On 24 October, 2016 – Mergers energize investors
Asian and European indices were mixed while those in the US rallied.
United States
Stocks rallied Monday after a busy weekend of mergers. The Dow Jones industrials were up 0.4 percent, the S&P gained 0.5 percent and Nasdaq added 1.0 percent. Technology shares made some of the largest gains, while energy companies declined with the price of crude oil.
Over the weekend, AT&T announced it had agreed to buy Time Warner. The companies valued the deal at $85.4 billion or $107.50 per Time Warner share. Although Time Warner rose Friday on the rumor, it retreated Monday after the fact. Politicians already have expressed opposition or skepticism about the deal. Investors are worried about the high price AT&T would pay and the large amount of debt it would take on. AT&T also was lower on the day.
Rockwell Collins agreed to buy B/E Aerospace for $62 per share or $6.4 billion in cash and stock. B/E Aerospace advanced while Rockwell Collins declined. TD Ameritrade agreed to buy a competitor, Scottrade. The $4 billion deal would bring together two big online brokerages at a time when investors are choosing index funds over stock-picking. TD Ameritrade was lower on the day. China Oceanwide Holdings agreed to buy the financial services firm Genworth Financial for $5.43 per share or $2.7 billion. Genworth declined.
Microsoft advanced along with Alphabet and Apple stock. Chevron and Anadarko Petroleum declined on falling oil prices. T-Mobile was higher after the company reported better-than-expected results for the third quarter. The company said it gained 2 million customers over the last three months and said it expected greater growth for the year. T-Mobile stock gained on the news.
These data reflect observations at 4:00 PM US ET. Gold at the afternoon London fixing was down 50 US cents to US$1,265.55. Copper futures were up 0.3 percent to US$2.10. WTI spot crude was down 29 US cents to US$50.56. Dated Brent spot crude was down 29 US cents to US$51.49. The US dollar was up against the yen, yuan and the Canadian dollar. However, the currency was virtually unchanged against the euro, pound and Swiss franc. The Dollar Index was virtually unchanged. The yields on both the US Treasury 30 year bond and the 10 year note were up 3 basis points to 2.51 percent and 1.76 percent respectively.
Europe
Stocks were mixed Monday with both the FTSE and SMI down 0.5 percent. However, investor sentiment in the Eurozone received a boost from strong flash PMI data. The CAC was up 0.4 percent, the DAX added 0.8 percent and the MIB was 0.8 percent higher. The IBEX was 1.3 percent higher thanks to the decision made by Spain’s Socialists on Sunday clearing the way to end nearly a year of political deadlock. A Canadian rating agency also confirmed Portugal’s investment-grade credit rating with a stable outlook in a decision that ensures the country will keep its position in the ECB’s bond buying program.
Commerzbank and Deutsche Bank gained as did Société Générale, BNP Paribas and Crédit Agricole. In London, Royal Bank of Scotland dropped on a broker downgrade. Volkswagen increased 1 and BMW advanced. In Paris, Zodiac Aerospace climbed after US aircraft component maker Rockwell Collins announced a deal to buy aircraft interior maker B/E Aerospace for $62 per share in cash and stock. In London, media and broadcast firms climbed after AT&T announced it would buy media group Time Warner for $85.4 billion. ITV finished higher.
EasyJet jumped on a broker upgrade. Petra Diamonds surged after reporting a 30 percent increase in first quarter production. Cobham tumbled after the military and civil systems provider said its overall trading in the third quarter remained challenging and was behind management’s expectations. Philips jumped in Amsterdam. The electronics company reported an 18 percent increase in third quarter net income, helped by higher sales at its core health-care technology operations. BP, Royal Dutch Shell and Tullow Oil retreated. Gold miners also lost ground as gold prices slipped. Randgold Resources and Fresnillo were both lower.
October flash composite PMI which includes both manufacturing and services rose to 53.7 from 52.6 in September. The flash German composite PMI rose to 55.1 from a 16-month low of 52.8 in September. But the French composite PMI slid to a two month low of 52.2 from a 15-month peak of 52.7.
Asia Pacific
Asian stocks mostly advanced Monday with most gains muted. A retreat in oil prices in Asia kept a lid on overall gains across the region. China’s Shanghai Composite rallied 1.2 percent amid expectations that the government would maintain its high levels of fiscal spending. The yuan weakened further to hit fresh six-year lows against the US dollar. The Hang Seng was up 1.0 percent — trading resumed following a typhoon Friday that closed markets.
The Nikkei and Topix added 0.3 percent and 0.2 percent respectively. The October flash Markit/Nikkei Japan manufacturing PMI hit a nine-month high of 51.7, up from September’s final of 50.4. Japan’s September merchandise trade balance recorded a surplus after exports fell less than expected. Sharp climbed on reports that it is considering closing a factory in Hiroshima as early as 2017. Nintendo, which provided the first glimpse of its newest portable gaming device on Thursday, retreated.
Both the S&P/ASX and All Ordinaries were down 0.4 percent with energy stocks pacing the decliners after Iraq reportedly said it wanted to be exempt from any deal by producer cartel OPEC to trim output. Santos fell after it agreed to sell its Victorian gas assets to Cooper Energy for up to A$82 million. Oil Search, Woodside Petroleum and Origin Energy also were lower. Miners BHP Billiton and Rio Tinto were higher. Genworth Mortgage Insurance Australia rallied after China Oceanwide Holdings agreed to buy all the shares of its parent Genworth Financial. Yowie Group advanced after its quarterly sales more than doubled from last year.
The Kospi added 0.7 percent. The Sensex added 0.4 percent.
Looking Forward
October German Ifo survey will be released. In the US, August FHFA and S&P CoreLogic Case Shiller house price indices will be reported along with October consumer confidence and Richmond Fed manufacturing index.
Global Stock Markets
*Note — all releases are listed in local time.
Source: Fidelity
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