NewsWars | Oct 31, 2020 | 0
Futures Surge On Monday Merger Mania, Fresh Vaccine Hopes
Futures Surge On Monday Merger Mania, Fresh Vaccine Hopes
Mon, 09/14/2020 – 07:58
U.S. stock index futures jumped 1.3% on Monday amid fresh progress in COVID-19 vaccine development and a triumphal return of “Merger Monday” thanks to a flurry of multi-billion dollar deals.
Oracle soared as much as 11% leading gains among the S&P 500 constituents, after emerging as the winner in negotiations to take over the US operations of ByteDance’s TikTok app. As reported last night, the deal specifics are still evolving, with the final option likely to be something closer to a corporate restructuring with Oracle taking a stake in a newly formed U.S. business. While the structure seems to be devised in order to meet recently tightened Chinese oversight rules, Bloomberg notes that it is not clear whether it would pass muster with the Trump administration, which has set tomorrow as the deadline for the sale or shutdown of TikTok’s American operation. For now however, investors are happy, even if it remains unclear just how the two seemingly disparate companies will synergize. A Microsoft-led consortium that included Walmart was also in talks for TikTok’s U.S. business. Their shares fell marginally.
There were more deals to spark market euphoria, key among them the sale of SoftBank’s UK-based chip division Arm to Nvidia for $40 billion in the semiconductor industry’s largest-ever deal. SoftBank will also raise 1.2 trillion yen ($10.4 billion) from selling about a third of its domestic wireless arm. Nvidia added 6.6% on the news, while SoftBank surged 9% boosted also by weekend speculation it was considering a going private deal (which however is very unlikely to happen for the $125 billion company).
Separately, Gilead – whose stock prices has benefited from the recent covid vaccine rally – agreed to acquire Immunomedics, the maker of a promising breast-cancer therapy, for about $21 billion, or $88 a share, more than double Friday’s closing price. Meanwhile, in what could be a groundbreaking development and the biggest merger deal in banking since the financial crisis, the Swiss blog Inside Paradeplatz reported that UBS and Credit Suisse are exploring a potential combination.
Global equities also got a lift on Monday after drugmaker AstraZeneca resumed its British clinical trials of its COVID-19 vaccine, one of the most advanced in development. Pfizer also rose 1.8% after the drugmaker and German biotech firm BioNTech SE proposed expansion of their Phase 3 pivotal COVID-19 vaccine trial to about 44,000 participants. Pfizer CEO Albert Bourla said it’s “likely” the U.S. will deploy a Covid-19 vaccine to the public before year-end.
In European trading, Airline and retail shares advanced in European trading. However, the Stoxx Europe 600 Price Index trimmed and earlier increase of as much as 0.8% to fall 0.1% as energy shares lead losses among sectors, with sub-index down 0.5% and tracking drop for crude. Brent futures slid -1% to $39.45/barrel, while WTI was down -1.1% to $36.94/barrel.
Earlier in the session, Asian stocks also gained, led by materials and IT, after rising in the last session. Most markets in the region were up, with Jakarta Composite gaining 2.9% and South Korea’s Kospi Index rising 1.3%, while Thailand’s SET dropped 0.4%. The Topix gained 0.9%, with Fukushima Bank and Freebit rising the most. SoftBank Group surged after Nvidia agreed to buy the firm’s chip division Arm Ltd. for $40 billion. The Shanghai Composite Index rose 0.6%, with Xi’an Bright Laser and Zhejiang Orient posting the biggest advances.
Global stocks are coming off the back of the first consecutive weeks of declines since March and traders remain on edge given the recent reassessment of valuations and volatility in options markets, however late last week, analysts at Goldman, JPMorgan and Deutsche Bank all suggested the recent pullback in the U.S. is nearing an end. On Wednesday, the Federal Reserve is expected to maintain its dovish stance on policy as investors look for signs the global economy is recovering from the pandemic.
