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3:42 pm Macau Gross Gaming Revenue For Setpember Will Be Out Over The Weekend

The Macau Gaming Inspection and Coordination Bureau will release September gross gaming revenue (:GGR) over the weekend*.

This is a highly anticipated data point after GGR turned positive year-over-year for the first time last month since May of 2014.

On September 19, Telsey Advisory Group said September GGR was tracking flat vs. a 33% decline last year.

Recall, Macau is in the midst of a transition to become more of a vacation/entertainment destination (much like Las Vegas is today) rather than just a gaming hub after Chinese officials cracked down on money laundering and organized crime in the region two years ago.

GGR tumbled for two years but investors are hopeful that it has finally bottomed.

Casinos with exposure to Macau: Las Vegas Sands (LVS), Wynn Resorts (WYNN), Melco Crown (MPEL) and MGM Resorts (MGM) have had a good month since the positive August data.

Note that the Wynn Palace (:WNN) opened in August and the Parisian Macao (LVS) opened two two weeks ago, but Macau officials limited the number of new gaming tables at both casinos.

Credit Suisse was out cautious on the space last Friday, acknowledging Macau gaming revenue bottomed while questioning valuation. The firm downgraded Wynn Macau (WYNMF) to Underperform from Neutral and MGM China (MCHVF) to Neutral from Outperform.

Looking at valuation: WYNN trades a 12.4x tangible enterprise value/forward EBITDA, LVS 12.1x, MPEL 11.5x and MGM 11.2x.

The golden Week Holiday begins next week, which is one of the busiest weeks of the year for the only region in China where gambling is league.

*Note that the exact timing is uncertain due to the Golden Week Holiday in China next week (which has delayed the release in the past) but it usually gets reported on the first of the month.

12:51 pm Cheniere Energy [LNG] offers $21.90/share to buy holding company CQH

Following news out this morning that Cheniere Energy (LNG 43.17, -0.20 -0.46%) offered $21.90 per share to acquire Cheniere Energy Partners LP Holdings LLC (CQH 22.34, +1.08 +5.1%). LNG is already a substantial shareholder of CQH, holding about 80.1% of the stock in the company as of the latest 13D from today.

LNG offered 0.5049 shares of LNG for every CQH share. For context, CQH owns a 55.9% limited partner interest in Cheniere Energy Partners (CQP 29.03, +0.80 +2.8%). CQP in turn owns and operates LNG regasification facilities with plans to construct up to six trains with an expected aggregate nominal production capacity of about 27 mtpa.

As of the latest quarterly results, LNG reported a mixed print; in Q2, LNG missed market expectations on the bottom line and beat on the top line with a loss per share of $0.61 on revenues which rose 160% year-over-year to $176.8 million. CQP reported a Q2 loss per share of $0.21 on revenues of $151.2 million on August 9, and CQH reported net income of $0.02 per share on August 9.

As you might have guessed LNG/CQH/CQP are liquefied natural gas companies, and as such rely heavily of the price they're able to sell their product (in this case LNG). To that end, November Natural Gas Futures currently stand about $0.06 lower (-1.9%) near the $2.90/MMBtu level.

Shares of CQH (+5.1%) and CQP (+2.8%) trade higher today in spite of the modest decline in nat gas futures. LNG underperforms the broader market and its peers today following the buyout news.

12:49 pm Looking Ahead - October 3, 2016

With the first day of a new month upon us, market participants will react Monday to the latest round of manufacturing purchasing managers index readings from a number of countries around the globe.  The reports that will matter most from a potential market-moving standpoint will be the ones out of China and the U.S.

The various reports out of Europe will be less impactful because many are revisions to preliminary September readings released less than two weeks ago.

