($5.15 billion) in a bid to bolster its industrial automation business.

EADS is to rename itself after its flagship brand, Airbus, and combine its defence units in an attempt to streamline the company's structure and shift its strategic emphasis to its commercial aircraft business.

Facebook shares briefly returned to their IPO price of $38 on Wednesday, marking a milestone and turnaround in investor confidence in the company after a troubled public offering last year.

NYT

* New instruments called phasor measurement units are being installed as diagnostic tools to try to prevent another huge power failure like the one that cut off electricity for 50 million people from the Northeast to the Midwest in 2003.

* The Federal Reserve said its purchase of $85 billion a month in securities would continue, citing the weak rate of growth during the first half of the year, but maintained its forecast that "economic growth will pick up from its recent pace" in the coming months, driving job creation.

* A special committee of Dell Inc's board said on Wednesday that it would be willing to accept the latest takeover bid, worth $13.75 a share, by its founder, if he dropped his demand for a change to the voting rules.

* Washington district court judge Richard Leon ruled that the U.S. Federal Reserve had failed to follow Congress's wishes in setting the cap on debit card fees. If the ruling stands, the Federal Reserve may have to place a lower limit on the so-called interchange fees, which could further reduce the revenue that financial firms reap from debit cards. The question is whether consumers will see any savings.

* Facebook Inc's shares finally broke above the $38 price set in the company's messy IPO 14 months ago. That's largely thanks to Chief Executive Mark Zuckerberg making the social network's platform work on smartphones and tablets, even as his tech rivals mostly flounder at the task.

* William Ackman's firm, Pershing Square Capital Management, is likely to follow a well-worn path taken by both investors and his own fund in seeking to shake up the management and strategy at Air Products and Chemicals. Now, Air Products faces a modern form of the hostile takeover, the activist investor.

* The federal government's lawsuit against Fabrice Tourre, a former Goldman Sachs trader accused of misleading investors in a mortgage security six years ago, went to a jury on Wednesday, setting up the end to one of the most prominent cases to arise from the financial crisis.

* President Barack Obama nominated Sarah Bloom Raskin to be deputy Treasury secretary; if confirmed by the Senate, Raskin, a Federal Reserve governor and a former state banking regulator, would be the highest-ranking woman to serve in the Treasury.

Canada

THE GLOBE AND MAIL

* Prime Minister Stephen Harper's government believes it can inject more democracy into the Senate without the approval of the provinces -- and, conversely, that it can abolish the Red Chamber even if it lacks the unanimous consent of all premiers, said Pierre Poilievre, Ottawa's new Minister of State for Democratic Reform. Ottawa prepares for the Supreme Court to consider what degree of independence Parliament possesses when it comes to making changes to the Senate.

* The race for five provincial by-election seats erupted into a brawl between the Ontario Liberal Party and Toronto Mayor Rob Ford on Wednesday. Ford has been campaigning for the Progressive Conservatives (PC), arguing that only PC candidates will build subways in his city, comparing the Liberals to armed bank robbers for their treatment of taxpayers' cash. The Liberals hit back, saying Ford has failed to do anything to build subways while their party has put up the money to kick-start construction.

Reports in the business section:

* Canadian Tire Corp will unveil a scaled-down version of itself as the retailer enters the competition for urban shoppers looking for convenience. The chain is launching on Thursday its first Express urban store in a bustling Toronto neighborhood. The Toronto-based company is betting on drawing urban customers who are increasingly turning their backs on super stores.

* The federal government is flatly refusing to alter a controversial wireless market strategy that corporate Canada has warned would disadvantage domestic carriers while benefiting large foreign players such as Verizon Communications Inc. Industry Minister James Moore made it official on Wednesday, in a statement that makes it clear the Conservative government will not change its plans to spur competition by granting special privileges to new wireless sector entrants, regardless of their size.

* Oil and gas producer Talisman Energy Inc has put its troublesome Norwegian holdings on the auction block as part of a plan to jettison as much as $3 billion worth of assets over the next year as it hones operations into two main regions -- the Americas and Southeast Asia.