“With such a powerful monetary impulse coursing through the US and European economy, the odds are that the market will be surprised again positively” in the fourth quarter, said Sebastien Galy, senior strategist at Nordea Investment Funds. “The conclusion is that we should remain in a buy on dip market.”
Because, of course.
In rates, Treasuries edged lower in U.S. trading to start week that brings 20-year reopening Tuesday, FOMC decision Wednesday and 10-year TIPS reopening Thursday. Yields remain within 1bp-2bp of Friday’s closing levels, with 10-year yield at 0.67%; 20-year lags ahead of $22b reopening. The US 10Y trails most other developed bond markets led byeuro-zone peripherals, which received favorable strategist calls. Trader focus remains on the FOMC meeting for the possibility of inflation-outcome-based guidance and changes to size or distribution of Fed’s Treasury purchases; however, most strategists expect neither this week.
In FX, the dollar weakened against most G-10 peers again amid the recovery in risk sentiment; the euro advanced a fourth consecutive day against the greenback pushing European stocks lower while the region’s bond curves bull flattened, with the periphery outperforming the core.
- S&P 500 futures up 1.2% to 3,362.25
- STOXX Europe 600 up 0.2% to 368.64
- MXAP up 0.9% to 172.61
- MXAPJ up 0.8% to 565.68
- Nikkei up 0.7% to 23,559.30
- Topix up 0.9% to 1,651.10
- Hang Seng Index up 0.6% to 24,640.28
- Shanghai Composite up 0.6% to 3,278.81
- Sensex up 0.04% to 38,870.26
- Australia S&P/ASX 200 up 0.7% to 5,899.52
- Kospi up 1.3% to 2,427.91
- Brent futures down 0.9% to $39.47/bbl
- Gold spot up 0.2% to $1,944.33
- U.S. Dollar Index down 0.3% to 93.06
- German 10Y yield fell 1.4 bps to -0.495%
- Euro up 0.2% to $1.1868
- Italian 10Y yield fell 2.7 bps to 0.856%
- Spanish 10Y yield fell 2.4 bps to 0.285%
Top Overnight News from Bloomberg
- Hedge funds raised their long bets on the pound to the highest in over five months just before talks between the U.K. and European Union took a turn for the worse
- The U.K. is on course for more than twice as many job losses in the coming months than in the recession following the financial crisis, underscoring the bleak outlook for the labor market
- The French government will raise its economic outlook for this year after consumer spending rebounded more strongly than expected once the lockdown aimed at containing the spread of the coronavirus ended
- The European Union’s executive will unveil an ambitious emissions-cut plan this week that’ll leave no sector of the economy untouched, forcing wholesale lifestyle changes and stricter standards for industries
- Japanese Chief Cabinet Secretary Yoshihide Suga was elected leader of the ruling Liberal Democratic Party by an overwhelming majority, ushering in the country’s first change of prime minister in almost eight years
- The chairmen of UBS Group AG and Credit Suisse Group AG are exploring a potential merger to create one of Europe’s largest banks, Inside Paradeplatz reported, citing unidentified people inside the two lenders
US Event Calendar
- Nothing major scheduled
DB’s Jim Reid concludes the overnight wrap
I hope you had a good weekend. I hardly stopped. We went Shetland Pony riding ahead of my daughter’s 5th birthday tomorrow, I finished a thoroughly disappointing 48th out of 78th in my golf club’s main Championship event, and I have picked up my first cold since lockdown thanks to our germ carrier children being at school now. I thought there was a good chance that as people have been socially distancing for months that colds and flu would be less prevalent this winter. In fact I think Australia had very low cases of flu in their winter just passed. However the fact that I’m incredibly bunged up suggests otherwise. Thankfully there are no more specific covid symptoms. A loss of taste would have been very annoying given the birthday cake.
A reminder that we published our annual long-term study last week. This year’s is entitled “The Age of Disorder” (link here) and suggests that the 40-year globalisation era is now over and will be replaced with this new one characterised by disorder. The 8 page executive summary contains all you want to know but there is more in-depth analysis if that whets your appetite. We also published our latest credit forecasts last week into year-end ( link here ). After being bullish for Q3 at our half year outlook we’ve decided to reverse that and now expect mild spread widening.
