- Rolls-Royce (RRU TH) +5.4%
- Rolls-Royce Confirms up to 2,500 Job Cuts Worldwide
- Nel (D7G TH) +2.3%
- Airbus (AIR TH) +1.1%
- Airbus Raised at Jefferies on Operating Leverage, Buyback Scope
- Novo Nordisk (NOV TH) +0.9%
- China Weight-Loss Drug Stocks Lose Shine on ‘Misleading’ Claims
- Just Eat Takeaway (T5W TH) -0.6%
- Mowi (PND TH) -0.6%
- AMS-Osram (DQW1 TH) -1.9%
- Ericsson (ERCB TH) -9.1%
- Ericsson Says Weakness Persists in Quarter After Sales Miss (1)
DAX:
- Airbus (AIR TH) +1.5%
- Airbus Raised at Jefferies on Operating Leverage, Buyback Scope
MDAX:
- SMA Solar (S92 TH) +1.1%
SDAX:
- Adtran Holdings (QH9 TH) +4.5%
- Adtran Holdings Prelim 3Q Revenue Misses Estimates
- Draegerwerk (DRW3 TH) +4.3%
- Draegerwerk Forecasts FY Results
- SFC Energy (F3C TH) +2.7%
- EQS-News: SFC Energy AG: Deutsche Telekom subsidiary Power & Air Solutions secures communication technology with emission-free f
- Ceconomy (CEC TH) +2.4%
- MorphoSys (MOR TH) +1.2%
- Aroundtown (AT1 TH) -1%
- Fielmann (FIE TH) -1.6%
>>> Up
* Airbus Raised to Buy at Jefferies; PT 150 euros
* Fidelity National Raised to Outperform at Wolfe; PT $65
* SCA Raised to Hold at SEB Equities; PT 147 kronor
* SCA Raised to Hold at SEB Equities; PT 147 kronor
* Viasat Raised to Overweight at JPMorgan; PT $30
>>> Down
>>> Down
* HSBC Cut to Sell at SocGen; PT 575 pence
* Munters Cut to Hold at Nordea
* UPM-Kymmene Cut to Hold at Jefferies; PT 35 euros
>>> Initiation
* UPM-Kymmene Cut to Hold at Jefferies; PT 35 euros
>>> Initiation
* Amazon Rated New Buy at Stifel on Scale and Margin Upside
* Amgen Resumed Equal-Weight at Morgan Stanley; PT $300
* ASML Rated New Strong Buy at Raymond James
* Barry Callebaut Rated New Equal-Weight at Morgan Stanley
* Deutsche Boerse Resumed Equal-Weight at Morgan Stanley
* Freeport Reinstated Neutral at JPMorgan; PT $42
* Ivanhoe Electric/US Rated New Overweight at JPMorgan; PT $18
* Kemira Rated New Buy at DNB Markets; PT 21 euros
* KLA Corp Rated New Outperform at Raymond James
* Lindt & Spruengli Rated New Underweight at Morgan Stanley
* Stellantis Rated New Overweight at Barclays; PT 22.50 euros
* Stellantis Rated New Overweight at Barclays; PT 22.50 euros
* Surgical Science New Buy at Berenberg on Strong Positioning
>>> Call
>>> Call
* Airbus Raised at Jefferies on Operating Leverage, Buyback Scope
* ASML Rated Strong Buy at Raymond James, Applied Rated Outperform
* ASML Rated Strong Buy at Raymond James, Applied Rated Outperform
* Deutsche Boerse Equal-Weight at Morgan Stanley, Earnings Subdued
* JPMorgan’s Kolanovic Says Buy Bonds, Gold as Stocks Face Risk
* Lindt Underweight, Barry Callebaut Equal-Weight: Morgan Stanley
* UPM-Kymmene Downgraded to Hold at Jefferies as Nears Fair Value
Treasuries declined as ongoing diplomatic efforts to help prevent the Israel-Hamas war from expanding into a wider conflict reduced demand for haven assets. Yields on the US 10-year benchmark climbed higher than 4.7%, while those on the 30-year rose more than four basis points, with the selloff steepening the yield curve further. Gold fell for a second day, as did oil. US President Joe Biden is set to visit Israel as part of a push to prevent the war from spreading. Secretary of State Antony Blinken also returned to Israel to meet Prime Minister Benjamin Netanyahu, after talks with Arab governments. Russian President Vladimir Putin held a call with the leaders of Egypt, Syria, Iran and the Palestinian Authority, and the Kremlin said there was a “unanimous opinion” on the need for a cease-fire. He spoke separately with Netanyahu. Elsewhere, the dollar steadied after falling in the previous session, while