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Markets Update, 23 April

 

 

 

 

  • Stocks Slip as Treasury Yields Rise
  • European shares end positive supported by financials
  • Dollar Rallies

 

 

European shares edged up on Monday as a rise in U.S. Treasury yields helped lift bank stocks to nearly 5-week highs, more than offsetting a disappointing update from UBS (UBSG.S) and losses among bond-proxy sectors.

The pan-European STOXX 600 benchmark index rose 0.35 percent, reversing initial losses, as gains in financials gathered pace and Wall Street opened in positive territory. Swiss bank UBS fell 2.5 percent, among the top STOXX losers despite reporting first-quarter earnings ahead of analysts’ estimates.

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U.S. stocks fell for a third day, led by a slide in technology companies. The dollar rallied to its highest level in more than three months as the prospect of yields on benchmark U.S. Treasuries reaching 3 percent reignites demand.

The 60-day correlation between the Bloomberg Dollar Spot Index and benchmark Treasury 10-year yields has turned positive again, after dipping into negative territory during the past few months for the first time since 2016.

For theweek ahead:

  • French President Emmanuel Macron begins a three-day visit to the U.S. Monday
  • U.S. GDP and jobless claims.
  • Earnings season continues. Among those reporting: Alphabet/GoogleAmazon.comSamsung and Credit Suisse.
  • The European Central Bank has a rate decision on Thursday. Investors will watch for any sign that officials are preparing a shift in stimulus plans for their June meeting.
  • Bank of Japan announces its latest policy decision Friday and releases a quarterly outlook report.

Main Moves in markets, from BBG:

Stocks

  • The S&P 500 Index fell 0.3 percent as of 2:33 p.m. New York time, while the Dow Jones Industrial Average dropped 0.4 percent and the Nasdaq Composite Index slumped 0.5 percent.
  • The Stoxx Europe 600 Index rose 0.4 percent and the MSCI Asia Pacific Index fell 0.8 percent.
  • The U.K.’s FTSE 100 Index gained 0.4 percent.
  • The MSCI Emerging Market Index dropped 1 percent, after touching the lowest in almost three weeks.

Currencies

  • The Bloomberg Dollar Spot Index rose 0.78 percent, reaching the highest in almost 14 weeks on its fifth straight advance.
  • The euro weakened 0.6 percent to $1.2209, dropping to the weakest in almost eight weeks.
  • The British pound dropped 0.5 percent to $1.3931.
  • The Japanese yen sank 1 percent to 108.68 per dollar, touching the weakest level in 10 weeks.

Bonds

  • The yield on 10-year Treasuries rose two basis points to 2.98 percent, after reaching the highest in more than four years.
  • Germany’s 10-year yield increased five basis points to 0.63 percent, the highest in six weeks.
  • Britain’s 10-year yield climbed six basis points to 1.54 percent.

Commodities

  • West Texas Intermediate crude was little changed at $68.33 a barrel.
  • Gold dropped 1 percent to $1,322.94 an ounce, after reaching the least in more than three weeks.

 

ECB gives up On Defusing Eurozone’s “$1 Trillion Ticking Time Bomb”

At the heart of the Eurozone, namely the roughly $1 trillion in non-performing loans across European banks (a number which is materially higher in reality as some analyst are saying)

Now appears that the European central bank came, saw… and ran away when faced with what now appears to be an certifiably insurmountable problem: as Reuters reported this morning, the ECB “is considering shelving planned rules that would have forced banks to set aside more money against their stock of unpaid loans, after suffering a political backlash.

And Andreas Dombret, the outgoing Bundesbank director in charge of banking supervision, said in an interview published on Monday that the ECB’s credibility was at stake.

“One cannot say that NPLs are one of the biggest risk for the European banking sector and a top priority and then fail to act,” he told Boersen-Zeitung.

Is the US headed for a public debt crisis? Unsustainable borrowing may cause a clash with the Fed, but not a solvency crisis, Gavyn Davies says.

Then add up the growing inequality, another “ticking time bomb“. GINI index has hit fresh highs. And of course, rising debt & waning soft power threaten US exceptionalism.

 

Economy News

North Korea has suspended its long-range missile tests and plans to close its nuclear test site ahead of talks between the two Koreas this week, and the U.S. in May or June. Kim Jong-un said he would make the move as “the weaponization of nuclear weapons has been verified.” It will also create an “optimal international environment” to build his country’s economy.

Amid tensions between the world’s two largest economies, China is welcoming plans by top U.S. officials to visit the country for talks on trade and economic issues. “I am not going to make any comment on timing, nor do I have anything confirmed, but a trip is under consideration,” Treasury Secretary Steven Mnuchin said in a statement.

Mexico has reached an “agreement in principle” to modernize an existing free trade deal with the EU, seeking to diversify away from dependence on an increasingly hostile U.S. The new deal will end Mexican tariffs on European food and beverages, allow the bloc to sell more services in Mexico and include a pledge by both sides to include protections for their workers and the environment.

