By MacNicol & Associates In Morning Notes
May 11th, 2018
Daily Market Commentary
- Ant Financial, the Chinese payments giant controlled byJack Ma, is expected to close a fundraising of at least $10 billion in the next few days, attracting Carlyle Group and the Canada Pension Plan Investment Board as first-time investors, according to people familiar with the matter. The Hangzhou-based company is said to be valued at about $150 billion in this round, the people said, requesting not to be named because the matter is private. Warburg Pincus is also joining the fundraising, they said.
- Thomson Reuters Corp. reported first-quarter profit that missed analysts’ estimates and said it will use some of the proceeds from the sale of majority stake in its financial and risk business to buy back as much as $500 million in shares. Excluding some items, earnings rose 12 percent to 28 cents a share, the Toronto-based company said in a statement Friday. That compared with the 29-cent average of analysts’ estimates compiled by Bloomberg. Revenue increased 4 percent to $1.38 billion. Wall Street was projecting $1.42 billion in sales for the group, excluding its financial and risk unit, which is classified as a discontinued operation.
- European stocks edged lower, even as U.S. equity futures rose and Asian peers jumped after easing inflation in the world’s biggest economy removed some pressure from the Fed to step up the pace of monetary tightening. The dollar edged lower after dropping the most since March on Thursday. The Stoxx Europe 600 Index erased an early advance, though the the gauge still headed for its seventh week of increases, the longest streak in more than three years.
- Investors are weighing the most recent economic data releases and comments from monetary policy-makers in order to judge the most likely path for global interest rates. Thursday’s lower-than-expected U.S. CPI reading came as U.K. money markets priced out a hike this year after the Bank of England forecast slower price rises. Comments from European Central Bank Governor Mario Draghi at a conference in Italy will be the focus later.
- Asian shares advanced, with the regional benchmark heading for its biggest weekly gain in almost three months, after mild U.S. inflation numbers weighed on the dollar. Consumer prices rose less than forecast in April, easing concerns about faster rate hikes. The MSCI Asia Pacific Index climbed 1 percent to 175.73 as of 4:45 p.m. in Hong Kong, boosting its weekly rally to 1.9 percent.
- Oil’s poised for a second weekly gain as traders assessed how renewed U.S. sanctions on Iran and continuing tensions in the Middle East will affect supplies. Futures in New York traded above $71 a barrel, near the highest level since November 2014, and are up 2.6 percent this week. Israel said it conducted the biggest raid in at least three decades at Iran’s military facilities inside Syria. That added to concerns after U.S. President Donald Trump decided to exit a 2015 nuclear accord and hit Iran with sanctions, which could curb exports from OPEC’s third-largest producer.
- Gold heads for first weekly gain in four after U.S. consumer prices rose by less than forecast in April, reducing chances that inflation will run significantly above the Federal Reserve’s target in coming months.
- Silver Lake agreed to buy property platform ZPG Plc for almost 2.2 billion pounds ($3 billion) as private equity firms seek to grow their data businesses. ZPG shareholders will receive 490 pence in cash per share, and Silver Lake already has secured support for the bid from newspaper group Daily Mail & General Trust Plc, the property portal’s largest shareholder, the companies said in a statement Friday. In total, more than 30 percent of shareholders have agreed to back the deal.
- Standard Chartered Plc’s three-year saga to exit its loss-making private equity business, which has investments ranging from Jordanian poultry to a Korean restaurant specializing in garlic, has finally reached the endgame. The bank is seeking investors to purchase the remaining $1.5 billion of private equity assets and back a spinoff of the 55-strong team running the buyout business, according to people with knowledge of the deal, who asked not to be identified as the details are private.
- Populists may be coming soon to power in Italy with ideas including a flat tax for all that could blow a hole in the country’s finances if they are ever implemented. The various promises, which also cover a lower retirement age and a guaranteed income for the poor, would probably provide a short-term growth boost. Still, they risk heaping additional fiscal burden on an economy already crippled with debt, unless the measures are offset by spending cuts or tax increases elsewhere.