the kiwi was the worst performer among Group-of-10 peers as the nation reported slower-than-expected inflation. In stocks, an Asian equity gauge snapped a two-day decline while contracts for US equities slipped after both the S&P 500 and the Nasdaq 100 rose on Monday. Rio Tinto Plc climbed the most in a month following a report which showed the miner recorded a higher-than-expected increase in copper production for the third quarter. Japan’s auction of 20-year government bonds registered lower-than-expected cut-off price, indicating weak demand amid speculation the central bank will end negative interest rates sooner rather than later. Country Garden Holdings Co. is also on the radar as the clock is ticking for the distressed developer to pay interest on a dollar bond. The builder, which has become a symbol of China’s broader property debt crisis, must pay a $15.4 million coupon by the end of a 30-day grace period Oct. 17-18 before a default can be called. Another key focus in Asia is China’s Belt and Road forum, which Russia’s Putin is expected to attend. Investors looking to earnings season for a dose of good news are hanging their hopes on a familiar group: Big Tech. The five biggest companies in the S&P 500 — Apple Inc., Microsoft Corp., Alphabet Inc., Amazon.com Inc. and Nvidia Corp. — account for about a quarter of the benchmark’s market capitalization. Their earnings are projected to jump 34% from a year earlier on average, according to analyst estimates compiled by Bloomberg Intelligence. Bitcoin edged lower after surging as much as 10% as BlackRock Inc. said its application for an exchange-traded fund that invests directly in the cryptocurrency is still under review. US After Hours Quiet after-hours session; MRO +1.4% up on sales agreement with Glencore; NTCT -17.7% down on guidance.
Nikkei +1% Hang Seng +0.59% CSI +0.18% Shanghai +0.05% Shenzen -0.33%
Eur$ 1.0545 CNH 7.3183 CNY 7.3136 JPY 149.60 GBP 1.2194 CHF 0.9016 RUB 97.3976 TRY 27.9000 WTI$ 86.37 Gold 1915 -0.26% BTC 28,200 -0.72% ETH 1588 -0.03%
S&P -0.12% Nasdaq -0.13% EuroStoxx -0.02% FTSE -0.10% Dax +0.08% SMI -0.22%
Macro :
- Bitcoin’s 10% Jump to $30,000 Hints at ‘Playbook’ for ETF Era
- JPMorgan’s Kolanovic Says Buy Bonds, Gold as Stocks Face Risk
- Former Apollo Partner Strong Starts Infrastructure, Energy Firm
- Former Apollo Partner Strong Starts Infrastructure, Energy Firm
- Israel Latest: Minister Warns of Long War as Biden Weighs Visit
- Morgan Stanley Strategists Raise Poland Stock Exposure, Cut UAE
Keep an eye on :
- ABVX FP : Abivax Aims to Issue ~18.7M Shares in ADS Offering
Keep an eye on :
- ABVX FP : Abivax Aims to Issue ~18.7M Shares in ADS Offering
- ADP FP : Aeroports de Paris SA Sept. Passenger Traffic +15.1%
- ADJ GY : Adler: Avega Willing to Audit Standalone 2022, 2023 Statements
- AF FP : EU Seeks to Tighten Rules for Airline Mergers: FT
- ARAMI FP : Aramis Names Fabien Geerolf CFO
- ARGX BB : Argenx May Gain Up to 10% on Rare Disease Readout: Wells Fargo
- BG AV : Bawag 3Q Pretax Profit Beats Est., Will Assess Payouts
- BNP FP : BNP Paribas Insurance Unit to Buy Italy’s BCC Vita: Corriere
- DRW3 GY : Draegerwerk Forecasts FY Results
- FGR FP : Eiffage Consortium Wins EV Battery Plant Deal Worth ~€100M
- EQT SS : EQT-Backed Health Payments Software Maker Waystar Files for IPO
- ERICB SS : Ericsson Sees 4Q Adj. Ebita Margin at Around 10%, Says Weak Market to Persist in Quarter After Sales Miss
- EAPI FP : Sanofi’s EuroAPI a Rare Loser Among European Spinoffs: ECM Watch
- FAST NA : Fastned Raises €30.4M in New Bonds to Expand Network in Europe
- RACE IM : Ferrari Share Price Tops €300 For the First Time
