Closing Stock Market SummaryThe S&P 500 advanced 1.0% on Monday, thanks in large part to the heavily-weighted growth stocks. The Nasdaq Composite (+1.4%) outperformed with a 1.4% gain while the Dow Jones Industrial Average (+0.5%) and Russell 2000 (+0.5%) both increased 0.5%.
Ten of the 11 S&P 500 sectors finished in positive territory, and none were more influential to today's performance than the information technology (+1.8%), communication services (+1.8%), and consumer discretionary (+1.0%) sectors due to their mega-cap components. The Vanguard Mega Cap Growth ETF (MGK 217.71, +3.41) gained 1.6%.
Other high-growth areas like the Philadelphia Semiconductor Index (+2.3%) and the ARK Innovation ETF (ARKK 108.73, +2.89, +2.7%) also outperformed.
Given the lack of market-moving macro news, the positive price action from the start presumably fueled a fear of missing out on further rebound gains, particularly in the growth stocks. To be fair, the 10-yr yield decreased two basis points to 1.61%, which was viewed as a supportive factor.
Value stocks also had a decent day, but not as great as the growth stocks. For example, the iShares S&P 500 Value ETF (IVE 149.56, +0.76, +0.5%) increased just 0.5%, versus the 1.5% gain in the iShares S&P 500 Growth ETF (IVW 68.77, +0.99, +1.5%).
The utilities sector (-0.2%) -- this year's worst-performing sector in the S&P 500 -- was the only sector that closed lower today. The negative performance coincided with a broader hiccup in the market, which saw the S&P 500 dip below the 4200 level on a closing basis.
In M&A news, Amazon (AMZN 3244.99, +41.91, +1.3%) is nearing a deal to purchase Hollywood studio MGM for $9 billion, according to The Wall Street Journal. Cabot Oil & Gas (COG 16.60, -1.21, -6.8%) and Cimarex Energy (XEC 66.14, -5.05, -7.1%) agreed to an all-stock merger of equals that left shareholders underwhelmed.
The 2-yr yield was flat at 0.15%. The U.S. Dollar Index decreased 0.2% to 89.83. WTI crude futures rose 3.7%, or $2.38, to $66.02/bbl. The CBOE Volatility Index (19.01, -1.14, -4.7%) slipped below the 20.00 level, indicating reduced hedging interest.
Investors did not receive any economic data on Monday. Looking ahead, New Home Sales for April, the Conference Board's Consumer Confidence Index for May, the FHFA Housing Price Index for March, and the S&P Case-Shiller Home Price Index for March will be released on Tuesday.
- Russell 2000 +12.8% YTD
- Dow Jones Industrial Average +12.4% YTD
- S&P 500 +11.7% YTD
- Nasdaq Composite +6.0% YTD
Italian bank collapses on exposure to Greensill and GFG
Aigis Banca was ordered into liquidation by the Bank of Italy, with its assets transferred to rival
An Italian bank has collapsed due to exposure to Greensill Capital and GFG Alliance, as the shockwaves from the failure of the UK finance firm claimed another casualty.
Milan-based Aigis Banca, a specialist lender to small and medium-sized businesses, was ordered into liquidation by the Bank of Italy over the weekend, with larger peer Banca Ifis buying its assets and liabilities for the symbolic price of €1.
“The intervention of Banca Ifis makes it possible to avoid the severe social and economic consequences of the situation that has arisen in Aigis Banca as a result of the latter’s exposure towards Greensill Bank,” said Frederik Geertman, Banca Ifis’s chief executive.
Before its collapse in March, Greensill lent money to companies including Sanjeev Gupta’s metals group GFG Alliance, taking invoices in exchange for cash. The loans were then bundled into notes and sold on to banks and other investors.
Gupta’s GFG Alliance drew heavily on financing from Greensill and the collapse of the financing firm has left the sprawling metals conglomerate teetering on the brink.
With GFG defaulting on its debt to Greensill, buyers of the loans, which include Credit Suisse’s asset management arm, are facing big losses.
Aigis Banca’s problems stemmed from investment products linked to invoices it had purchased from Greensill, according to people familiar with the matter. These included receivables-backed notes linked to Gupta’s metals empire, with a document seen by the FT showing that the bank had exposure linked to his Liberty Commodities business.
Last year, Gupta entered discussions to buy a stake in Aigis Banca, which is majority-owned by private equity firm Metric Capital, according to people familiar with the matter and a document from Germany’s financial regulator BaFin.
The BaFin document shows that German officials held a conference call in October with the Bank of Italy and the European Central Bank “regarding Sanjeev Gupta’s planned acquisition of a significant stake in Italy’s GBM Banca” — Aigis’s previous name before it rebranded at the end of last year.