NATIONAL POST

* The federal government believes it doesn't need to open up the Constitution to reform the Senate, and that Parliament alone has the power to do so -- without the need to consult the provinces, says Canada's Democratic Reform Minister Pierre Poilievre. The statement on Wednesday came as the government filed its arguments to the Supreme Court of Canada, two days before a court imposed deadline.

* Ontario Transportation Minister Glen Murray on Wednesday said Toronto Mayor Rob Ford has no business taking sides in an upcoming provincial vote, and accused the mayor of campaigning to send a "puppet" -- Deputy Mayor Doug Holyday -- to Queen's Park.

* Residents of High River, Alberta, a suburb worst hit by last month's flood broke into applause when they heard a government official blurt out what they long suspected was the truth about how their neighborhood ended up underwater: "We had to sacrifice your area to try and get the other ones dewatered." A secretly recorded video of engineer Darwin Durnie's admission was sent to several media outlets, including the National Post.

FINANCIAL POST

* Ottawa has coldly dismissed an impassioned campaign by Canada's big three cellphone carriers, who want the government to close what they say are loopholes in its wireless policy that could give a massive foreign competitor unfair advantages. A note posted on new Industry Minister James Moore's website on Wednesday suggests the big three mobile carriers' intense lobbying on wireless policy has failed to sway Ottawa.

* U.S. railway consultant Rick Carter, founder of Railroad Training Services, says he was approached in 2004 to provide the sort of training for Montreal, Maine and Atlantic Railway's employees that could have prevented the July disaster in Lac-Megantic, but was turned down at his C$25,000 fee. The irony now is that MM&A may not be able to financially survive the sizable costs associated with cleaning up Lac-Megantic or the civil suits associated with the disaster.

* Kinross Gold Corp is suspending its dividend and further delaying the Tasiast project to protect its balance sheet and adjust to a weaker gold price environment. The announcements were made late Wednesday as the Toronto-based gold miner reported a massive second-quarter loss of $2.48 billion, primarily due to writedowns.

China

CHINA SECURITIES JOURNAL

- China's regulation of the property market in the second half of this year will not be tightened, while purchasing restrictions will not be implemented in order to prevent a rebound in real estate prices, according to analysts.

- China's current first-tier city property bubble is not severe and prices will continue to increase, said Li Tie, a director of the National Development and Reform Commission (NDRC) at a forum on Wednesday.

SECURITIES TIMES

- China is implementing a photovoltaic power generation project that will involve providing subsidies to power grid enterprises, according to a document recently released by the ministry of finance.

SHANGHAI SECURITIES NEWS

- China AMC, a mutual fund company, is launching mutual funds for sale on Tencent Holding Ltd's WeChat platform.


PEOPLE'S DAILY

- Economic indicators for the first half of this year show that China's economy is in a good state, said Xu Shaoshi, the head of the NDRC.

Fly On The Wall 7:00 AM Market Snapshot

ANALYST RESEARCH

Upgrades

Air Products (APD) upgraded to Outperform from Neutral at RW Baird
American Tower (AMT) upgraded to Strong Buy from Outperform at Raymond James
Comcast (CMCSA) upgraded to Outperform from Neutral at RW Baird
Covance (CVD) upgraded to Overweight from Equal Weight at First Analysis
Global Payments (GPN) upgraded to Outperform from Perform at Oppenheimer
KapStone (KS) upgraded to Hold from Sell at Deutsche Bank
LPL Financial (LPLA) upgraded to Buy from Neutral at Citigroup
Regal-Beloit (RBC) upgraded to Buy from Neutral at Longbow
Ryland Group (RYL) upgraded to Market Perform from Underperform at Raymond James
Starbucks (SBUX) upgraded to Buy from Hold at Williams Capital
Yelp (YELP) upgraded to Overweight from Neutral at JPMorgan