In terms of the weekend news, the main coronavirus development is that the AstraZeneca-Oxford vaccine trials have resumed following last week’s pause as a medical issue from one of the trial recipients was investigated. The pause didn’t have as much of a negative impact on the market as I expected so this probably won’t have too much impact either, but it’s clearly encouraging news given they’re one of the front runners. Elsewhere Pfizer’s CEO said yesterday that he expects the US to deploy a vaccine to the public before year-end, even if the FDA were a bit hawkish last week.
On the coronavirus, there have been increasing signs of a resurgence of cases in Europe, with France reporting 7,183 new coronavirus cases yesterday after more than 10,000 a day earlier, which was the most since a national lockdown ended in May. Meanwhile, Germany’s reproduction rate of the virus has moved up to 1.15, the Robert Koch Institute said yesterday. And here in the UK, over 3,000 cases have been reported over the last 3 days, which is the first time that’s happened since May. In Asia however, South Korea is relaxing its social distancing rules as the second wave shows sign of abating, with distancing requirements for the Seoul metropolitan area being lowered to level 2 from level 2.5 for two weeks.
Asian markets have started the week on the front foot with the vaccine news mentioned above supporting sentiment. The Nikkei (+0.64%). Hang Seng (+0.67%), Shanghai Comp (+0.56%) and Kospi (+1.10%) are all up, while future on the S&P 500 also up +1.20%. In other news, China banned pork imports from Germany on Saturday, which comes just two days before Chinese President Xi is scheduled to discuss trade issues in a video meeting with German Chancellor Merkel, as well as European Commission President Von der Leyen and Council President Michel.
In terms of the week ahead, it’s central banks that’ll take centre stage, with a raft of policy announcements due from around the world. The highlight will come from the Federal Reserve on Wednesday, though we’ll also get decisions from the Bank of Japan and Bank of England (both on Thursday), as well as a number of EM central banks. Meanwhile attention will remain on Brexit, as the UK government’s incendiary Internal Market Bill is debated in the House of Commons this week. And in Japan, a new Prime Minister will be chosen following Shinzo Abe’s resignation.
Starting with the FOMC meeting on Wednesday, this is the first monetary policy decision since the virtual Jackson Hole symposium, at which it was announced that the committee’s longer-run goals and monetary policy strategy would be updated. In terms of the major changes, the Fed now “seeks to achieve inflation that averages 2 percent over time”, which would allow inflation to overshoot the target following a period of undershooting. It also changed the wording around its maximum employment objective, now saying that policy will be informed by its “assessments of the shortfalls of employment from its maximum level.” According to our US economists (see their preview here), the release opened the door to adjustments in forward guidance and asset purchases at this meeting, though in a close call, they expect the Fed’s forward guidance on interest rates to remain unchanged and for the Committee to reframe their asset purchases as being focused on providing accommodation, not aiding market functioning. This meeting will also see the release of a new Summary of Economic Projections, which will include the dot plot of where the FOMC think monetary policy should be moving forward.
Here in the UK there are likely to be a number of headlines this week, most notably on Brexit. That follows an escalation in tensions between the UK and the EU last week after the UK government published their Internal Market Bill, which seeks to override parts of the already-signed Withdrawal Agreement with the EU. In response, the EU called on the UK to withdraw these measures from the draft bill by the end of the month, and threatened to use legal remedies if the Withdrawal Agreement were violated. In terms of what happens next, today the bill will receive its first debate in the House of Commons, but the question will be how many Conservative MPs rebel on the matter, with last night seeing the former Conservative Attorney General Geoffrey Cox publish an article in The Times, saying that the bill would do “unconscionable” damage to the country’s international reputation.