- Barclays Plc Chief Executive Officer Jes Staley was fined 642,430 pounds ($870,557) by British regulators for his attempts to uncover a whistle-blower. “Mr. Staley breached the standard of care required and expected of a chief executive in a way that risked undermining confidence in Barclays’ whistle-blowing procedures,” Mark Steward, executive director of enforcement and market oversight at the Financial Conduct Authority, said in an emailed statement Friday. “Whistle-blowers play a vital role in exposing poor practice and misconduct in the financial services sector.”
- Silver Lake agreed to buy property platform ZPG Plc for almost 2.2 billion pounds ($3 billion) as the U.S. private-equity investor seeks to grow further in U.K. real-estate data. ZPG shareholders will receive 490 pence in cash per share, and Silver Lake already secured support for the bid from newspaper group Daily Mail & General Trust Plc, the property portal’s largest shareholder, the companies said in a statement Friday. In total, more than 30 percent of ZPG shareholders have agreed to back the deal.
- Short selling could get a little bit easier in China after the country’s domestic stocks join MSCI Inc.’s big index club. MSCI’s inclusion of onshore-listed Chinese shares next month will be a step toward increasing the pool of stock that’s available to borrow. Share lending in the country is virtually non-existent, compared to the U.S. or Europe where the practice often makes up about 20 percent of daily turnover. In just a few weeks, some $1.9 trillion of index-tracking money linked to MSCI is about to own equities in China for the first time.
- AT&T Inc. paid President Donald Trump’s personal lawyer, Michael Cohen, up to $600,000 for insights and asked him to look into its proposed $85 billion merger with Time Warner Inc. as it sought government antitrust approval, according to a person familiar with the matter. The figure is about $400,000 more than that alleged by Michael Avenatti, the lawyer for adult film actress Stephanie Clifford, who revealed a series of payments to Cohen from AT&T, Novartis AG, Korea Aerospace Industries Ltd. and others on Tuesday.
- It’s hard to predict whether India will re-elect a majority government next year. But one fund manager has advice for investors: go against the crowd. If stocks start to rise on expectations of a stable administration, investors must book profit and re-enter should the results confirm the outcome, said Nilesh Shah, who oversees $19 billion as chief executive officer of Kotak Asset Management Co. Conversely, declines driven by fears of a coalition government should be bought into. The reward — if the vote surprises positively — will likely outweigh the risks if results indeed signal a multi-party alliance.
- Malaysia’s controversial state-owned investment fund 1MDB came under pressure in the bond market this week after the nation’s landmark election raised questions about its future. The vote ousted Najib Razak, who faced public anger over a money laundering scandal involving hundreds of millions of dollars siphoned from 1MDB. He has consistently denied wrongdoing. New Prime Minister Mahathir Mohamad said he thought he could recover most funds from 1MDB and that Najib will pay the consequences if the law finds any wrongdoing.
- A legal battle is heating up over scraps of a synthetic securitization structured before the global financial crisis, highlighting risks in derivatives trades that are proliferating again. Deutsche Bank AG and Morgan Stanley are fighting over 36 million euros ($43 million) that wasn’t repaid to junior noteholders. The deal matured in December 2016 and was designed to provide credit protection to Deutsche Bank on a portfolio of about 2.9 billion euros of loans to small and medium-sized enterprises.
- American automakers may be on a mission impossible when they visit the White House on Friday. They want to persuade President Donald Trump to cooperate with Jerry Brown, the Democratic governor of California, who invoked biblical references when calling the Trump administration’s proposal to roll back auto efficiency regulations “profoundly dangerous.” Top executives of General Motors Co., Honda Motor Co., Toyota Motor Corp.,Ford Motor Co. and other companies are scheduled to meet Trump to discuss trade and environmental standards enacted by the Obama administration.