- FRAS LN : Frasers Group Reaches Deal to Acquire SportScheck: Sky
- GLEN LN : Marathon Oil in LNG Sales Pact with Glencore for Alba Gas
- GSF NO : Grieg Seafood Prelim 3Q Harvest About 12,200 Metric Tons
- DEC FP : Vista Outdoor Plunges on Cut FY Sales Guide, Estimate Miss
- JUP LN : Jupiter Assets Under Management GBP50.8B
- KNIN SW : SATS, Kuehne+Nagel Collaborate on Value Chain Improvements
- LONN SW : Lonza Sees ‘24 Growth Offset By One-Offs; ‘High Twenties’ Margin
- MFEB IM : MediaForEurope to Group Class A, B Shares, Change Co.’s Isins
- MEDX SW : Medmix to Take 25% Stake in Aardex to Bolster Drug Delivery
- MITRA BB : Mithra Removes Proposal to Change Pay Policy at Holder Meeting
- NOD NO : Nordic Semiconductor 4Q Revenue Forecast Misses Estimates
- RI FP : Pernod Mulls Shipping New Scotch to Slake India’s Whiskey Thirst
- RIO LN : Rio Tinto 3Q Mined Copper Production Beats Estimates
- RR/ LN : Rolls-Royce to Layoff 2,500 Jobs as Soon as Tuesday: Sky
- TIT IM : Italy Reduces Phone Carriers’ Antitrust Fines in Billing Probe
- UMI BB : Umicore Expands Canadian EV Battery Plant, Gets Grants (Oct. 16)
- VOW GY : Volkswagen Brand Cost-Cutting Plan Runs Behind Schedule: Reuters
- WBD IM : Webuild's MSCI ESG Rating Raised to AA from A
- MF FP : Wendel Offers €383M For 51% Stake in IK Partners: M&A Snapshot
China Property Bonds Looked Cheap at 20 Cents on the Dollar. They Weren’t.
The market looked attractive after bond prices fell two years ago. They are even lower today.
China’s property market meltdown created a multibillion-dollar opportunity for distressed-debt investors. It hasn’t paid off.
The country’s real-estate sector is reeling from a yearslong slowdown that has put strains on the economy, sparked widespread protests and triggered defaults on around $81 billion of Chinese developers’ international bonds between 2021 and 2022, according to figures from S&P Global Ratings.
The wave of defaults in the sector proved irresistible to many distressed-debt funds. These funds buy the bonds or loans of struggling companies, often at a price well below face value, and negotiate with the companies to work out a debt restructuring plan. They flooded into the market two years ago, including buying many of the outstanding bonds of developers China Evergrande Group EGRNQ 0.00%increase; green up pointing triangle, KWG Group 1813 2.74%increase; green up pointing triangle and China Aoyuan Group 3883 -1.71%decrease; red down pointing triangle, according to a Hong Kong-based trader.
But the distressed-debt playbook isn’t working in China.
Dozens of Chinese property companies have defaulted on their bonds over the last two years, but only a handful have paid investors back any money. Last month, Evergrande abandoned a $35 billion debt restructuring plan that it had finally agreed with some of its investors after protracted negotiations. China Aoyuan still hasn’t completed a deal more than 18 months after it defaulted.
Most dollar bonds sold by Chinese property companies are trading below 10 cents on the dollar, and several are trading at less than 5 cents, according to research firm CreditSights.
“The market is showing all the signs that it’s lost patience,” said Jean-Charles Sambor, head of emerging markets fixed income at BNP Asset Management. “When you see these bonds now trading below 10 cents on the dollar, it tells you that investors expect a very low recovery, or total liquidation in some cases.”
Investors holding defaulted bonds have historically got back more than 30 cents on the dollar, according to global figures from Moody’s Investors Service, a credit ratings company.