(1) China's Official Manufacturing PMI reading for September (Friday, September 30, at 9:00 p.m. ET)

  • Why it's important
    • Concerns persist about the pace of economic activity in China. The manufacturing PMI reports offer insight into the level of business activity for China's manufacturing sector and will either heighten or calm those concerns.
      • The dividing line between expansion and contraction is 50.0
    • The Caixin reading, which is formed from responses of purchasing managers working predominately at smaller firms in China, is seen as being the more informative data point for market participants since the government's official manufacturing PMI report hinges on responses from purchasing managers at a lot of large, state-owned businesses
      • The Caixin reading for September checked in at 50.1, up from 50.0 in August
    • While a reading below the prior month's reading would stoke speculation Chinese authorities need to do more to stimulate growth, a decline from the prior month would also trigger concerns that China's economy may not be stabilizing after all

  • Concerns persist about the pace of economic activity in China. The manufacturing PMI reports offer insight into the level of business activity for China's manufacturing sector and will either heighten or calm those concerns.
    • The dividing line between expansion and contraction is 50.0
  • The dividing line between expansion and contraction is 50.0
  • The Caixin reading, which is formed from responses of purchasing managers working predominately at smaller firms in China, is seen as being the more informative data point for market participants since the government's official manufacturing PMI report hinges on responses from purchasing managers at a lot of large, state-owned businesses
    • The Caixin reading for September checked in at 50.1, up from 50.0 in August
  • The Caixin reading for September checked in at 50.1, up from 50.0 in August
  • While a reading below the prior month's reading would stoke speculation Chinese authorities need to do more to stimulate growth, a decline from the prior month would also trigger concerns that China's economy may not be stabilizing after all

  • A closer look
    • Following 16 consecutive months under 50.0 (i.e. signaling contraction), the Caixin manufacturing PMI has been at 50.0, or higher, the last two months
    • The official manufacturing PMI report increased to 50.4 in August from 49.9 in July.
  • Following 16 consecutive months under 50.0 (i.e. signaling contraction), the Caixin manufacturing PMI has been at 50.0, or higher, the last two months
  • The official manufacturing PMI report increased to 50.4 in August from 49.9 in July.



View photos
  • What's in play?

    •  China ETFs
      • iShares China Large-Cap (FXI)
      • ProShares UltraShort FTSE China 50 (FXP)
      • Deutsche X-trackers Harvest CSI 300 (ASHR)
      • Note: China's stock market will be closed until Monday, October 10, in observance of the Golden Week holiday

    • ETFs for regional markets
      • iShares MSCI Japan (EWJ)
      • iShares MSCI Australia (EWA)
      • iShares MSCI Hong Kong (EWH)
      • iShares MSCI South Korea Capped (EWY)
      • iShares MSCI Singapore (EWS)
      • iShares MSCI Taiwan (EWT)
      • iShares MSCI Malaysia (EWM)
      • iShares MSCI Emerging Markets (EEM)

    • Index ETFs
      • SPDR S&P 500 ETF (SPY)
      • PowerShares QQQ Trust (QQQ)
      • iShares Russell 2000 (IWM)
      • SPDR Dow Jones Industrial Average ETF (DIA)

    • Currencies
      • USD/CNY
      • USD/JPY
      • EUR/USD

    • S&P futures

    • Commodities

    • Treasuries
  •  China ETFs
    • iShares China Large-Cap (FXI)
    • ProShares UltraShort FTSE China 50 (FXP)
    • Deutsche X-trackers Harvest CSI 300 (ASHR)
    • Note: China's stock market will be closed until Monday, October 10, in observance of the Golden Week holiday

  • iShares China Large-Cap (FXI)
  • ProShares UltraShort FTSE China 50 (FXP)
  • Deutsche X-trackers Harvest CSI 300 (ASHR)
  • Note: China's stock market will be closed until Monday, October 10, in observance of the Golden Week holiday

  • ETFs for regional markets
    • iShares MSCI Japan (EWJ)
    • iShares MSCI Australia (EWA)
    • iShares MSCI Hong Kong (EWH)
    • iShares MSCI South Korea Capped (EWY)
    • iShares MSCI Singapore (EWS)
    • iShares MSCI Taiwan (EWT)
    • iShares MSCI Malaysia (EWM)
    • iShares MSCI Emerging Markets (EEM)

  • iShares MSCI Japan (EWJ)
  • iShares MSCI Australia (EWA)
  • iShares MSCI Hong Kong (EWH)
  • iShares MSCI South Korea Capped (EWY)
  • iShares MSCI Singapore (EWS)
  • iShares MSCI Taiwan (EWT)
  • iShares MSCI Malaysia (EWM)
  • iShares MSCI Emerging Markets (EEM)

  • Index ETFs
    • SPDR S&P 500 ETF (SPY)
    • PowerShares QQQ Trust (QQQ)
    • iShares Russell 2000 (IWM)
    • SPDR Dow Jones Industrial Average ETF (DIA)