Staying with the UK, attention will also be on the Bank of England on Thursday, who’ll be making their latest monetary policy decision. The base case from our UK economist (preview here ) is that there won’t be a further £60bn QE package until December, though there are risks of an earlier announcement at the November meeting. Keep an eye out in case there’s a voting split between the MPC’s 9 members as some might seek additional stimulus.
Turning to Japan, this week sees the election of a new Prime Minister following Shinzo Abe’s decision to stand down for health reasons. In terms of the process, the ruling Liberal Democratic Party will gather today to elect a new Party President, for which the Chief Cabinet Secretary Yoshihide Suga is regarded as the frontrunner. Following the LDP’s election, the Diet will then hold an extraordinary session on Wednesday to elect a new Prime Minister, with the new cabinet expected to be announced on the same day. Against this backdrop, the Bank of Japan will also be holding its latest monetary policy meeting next week, with our economist expecting that the bank will maintain its current policy stance.
Finally on the data front, there are a number of interesting releases. In the US, we’ll get an increasing amount of hard data for August, including industrial production, retail sales, housing starts and building permits. It’ll also be worth keeping an eye on the more topical releases however, especially with last week’s data on initial jobless claims and continuing claims having disappointed. Separately, we’ll also get some major releases from China on Tuesday, including August’s industrial production and retail sales figures.
Reviewing last week now, US equity markets continued sliding led by the large pullback in mega-cap tech stocks. The S&P 500 dropped -2.51% (+0.05% Friday), declining for the second week in a row for the first time since the week ending 1 May. It is also the worst 2-week performance for the index since March, and leaves it down -6.70% from the highs reached less than 2 weeks ago. With tech seeing the largest losses, the NASDAQ again underperformed the broader index, declining -4.06% (-0.60% Friday) and is now down -9.98% from the 2 Sept highs. For context the close on the week has returned us to levels that were first hit in early August and also to levels hit just after the open 10 days ago on the turbulent Friday the day after the sell-off started. So although a bad week, we haven’t sunk through the initial sell-off levels yet.
European equities on the other hand rose last week with the Stoxx 600 ending the week +1.67% higher (+0.13% Friday). The DAX (+2.80%), FTSE 100 (+4.02%), and FTSE MIB (+2.21%) all posted strong weekly equity performances even as worries over increasing Covid-19 caseloads start to permeate. The FTSE was helped by a -3.64% fall in GBPUSD as Brexit risks intensified – the worst week since the pandemic selling peak in March.
The dollar rose (+0.66%) for the second week straight as investors sought havens, it was the first time the dollar index had risen in consecutive weeks since mid-June. Partly on the back of the dollar rise, but also due to weaker risk appetite and worries on global demand WTI (-6.14%) and Brent crude (-6.63%) fell sharply for a second week. With risk assets sliding, core sovereign bonds rose on the week. US 10yr Treasury yields fell -5.2bps (-1.1bps Friday) to finish at 0.666%, while 10yr Bund yields were down -0.9bps (-4.5bps Friday) to -0.48%.
On the data front for Friday, US CPI for August showed inflation quickening primarily driven by the largest spike in used-vehicle costs since 1969. CPI rose by +1.3% y-o-y (+1.2% expected) and +0.4% from last month (+0.3% expected), while on an annual basis, core inflation measured 1.7%. Core CPI rose a similar +0.4%, following last month’s +0.6% rise which was the most in almost 30 years. Elsewhere, the UK’s July GDP reading showed the country continued to bounce back as coronavirus restrictions were eased. GDP rose by +6.6% following June’s +8.7% rise, this was compared to the +6.7% expected.
This post has been republished with permission from a publicly-available RSS feed found on Zero Hedge. The views expressed by the original author(s) do not necessarily reflect the opinions or views of The Libertarian Hub, its owners or administrators. Any images included in the original article belong to and are the sole responsibility of the original author/website. The Libertarian Hub makes no claims of ownership of any imported photos/images and shall not be held liable for any unintended copyright infringement. Submit a DCMA takedown request.