Investment firms including Vontobel Asset Management in Zurich, SC Lowy in Hong Kong and New York-based Apollo Global Management bought Evergrande’s bonds in late 2021. At the time, one of its most actively traded bonds was worth around 20 cents on the dollar. The same bond is now trading at around 2.5 cents on the dollar.
Vontobel has closed its position in Evergrande, said a spokesperson. SC Lowy sold most of the Chinese property bonds it held last year, according to Michel Lowy, its co-founder and chief executive. Apollo didn’t respond to a request for comment.
A prolonged slowdown in the property sector is making it difficult for companies to estimate the cash flows they will need to pay investors back in the future. In September, sales at China’s 100 largest developers were down almost 30% from last year, according to data provider China Real Estate Information Corp.
Shimao Group, a Shanghai-based developer, recently changed the terms of a planned debt restructuring, asking investors to accept a lower recovery rate because of the weak property market, according to a person familiar with the matter. Last week, the company said its contracted sales fell three-quarters in September from the same month last year.
“Given the uncertainty and state of the property sales, I’m not sure anyone can figure out what a sustainable business model looks like, which is why it’s taking so long,” said Diwakar Vijayvergia, a portfolio manager at AllianceBernstein. “It’s going to be a time-consuming process.”
Distressed-debt investors are also finding negotiations complicated by China’s government, which is attempting to avoid further economic damage from the property market slump. The country’s economy has struggled this year. Exports are down, consumer demand is sluggish, and inflation is nonexistent.
European and U.S. distressed-debt investors who bought Evergrande’s bonds after the company defaulted were hoping for a “rational, market-driven” restructuring, said Kenny Chung, portfolio manager of fixed-income focused hedge fund Astera Capital.
“Now they’ve realized that the restructuring of a company that is the scale of Evergrande will be overseen by the government and will depend on the government’s future design for the firm,” Chung said.
Sunac China, a large developer that defaulted last May, received court approval for a restructuring plan it wants to complete this month, and investors point to it as an example that deals are possible. Sunac’s dollar bonds have risen several points in the past weeks, although they are still trading at around 15 cents on the dollar, according to Tradeweb.
Robert Koenigsberger, founder and chief investment officer of Gramercy Funds Management, said that distressed-debt investing can still work in China’s property sector. He said that after the wave of defaults in 2021, many investors rushed into the sector too soon—and paid too much.
“They made the first classic mistake in distressed investing: They bought it because it was cheaper than it used to be, not cheap relative to what it was worth. You have to get involved in the sweet spot from both a timing and entry price perspective,” said Koenigsberger, whose fund manages almost $6 billion of assets.
US bond market is losing its strategic footing
Unusual volatility in yields points to longer-term challenges for most influential segment of world’s financial markets
Last week’s unusual turbulence in US Treasuries points to a deeper issue than just the latest reading of the runes on inflation and the interest rate intentions of the Federal Reserve. The US bond market is losing its strategic footing, whether in economics, policy, or technical aspects.
There are readily available short-term explanations for the rollercoaster ride in yields that has garnered significant attention in the US and beyond. Early in the week, dovish statements by several Fed officials influenced market sentiment by indicating the possibility of no further interest rate hikes as the market had been doing the heavy lifting for them. Geopolitical concerns reinforced the yield movements. Bonds rallied sharply with yields falling.
Midweek, the focus shifted to inflation data, including certain measures that came in hotter than expected at both the producer and consumer levels. On Friday, geopolitical worries resurfaced as the market feared an escalation of the tragic conflict in the Middle East. On Thursday alone, the 10-year Treasury yield swung nearly 0.2 percentage points between an intraday high and low.
But my primary concern lies elsewhere: the most influential segment of the world’s financial markets is losing its longer-term strategic anchors and is at risk of losing its short-term stabiliser ones as well.
The recent consensus on economic growth for the world’s largest economy has been erratic, with forecasts fluctuating between a soft and a hard landing with the occasional mention of crash and no landings as well. Expectations about the Fed’s actions have similarly fluctuated, from potential rate cuts in the near term to maintaining higher rates for a longer period.
Federal Reserve policy is further shrouded in uncertainty, with questions over what the equilibrium level of interest rates should be, the delayed effects of a concentrated cycle of rate rises, the impact of a shrinking balance sheet and the absence of an effective framework for monetary policy.