At the time, BaFin was investigating the Germany-based Greensill Bank, focusing on its high level of exposure to Gupta’s businesses. The bank collapsed into insolvency in March and German regulators have filed a criminal complaint against its management for suspected balance sheet manipulation.
As well as using Greensill as a source of finance, Gupta owned his own bank in the UK called Wyelands Bank. He looked to acquire a stake in Aigis at a time when Wyelands was coming under increasing pressure and scrutiny from regulators.
Wyelands Bank announced earlier this month that it is to be sold or wound up, after its accounts revealed that repayments on 80 per cent of its loan book were overdue. The Bank of England ordered Gupta’s bank to repay customer deposits in March, amid rising concerns over its financial position.
Greensill and Gupta’s GFG Alliance declined to comment.
Banca Ifis said it was taking over €298m of loans and €135m of Italian sovereign bonds from Aigis, along with €440m of its customer deposits. The bank added that “securities related to Greensill” were excluded from the transaction. Italy’s Interbank Deposit Protection Fund also provided €49m to support the transaction.
While the investment products that Aigis bought from Greensill were covered by insurance policies, these are yet to pay out, according to people familiar with the matter.
EU questions Eutelsat for taking stake in OneWeb
Breton’s comments likely to further inflame tensions between Brussels and London over space projects
Eutelsat has jeopardised its involvement in a new EU space-based internet service by investing alongside the UK government in the satellite broadband company, OneWeb, the EU’s internal market commissioner has warned.
“We will not compromise,” said Thierry Breton, who also oversees the European Commission’s tech policy, at the launch of the European Union Agency for the Space Programme (EUSPA). “If Eutelsat wants to invest [in OneWeb] . . . I don’t see how an . . . entity can have stakes in two competing projects.”
His comments are likely to further inflame tensions between Brussels and London over collaboration on space projects. After Brexit, the EU barred Britain from full participation in Galileo, its satellite navigation system, and Josef Aschbacher, the new head of the European Space Agency, told the Financial Times recently that there were still “a lot of tensions and suspicions on each side”.
After the EU said it wanted to launch a sovereign satellite internet service from low earth orbit (LEO), industry executives speculated that OneWeb’s network could be a potential platform for collaboration.
New LEO constellations are very costly — at between $6bn and $10bn — and high risk. A $550m investment in April by Eutelsat — which is 20 per cent owned by the French state — for an equal stake in OneWeb to the UK government and India’s Bharti Global was seen as a potential bridge to co-operation.
The satellite broadband business had been rescued out of bankruptcy by the UK and Bharti, with a view to gaining access to the rapidly growing market for connectivity services from low earth orbit.
About 90 LEO projects have been announced worldwide. These constellations are being seen as critical not just to delivering internet to remote areas but to the success of emerging technologies such as autonomous vehicles and the industrial internet.
OneWeb was a pioneer in this field, although it has quickly been overtaken by Elon Musk’s Starlink, which has about 1600 satellites in orbit against OneWeb’s 183.
Nine companies were contracted by the EU at the end of 2020 to carry out a technical study for the LEO satellite internet project, including Eutelsat, Airbus, Luxembourg’s SES and others.
Breton said the commission was investigating whether Eutelsat’s investment in OneWeb violated the terms of that contract. It is unclear whether Airbus, which owns 50 per cent of OneWeb’s satellite manufacturing business, would also be considered in conflict.
The EU has written to Eutelsat to ask for clarification on any conflicts of interest. Breton said that beyond the current contract it was questionable whether Eutelsat could be part of the consortium to build the system. A sovereign system was “critical” for Europe to assure connectivity, resilience and security, he said.
Eutelsat said it had not yet received any communication from Brussels. The Paris-based satellite operator said it had clauses in its agreement with OneWeb to ensure there would be no conflict with EU plans. “The European constellation is at [a] very early stage of studies,” it said. “We don’t know whether [the EU constellation] will be competing with OneWeb. They may have completely different missions, and it is also possible that they could be complementary.”
Latest US energy merger creates $17bn oil and gas group
Cimarex and Cabot announce ‘merger of equals’ as consolidation following pandemic price crash continues
The latest deal in a wave of US energy consolidation was announced on Monday, with shale oil producer Cimarex Energy and Cabot Oil & Gas revealing a “merger of equals” that will create a group with an enterprise value of $17bn.
The combination brings together Cimarex’s oil assets in the prolific Permian shale field of West Texas and New Mexico, and Cabot’s acreage in north-east Pennsylvania’s Marcellus Shale, the biggest US gasfield.
“This transformational merger will combine our top-tier assets and advance our shared focus on delivering superior returns for investors,” said Thomas Jorden, Cimarex chief executive.
Dan Dinges, Cabot chief executive, said the deal would “create a free cash flow focused, diversified energy company with the scale, inventory and financial strength to thrive across commodity price cycles”.