- The geologist who earned the wrath of shale drillers a decade ago with forecasts that natural gas was about to run out is now warning that the Permian Basin has just seven years of proven oil reserves left. Arthur Berman, a former Amoco scientist who now works as an industry consultant near Houston, said the Permian region of Texas and New Mexico that currently pumps more oil than any other North American field won’t last for long. And the Eagle Ford shale about 350 miles (560 kilometers) away in South Texas isn’t looking good either.
- Fortis Healthcare Ltd.’s board passed over bids backed by U.S. private-equity giants TPG and KKR & Co. in favor of local tycoons in the contentious battle for control of India’s second-largest hospital chain. The drawn-out takeover fight moved a step closer to a conclusion after the Fortis board late Thursday chose a joint proposal from two Indian business families. The rejected offers include bids by TPG-backed Manipal Health Enterprises Pvt. and KKR-backed Radiant Life Care Pvt.
- Amazon.com Inc. has stopped buying a popular type of Google ad, according to people familiar with the decision. The move deepens the rift between the technology titans and signals Amazon’s growing ambition in the digital advertising market. The pullback affects highly coveted real estate at the top of Google search results, where retailers and e-commerce bid and pay handsomely to place colorful, image-rich ads that show up when consumers look online for running shoes, headphones and other products to buy.
- Credit Suisse Group AG’s upbeat first quarter at its flagship Swiss business is giving the lender confidence it can meet year-end profit targets seen as overly ambitious by some analysts and competitors. Swiss Universal Bank head Thomas Gottstein reassured staff the business is on track to generate 2.3 billion francs ($2.3 billion) of adjusted pre-tax profit this year, according to the presentation earlier this month that was seen by Bloomberg News. He’s pressing senior bankers to boost interaction with institutional clients and target premium customers with the promise of loans to get there, people familiar with the presentation said.
- With one of the most tenacious activist investors breathing down his neck, Hyundai Motor Group’s crown prince is preparing to defend his family’s dominance of the world’s fifth-largest automotive empire by seeking to win over shareholders ahead of a looming showdown. After announcing about 1.6 trillion won ($1.5 billion) in buybacks and stock cancellations in the past month, shareholder returns are “just beginning,” Vice Chairman Chung Eui-sun, the 47-year-old son of the group’s octogenarian patriarch, said in a rare impromptu interview at a Hyundai innovation center event in Seoul this week. “Our shareholder policies unveiled so far are not everything we have.”
- Shanghai Fosun Pharmaceutical Group Co. is among shortlisted bidders for a portfolio of Novartis AG assets, including its U.S. dermatology business, that could fetch as much as $2 billion, people with knowledge of the matter said. Apollo Global Management LLC, CVC Capital Partners and Indian drugmaker Aurobindo Pharma Ltd. have also been picked to make final offers, the people said. A buyer for the assets held by the drugmaker’s U.S.-based Sandoz unit could emerge within the next few weeks, said the people, who asked not to be identified because the information is private.
- Volvo Cars owner Zhejiang Geely Holding Group Co. has selected Citigroup Inc., Goldman Sachs Group Inc. and Morgan Stanley to advise on an initial public offering for the Swedish carmaker this year, according to people with knowledge of the matter. China’s Zhejiang Geely and Volvo have discussed valuing the Swedish automaker in a range of $16 billion to $30 billion in a stock sale, the people said, asking not to be identified because the deliberations are confidential. The companies held meetings in Sweden and Hong Kong this month to discuss a dual listing in both venues, they said.
- Fullerton Healthcare Corp., the medical service provider that shelved plans for a Singapore initial public offering in 2016, is now aiming to sell shares in the U.S., people with knowledge of the matter said. The Singapore-based company is starting preparations for a U.S. IPO that could take place as soon as this year, the people said, asking not to be identified because the process is private. Fullerton Healthcare and existing investors hadsought to raise as much as S$271 million ($202 million) in the city-state in 2016, before deferring the deal amid queries from regulators.
*All sources from Bloomberg unless otherwise specified