All of this occurs in a context of substantial fiscal deficits that show no signs of significant moderation, for reasons that include Congressional dysfunction and the considerable bills associated with past promises and ongoing transitions in response to critical challenges such as climate change. Consequently, the balance of risks suggests more significant fiscal pressures than originally anticipated.
This uncertainty also extends to longer-term supply and demand dynamics. Despite rising interest rates, there is genuine doubt about who will readily absorb the additional supply of government debt associated with high deficits. The Fed, which was the most reliable buyer for over a decade with a seemingly limitless printing press and little price sensitivity, is now selling bonds, reversing its quantitative easing programmes since the financial crisis with quantitative tightening.
Foreign buyers seem more hesitant, including for geopolitical reasons. A significant portion of the large domestic institutional investor base, such as pension funds and insurance companies, already holds substantial quantities of bonds at large mark-to-market losses. Additionally, concerns about the stability of regional bank deposits persist, possibly leading them to sell bonds if deposits decrease.
Fortunately, the bond market still possesses some short-term stabilisers, which have mitigated even more extreme daily fluctuations. Sudden surges in yields attract buyers seeking greater certainty to lock in higher income for the long term, while sudden drops in yields translate into higher prices, allowing some overexposed investors to lighten up on any holdings where they are sitting on paper losses.
However, it’s important to note that their resilience should not be taken for granted. No matter how you look at it, the world’s most crucial benchmark market is on an unpredictable journey with an uncertain destination.
I recall during the transition I made approximately 25 years ago from the public to the private sector when I was cautioned by a bond trader that there would be moments when technical factors would override fundamentals, resulting in price volatility that could potentially destabilise both the financial markets and the broader economy. He was applying this good old-fashioned “tail wagging the dog” phenomenon to emerging markets. Without a more concerted effort to reestablish key anchors, it seems that this warning needs to be taken more seriously in the most systemic segment of mature markets.
EU to tighten rules for airline mergers
New antitrust commissioner will seek tougher concessions on airport take-off and landing slots
Regulators in Brussels will seek tougher concessions from airlines looking to merge in order to ensure fair competition, the new EU antitrust commissioner Didier Reynders has said.
Airlines typically offer to give up valuable airport take-off and landing slot concessions to rivals to clear the way for deals. But there is evidence that these concessions have not always worked for previous deals, with some slots not taken up or not used on the routes originally planned.
Brussels will now ask airlines to ensure slots are allocated to rivals on routes with competition concerns. In some cases, airlines may also be asked to sell assets not core to their passenger business to gain clearance.
In his first interview since becoming commissioner for competition, Reynders told the Financial Times: “We see some remedies are not efficient. In the past, the main request [to airlines] was to ask [to offer] slots to other companies.”
But he said that if it were “impossible and not enough”, regulators needed to seek other concessions from airlines, such as forcing them to sell assets.
“Some years ago, we were sure the slots solution was fine. Maybe the results are not there,” added Reynders, who is caretaker commissioner while Margrethe Vestager is on unpaid leave to run for president of the European Investment Bank.
His comments coincide with a wave of consolidation in the European airline industry following the disruption of the pandemic.
One antitrust lawyer said the Commission had changed the way it looked at airline mergers since the pandemic because of “scepticism” over the old system.
The Commission could insist on the disposal of assets that would “directly support the entry and viability” of a competitor. The assets could range from planes to cargo businesses or contracts with airport ground handlers.
Last week Air France-KLM joined the dealmaking flurry as it agreed to take a 20 per cent stake in Scandinavian airline SAS as part of a rescue deal involving private equity firm Castlelake and the Danish state.
Germany’s Lufthansa in May agreed a €325mn deal to buy a 41 per cent stake in ITA Airways, the successor to bankrupt Alitalia, which people familiar with the matter expect to be probed by the Commission.
In February, British Airways owner International Airlines Group, IAG, agreed to buy the 80 per cent of Spain’s Air Europa it does not already own for about €400mn.
The EU has announced a competition investigation into the IAG deal on the grounds it could reduce competition on Spanish domestic and international routes.
The FT reported in April that the deal faces a lengthy probe and could even be blocked.