  • SPDR S&P 500 ETF (SPY)
  • PowerShares QQQ Trust (QQQ)
  • iShares Russell 2000 (IWM)
  • SPDR Dow Jones Industrial Average ETF (DIA)

  • Currencies
    • USD/CNY
    • USD/JPY
    • EUR/USD

  • USD/CNY
  • USD/JPY
  • EUR/USD

  • S&P futures

  • Commodities

  • Treasuries

(2) The ISM Index for September (Monday, October 3, at 10:00 a.m. ET)

  • Why it's important
    • It's the first economic release every month, providing timely information on business activity in the manufacturing sector
    • The report can either build confidence, or reduce confidence, in economic prospects
      • The report's dividing line between expansion and contraction in the manufacturing sector is 50.0 (above 50 signals expansion and below 50 signals contraction)
    • This report will be released on the heels of other purchasing managers' reports out of Japan, China, India, Spain, France, Italy, and the eurozone as a whole
      • With PMI readings from abroad, the ISM Index will provide some answers as to how the U.S. manufacturing sector is faring on a comparative basis
    • It offers information on the pace of new orders, production, employment, deliveries, inventories, export orders, and prices paid for manufacturers
    • This report will contribute to expectations for the third quarter growth outlook
    • With a drop below 50.0 for August, market participants are anxious to see if the manufacturing sector remained in a state of contraction in September

  • It's the first economic release every month, providing timely information on business activity in the manufacturing sector
  • The report can either build confidence, or reduce confidence, in economic prospects
    • The report's dividing line between expansion and contraction in the manufacturing sector is 50.0 (above 50 signals expansion and below 50 signals contraction)
  • The report's dividing line between expansion and contraction in the manufacturing sector is 50.0 (above 50 signals expansion and below 50 signals contraction)
  • This report will be released on the heels of other purchasing managers' reports out of Japan, China, India, Spain, France, Italy, and the eurozone as a whole
    • With PMI readings from abroad, the ISM Index will provide some answers as to how the U.S. manufacturing sector is faring on a comparative basis
  • With PMI readings from abroad, the ISM Index will provide some answers as to how the U.S. manufacturing sector is faring on a comparative basis
  • It offers information on the pace of new orders, production, employment, deliveries, inventories, export orders, and prices paid for manufacturers
  • This report will contribute to expectations for the third quarter growth outlook
  • With a drop below 50.0 for August, market participants are anxious to see if the manufacturing sector remained in a state of contraction in September

  • A closer look
    • The reading of 49.4 for August was down from 52.6 in July
  • The reading of 49.4 for August was down from 52.6 in July



View photos
  • What's in play?

    • Sector ETFs
      • Industrial Select Sector SPDR (XLI)
      • Materials Select Sector SPDR (XLB)
      • PowerShares Dynamic Industrials (PRN)

    • Index ETFs
      • SPDR S&P 500 ETF (SPY)
      • PowerShares QQQ Trust (QQQ)
      • iShares Russell 2000 (IWM)
      • SPDR Dow Jones Industrial Average ETF (DIA)

    • Treasuries (TBT, TLT, SHY, SCHO)

    • Fed funds futures

    • Currencies
      • USD/JPY
      • EUR/USD
  • Sector ETFs
    • Industrial Select Sector SPDR (XLI)
    • Materials Select Sector SPDR (XLB)
    • PowerShares Dynamic Industrials (PRN)

  • Industrial Select Sector SPDR (XLI)
  • Materials Select Sector SPDR (XLB)
  • PowerShares Dynamic Industrials (PRN)

  • Index ETFs
    • SPDR S&P 500 ETF (SPY)
    • PowerShares QQQ Trust (QQQ)
    • iShares Russell 2000 (IWM)
    • SPDR Dow Jones Industrial Average ETF (DIA)

  • SPDR S&P 500 ETF (SPY)
  • PowerShares QQQ Trust (QQQ)
  • iShares Russell 2000 (IWM)
  • SPDR Dow Jones Industrial Average ETF (DIA)

  • Treasuries (TBT, TLT, SHY, SCHO)

  • Fed funds futures

  • Currencies
    • USD/JPY
    • EUR/USD
  • USD/JPY
  • EUR/USD

10:25 am NXP Semiconductor [NXPI] Spikes Another 7.6% Amid Takeover Rumors

NXP Semiconductor (NXPI 103.38, +7.26) has seen continued strength, climbing 7.6% on top of yesterday's 16.9% surge, which took place in afternoon action, after the Wall Street Journal reported that the company has been approached by Qualcomm (QCOM 69.38, +1.93) about a takeover, which would likely be valued at more than $30 billion.