Downgrades

AXT, Inc. (AXTI) downgraded to Neutral from Buy at B. Riley
BJ's Restaurants (BJRI) downgraded to Neutral from Buy at Roth Capital
Covance (CVD) downgraded to Neutral from Buy at BofA/Merrill
Edgen Group (EDG) downgraded to Hold from Buy at Jefferies
Enbridge Energy (EEP) downgraded to Neutral from Buy at Citigroup
Entropic (ENTR) downgraded to Hold from Buy at Benchmark Co.
Health Management (HMA) downgraded to Neutral from Buy at SunTrust
Humana (HUM) downgraded to Neutral from Buy at Citigroup
Itron (ITRI) downgraded to Sell from Hold at Brean Capital
J.C. Penney (JCP) downgraded to Sell from Neutral at Citigroup
MedAssets (MDAS) downgraded to Buy from Strong Buy at ISI Group
Papa John's (PZZA) downgraded to Hold from Buy at KeyBanc
R.R. Donnelley (RRD) downgraded to Equal Weight from Overweight at Barclays
Regal-Beloit (RBC) downgraded to Sector Perform from Outperform at RBC Capital

Initiations

Ann Inc. (ANN) initiated with a Market Perform at FBR Capital
Ascena Retail (ASNA) initiated with an Underperform at FBR Capital
Carter's (CRI) initiated with an Outperform at FBR Capital
Chico's FAS (CHS) initiated with a Market Perform at FBR Capital
Coty (COTY) initiated with an Equal Weight at Morgan Stanley
Entravision (EVC) initiated with an Overweight at Evercore
Express (EXPR) initiated with an Outperform at FBR Capital
Francesca's (FRAN) initiated with a Market Perform at FBR Capital
Gap (GPS) initiated with an Outperform at FBR Capital
Hanesbrands (HBI) initiated with an Outperform at FBR Capital
L Brands (ltd) initiated with a Market Perform at FBR Capital
Mead Johnson (MJN) initiated with a Perform at Oppenheimer

HOT STOCKS

Acacia Research (ACTG) enters into settlement agreement with Walgreen (WAG)
AK Steel (AKS) to ask U.S. to seek further rulings against China
Arrow Electronics (ARW) announces $200M share repurchase authorization
Barrick Gold (ABX) cuts quarterly dividend to 5c from 20c in Q2 results
J. C. Penney (JCP) said news report untrue, continues to have support of all of its key
vendors
SanDisk (SNDK) initiates 22.5c per share dividend
FDA advisory committee recommends approval of Sanofi's (SNY) Nasacort

EARNINGS

Companies that beat consensus earnings expectations last night and today include:

Catamaran (CTRX), Orbotech (ORBK), Swift Energy (SFY), Genesee & Wyoming (GWR), Integra LifeSciences (IART), Acorda Therapeutics (ACOR), Cigna (CI), Quanta Services (PWR), Proto Labs (PRLB), State Auto Financial (STFC), Becton Dickinson (BDX), Covidien (COV), Western Refining (WNR), Quintiles (Q), AstraZeneca (AZN), Ballard Power (BLDP), Ferro (FOE), California Water Service (CWT), MDU Resources (MDU), LifeLock (LOCK), Axiall (AXLL), SJW Corp. (SJW), Kinross Gold (KGC), Vectren (VVC), Hornbeck Offshore (HOS), PGT, Inc. (PGTI), Schawk (SGK), KapStone (KS), C&J Energy (CJES), Cleco (CNL), Protective Life (PL), Pilgrim's Pride (PPC), Murphy Oil (MUR), Selective Insurance (SIGI), Pioneer Southwest (PSE), Western Gas Partners (WES), Curtiss-Wright (CW), Western Gas Equity (WGP), Landec (LNDC), Energy Recovery (ERII), Boston Beer (SAM), Integrated Silicon (ISSI), Newport (NEWP), The Advisory Board (ABCO), General Communications (GNCMA), PCTEL, Inc. (PCTI), World Fuel Services (INT), United Online (UNTD), SurModics (SRDX), Hanover Insurance (THG), West Corp. (WSTC), General Cable (BGC), PHH Corp. (PHH), Bloomin' Brands (BLMN), Haverty Furniture (HVT), Westell Technologies (WSTL), Charles River Labs (CRL), Anika Therapeutics (ANIK), ManTech (MANT), Comfort Systems USA (FIX), Trulia (TRLA), Entropic (ENTR), Cohu (COHU), Microchip (MCHP), Lincoln National (LNC), Atwood Oceanics (ATW), Spartan Stores (SPTN), Acxiom (ACXM), Seattle Genetics (SGEN), Ruckus Wireless (RKUS), Life Technologies (LIFE), Con-way (CNW), Cbeyond (CBEY), STAAR Surgical (STAA), Williams (WMB), Schweitzer-Mauduit (SWM), Thoratec (THOR), Lam Research (LRCX), FormFactor (FORM), Amdocs (DOX), Cray (CRAY), Masimo (MASI), MedAssets (MDAS), Shutterfly (SFLY), ZELTIQ Aesthetics (ZLTQ), SunPower (SPWR), Pharmacyclics (PCYC), Trinity Industries (TRN), Cardtronics (CATM), Support.com (SPRT), NCI, Inc. (NCIT), Open Text (OTEX), Bruker (BRKR), Cavium (CAVM), DreamWorks (DWA), Yelp (YELP), Merit Medical (MMSI), MetLife (MET), Allstate (ALL), Whole Foods (WFM), Steiner Leisure (STNR), CBS (CBS), Affymetrix (AFFX)