The first state visit of the Trump era kicks off today as Emmanuel Macron arrives at the White House. The French president wants to persuade Trump to exempt European nations from steel tariffs, which are part of his plan to reduce chronic trade deficits. The two are also expected to discuss the Iran nuclear deal, as well as military strategy in Syria.

Economic momentum in the eurozone kept a steady pace in April – with IHS Markit’s composite PMI remaining unchanged at 55.2 – as services activity picked up, while manufacturing growth slowed to its weakest level in more than a year. “It’s very much suggestive of the ECB being in territory where it should be thinking about unwinding stimulus – and certainly not adding to it,” said Chris Williamson, chief business economist at IHS Markit.

As the annual IMF and World Bank meetings drew to a close on Saturday, international finance ministers and central bank governors expressed concerns that gathering trade disputes would derail a still-strong world economy. However, the U.S. told the IMF it “must step up to the plate” in its role to reduce large surpluses in countries such as China and Germany, while protecting intellectual property around the globe.

 

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Stocks News

Following an earlier debate over an Amazon (NASDAQ:AMZN) acquisition, all major investors in Flipkart (FPKT) are now on board with a Walmart (NYSE:WMT) purchase, Bloomberg reports. A deal for 60%-80% of the Indian e-commerce giant, which is likely to top $12B, may be completed in the next two weeks. Among the issues still to be resolved are whether Flipkart’s founders will continue leading the business.

UBS -3.5% premarket despite reporting a 19% jump in net profit in the first quarter of the year. Traders appeared worried by a slow performance, if investment banking was excluded, and were somewhat cautious about the outlook going forward. UBS warned that Q2 could include higher funding costs related to long-term debt and regulatory operations.

Moving deeper into sports betting, Stars Group (NASDAQ:TSG) has agreed to buy Sky Betting & Gaming in a deal valued at $4.7B. It will make the PokerStars owner the biggest publicly listed online gambling company and comes after its failed attempt to take control of Sky-rival William Hill (OTCPK:WIMHF). The cash and stock transaction is expected to be completed later this year.

Fresenius Medical Care has agreed to sell its controlling interest in Sound Inpatient Physicians Holdings to an investment consortium led by Summit Partners for $2.15B. The deal, expected to close in late 2018, will bring a pretax book gain of about €800M. Fresenius (NYSE:FMS) has also decided to pull out of its planned $4.75B acquisition of Akorn (NASDAQ:AKRX) after it found data integrity breaches at the drugmaker.

Amazon Web Services has made a new foray into the world of distributed ledger technology. The company has released Blockchain Templates for Ethereum and Hyperledger Fabric, which will make it possible for AWS (AMZN) users to build their own blockchain networks quickly and easily. Blockchain eliminates the need for a third-party intermediary by quickly creating a permanent, secure record of transactions.

After the successful debut of its European counterpart Spotify (NYSE:SPOT), Tencent Music (OTCPK:TCEHY) is reviewing plans for an IPO that could top $25B, WSJ reports. Potentially coming in the second half of 2018, it would be one of the largest deals of the year. While the IPO is expected to list in the U.S., Tencent Music is unlikely to make a final venue decision before the summer.

The U.S. Commerce Department has granted ZTE’s (OTCPK:ZTCOF) request to submit more evidence after the agency barred American companies from selling to the Chinese firm. The Bureau of Industry and Security had slapped a seven-year ban on the telecom equipment maker for breaking terms of an agreement reached last year after it was found to be illegally shipping goods to Iran.

Toshiba is still aiming to complete the sale of its memory chip business soon, following rumors it had decided to cancel the $18.6B transaction if it did not get approval from Chinese regulators by May. Reports now suggest that authorities are conducting a third review of the Toshiba (OTCPK:TOSYY) deal, which is due to be completed by the end of next month.

Although its approach had so far been rejected, offshore oil services firm Subsea 7 (OTCPK:SUBCY) has offered to buy U.S. peer McDermott (NYSE:MDR) for about $2B. “The proposal is subject to the termination of McDermott’s pending transaction with Chicago Bridge & Iron (NYSE:CBI),” Subsea 7 declared, adding that it could increase its “proposed price upon further discussions with McDermott management.” MDR +18%; CBI -17%premarket.

GM Korea has reached a tentative wage deal with its labor union, meeting a key condition laid down by the automaker to prevent it from filing for bankruptcy. The agreement would pave the way for the Korea Development Bank to provide support and for GM to allocate new models to South Korea to help turn around the unit.

Southwest Airlines has been canceling 40 flights a day – about 1% of its nearly 4,000 daily flights – to conduct “accelerated” fan-blade inspections. A passenger was killed last week when an engine broke apart and shattered a window on a flight from New York to Dallas. Flightaware.com showed more than 500 Southwest (NYSE:LUV) flights delayed Sunday, but it’s not clear how many of those were due to inspections.

 

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