The Dutch-based NXP Semiconductor has been in business for ten years and it employs more than 45,000 people across 35 countries. The company is one of the world's largest non-memory semiconductor suppliers, specializing in Automotive, Digital Networking, and Secure Identification technologies.

With smartphone sales and innovation growth slowing down notably in recent years, companies like Qualcomm have started looking at other, non-mobile avenues for future revenue growth. NXP Semiconductor has been widely-cited as a good fit for Qualcomm and the market has welcomed the news. Qualcomm is higher by 3.2% today. The PHLX Semiconductor Index has climbed 1.5%.

For the year, Qualcomm is up 38.5%, returning to levels from mid-2015. Similarly, NXP Semiconductor has spiked back to levels not seen since the middle of last year, shortly after the stock notched an all-time high at $114.00 on June 1, 2015.

9:54 am Costco [COST] trades higher on AugQ earnings; did well despite a tough retail environment

Costco (COST) is trading higher today (+4%) after reporting impressive 4Q16 (Aug) earnings results last night. You are likely familiar with Costco but you may not know some of the finer points. In terms of store count, Costco currently operates 715 warehouses, including 501 in the US and Puerto Rico, 91 in Canada, 36 in Mexico, 28 in the UK, 25 in Japan, 12 in Korea, 12 in Taiwan, eight in Australia and two in Spain.

Its membership warehouses are based on the concept that offering low prices on a limited selection of nationally branded and select private-label products in a wide range of merchandise categories will produce high sales volumes and rapid inventory turnover. As a result of its volume purchasing and its no-frills, self-service warehouse format, Costco is able to operate profitably at significantly lower gross margins than traditional supermarkets and supercenters. Also, Costco buys the majority of its merchandise directly from manufacturers, eliminating many of the costs associated with traditional multiple-step distribution channels. It also makes money by charging annual membership fees.

Turning to the AugQ earnings results, EPS rose 2% YoY to $1.77 from $1.73 last year while revenue rose 2.2% YoY to $36.56 bln. EPS was a decent amount above market expectations while revenue was modestly shy of market expectations. Operating margin rose slightly to 3.3% from 3.2% in the year ago period. Membership fee revenue rose 6% YoY to $832 mln.

In terms of AugQ same store comps, they came in at +0% (-1% in US, +2% in Canada, -2% in Other International). The strong dollar hurt international comps. If you were to back out the impact of lower gas prices and foreign exchange rates, COST would have reported same store comps of +3% (+2% in US, +5% in Canada, +1% in Other International). That's a pretty dramatic improvement, so you can see the big negative impact lower gas prices and the strong dollar have on Costco's comps.

Lower gas prices are usually good for retailers as it frees up more spending money for consumers. The problem for Costco is that it also sells gasoline, unlike most retailers. As such, lower gas prices hurt their results. For example, its US same store comps would have been +2%, but lower gas prices pushed that down to -1%.

On the call last night, COST noted that, by geography, Texas, the Bay Area and the Midwest regions within the US showed the best results. Internationally in local currencies, better performing countries were Canada, Mexico, Spain and the UK. In terms of merchandise categories, sales of food and sundries were overall slightly negative year-over-year. Within that though, spirits, sundries and deli came in best. Tobacco was the big negative, which was down 21% YoY as COST continues to see lower sales in that category.

Hardlines, overall, were up mid-single-digits. The departments with the strongest results were majors, electronics, sporting goods, health and beauty aids, hardware and tires. Within softlines, which was in the low single-digits, apparel, small electronics and home furnishings were the standouts. Within fresh foods, produce and deli were the strongest of the four departments. Meat and other types of protein were weak relative to deflation.