The Commission is also investigating the impact of the proposed acquisition of Asiana by Korean Air on connectivity between the EU and South Korea.
Regulators have tended to require airlines to divest valuable take-off and landing slots before approving deals, in effect shrinking their foothold at busy airports to encourage more competition and consumer choice.
But such remedies are most effective only at the busiest airports. Barclays analysts noted that in the case of IAG’s bid for Air Europa “slot divestitures would not be effective” because Madrid Airport is not slot constrained.
After Hours Summary: Quiet after-hours session; MRO +1.4% up on sales agreement with Glencore; NTCT -17.7% down on guidance
After Hours Gainers:
Companies trading higher in after hours in reaction to earnings/guidance: CFB +2.9%, METC +2.6% (guidance), ELS +0.4%
Companies trading higher in after hours in reaction to news: CLVT +5.7% (Impactive Capital discloses 5.3% passive stake), MRO +1.4% (five-year LNG sales agreement with Glencore), GD +0.3% (awarded $217 mln contract), AMC +0.2% (issues settlement notice)
After Hours Losers:
Companies trading lower in after hours in reaction to earnings/guidance: NTCT -17.7% (guidance), SFBS -13.2%
Companies trading lower in after hours in reaction to news: TXT -1.4% (names fleet launch customer), SGML -0.1% (readies third shipment of Triple Zero Green Lithium), DWAC -0.1% (amending 2021 10-K)
Closing Stock Market Summary
Today's positive price action was driven by a sense of relief that the Israel-Hamas war did not turn into a wider conflict over the weekend when the market was closed. The tone could quickly shift on any given headline, however, but for today, the market's focus appeared to be more on what did not happen as opposed to something bad happening.
The relief trade manifested itself in rising stock prices, rising Treasury yields, and declining oil prices ($86.62/bbl, -1.18, -1.3%). The positive bias was also helped in part by the People's Bank of China making its largest liquidity injection since 2020 to help boost growth there, and the hope that the third quarter earnings reporting period, which will accelerate this week, will be better than expected.
The S&P 500 and Nasdaq Composite closed off their best levels of the session after the former ran into some resistance on a retest of early session highs around 4,380. After doing so, the market traded in a tightly contested range for the bulk of today's session.
Gains for the major indices ranged from 0.9% to 1.6%. Many stocks participated in the upside moves amid fairly indiscriminate buying interest.
The Invesco S&P 500 Equal Weight ETF (RSP) climbed 1.1%; the Vanguard Mega Cap Growth ETF (MGK) rose 1.3%; the Russell 3000 Value Index was up 1.1%; and the Russell 3000 Growth Index closed up 1.2%. Apple (AAPL 178.72, -0.13, -0.1%) was a notable laggard after Bloomberg reported that the iPhone 15 had a disappointing start to sales in China.
All 11 S&P 500 sectors closed in the green. Eight sectors jumped at least 1.0%, led by consumer discretionary (+1.7%) and communication services (+1.5%). The energy sector (+0.7%) saw the slimmest gain amid falling oil prices. The move in oil was also connected to a Washington Post report that the U.S. is aiming to ease sanctions on oil from Venezuela
The 2-yr note yield rose four basis points to 5.09% and the 10-yr note yield rose eight basis points to 4.71%, reflecting some of the safety premium being unwound.
- Nasdaq Composite: +29.6% YTD
- S&P 500: +13.9% YTD
- Dow Jones Industrial Average: +2.5% YTD
- S&P Midcap 400: +2.1% YTD
- Russell 2000: -0.8% YTD
Reviewing today's economic data:
- The Empire State Manufacturing index fell to -4.6 in October ( consensus -4.0%) from 1.9 in September.
Tuesday's economic calendar features:
- 8:30 ET: September Retail Sales (consensus 0.3%; prior 0.6%) and Retail Sales ex-auto ( consensus 0.2%; prior 0.6%)
- 9:15 ET: September Industrial Production (consensus 0.0%; prior 0.4%) and Capacity Utilization (consensus 79.5%; prior 79.7%)
- 10:00 ET: August Business Inventories ( consensus 0.3%; prior 0.0%) and October NAHB Housing Market Index ( consensus 45; prior 45)
- 16:00 ET: August net Long-Term TIC Flows (prior $8.8 bln)