The combined debt of the two companies is about $3.3bn, according to S&P Global Market Intelligence, while they each had a market capitalisation of roughly $7.1bn before the deal was announced.
The merger is the latest in a string of deals struck in recent months as the US oil patch recovers from last year’s pandemic-induced crude-price rout, which bankrupted scores of oil companies and sent years of US crude production growth into reverse.
Since the start of the fourth quarter last year, about $50bn worth of deals have been struck. Last month Pioneer Natural Resources bought private equity-backed DoublePoint Energy in a $6.4bn all-stock deal and EQT Corporation, another Marcellus gas producer, said it was buying Alta Resources for almost $3bn.
Executives in the US shale sector, out of favour on Wall Street after years of profligate spending, debt-fuelled drilling and deep losses, have promised they will now prioritise shareholder returns and profitability over new supply increases.
The pledge has mostly held, with producers eschewing a new drilling surge despite a recovery in oil prices, instead using the windfall to repair balance sheets, reduce liabilities and return capital. Mergers have mostly been completed using equity, not cash.
Analysts said the focus of the dealmaking remains on cash flow, a trend helped by a 70 per cent rise in US oil prices since November.
“This is the kind of consolidation big investors are looking for,” said Andrew Gillick, managing director and energy sector strategist at consultancy Enverus. Cabot was a prize for Cimarex, he suggested, offering “stable production, cost cuts and a cash flow machine”.
Cabot had been a much-rumoured target for months.
Cimarex and Cabot said the combined company would deliver cumulative free cash flow of $4.7bn between 2022 and 2024 at roughly current oil and gas prices. The new company could supplement a $0.50 annual dividend with a variable payout equivalent to at least half of quarterly cash flow, they said.
Cimarex shareholders will receive just over four shares of Cabot stock for each share in Cimarex. They will hold 50.5 per cent of the new company on a diluted basis. The companies said the deal was expected to close in the fourth quarter of 2021.
The new company, which is yet to be named, will be based in Houston. JPMorgan and law firm Baker Botts are advising Cabot. Tudor, Pickering, Holt & Company and law firm Wachtell, Lipton, Rosen & Katz are advising Cimarex.
Ray Dalio: ‘I Have Some Bitcoin’
The billionaire hedge fund boss sees an inflationary future where “cash is trash” and BTC catches on as a store of wealth. He still doubts governments will tolerate it.
Bridgewater Associates founder Ray Dalio(Daniel Zuchnik/Getty Images, modified by CoinDesk)
Lawrence Lewitinn
May 24, 2021 at 3:20 p.m.
Updated May 24, 2021 at 3:40 p.m.
Ray Dalio: ‘I Have Some Bitcoin’
Concerns about a looming global debt crisis have taken the world’s top hedge fund manager from doubting bitcoin (BTC) to dabbling in it.
Bridgewater Associates founder Ray Dalio said the U.S. dollar is on the verge of devaluation on a level last seen in 1971 and that China is threatening the greenback’s role as the world’s reserve currency. In such an environment bitcoin, with its gold-like properties, looks increasingly attractive as a savings vehicle, said Dalio, whose firm started 2021 with $101.9 billion in assets under management, making it the world’s largest hedge fund.
“Personally, I’d rather have bitcoin than a bond” in an inflationary scenario, Dalio said during an hour-long conversation with CoinDesk Chief Content Officer Michael J. Casey.
Now, his interest is more than hypothetical or academic.
“I have some bitcoin,” Dalio volunteered in the middle of the interview, recorded on May 6 and to be broadcast Monday during Consensus by CoinDesk 2021.
Dalio joins fellow billionaire Stanley Druckenmiller in not only expressing pessimism about the dollar but taking a position in bitcoin. Broadly, the traditional finance world has gone from ignoring or shunning to tentatively embracing cryptocurrencies, some looking to profit from their day-to-day volatility, others seeking a haven from inflation as governments swelled money supplies during the coronavirus pandemic.
Bridgewater’s chief financial officer, John Dalby, recently left the storied firm to join NYDIG, the bitcoin custodian and prime brokerage that facilitated insurance giant MassMutual’s $100 million crypto buy.
After expressing skepticism about the cryptocurrency as recently as November, Dalio began to show a change of heart this year. “There exists the possibility that bitcoin and its competitors can fill that growing need” for an alternative store of value, he wrote in January.
Dalio’s off-the-cuff remark to CoinDesk about owning “some” BTC represents the closest thing to an endorsement from him to date. Nonetheless, in the same conversation, he reiterated his concern that governments, fearing competition from bitcoin to state monetary systems, could crack down on its owners.
“Bitcoin’s greatest risk is its success,” Dalio cautioned.