Also of note, Costco made a big change this quarter. Starting on June 20, Costco stopped accepting American Express at all US and Puerto Rico locations and began accepting all Visa cards including of course the new Citi Visa Anywhere card, which gives special cash back rates for Costco purchases. There were a few operational glitches during the first few weeks after the cutover. However, the company is now past that and the new card has been fantastic. Costco says it has been great in terms of driving member value and sales. It also lowers its effective cost of accepting credit and debit cards.

In sum, investors are clearly pleased with Costco's Q4 (Aug) results. After two EPS misses in Q1 (Nov) and Q2 (Feb), Costco has now reported back-to-back beats in Q3 (May) and Q4 (Aug). And the AugQ beat was pretty sizeable. The stock had been under pressure heading into this report (-13% in the past six weeks) on concerns over the retail space generally (TGT had a horrible quarter and guided lower). However, Costco performed quite well in a difficult retail environment.

9:52 am Deutsche Bank [DB] Riding Sentiment Wave

German lender Deutsche Bank (DB 12.15, +0.67) is back in the news today, riding a rollicking wave of investor sentiment as it relates to the bank's reported capital position.

On Thursday, the U.S. stock market got rattled by news reports that suggested about 10 hedge fund clients have reduced their trading exposure to Deutsche Bank.  That report stirred up the ghosts of the financial crisis and led to a wave of selling pressure that knocked shares of DB to a new all-time low even though Deutsche Bank acknowledged the report, calmly saying such activity is part of the normal "ebb and flow" of its hedge fund trading business.

The negative sentiment carried over to Friday, evidenced by the bank's German-listed shares slumping to an all-time low of 9.90.  They have since rebounded smartly, however, bolstered by the leaking of a letter that the bank's CEO, John Cryan, wrote to the bank's employees.

That letter spelled out for employees in a systematic fashion why the market has overreacted to press reports calling into question Deutsche Bank's capital position and suggesting the German outfit might need to raise more capital.

The main, calming element in the letter was the acknowledgment that Deutsche Bank's liquidity reserves still amount to more than 215 billion.  A CNBC.com article today, citing a research note from Stuart Graham, CEO of independent financials research fir Autonomous, indicated that the bank's liquidity reserves in 2007 (i.e., pre-financial crisis) were 65 billion.

The letter from Mr. Cryan, apparently, helped turn the tide of negative sentiment in the stock, along with a smattering of other analysts defending the bank's liquidity position. 

The German-listed shares have rebounded to 10.79.  That rebound helped drive a rebound in the S&P futures this morning and it was the foundation for a strong opening for Deutsche Bank's US-listed shares, which are up nearly 6.0% in early action.

8:58 am McCormick [MKC] Climbs 1.6% After Earnings Beat

McCormick & Company (MKC 98.90, +1.51) is on track to begin higher by 1.6% after beating earnings estimates and raising its guidance.

The spice manufacturer reported above-consensus third-quarter earnings of $1.03 per share on a 2.9% increase in revenue to $1.09 billion, which matched market expectations. Currency translations essentially cut the revenue growth rate in half as sales on a constant currency basis grew 6.0%.

Acquisitions boosted sales by 2.0% while product innovation, brand marketing support, expanded distribution, and pricing action to offset an increase in input costs contributed 4.0% to sales in constant currency.

Gross margin improved to 41.6% from 39.8% in the same quarter a year ago while operating income increased 20.9% to $168 million. The increase in operating income was due to the favorable impact of higher sales and cost savings offsetting higher material costs and a $3 million increase in marketing.

Looking at the segment breakdown, Consumer segment sales increased 5.0% year-over-year as acquisitions, volume and product mix, and pricing actions offset higher material costs. Segment sales in the Americas grew 8.0% while sales in Asia-Pacific increased 5.0%, and sales in Europe, Middle East, and Africa (:EMEA) declined 2.0%.

Industrial segment sales were unchanged year-over-year, but showed a 4.0% increase when expressed in constant currency. Volume/product mix and pricing actions offset higher material costs. Segment sales in the Americas grew 2.0% while sales in Asia-Pacific and EMEA declined 1.0% and 7.0%, respectively.

The solid quarter prompted the company to boost its guidance for the fiscal year. The company expects full-year earnings will be between $3.75 and $3.79 per share, up from previous guidance for $3.68-3.75 per share. Fiscal-year revenue is expected to grow 3.0%, which is at the upper range of previous guidance for revenue between $4.34 billion and $4.43 billion. The new guidance is ahead of current market expectations.