Companies that missed consensus earnings expectations include:

Enterprise Products (EPD), EPL Oil & Gas (EPL), Gentherm (THRM), Iron Mountain (IRM), Royal Dutch Shell (RDS.A), NXP Semiconductors (NXPI), Hudbay Minerals (HBM), Yamana Gold (AUY), Albany International (AIN), Kraton Performance (KRA), Solar Senior Capital (SUNS), Cabot (CBT), Keryx (KERX), Fox Chase Bancorp (FXCB), Vanguard Natural (VNR), U.S. Silica (SLCA), Churchill Downs (CHDN), LivePerson (LPSN), Genco Shipping (GNK), Invesco Mortgage (IVR), Amerisafe (AMSF), Cytokinetics (CYTK), Intrepid Potash (IPI), International Shipholding (ISH), Pioneer Natural (PXD), Hanger  (HGR), Atmel (ATML), QEP Resources (QEP), Williams Partners (WPZ), National American University (NAUH), BJ's Restaurants (BJRI), Invesco Mortgage (IVR), ServiceNow (NOW), STR Holdings (STRI), McGrath RentCorp (MGRC), Genomic Health (GHDX), Metabolix (MBLX), Cadence (CADX), WebMD (WBMD), American Equity (AEL), Martin Midstream Partners (MMLP)


Companies that matched consensus earnings expectations include:


Prestige Brands (PBH), Dynamics Research (DRCO), Questar (STR), Quality Distribution (QLTY), Questar (STR), AXT, Inc. (AXTI), Rovi (ROVI), Apollo Commercial (ARI), Marriott (MAR), Accelrys (ACCL), Manning & Napier (MN), Roadrunner (RRTS), Regional Management (RM), Wesco Aircraft (WAIR), Itron (ITRI)

NEWSPAPERS/WEBSITES


  • Pershing Square intends to file SEC complaint over Herbalife (HLF) trading, NY Post says

  • Bank of America (BAC) to up fees at Merrill Lynch, WSJ reports

  • Apple's (AAPL) next iPad Mini likely to have retina display from Samsung, WSJ reports

SYNDICATE

American Homes 4 Rent (AMH) 44.118M share IPO priced at $16.00
Ardmore Shipping (ASC) 10M share IPO priced at $14.00
BioCryst (bcrx) 4M share Secondary priced at $4.40
Boyd Gaming (BYD) files to sell 15M shares of common stock
Liberty Property (LRY) files to sell 21M shares of common stock
LyondellBasell (LYB) commences offering of 16.5M ordinary shares for holders
Sprouts Farmers Markets (SFM) 18.5M share IPO priced at $18.00

Sign Up

Get the InvestingChannel
Free e-Letter Today

Learn More

Independent market opinion, analysis and ideas - delivered every business day

Premium market opinions, analysis, and ideas - delivered every business day

Editor's Picks